European tech is having a tough time, utterly eclipsed by the US and China. Even fintech, the one area where the region had some bragging rights, is faltering. Monzo’s auditors think it might not survive. Revolut has reported falling revenues. N26 has retreated from the UK. Wirecard has imploded in spectacular fashion.
Then there is Sweden’s Klarna. Asked why it is different to those troubled peers, chief executive and co-founder Sebastian Siemiatkowski said: “We have a functioning revenue model.”
The company, which provides point-of-sale credit for online shoppers, collects a commission from retailers while charging interest to their customers. With the surge of ecommerce during the pandemic, Klarna last week reported its revenues had risen 36 per cent in the first half of the year.
Now it wants to conquer America, with Mr Siemiatkowski betting the US will soon become Klarna’s biggest market.
Like Netflix, Shopify and Amazon, Klarna benefited as coronavirus accelerated the shift to digital. Klarna’s users can spread the cost of purchases, both large — it partners with Peloton, another big lockdown beneficiary, to “smoothen” the cost of a £1,990 stationary bike — and small. This has led to criticism that the company entices young customers into taking on unsuitable credit.
But unlike those other tech companies, Klarna is not a pure beneficiary of the pandemic-driven ecommerce boom. It is also a lender, exposed to souring economies, rises in unemployment and, ultimately, credit defaults. Despite the surge in revenues, Klarna reported a widening loss in its interim results as it took a large provision for future loan losses.
At the same time, its American ambitions are challenged by a fearsome trio of US tech groups. There is Affirm, a younger San Francisco-based company offering the same sort of credit. There is PayPal, which this week launched its own “Pay in 4” product for consumers to spread the cost of purchases. And there is Amazon, which last month announced it was working to launch its Swedish store.
If Klarna had already gone public, its shares might have been hit by those latter announcements. But Mr Siemiatkowski exudes confidence. His customers are travelling less, eating out less and shopping in physical stores less and so have more to spend online. “The average person’s balance sheet looks better than ever,” he said. “They have more savings and less debt.”
As for the US challengers: “We have competed with PayPal for many many many years”, and have still attracted 85m users. And Amazon is late to the party. “It’s not like ecommerce companies in Europe have just been sleeping for 15 years,” he said. “Expecting [Amazon] to reach a 50 per cent market dominance as they have in the US is to not really recognise that the market has moved since then. This is not 2005 any more.”
Like its home country, which has divided world opinion with its contrarian stance on coronavirus, the $5.5bn-valued Klarna is a Rorschach test. Pessimists can find plenty of dark clouds. In a happier view, the defaults will never materialise, an effective vaccine will arrive, economies will repair without depression levels of unemployment. And Klarna will follow Skype and Spotify to become the next Swedish sensation to make it big.
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