Klarna is not a buy now pay later (BNPL) company

OBSERVATIONS FROM THE FINTECH SNARK TANK

Klarna – often referred to as a buy now pay later (BNPL) company – announced a 71% year-over-year increase in gross merchandise value (GMV) in the US in 2022, making the US Klarna’s largest market by revenue .

The Sweden-based company now has more than 8 million monthly active app users in the US, a 33% jump from its February 2022 total.

The news from Klarna provoked conflicting reactions. On one side was the fawning coverage from TechCrunch. An article titled Klarna wins over the US featured the publication’s exclusive interview with Klarna’s CEO, citing his “childhood dream” to “make it” in America.

On the more sober side were the Financial Times, which chose to highlight the fact that the company reported a loss of $1 billion in 2022, up (down?) from its $680 million loss in 2021, and Finextra, which commented:

“Klarna last made a profit for the whole year in 2018. Since then, an expensive expansionist growth policy has led to spiraling losses in the face of macroeconomic headwinds. The company has been forced to undergo a year of painful restructuring, which has seen its valuation reduced and 10% of its staff laid off.”

It’s a bad time to be a Buy Now Pay Later vendor

It wasn’t that long ago that observers were citing buy now, pay later as the service that was going to kill credit cards (in fact, there was an article here on Forbes titled Inside The Billion-Dollar Plan To Kill Credit Cards about BNPL the company confirms).

Many industry observers’ sentiment has changed 180 degrees. In a LinkedIn post, Todd Baker, senior fellow at the Richman Center at Columbia University, wrote:

“It will take a while to find out whether stand-alone BNPL companies can thrive with higher interest rates, sharply increased competition and bigger losses. My bet is no. For retailers, there is a fine line between paying BNPL suppliers to capture sales which would otherwise be lost and training consumers to routinely use BNPL, a very expensive channel for them.At some point non-BNPL users will wake up to the fact that they are indirectly paying for this through higher prices of goods just like cash buyers indirectly subsidizes credit card buyers. But here the difference is 8% not 2%.”

Negative sentiment towards BNPL has resulted in demands for tighter regulations and – as with the entire fintech market – a significant decline in BNPL company valuations.

Don’t call Klarna a buy now, pay later company

Is Klarna about to “conquer America” ​​or about to hit the slag heap of fintech-beens? The real story of Klarna cannot be revealed by taking a snapshot of its current financial performance or looking at the buy-now-pay-later industry sentiment.

Klarna is not just a buy now, pay later company. Think of it as a “trade enablement platform.” For sure, the company has a BNPL product. But it has also developed and launched platforms for:

• Trade search. Klarna’s search engine compares thousands of websites to help consumers find the best price for products. The unbiased search tool gives users the ability to filter their search across stores by color, size, features, customer reviews, store availability and shipping options. With Klarna’s browser in the app, when customers browse a product page, the panel shows whether other retailers offer a better price, faster and cheaper delivery options, or other sizes and colors. When checking out, the panel automatically looks for and uses available coupons.
• Purchasable video. With Klarna’s shoppable video, retailers share existing social content and campaigns that tell their story, create shoppable content exclusively for Klarna that inspires and converts, and collaborate with Klarna to be featured in curated content and campaigns. Retailers such as elf Cosmetics and Keys Soulcare who use Klarna’s shoppable video platform see higher average click-through rates than they do on other social media channels.
• Creators and influencers. Klarna’s Creator Platform provides a one-stop-shop for retailers and creators to work together to automate initial outreach, partnerships and tracking of sales and commissions. Retailers on the platform can connect with more than 500,000 creators and track their performance in real-time, allowing them to optimize and scale their activities while maximizing sales.

Klarna is building a platform business

As I wrote in Buy Now, Pay Later: The “New” Payment Trend Generating $100 Billion in Sales:

“What’s different – ​​and important – about Buy Now Pay Later is its place in the customer journey. Payment options usually come at the end of the trip. Today’s BNPL services influence consumers’ choice of products and suppliers earlier in the journey.”

To succeed and differentiate, BNPL suppliers must:

• Become shopping destinations. For example, Afterpay announced that it will enable its merchant partners to advertise on the BNPL firm’s app to boost their promotions, products and offers. Brands will be able to choose the products they want to promote via sponsored listing formats, paying only when a buyer engages with the ad.
• Sharpen sales attribution claims. BNPL suppliers claim that they help sellers make sales that otherwise would not have been made. Sounds familiar? Visa and MasterCard made the same claims about credit cards when they were launched. Today’s salespeople will demand accurate attribution statistics.
• Specialise. BNPL suppliers must be masters of the customer journey. Few (if any) will be able to do so in more than just a few product categories, resulting in specialization by product category. This is already happening with BNPL specialists such as LoanStar Technologies in home improvement and Prima Health Credit in elective medical procedures.

More than other BNPL companies (if that is the right way to categorize them), Klarna has developed and launched capabilities to deliver on these factors.

Needless to say, a $1 billion loss in a year cannot be ignored. But Klarna is building a platform business – not just a buy now, pay later business. In addition to its seller and retailer services, Klarna is also expanding its payment business.

The Klarna card was published in the US in 2022 with a waiting list of one million consumers. The card gives consumers a way to pay over time in four, interest-free payments with a physical card with no down payment for any store or online purchase.

This is just a first step to becoming a fully fledged credit card provider. Why should Klarna succeed against the likes of Capital One and American Express? Because it is: 1) capturing consumers’ shopping activity and preferences; 2) identify consumers’ loan repayment history; 3) create consumer payment relationships that avoid rolling debt, high interest rates and penalty fees; and 4) develop symbiotic trade relationships.

Sounds a bit like Amazon, doesn’t it? Remember that Amazon took almost two decades to build its platform and make money, and saw many large annual losses.

This is not to say that Klarna is the next Amazon. But it is too early to write off Klarna — or buy now, pay later, for that matter.

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