Deep Dive

Deep Dive: Klarna

  • Klarna is a payments platform that increases conversion rates for merchants and allows customers to budget when they shop.
  • Here's a deep dive into Klarna’s business, products and services.
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Deep Dive: Klarna

Profile

Klarna is a leading global payment and shopping service, with close to 90 million active users and 250,000 merchants in 17 countries. As of March 2021, Klarna reports that it partakes in 2 million transactions per day. Klarna offers direct payments, pay after delivery options and installment plans that allow consumers to pay when and how they prefer.

Klarna was founded by Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson in 2005 in Stockholm, Sweden, where it has its headquarters. The three brought Klarna to the US market in 2015. Since then, close to 4,000 people work at Klarna. The Klarna Group was formed when the company acquired SOFORT in 2014.

Products 

Klarna Checkout

Klarna Checkout is a B2B product that handles a merchant’s entire checkout. By signing up with Klarna, merchants get access to Klarna Checkout, which incorporates all of Klarna’s payment methods: Sofort/Pay now, Pay in 30 days, Pay in 4 and Financing. Klarna Checkout also offers a set of tools to help merchants increase their business.

SOFORT/Pay now

SOFORT/Pay now allows customers to shop using their online banking details. Customers receive a summary of their transactions or order confirmations from the online shop.

Pay in 30 days

Customers receive their order without paying up front for at least 30 days. There are no associated interest and fees. Customers can pay off the balance earlier or extend the due date for a fee if needed. Customers can delay payments for a maximum of 18 days. 

Pay in 4 Installments

Pay in 4 Installments allows customers to split their payment into 4 interest-free installments at merchant checkouts, paid every 2 weeks. When customers miss a payment, Klarna tries to collect the payment again. If Klarna is unable to collect a second time, the due payment is added to the next payment along with a late fee up to $7. 

In the UK, this is marketed as Pay in 3.

Financing

Klarna’s financing account is a credit option for large ticket items offered at merchant checkouts. Customers pay in a month-to-month plan with no fixed-term commitment, similar to a traditional credit line. As long as customers make their minimum monthly payment, they’re good. Purchases have an APR of 0%-29.99%. With standard purchases, if the minimum payment due is not made by the due date each month, customers can be charged late fees for every missed month. The amount of the late fee will not exceed the minimum payment due.

Financing payment plans include payments made over six, 12, 24 or 36 months.

Dashboard + onsite messaging for merchants

Klarna Checkout offers its merchants a set of tools to increase sales. This includes a dashboard tool to analyze business insights such as conversion rates; and an on-site messaging feature that allows merchants to provide customer support.

Klarna App

The Klarna App allows customers to shop online as well as in-store. Users can make purchases, track packages, make returns, and earn rewards. Customers receive alerts on price drops as well as exclusive deals. Customers can also delay their payments through the app if they need a little extra time to pay. They can also make use of the customer support chat feature to get help if needed.

Virtual Cards

When using Pay in 4 in the Klarna App, customers can choose to pay in 4 with a single-use virtual card at any US online store. Customers generate a one-time card with Klarna for single use only. Customers choose the amount of money they want to spend. This ensures customers budget and spend only the set limit on the card. Each time a card is generated, customers are given a unique card number that they can use at checkout, like a regular credit card. Each card follows its own payment plan that customers can pay and manage in the Klarna App or on klarna.com.

Virtual cards can only be used once and expire in 24 hours. To make another purchase with a one-time card, customers can create a new card and keep shopping. 

Klarna In-Store

To shop in-store at a Klarna merchant, customers create a digital card in the Klarna App and add it to their Apple or Google Wallet. To pay, customers simply tap their phone to make a secure and contactless payment. Klarna in-store is live in at least 10 markets, including the US where consumers can shop with Klarna in over 60,000 physical stores.

Through its partnerships with payment providers Stripe, Verifone and more, Klarna also offers merchants integrations with their existing point of sale. 

Vibe

Vibe is Klarna’s no-fee loyalty program that rewards consumers who make regular payments through Klarna. Since its launch in June 2020, Vibe has gained 1 million customers across the US and Australia, where it is available.

Banking 

In 2017, Klarna acquired a banking license in its home country Sweden, where it operates Klarna Bank AB. Its products include a current account, debit card, time deposit account and savings account.

