Swedish fintech unicorn Klarna has signed a deal with Sir Philip Green’s huge retail conglomerate Arcadia, marking the first major partnership for the online consumer credit company in the UK.
The deal will see Klarna launch its “Buy now pay later” online payment option on the websites of Topshop and Miss Selfridge, two of Arcadia’s biggest brands. It will then be rolled out to Arcadia’s other five brands, which include Burton and Dorothy Perkins.
The new option will let people order products online with a few clicks, just putting in minimal details about delivery. If they like the products, they then pay later when contacted by Klarna. If not they can return them.
Klarna’s founder and CEO Sebastian Siemiatkowski told Business Insider: “There’s a lot of people that abandon their baskets and what we’ve shown with this specifically is that it drives [a reduction of] that. People feel more relaxed with buying things and testing things out because they understand they’re not going to pay until they see them. Seeing is believing.”
Stockholm-based Klarna is hugely successful in its native Sweden where it processes an incredible 30% of all online sales. The company is worth $2.25 billion (£1.68 billion) and backed by renowned Silicon Valley venture capital firm Sequoia Capital, an early investor in Apple, Google, Instagram, and more.
However, the Arcadia deal is its first major contract in the UK. Klarna launched here in late 2014 and while 1 million Brits have used its credit products since then, this has been across a scattering of smaller online stores rather than big household names. While Arcadia does not breakout online sales numbers, the conglomerate had revenues of just over £2 billion last year and digital sales surged 24%.
Siemiatkowski says Klarna has been working on the Arcadia deal for almost a year, saying: “To me it’s great, great success to work with Arcadia and we’re extremely proud to work with them, but it’s also part of our long term strategy. We’re consistently adding more and more features in this market and building a fuller product. That’s something that takes a bit of time.”
Siemiatkowski says the timescale is partly down to the complexities on building something like Klarna in the UK.
“Spotify was like hey, sign with the record labels then launch the same product in each market,” he says. “It’s a little bit different with us. In our case each market has so much more differentiation when it comes to customer behaviour, preference, regulation. It takes a little longer time.”
To separate buying a product from paying for it online, Klarna effectively offers credit to buyers although they do not go through lengthy application processes. Credit is a highly regulated space.
Siemiatkowski says the regulatory legwork is crucial to Klarna’s long-term vision for the company, saying: “One of the big advantages of using Klarna is that up until this point there hasn’t really been a single big brand that could offer these solutions to these merchants.
“Let’s say you’re selling phones globally and you want to put them on financing. Up until this point you’ve been forced to work with different companies in different countries. Klarna is the only one that can do all the Nordics, German-speaking countries, the UK, and the US under one API, one integration.
“If you look at the evolution of retail brands and becoming global but if you look at the issuing side, the banks or people issuing credit cards, there are a couple of global brands but not anyone who can offer consistent solutions across all markets. This is where we see huge opportunity to disrupt banking.”
Klarna uses non-traditional credit measures to assess whether to approve buyers, but Siemiatkowski stresses that the company looks at a range of different factors rather than simply eye-catching examples such as browsing habits.
He says: “That’s a number of things. There’s first and foremost regulation that stipulates some aspect of it – what you need to disclose, how it works, what data are you allowed to use, and so forth. But within the realms of that what we’ve come to learn is there is a lot of what we call behavioural data that is very useful to predict people’s willingness and ability to pay. It could be whether you shop at 3 p.m. in the day or 3 a.m. at night.
“The point is that that type of behavioural data is actually much more consistent across geographies than the classical credit bureau data, which is different from country to country. Those parts of the models can be reused across multiple countries and that’s important because that’s been the challenge for any bank that wants to open in new countries.”
Sir Philip Green, the retail tycoon behind Arcadia, has been in the headlines for all the wrong reasons lately, caught up in the row over the collapse of BHS and its pensions black hole. Siemiatkowski didn’t express an opinion on the furore, saying he has not met Sir Philip and Klarna dealt with Arcadia’s e-commerce team.
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