Klarna became the king of fintech companies in Europe. Will anyone attempt to dethrone it?
FROM LOSER TO WINNER IN 2019.Power is given only to those who dare to lower themselves and pick it up. Only one thing matters, one thing; to be able to dare! – Fyodor Dostoyevsky. We have followed Klarna on a part of their journey in their step towards fintech glory and they have managed to do so in a spectacular fashion going from a difficult first quarter of 2019 to something that could position themselves as dominant in the future. The last time we wrote about Klarna, the Swedish fintech company from Stockholm that offers banking, financial services and payment solutions, it was regarded as one of the most promising in Scandinavia with over 60 million users. This week, it took the throne to become king of the private fintech field in Europe . . .
‘’Something more than a bank’’. . .
Klarna set out to make shopping online easier when it was founded in 2005 but has evolved into something much bigger and a force that some describe as ‘’dangerous to banking’’. If you are not familiar with Klarna, you should first understand the philosophy that they have in mind, namely: ‘’Shop now, pay later’’. Functioning as both a digital payment system and an online platform that offers customers a ‘’simpler and smarter’’ alternative to credit cards, Klarna’s diverse services have taken over Scandinavia and European stores. Instead of taking out a loan or paying by credit card, the ‘’Buy now, pay later (BNPL)’’ has allowed for interest-free payments to be made on the part of the consumer for items in stores. Klarna, having a partnership with various retailer such as Asos and Toms, you are given flexibility for paying at a later date or paying in instalments up to thirty days. It’s not only limited to the online-world as various big retailers like H&M have the Klarna system set up in their stores – even offering a number of flexible payment options.
Are you afraid that a particular sweater might not be your taste after an impulsive buy? No problem, thanks to the ‘’try before you buy’’ scheme. When it comes to the online shopping and payment system, ‘’Klarna Shopping’’ makes it possible to use a flexible payment method in any online store you want. You add what you want to buy, what amount you want to buy for and which of Klarna’s payment options you want to use. If your credit request is approved, a one-time card is created that you can use at the chosen store but you can also get the special Klarna card which allows for direct payments in stores around Europe. Klarna also has an online system that allows you to manage your invoices but its particular services are growing and the terms and conditions change depending on the various partnerships that they set-up around the world. A recent Klarna payment system was introduced by Superdry, for example.
The game of thrones . . .
It all happened in a series of stages this year which was a turbulent one for the company, incurring losses in the first quarter; net profit was a loss of SEK 96 million. This can be compared to the profit of SEK 75 million that the company made in the same period in 2018. Other indicators were among other things, increased credit losses. These rose by 65 percent during the first quarter to SEK 297 million. At the same time, Klarna’s operating expenses and depreciation increased by 51 percent to SEK 1.4 billion. Experts believe that a number of factors are to blame for this difficult initial period of the year. Klarna launched a major investment offensive, where the company very quickly increased the number of employees and pushed itself heavily in the marketing department with none other than artist Snoop Dogg acting as a new advertising profile. . . But did it pay off?
The company, with CEO Sebastian Siemiatkowski at the forefront, prioritized future growth over profitability in the short-term. Tenacity, however, is a strong word could very well qualify to be one of Klarna’s strong suits – it has shown to overcome obstacles and operate for fourteen years since its founding in 2005. Over the years, Klarna has stuck out compared to other large Swedish tech companies such as Spotify and Izettle in that the company has been profitable every year, except for the beginning of the mid-2000s.
Photo: Klarna (Press)
How do you turn around a year that was dominated by pessimism from the side of experts? Last Tuesday afternoon the tech bank Klarna came up with the breaking news: The company managed to collect $4.4 billion in a round of expansion capital to a new record-breaking valuation. The latest previously known company valuation was SEK 32 billion but that has all changed after this week’s funding which makes the post money-valuation SEK 53 billion ($5.5 billion). The value has thus risen sharply in a short time and the company now becomes, according to its own statement, Europe’s highest-valued privately owned fintech company.
. . . Both Snoop Dogg and Klarna can be happy with the news. It is in Snoop Dogg’s home country, the United States, where Klarna enjoys an annual rate of six million new US consumers . . . but what’s next? The capital will be used to grow faster in the US, where Klarna expects “massive” growth. The largest investor in the round is the venture capital company Dragoneer Investment Group, based in San Francisco. The Swedish First AP Fund, the big bank Commonwealth Bank of Australia, the venture capital company Merian Chrysalis Investment Company and funds managed by the fund giant Blackrock are also among the investors. An even bigger event than this, however, is precisely what this equity has allowed for: thoughts about an IPO. According to Breakit in their reports – those who injected money this time were players who can go in with large sums – if they know that they will soon be able to sell the shares on the stock exchange. Of course, we will have to wait until other information appears, but even the Financial Times agree with their assessment. An exciting future for Klarna? With Europe’s throne captured – the fierce battlefield of North America awaits . . .