In February 2021, Klarna launched a limited number of consumer bank accounts in Germany. Each bank account comes with a Visa debit card that also can be connected to Google Pay and Apple Pay. The service is called Klarna Banking, and it offers a bundle of shopping and banking in one app.

Open banking solutions

Klarna expanded its B2B offering by launching its open banking platform in 2019. Its API offers three services: Account Information Service, Payment Initiation Service and Account Insights. By opening up its technology and capabilities, Klarna allows incumbents, challenger banks, fintechs and other licensed businesses to build smart and personalized banking solutions.

Browser Extension

Customers can also pay in installments when they download and add the free Klarna browser extension to their browser. 

Mergers and Acquisitions

  • Analyzd
  • Sofort AG 
  • Toplooks
  • Search Engine Marketing Sweden
  • Woilà AB
  • Nuji
  • Close Brother Retail Finance
  • Shopco Technologies
  • BillPay
  • Spring Marketplace 
  • Cookies App
  • Payment Network AG

Competitors

  • Affirm
  • Afterpay
  • PayPal Credit
  • Quadpay
  • Revolut
  • Sezzle
  • Splitit
  • Square

Business Model

Klarna finances users by paying off their purchases to the merchant upfront. Any further payments a customer makes are to Klarna. Klarna runs a soft credit check to approve customers for financing. 

Klarna generates revenue by charging merchants a fixed transaction fee and a variable percentage fee. The fees are dependent upon the payment method the customer chooses as well as the country. In the US, businesses pay a $0.30 transaction fee. The variable fee ranges anywhere from 3.29% to 5.99%, depending on the services customers use.

Klarna passes unpaid accounts to debt collection agencies if the accounts have been unpaid after several months. 

Growth

In its most recent annual report, published late March 2021, Klarna’s GMV value across its platform was up 46% from $35 billion in 2019 to $53 billion in 2020. Over the past year, Klarna introduced savings accounts in Sweden, current accounts in Germany and the Vibe loyalty program in the US and Australia. Klarna also expanded its offerings to four new markets: Australia, Belgium, Spain and Italy, with plans to breach four newer markets in 2021. 

Klarna’s merchant growth appears to be slowing. Between 2020 and 2021, Klarna onboarded an additional 50,000 merchants. However, in 2019, Klarna onboarded 75,000 merchants.

Klarna reported 85 million consumers globally in 2019 and 87 million customers globally in 2020. This seems to be lower customer growth than in previous years. In its 2018 annual report, Klarna reported 26 million new consumers globally.

Klarna also raised $1 billion in its most recent equity round funding, which closed at a post-money valuation of $31 billion, making Klarna the sixth-highest valued fintech worldwide. In 2020, Klarna also saw a 40% increase in its total Net Operating Income, from $753 million to over $1 billion, breaking the billion-dollar threshold for the first time.

Customers

According to the Klarna website, Klarna has 15 million customers in the US and its shopping app has 2 million monthly active users. Klarna customers are from a broad range of socio-economic and geographical backgrounds in the US, the UK, Norway, Germany, Austria, Finland and more. Like most BNPLs, Klarna’s primary consumer market appears to be millennials and Gen Z consumers, or more broadly, people who do not want to use a credit card.

Merchants

Klarna reported a network of 250,000 merchants in its 2020 annual report. Klarna hosts a range of merchants of different sizes and a wide range of products, including clothes and fashion, electronics, travel, home and beauty. Here are some of Klarna’s biggest merchants:

  • H&M
  • BooHoo
  • Nike
  • Sephora
  • Bloomingdales
  • Nokia
  • GameStop
  • Etsy
  • Babylist 
  • The North Face
  • Addidas
  • Turkish Airlines

Diversity

According to Klarna’s website, over 90 different nationalities are represented in Klarna’s workforce, spread across 3 continents. In 2019 alone, Klarna recruited over 1,000 people. Klarna’s biggest overt commitment to diversity appears to be its goal to become gender-balanced by 2025. 

Tearsheet coverage

  • Data Snacks: Klarna US Growth 2020.
  • Survey: 72% of Americans saw their credit scores drop after missing a buy now, pay later payment.
  • With Gen Z taking notice, can buy-now-pay-later become the new favorite payment method?
  • Klarna debuts its first Big Game commercial, ‘The Four Quarter-Sized Cowboys.’
  • Behind Klarna’s massive growth in the US with David Sykes.

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