Klarna – the pay later giant and Europe’s biggest private fintech

Klarna became Europe’s biggest private financial technology company towards the end of the last decade, beating Monzo and Transferwise to the top spot with its “buy now pay later” model attracting around a million transactions a day.

But the Swedish giant has left a series of controversies in its wake as it sweeps across the world with a model that initially failed to capture imaginations.

Launched in 2005 by three friends, Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson, who entered the idea in a competition at the Stockholm School of Economics. Their plan was a system to make ecommerce easier and safer for retailers and shoppers.

Despite a poor placing in the competition, coming last, the three friends pushed ahead, creating what would later become Klarna.

Winning investment from big names, including major players at Google, the company expanded into 14 countries and 14 years later was employing 2,500 staff.

It was then that the business was crowned the biggest privately owned fintech in Europe, with talks of a stock market float on the cards for some time.

But by 2019 the business had faced several run-ins with authorities. In his native Sweden Mr Siemiatkowski, the chief executive, was called in to meet the consumer rights minister, amid allegations that the company was unclear on how it handled personal data.

The Swedish government was also reported to have quizzed the chief executive on why so many customers are referred to the debt collection authority.

In the UK, the business allows customers to defer payments for up to 30 days. Shoppers provide their name, date of birth, mobile number, and billing and email addresses.

It allows customers to get the product and see it in real life, potentially returning it, before paying. Customers use it to buy the same product in different sizes before returning the items that do not fit.

These services have been reported as vulnerable to fraudsters, who can shop in someone’s name without them being charged for a month.

Customers have also complained that they have been sent reminders to pay, with fees, without being sent an invoice in the first place.

The company has admitted reminder fees are an important revenue for its business.

In 2013 deputy chief executive Mr Adalberth said: “The best customer is the one that doesn’t pay directly, but actually gets a reminder, and also a debt collection letter, because we’re able to add the legal fees.”

He has also spoken openly about his role in a “forgery gang” which created fake ID cards when he was 14.

Today, Klarna is valued at around 11 billion dollars (£8 billion) following a 650 million dollar (£475 million) investment round last year, led by private equity fund Silver Lake.

Singapore’s sovereign wealth fund​ GIC, BlackRock and HMI Capital also invested, although the company is facing stiff competition from rivals.

Scalapay, Twisto and Alma in France all embarked on fundraisers, but not to the same level as Klarna.

The sector is worth 1.5 billion dollars (£1.1 billion) globally, according to CB Insights, and is expected to play a major role in the future of the retail landscape.