challenge to amazon with this move klarna risks a lot

challenge to amazon with this move klarna risks a lot

The Changing Landscape of Tech Companies

Zebastian Siemiatkowski, the founder and CEO of Klarna, the renowned Swedish fintech company, dismisses the notion that non-US companies must flock to Silicon Valley to thrive. Siemiatkowski believes it is “extremely poor advice.” He argues that an overheated market for tech talent and the high turnover rate of employees make it difficult to build a sustainable company.

Siemiatkowski further emphasizes his point by stating how San Francisco, which was once a magical place, has transformed into a rather cold city. As a Swedish national, he also challenges the idea of the “American dream.” Siemiatkowski highlights Sweden’s success in social mobility, citing its free education and healthcare systems as key contributors. However, he acknowledges that first-generation immigrants in Sweden face significant challenges.

Klarna’s Journey as a Second Generation Success Story

Klarna’s rise to success is nothing short of remarkable. Backed by prominent investors such as Sequoia, Silverlake, and Atomico, Klarna’s recent funding round valued the company at a staggering $10.65 billion, making it Europe’s most valuable private tech firm. Siemiatkowski still holds an 8.1 percent stake in the company.

Unlike many other unicorns, Klarna has achieved profitability early on. However, in 2019, the company decided to incur losses to establish a stronghold in the US market. Klarna chose New York and Los Angeles over San Francisco for its American offices.

Klarna’s core concept is to offer customers a “buy now, pay later” online shopping experience without the need for a credit card. The company achieves this through partnerships with online retailers, where Klarna appears as an alternative payment option during checkout. Klarna also has its own “shopping mall” app, allowing users to browse multiple stores that accept Klarna as a payment method. Additionally, Klarna aims to deepen its relationship with customers by evolving into a full-fledged bank.

With a registered user base of 90 million globally, including 11 million in the US, Klarna is well on its way to becoming a key player in the financial industry. The company’s direct-to-consumer app has 14 million active users, and it processes over 1 million transactions daily through its platform.

Klarna’s growth has been propelled by two major trends: the surge in e-commerce and the decline in consumer credit. Even before the pandemic, Klarna and other “buy now, pay later” providers had been gaining momentum as credit card markets contracted in certain countries.

The Critics and Klarna’s Response

While Klarna’s success story is impressive, it is not without its critics. Some view Klarna’s marketing campaigns as unconventional, and there are concerns about the company’s impact on society. The proposition of offering customers the ability to spend money they may not have raises eyebrows. Klarna’s “Smoooth” advertisements have also faced scrutiny and skepticism.

In response to criticisms, Siemiatkowski addresses the issue of debt and argues that “buy now, pay later” should be regulated. He also discusses Klarna’s business model and the delicate balance of satisfying both customers and merchants.

Siemiatkowski acknowledges that Klarna missed out on opportunities in the past, allowing competitors like Adyen and Stripe to take the lead in certain areas. However, Klarna has taken significant steps to rectify this, including obtaining a banking license in 2017.

The Birth of Klarna and Its Evolution

Klarna’s journey began in 2005 when three non-technical founders, Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsso, reconfigured an old idea for the emerging e-commerce market. By offering customers the option to receive an invoice with a 30-day payment period, Klarna simplified and secured online shopping, resulting in increased sales for merchants.

Initially, Klarna was not perceived as a tech startup but rather as an invoicing company. However, the founders recognized the need to transform into a technology-driven company to attract top talent.

In 2010, Klarna secured funding from renowned tech investor Niklas Zennström’s Atomico. The following year, General Atlantic and DST invested $155 million, elevating Klarna to unicorn status.

Siemiatkowski reflects on the pressure of rapid growth and the need to balance internal momentum, financial performance, and valuation in a rapidly expanding company.

Klarna faced criticism in 2012 when it switched from sending payment instructions via mail to email, leading to unintentional defaults and accusations of deceptive practices. Despite these setbacks, Klarna continued to grow and evolve.

Klarna’s success story is an inspiration, and its ambition to challenge industry giants like Amazon positions the company as a force to be reckoned with. Siemiatkowski’s visionary leadership and Klarna’s innovative approach make it a significant player in the fintech landscape.

Image Credit: Klarna