A $2.25 billion fintech startup almost used horoscopes for security

Swedish payments startup Klarna once considered a novel approach to dealing with fraud: Asking “high-risk” customers to enter their horoscopes.

The company, which was valued at $2.25 billion (£1.5 billion) in a 2015 funding round, offers a payment solution to merchants that tries to simplify paying online.

Where it differs from PayPal, or a website’s proprietary payment method is that customers don’t need to even enter their card details when they pay. They stick in their email address and postcode — and that’s it. Klarna goes ahead and pays the the merchant, and the customer then pays Klarna at a later date.

The goal is to increase “conversions” — the number of people going through with payment — by removing hurdles and streamlining the process. But by fronting up its own money, Klarna puts itself at obvious risk of fraud.

To avoid this, Klarna profiles customers to see if they’re “low-risk” or “high-risk” and adjusting their check-out on the fly accordingly, CEO Sebastian Siemiatkoski told Business Insider at the Wired Retail conference in London.

If a customer is “buying a physics textbook on a mobile phone, the address you’re shipping to is close to where you are currently, it kind of all makes sense — one click and you’re done,” he explains.

“But if you’re buying four iPhones at 3 o’clock in the night and you’re shipping to some odd address, we might want to ask a couple more questions for verification before we allow you to finalise your purchase right.”

These questions can be anything from asking you to verify your address, to entering all your card details in a particularly high-risk situation. Siemiatkoski says it’s the same principle as what Facebook uses to try and detect account theft: “I don’t know if you’ve ever logged into Facebook from abroad — what they actually do sometimes is ‘hey, can you recognise your friends and connect the pictures?’ That’s exactly the same thinking.”

But where do star signs and horoscopes figure into this? “We never actually put it into production, but we even played around with the concept of ‘what’s your horoscope?’

“Funny enough, you know exactly what yours is, but any fraudster trying to impersonate you — even though they might know your date of birth or whatever — they’re never going to be able to in less than a second guess your horoscope.”

Sebastian KlarnaKlarnaSebastian Siemiatkoski, cofounder and CEO of Klarna.

Siemiatkoski is coy about the proportion of transactions considered “high-risk” — but stresses that it is about reducing friction for the majority of users, and reaping the benefits. “Let’s hypothetically imagine that I can give a really simplistic experience to 50% of your customers, and I can give the normal check-out experience to the other 50% — already, then, I’ve had a massive impact on your conversion rate because I’ve simplified it for half your customers.”

Having taken $80 million (£53 million) in funding at a $2.25 billion (£1.5 billion) valuation in August, Klarna recently launched in the US for the first time. The Swedish company, which has been profitable for 10 years, isn’t ruling out an IPO, but has no plans to do so, Siemiatkoski says.

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