A leading Klarna executive is accusing traditional credit card companies of having taken advantage of customers for years. Now, he says, they’re facing a reckoning with alternative finance platforms muscling in on their market.
David Sandström, Klarna’s chief marketing officer, tells Verdict that one reason for the buy-now-pay-later (BNPL) sector’s huge expansion over recent years is customers simply having had enough of the raw deal offered by traditional credit card providers.
“Credit card companies have made an astounding amount of money by essentially cheating and taking advantage of people with bad terms and conditions, high rates and extremely disadvantageous interests,” he says. “What we’re seeing now is a whole generation abandoning credit cards. Roughly 70% of American millennials don’t have a credit card because they fear them more than they dread death, according to some reports.”
This is not the first time a top dog at Klarna has robustly criticised credit card companies. CEO and founder Sebastian Siemiatkowski, for instance, told CNBC in December 2021 that “these products have not been healthy for consumers, historically speaking.”
Unsurprisingly, given Klarna’s line of products, Sandström adds that credit in itself and the ability to spread out payments are “really important and have important functions in society.”
To him, BNPL is part of “the next big shift in fintech and payments as a result of people having grown tired of credit cards.”
“The modern way to do it is to use buy-now-pay later,” Sandström says. “It’s consumer friendly. It’s not unfair. It doesn’t have any fees. It’s really transparent. It’s often mobile and digitally available for online shopping.
“I usually say that we have gone from gold to cash, from cash to credit cards and now we’re going from credit cards to alternative payments. Buy-now-pay-later is a part of that.”
While Klarna removed many of its fees in September last year, it still charges late payment fees from consumers who miss payments in some regions.
The Swedish quadradecorn has undoubtedly also benefited from the pandemic. The Covid-19 health crisis accelerated the migration of customers from physical stores towards online shopping, meaning more opportunities for companies like Klarna to grow exponentially over the past two years.
Whether it’s the pandemic or people deciding to abandon credit cards that is the main cause, the BNPL industry has indeed boomed, both in terms of well-funded new startups and incumbent financial firms starting to provide installment services. The sector is expected to keep growing to be worth $166bn by 2023, according to GlobalData’s thematic research.
With the increasing competition in the sector, one could expect Europe’s most valuable privately-owned tech company to jump on trends like the metaverse or to start including cryptocurrency services. However, Sandström reveals that Klarna has no such plans. At least not yet.
No metaverse for Klarna. Yet
While the fintech is busy making online shopping a smooth experience for its customers and laying the groundwork to roll out its banking services on both sides of the Atlantic, it has no plans jump on the metaverse bandwagon any time soon.
This may surprise some. After all, ever since Facebook rebranded itself as Meta to highlight its focus on becoming a metaverse company, there has been no shortage of tech startups claiming that they too will be part of the new digital era. The metaverse is a catch-all term where users can share virtual experiences.
Companies ranging from video game developers to cybersecurity startups have spent the past few months rushing to call themselves metaverse companies, latching on to even the smallest excuse to be part of the new paradigm. However, Klarna has no such plans.
“We won’t be the first to enter the metaverse,” Sandström tells Verdict, adding that one should never say never, given that “digital spending is at an all-time high.”
All he’s saying is that it won’t happen just yet.
No cryptocurrency services
Another common suggestion is that Klarna should start to offer customers the option to pay using cryptocurrencies. However, that’s not coming anytime soon either.
“We’ve elected to keep ourselves outside of that for the time being,” Sandström says. “That’s because, right now, cryptocurrencies are highly linked to speculation.
“I know that the people who are really knowledgable and passionate about cryptocurrencies have a lot of use cases, but when we look at our customer base – and when we’re being honest with ourselves – there aren’t many use cases beyond speculation where you speculate in the cryptocurrency or in digital art, such as NFTs.”
There is also another reason to why Klarna won’t integrate digital currencies like bitcoin: customers wouldn’t use that option.
“What we’ve seen among our merchants that have tried to integrate cryptocurrencies in their checkouts – such paying for clothes – they’re not used,” Sandström says. “No one is paying with cryptocurrencies.”
That’s also the reason why the venture isn’t adopting other requests from the Twitterati, such as biometric debit cards and the like.
And, to be fair, Klarna already has enough on its plate. The company is currently trying to make the case that it is a safer option than traditional credit card companies. It is also preparing for the imminent introduction of new legislation to regulate the BNPL industry in Europe, the UK and in the US.
Moreover, Klarna is preparing to expand its banking services in new markets, is constantly expanding its offering with new partnerships and acquisitions.
And that’s beside the persistent rumours that Klarna is also gearing up for a public float. Speculation about the fintech’s plans to file for an initial public offering (IPO) has been rife since long before Klarna achieved a $45.6bn valuation on the back of a $639m SoftBank-led funding round in June 2021.
So far, Klarna’s top brass has given no indication as to when the public listing may happen and what form it would take, apart from CEO Sebastian Siemiatkowski saying last summer that he didn’t want to go public in an overheated market.
“The official answer is that I can’t comment on it,” Sandström says. “The semi-official answer is that I don’t know. I don’t work with that question at all, but focus on growing Klarna’s consumer base.”
Klarna expands its banking services
So far, Klarna claims to have over 90 million customers around the world. Its focus on growing that has seen it introduce new services, such as its app and it has also laid the groundwork for introducing banking services in new markets. Klarna’s banking services are currently only operational in Sweden and Germany.
In November, Klarna’s UK boss told Verdict that there were plans to introduce these services in Britain. Now Sandström says that the plan is to roll out both its banking and other services in all countries it operates in – including the States and the rest of Europe.
“We haven’t had that so far because of different legacy issues and technical limitations such as the different licenses that you need in different regions,” he says. “Still, the plan is to have the same product offering in all nations.”
The company is currently testing its debit card, first launched in Sweden in 2020, in the US, with the plan to roll it out there at “some point in 2022.”
So while fintech wonks shouldn’t expect any metaverse or cryptocurrency news from Klarna anytime soon, it’s fair to say that the news about the fintech will keep on coming.