Fintech innovator gunning for the banks

Sebastian Siemiatkowski’s Klarna app allows customers to buy now, pay later, without racking up interest charges. He’s excited about the future. Regulators are nervous. Jane Lewis reports

“The credit-card model is simply unsustainable for consumers,” Klarna’s billionaire founder, Sebastian Siemiatkowski, told investors last month. They clearly agree, says Bloomberg. In a recent funding round led by SoftBank’s Vision Fund 2, the wildly popular “buy now, pay later” (BNPL) app was valued at $46.5bn. One backer, Chrysalis Investments, reckons the fastexpanding Swedish company, which first saw the light of day in 2005, could be worth $125bn in 18 months – more than Europe’s second-largest bank, HSBC.

Modelled on Sweden

Klarna’s appeal to Millennial and Gen Z fashionistas is obvious. “In the past, when I ran out of money, I simply couldn’t shop,” relates one user. No such worries now. Unlike credit-card firms, the Nordic fintech doesn’t charge its 90 million users hefty interest payments and fees; it makes most of its money from retailers, who have embraced the “simple pink-coloured” app with gusto. “Don’t wait until payday hon,” Boohoo urges its youthful customers. “Boohoo accepts Klarna.” No wonder everyone wants a piece of the BNPL action. Twitter founder Jack Dorsey’s payments platform, Square, recently paid $29bn for Klarna’s Australian rival, Afterpay. The UK contender, Zilch, has raised more than $200m from Goldman Sachs and the venture-capital arm of the Daily Mail & General Trust.

Siemiatkowski, 39, “credits an unlikely backer for his runaway success”, says Reuters: “the Swedish welfare state”, in particular, a late 1990s government policy to put a computer in every home – a transformative move “for low-income families such as mine”, he says. Sweden’s prescient connectivity drive helps explain why its capital Stockholm has become “such rich soil for start-ups”, incubating the likes of Spotify, Skype and Klarna. Siemiatkowski himself began coding on the family computer when he was 16. Born in 1981 to Polish immigrants – his parents were impoverished former academics who put huge emphasis on education – he grew up in Uppsala and was a high achiever at school, prone to devouring Richard Branson’s business books.

Siemiatkowski paid his dues while studying for a masters at the Stockholm School of Economics, “putting frozen meat onto a conveyor belt” at Burger King, says Forbes. On the other side of the assembly line was Niklas Adalberth. The two became friends and cofounded the startup (originally known as InvoiceMe) with a third student entrepreneur, Victor Jacobsson, in 2005. Investors then didn’t get the concept. “We presented our idea at an innovators’ pitch and they said: ‘Forget about it.’” But soon after Siemiatkowski got the thumbs-up from an observer at the session. “Just go for it. The banks will never understand what happened.” “I’m still on that mission,” he says.

“Siemiatkowski was a high achiever at school, prone to devouring Richard Branson’s business books”

The mission to take the US

Having swept through Europe, Klarna is now aggressively targeting the US market amid talk of a Wall Street float early next year. But its ascent hasn’t been exactly “frictionless”, says Elle magazine. Some charge that Klarna is a “modern-day loan shark” – made all the more dangerous by its innocuous image – enabling addicted young consumers into taking on large amounts of debt. The BNPL market more than trebled in size in 2020 and Britain’s Financial Conduct Authority has called for it to be “brought within regulation” – a move that might cramp the style of Klarna’s jejune users, says Bloomberg, who are becoming relaxed about buying stuff they can’t afford. It’s the insouciance that worries regulators most.