Klarna overhauls app with TikTok-like discovery feed amid AI buzz

Klarna announced a major redesign of its app, adding a TikTok-inspired discovery feed powered by artificial intelligence, tailored shops for social media creators and the ability to sell second-hand goods.

The Swedish “buy now, pay later” pioneer said on Tuesday that the new design will help users find the items they want using more advanced AI recommendation algorithms, while sellers will be able to target customers more effectively.

AI will build a personal profile of shoppers based on their shopping behavior and which brands they like. They will then be shown recommendations from Klarna’s network of 500,000 retailers, which includes Nike, H&M and Instacart. Klarna counts over 150 million users globally – including users who access their electronic payment tools via retailers.

According to David Sandstrom, Klarna’s chief marketing officer, the firm took inspiration from Chinese technology platforms, which he said have mastered the art of algorithm-driven shopping.

“In China, a couple of years ago, 90% of transactions started with a search,” Sandstrom said. “Today, less than 50% of purchases start with a search because the recommendations are so tailored to them.”

“Our ambition is basically to offer people products and brands before they knew they wanted them,” he added.

TikTok in particular has become the envy of major online platforms, thanks to its advanced targeting. The company has rapidly grown its e-commerce business, which handled a reported $1 billion in revenue in the first quarter, according to The Information.

Still, Sandstrom admits that Klarna’s technology is nowhere near as sophisticated as TikTok’s – but he’s sure the company can get to that level one day.

“It would be naive to compare us to TikTok’s recommendation engine. It would be a blatant lie to say we are close to that,” he said. – But we have the conditions to do so.

Klarna joins a number of other tech firms that have loaded their services with AI software to better tailor content to users as the rise in popularity of OpenAI’s ChatGPT boosted hype for the technology.

Music streaming platform Spotify recently launched an AI-powered DJ that selects songs based on a person’s listening habits, for example.

Klarna itself previously launched the ability to integrate ChatGPT into the service with a plugin that allows users to ask the popular AI chatbot for shopping inspiration.

But Klarna does not rely on AI alone to adapt the service to users. The app also launched an “Ask Klarna” feature on Tuesday that allows customers to chat with or video call human customer service specialists.

Among the other features Klarna is rolling out is a resale option that allows people to sell used clothes, electronics and other items through a partner platform. Klarna refused to disclose the partner for its resale service.

In its home market Sweden, Klarna already offers the opportunity to sell used goods through a collaboration with the resale marketplace Tradera.

Resale platforms such as Depop and Vinted have become more popular in recent years, thanks in part to Gen Z’s embrace of the circular economy, which promotes sustainability by reducing waste through reuse and recycling.

Klarna is also launching a tool that allows content creators to set up their own storefronts to promote goods from brands they have entered into affiliate agreements with. The service, called “Creator Shop”, will launch soon in the US.

It is also launching a self-service tool for advertisers, called “Ads Manager”, which allows marketers to track paid product listings they have taken out in Klarna’s app. Recently, Klarna has tried to diversify into advertising to reduce its reliance on fees from sellers. Marketing accounts for 10% of Klarna’s total revenue, having increased by 131% in 2022 from a year ago.

Klarna is one of a number of buy now, pay later companies that allow people to spread the cost of their purchases over a period of time in monthly installments, interest-free. The firm earns its revenue by charging a small fee on each transaction for merchants that offer the payment method.

The company is hoping to turn its fortunes around after a brutal year in which it slashed its valuation by 85% to $6.7 billion, laid off more than 10% of its workforce and reported a $1 billion loss.

Sandstrom said he expects Klarna to reach profitability on a monthly basis by the summer, in line with messages from CEO Sebastian Siemiatkowski late last year.

“The growth we’re seeing now is sustainable,” he said. “In the future, I think AI is going to play a big role in the efficiency gains we see.”

He added that Klarna is hiring engineers to drive its AI efforts – but that “the profile of people we’re looking for has changed quite dramatically in the last couple of months.”

“What a single extremely talented engineer can accomplish versus what we used to need an entire team to do is tremendous,” Sandstrom said.

Klarna and other buy-now-pay-later products proved popular during the outbreak of the Covid-19 pandemic. Online shopping became more widespread as opportunities for personal consumption became limited.

But as the war in Ukraine fueled global inflation and sparked fears of a recession, central banks around the world raised interest rates, shaking investor sentiment around buy-now-pay-later platforms that offer zero-interest credit.

Meanwhile, buy now, pay later has come under scrutiny by regulators over fears it is pushing some consumers, particularly younger people, into arrears. In the UK, the government has proposed new rules aimed at adding some friction to the process of applying for a loan now, pay later.

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