Daily Price Movement / General Discussion, page-43377

Interesting news on Klarna from Fortune as they look to potentially IPO and mention a few interesting stats on the uptake/sector. They are very interested in the US and excited about their chrome extension and card. All the areas Z1P are focusing on so a good reinforcement of the sector and the avenues of growth.

”Klarna has its eyes on the U.S. for its next big move.

The Stockholm-based buy now, pay later (BNPL) company, which has raised nearly $4 billion in funding and has been contemplating an IPO, is planning a debut for its new credit card (or Klarna card as it prefers it be called) for the U.S. It recently added a Chrome extension to browsers in the U.S., U.K., France, and Germany, so that shoppers can buy items, and pay for them later, from non-Klarna affiliates. The extension automatically tracks and applies cashback offers at purchase.

“We see, of course, fantastic growth in the U.S. That’s the market we’re the most excited about,” David Fock, Klarna’s Chief Product Officer, tells me.

Indeed, U.S. shoppers can’t seem to get enough of putting off payments for their items. A recent poll of 1,500 consumers from insurtech company Breeze found that 74% of consumers had used a BNPL service. Venture capitalists are throwing billions into payments companies like Affirm or Afterpay. Klarna hit a massive $45.6 billion valuation last June. Take a look at the funding activity from 2021 that CB Insights shared with me at the end of December:

The premise is simple: Buy a product, see if you like it first, then pay for it. For higher-ticket items, an individual can take a few months to pay for it, interest-free. (The average order size at Klarna is around $150, according to the company)

But this has all drawn debt and data concerns from U.S. regulators. The Consumer Financial Protection Bureau (CFPB) announced a probe into Affirm, Afterpay, Klarna, PayPal, and Zip, last month.

For one, customers appear to overspend when they make a purchase in this fashion—particularly if they are using more than one BNPL company. In the Breeze poll, 57% of consumers said the service had caused them to spend above their means. A Credit Karma study from last year showed that some one-third of BNPL users had fallen behind on payments; many of them had seen their credit scores decline.

Late payments can be profitable for BNPL firms. Afterpay, for example, made nearly a quarter of its total income from late fees in its 2018 fiscal year, although it has emphasized other lines of revenue and has lowered that metric each year (It was at 14% in fiscal year 2020.)

For Klarna’s part, Fock says the company hopes to avoid late fees altogether, and only uses them to incentivize customers to pay. “It’s not a revenue stream that we’re interested in,” Fock says. “It’s what we call internally ‘negative revenue,’ We do whatever we can to only issue credit to customers who can really afford it and pay for it.”

The revenue Klarna generates from late fees is “very marginal,” though Fock declined to provide a specific figure (A spokeswoman later told me that 98% of Klarna’s payments are interest-free and that a “vast majority of Klarna’s customers pay on time and in full”). The company instead relies on payments from its merchant affiliates. For its new Chrome extension, it takes advertising revenue for delivering traffic to a merchant’s website, as well as interchange fees if a one-time card is used. The company declined to share any of its advertising partners.

Fock emphasized that Klarna won’t allow customers to rack up debt: If they miss a payment, they won’t be able to use the service until it’s paid up. Klarna uses any available data it can pull, including soft credit checks and payment history within its own app, to gauge a customer’s credit on a per-transaction basis, making a bet on whether the customer will make good on every payment. “We use whatever data that can be made available to assess that,” Fock says, noting that it will depend on what’s regulatorily allowed within each market.

When I asked for Fock to discuss the CFPB probe, he emphasized that “proportionate regulation is a good thing.” Since Klarna is a bank, they are “used to working closely with regulators” to try to achieve good outcomes for the end customer. “We think, through this process, they will see the benefits of this product,” Fock says.

Klarna has a big incentive to expand in the U.S., uninhibited. The BNPL market is growing faster than any other unsecured lending alternative, per McKinsey. Banks have already lost $8 to $10 billion in annual revenue to these fintechs.

Klarna is moving quickly in countries like Sweden, Poland, Norway, Germany, Austria, The Netherlands, U.K., and the U.S. It has 90 million users worldwide—and no plans to slow down.”