Klarna wins over the USA

Image credit: Klarna

The US is now the Swedish payment giant Klarna’s largest revenue market, surpassing Germany, and CEO and co-founder Sebastian Siemiatkowski feels proud.

In an exclusive interview with TechCrunch, Siemiatkowski shared that Klarna saw a 71% year-over-year increase in gross merchandise value (GMV) in the US last year compared to 2021.

“When you were just a Polish immigrant kid living in this little country in the northern part of Europe called Sweden, this is like the big dream,” Siemiatkowski said. “I feel like we sing ‘if you can make it here, you can make it anywhere.’ It has always been a boyhood dream for me, I think actually for the whole company, to be successful in the US.”

Klarna’s big push into the US market was with the BNPL (buy now, pay later) product, which didn’t really take off until around 2018 and 2019, according to the director.

Then the COVID-19 pandemic hit globally; suddenly, Siemiatkowski went from traveling to places like the Midwest, where American dealers were headquartered, to hold one meeting per day, to conducting several meetings per day from the comfort of his own home.

Even then, Siemiatkowski says he was “very personally involved” in trying to attract US merchants to work with Klarna – making a 30-minute pitch before letting his team take over.

“It was a wonderful way for me to get very, very close [to merchants] and get good feedback, he recalls.

It seems that the effort has paid off.

The 71% jump in GMV is what helped push the US to overtake even countries on its home continent of Europe to become 18-year-old Klarna’s biggest market by revenue. Today, Klarna has 34 million users in the US, and its retail network in the country includes businesses across multiple verticals such as Instacart, Tractor Supply Company, Groupon, Samsung, Etsy and Fossil Group. They join the company’s network of over 500,000 dealers globally.

“In Germany, 80% of the adult population uses Klarna every year,” said Siemiatkowski. “So in the U.S., we think we’re still in a very early stage. And a lot of it is still up to us — how well we do with merchants and consumers.”

Further evidence of Klarna’s growing popularity in the US lies in the fact that the company now has more than 8 million monthly active app users and 30 million total downloads in the US. 6 million monthly active app users in the US in February 2022.

One function of the app is that consumers can shop on installments with Klarna even with sellers who are not partners with the company. This has given the payment giant an “in” with such sellers.

“We wanted to make sure that consumers could use Klarna everywhere. So we made a browser that allows you to go to any website like Amazon and you have this Klarna button at the bottom. So now you can suddenly use Klarna on any website, and it doesn’t matter if they’re an existing customer retailer or not.” Siemiatkowski told TechCrunch. “This has become massive and we are now doing $6 billion worth of volume through this.”

Going beyond giving people a way to pay for installments strictly online, the Klarna card went live in June in the US after amassing a waiting list of 1 million people. The fintech company claims 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.

While giving people the option to pay in installments (what is known today as buy now, pay later) is only part of Klarna’s business these days, emphasizes Siemiatkowski.

The app has developed over time into what Klarna describes as “an end-to-end shopping destination” for consumers with functions beyond payments such as e.g. money management tools, delivery tracking, wish lists, digital receipts and price drop alerts.

“We’ve been labeled as a BNPL vendor, but that’s not true anymore – even if it was years ago. We offer tons of other use cases that are growing at a much faster pace than the original BNPL product.” Siemiatkowski said. “But the stamp is there, so it takes some time to get people to recognize the change.”

Klarna too announced today that credit losses in the US have fallen 37%. As the company grows in the US and has more repeat customers – enabling it to build a better risk profile – Siemiatkowski believes the number of credit losses will only decrease, despite a worsening macro trend in the US

“We’re still so early, so what we do internally matters more than macro conditions in this case,” he said.

The executive also revealed that despite Klarna and US-based BNPL giant Affirm often being lumped together, he sees the two companies as “very different”.

“Most of their purchases are spread over time, such as a two-year period,” Siemiatkowski said. “With Klarna, it’s more like four weeks – so it’s very short and for small amounts, with the average purchase around $100. Ours is a different type of credit – very short-term, installment-based and most of it has 0% interest.”

The majority of Klarna’s revenue globally comes from charging merchants a fee to offer their services to their customers, in the same way that these merchants already pay for processing credit card transactions. Klarna says it goes a step further by providing them with payment services, reduced financial risk through its interest-free Pay Now and Pay Later products, and increasingly tailored marketing support that helps them connect with consumers.

Actually interestingly enough, the fastest growing revenue stream for the company today is in its marketing offerings, according to Siemiatkowski. Klarna offers retailers things like advertisements and sponsored content in the Klarna app, vvirtual shopping and purchasable videos, among others. More than 100 of the “top” US retailers partner with Klarna for marketing in an effort to reach new consumer audiences.

“Touchpoints in our app help customers find new partners and sellers,” Siemiatkowski said. “And retailers are looking for new ways to be introduced to relevant consumers.”

Still, all the positive momentum in the US does not take away the fact that 2022 was a very challenging year for all BNPL suppliers, and Klarna was no exception. Last August, CNBC reported that Klarna registered a loss before tax of almost NOK 6.2 billion for the first half of 2022, up from NOK 1.8 billion in the same period a year ago. The company also saw its depreciation by 85% – from $45 billion in July 2021 to 6.7 billion dollars one year later. Klarna also last year carried out at least two rounds of redundancies, which affects several hundred employees in total. Affirm has also had its own share of struggles, recently laying off 500 employees and also seeing its value drop to just under $3.8 billion.

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