Klarna was already big in Europe, and now the Swedish buy-now-pay-later company is becoming big in America.
So big that, as pandemic lockdowns started to ease this year, CEO Sebastian Siemiatkowski discovered that Klarna had outgrown its new office in New York without getting to use it. He says it’s only a matter of months before the US displaces Germany as Klarna’s biggest market.
Klarna is a pioneer of buy-now-pay-later financing, which is beginning to take a bite out of the $8 trillion credit card industry. BNPL typically refers to two main types of borrowing. One is a point-of-sale loan, which is essentially a personal loan with payments spread over months or years. The other is a “pay-in-four” installment loan. About 30% to 40% of Klarna’s volume in Europe is pure payments (pay the full amount right away), while another 50 or 60% is short-term installments like “pay-in-four,” Siemiatkowski said.
Pay-later offerings are seamlessly adapted to internet commerce and have become a hit with younger shoppers, and some online merchants in the US say customers expect a BNPL option at the checkout. But critics question whether BNPL entices shoppers to buy more than they can afford. (Siemiatkowski says those critics should take a close look at the credit card in their wallet.)
Quartz spoke with Siemiatkowski about Klarna’s plans to go public, its growth in the US, and criticisms about the pay-later business model. The conversation was edited and condensed for clarity.
Quartz: It has been reported that Klarna plans to go public at some point. You can probably raise much money as you need without listing on an exchange. So why list? Is it to help with acquisitions down the road?
The primary benefit of being public, in my opinion, is to give all kinds of people that are believers and supporters in what we do access to the stock. That’s kind of the primary objective that I think would be attractive with it. So that’s on the pro side.
And then to some degree, maybe, the M&A and so forth would be slightly more simplistic. I also see some of our competitors get some free marketing due to their listings.
On the con side, I do feel that we benefit a lot from the fact that we’re not public yet. We were talking about the fact that one of our competitors, you can see that just before the quarterly results, they kind of overspend on Google AdWords, on app downloads, on Facebook advertising. So there’s like this shift, always like just before the quarterly report, and you see them rise. And then the second the quarterly report is done it aways just collapses. And so you’re seeing those very short-term type of activities happening among our competitors.
One more IPO question: Where do you think you would list?
It’s probably quite likely, as we said before, that it would be in the US. But also, as our US business is quickly becoming our largest market—I mean, it’s we’re talking months before that’s a reality—so that kind of makes sense. But I also, after a lot of pressure from Swedish journalists, they’ve asked me about dual listings and stuff like that. We also had pressure from Germany because Germany is our largest market and currently London is very excited about it. I wish you could be listed everywhere.
Hopefully this topic over time becomes a non-issue as trading platforms like Robinhood and others kind of solve these issues and allow you accessibility to all marketplaces.
But I think still, if you would ask me, my best guess would probably still be in the US.
I was looking at one of your Tweets where you said you outgrew your New York office before anyone was able to use it.
We are super, super excited about what we’re seeing in the US. We have been very focused on in the US. If you compare it to our competitors as well, we’ve been really focused on very, very, very large retailers. So if you look at the internet’s top 100 retailers, we have more of those logos and those partners than Affirm and Afterpay combined.
Where we haven’t focused as much has been kind of smaller businesses. And that’s for multiple reasons. But that’s really shifting right now. We’re now onboarding over a thousand merchants on a monthly basis in the US. And then we’ve been extremely focused on the consumer adoption piece.
We haven’t been counting number of merchants, but we’ve been counting number of users. When I see 60 million active users there, and the downloads of the app and success with our app as well, that’s been a really critical focus. It’s mind-blowing to see the growth there.
Obviously fueled, to some degree, by Covid, the pandemic, and the digital e-commerce growth in general, but also very, very strong performance on top of that.
Whenever I talk about buy-now-pay-later with my editors, I always get this sideways look—if it’s helping merchants sell more merchandise, how can it also be good for the consumer if it’s inspiring them to buy more than they would have otherwise?
When people tell you that, you should ask them, do you have a credit card? Because I think everyone in that room who is discussing that has a credit card and takes it for granted that they can go down, even though they may have run out of salary and they’re waiting for this paycheck, and they get to go and buy something. Or if they need a little bit of financing to kind of, you know, smooth out the cost for one or two months, they just take a small revolver on the credit card. So I think the people in that room already have access to a financial instrument that is allowing to solve for some of these situations.
What you’re seeing now, however, is the younger generation that both is resenting the credit card, due to the very dirty tricks that credit cards have been running like, “Oh, don’t pay this amount. Pay that amount. Oh, sorry! 29% interest rate. Oh, sorry! Overdraft.”
There’s a resentment to those models, as well as there is a smartness in this generation around the fact that it’s better to live off debit. And I think people should have debit cards, not credit cards. But when you have debit cards, shopping online with a debit card is not ideal. It works very well in the physical store where you may only have maybe the challenge, like, I’m waiting for my salary, whatever. There’s some smaller occasions where credit can help in a physical store.
But from an e-commerce perspective, what if I buy a product and then I make a return, now I’m waiting for my money back for three weeks. On a credit card it doesn’t matter—it’s just my balance. On the debit card it’s my salary money—give it back to me.
A lot of people that say that are using credit cards and are—by the way—living off the means of other people who are revolving, and getting free loyalty points and interest-free credit. They’re actually forgetting that a lot of people today don’t have access to these products, and other people have taken an active choice not to participate in those products. And that means that they see the benefit of using buy-now-pay-later. And that’s why they’re rewarding merchants who are offering that.