Klarna: One-click Wonder or International Online Banking Powerhouse?

Since first appearing on the e-commerce scene in 2005, this Swedish company has been exacerbating online shopping addictions and helping retailers combat #cartabandonment. With 60 million unique customers, flexible payment options, a vault of transaction data, and a new shiny banking license, Klarna has big plans on the horizon.

Imagine I surveyed the HBS students in our class to see how many of them ventured to a department store or boutique this past weekend to pick up some new clothes, shoes, or sunglasses for their upcoming spring break trips. How many hands would go up?

Now, let’s say I had instead asked how many students purchased a similar item online during the same timeframe…

Indeed, there might still be some shoppers who would prefer to visit a retail location despite limited and unpredictable selection, stand in line for a dressing room, and interact with the commission-driven store associate who insists they look fantastic in literally everything. There might even be some people who do not mind finding a home for a crumpled paper receipt in their purses or wallets, in case a change of heart brings them back to the store to return the item on a later date. However, judging by the piles of boxes ever-present in the package rooms of SFP and 1 Western Avenue, I feel pretty comfortable assuming Harvard Business School’s class of 2018 has no shortage of avid online shoppers who would eagerly seize any opportunity to make their shopping experiences faster, simpler, and more secure.

Since its beginnings in 2005, Klarna has ridden the growing wave of e-commerce, with the simple mission of simplifying the online shopping experience. The company has continued to find innovative ways to create value for consumers; users only need to enter their personal and financial information once, upon first creating a profile, after which they can place an order with a single click from any merchant on the Klarna platform (there are currently over 70,000 Klarna vendors, across 14 countries).

Gone are the days of tedious and error-prone information entry at check-out, and Klarna users even have the option of waiting to pay for goods until after they have received and decided to keep them. No interest is charged for 30 days. The service also enables shoppers to “slice” payments for larger purchases into several installments, providing instant credit checks and simple financing with transparent terms. To tie it all together, Klarna acts as a hub for all of your purchases, which means you no longer have to sift through old emails to remember what size you ordered in a certain shoe or sweatshirt. Klarna customers can also count on a delightful user interface, payment reminders, and easy order tracking.

Ok, that sounds great for online shop-a-holics, but what about the merchants trying to get paid for the goods they are shipping out? Are they at risk?

Nope. Klarna creates value for merchants at every step of a customer’s journey online. The platform leverages its data on customer preferences, transactions, and e-commerce trends to teach merchants optimize the shopping experience for their target audiences. By supporting members with website design, marketing, and ease of check-out, Klarna can help these businesses lower the cost of acquiring customers, thereby increasing its own transaction volume and growing the platform user base. As for the financing side of the business, Klarna assumes all risk of credit checks and manages the administrative activities enabling rapid approvals for customers financing their purchases. 

Because the value to shoppers and merchants increases as the community grows on both sides of the platform, it is paramount that Klarna continues to scale rapidly. Although e-commerce transactions and online banking are certainly not winner-take-all markets, big banks should be looking over their shoulders, as there is no shortage of ambition within Klarna’s management team. With ongoing initiatives to introduce peer-to-peer payment functionality, mobile check-out within physical stores (for those consumers who still dabble in old-fashioned brick & mortar shopping), and rapid cross-continental expansion, this unicorn hungry for your transactions and should not be underestimated.









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