What is Klarna? How Klarna became a Fintech Unicorn - YouTube

In the 21st century, as technology has improved  the way we live our lives and made things more  efficient

we as humans have become more obsessed  with buying things. Retail therapy makes us happy  

and takes our minds off the stresses of everyday  life and work but sometimes shopping can be  

painful, especially online when the payment process  is clunky and time-consuming or your clothes just  

don't fit and you need to send them back, sometimes  having to wait weeks for the refund.

well Klarna the company that was first thought up in a  Burger King and came last in an entrepreneurship  

competition 15 years ago is now one of Sweden's  greatest exports, being labelled in the top five  

unicorn businesses from the region. Forty percent  of all online shopping in Sweden now runs through  

Klarna and in 2019 alone the company handled  over 35 billion dollars in sales worldwide.

Whilst many online shoppers would have seen their  tagline of 'Buy Now, Pay Later', not many know the  

history of Klarna, how it was founded and how  it's now worth in excess of five billion dollars.

Here's how it happened

Back in the day, two of the three Klarna founders first met in Burger King but not over lunch

because they were working in the  kitchen flipping burgers.

Sebastian Siemiatkowski and Niklas Adalberth then studied at Stockholm School of Economics, where they met Victor Jacobsson  

the third founder. After taking a sabbatical,  the trio launched Klarna in 2005 initially  

with the name Kreditor and took part in the  annual entrepreneurship award that same year,

pitching their vision of helping buyers and  sellers with safer and smoother payment methods online

but their passion was to no avail as  they finished all but last in the competition.

They were told to "forget about it, it's never going  to work", but despite the negativity the trio were  

inspired to continue although none of them had any  finance or banking experience. But what they lacked  

in experience they made up for in looks, savvy tactics  and energy. The trio printed their business cards  

on expensive card; they always wore suits; and they  obtained phone numbers that ended in lots of zeros  

similar to a switchboard to convince  prospective investors that there was a large  

team behind them. In hindsight, they realized  that it wasn't their looks that raised capital  

but their passion and belief in  Klarna and the problems it could solve.

Klarna was invented to provide financing for  online shopping and therefore using Klarna  

as a buyer, you know that the shop you're  buying from has passed Klarna's checks  

and that Klarna is taking on the payment risk so  that you can essentially try before you buy and be  

able to return your clothes with no fuss thanks to the intermediator and they make the whole process  

smooth. That was key as often payment is clunky  and takes time, but with Klarna they remembered  

the buyer from previous purchases making  the whole process easy. They even centered an  

advertising campaign around it with one of their  key investors Snoop Dogg labeling him Smooth Dogg.

The retailer also sees some perks too as  they're not taking on any risk when it comes  

to receiving money as Klarna pay up front and  take responsibility themselves for collecting  

payment from the buyer. Shops also see an  increase in goods sold when customers are  

using Klarna's suite of options, whether it be  installments, financing or pay in 30 days, it lets  

consumers try before they buy with Klarna taking  the financial risk. Allowing customers to buy on  

credit or pay later entices them to just make the  purchase without having to think too hard about  

it and falling in love with the products makes  it a lot easier to part with their cash.  

Klarna have now partnered with numerous brands like Asos, Farfetch, Nike, Adidas, Abercrombie & Fitch and H&M,

to name a few and is servicing over 80 million  customers, growing into one of Europe's largest  

banks without anyone really noticing. Along with  Spotify, Mojang, Skype and King the app game maker  

Klarna is now in the top five as far as Sweden's  unicorn businesses are concerned and they've  

solved the problem of unnecessary friction and  complexity in the retail world, allowing people to  

focus on what they came to do in the first place: shopping. But with all success comes criticism and  

the story with Klarna is no different with some  suggesting they're just a modern loan shark with  

branding which is encouraging young people to  overspend, spending money that they haven't got  

and creating mounting debt. The Klarna response is  that the banking industry has never been friendly  

and they're hoping to change that by making  the risks associated with borrowing money

as clear as possible and doing soft credit checks, blocking those that are overspending.

This might seem frustrating in the short term when payments  are declined but in the long run protects them financially.

With one new seller joining Klarna  every eight minutes, it's now competing with  

some massive names like PayPal and their credit  business as Klarna looks to continue its rapid  

growth, the firm will be launching a Klarna card  using their banking license in a bid to continue  

making the shopping experience the best in class  whilst also providing greater services including  

returns, parcel tracking and personal finance on  the app. What does the future hold? Well there's  

rumors that the bank will grow to finance clothing  resales, as Siemiatkowski is known for investing in  

Depop the peer-to-peer social shopping app, perhaps  to offset the criticism that Klarna makes fast  

fashion more obtainable. But Siemiatkowski is keen  to understand how fashion recycling will change  

the fashion industry with Klarna potentially  looking into the clothing rental market too.

What's clear though, is that in today's  society switching to another product is so  

easy and therefore competition to be the best  is greater than ever and Klarna's vision is to be  

a consumer-oriented product-driven and  technology-intensive retail bank which  

truly puts the customer first and will  potentially see Klarna become one of the  

most valuable businesses in the world. And that's how it happened.

Thanks for watching.

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