Four reasons why Klarna is the biggest fintech in Europe
There is a reason why Europe's biggest fintech, Klarna, is only getting bigger. FinTech Magazine shares four reasons for the bank’s success.
2019 has been a strong year for Klarna. The bank has processed 12mn transactions in the last twelve months alone, and 50,000 users a week are opting to ‘pay-later’ through Klarna. The company, which was founded in 2005, now holds a post money valuation of US$5.5bn, making Klarna the largest fintech in Europe.
What about Klarna is keeping it at the forefront of competition? FinTech Magazine shares the five reasons why it is the biggest fintech in Europe.
An indispensable payment solution
Of course, the first reason why Klarna is so successful is that it provides a good product. Customers can choose from three options when using the bank to make retail purchases from its partners:
Purchase now and pay 30 days later
Buy now and spread the cost across three monthly payments
Buy now and spread the cost for up to four years
Why is this different from all the pay later services that have gone before?
While timing is certainly a factor, as customer trust of online shopping has only really started to grow in the last 15 years, starting from around the same time the company’s inception in 2005, it also largely avoids the c-word: credit.
Credit checks are carried out quietly in the background, as well as analysis of browsing history, to determine eligibility. As long items are paid for within 30 days of purchase, customers don’t incur interest.
Its products have excellent bottom-line results. Klarna shares that customers who split the cost with Klarna spend 68% more than the average retail order value.
Klarna has an impressive number of partners and the list is growing at a constant rate, populated by with over 130,000 partners globally, including major names like Zara, JD Sports, Nike and Michael Kors.
As if this extensive list wasn’t enough, users can also suggest companies that they would like to suggest to Klarna, returning power to the customer in terms of strategic direction.
One of Klarna’s most notable partners is ASOS, the online-only retailer that is reputed for its free delivery and returns. Not only is this an excellent match in terms of seamless spending, but Klarna has tapped into ASOS’s 80mn active customers across 250 countries, which, when paired with its increased order average equates to increased revenue that would notably benefit both companies. With the nature of this expansion, Klarna is moving to be a contender with PayPal.
Klarna understands its customer-base and creates experiences tailored to them. Last month, Klarna hosted a “House of Klarna” pop up in Manchester, following closely behind its Covent Garden, UK, event, held back in June 2019. The event not only set to create further publicity for Klarna and its partners by devoting 10 days to talks, as well as beauty and lifestyle sessions, but to act as something of a shrine to design and superior customer experiences. Events taking place across the three-story building included a number of free beauty treatments, styling sessions and yoga. It also invited c-suite executives from companies to speak on their careers, including Henry Holland who spoke at the pop-up on his career at House of Holland.
‘Who’s a good shopper’ - The Pup Up
Yesterday, Klarna announced the first-ever pop up grooming salon for pets. The “pup up” Kanine Kafe will take place in London from 27-28 November, providing grooming services, photo opportunities and a number of products from Klarna’s pay later partners.
“At Klarna we create experiences where you shop for what you love, for the ones you love. And that’s what the ‘Who’s a Good Shopper’ campaign is all about – a celebration of the relationship between dog owners and their beloved dogs,” says David Sandstrom CMO of Klarna. ”Throughout the campaign we will show how Klarna offers the best shopping experience for people and their furry best friends – starting with bringing them all together to experience just that, in our stylish pup up,” he said.
While this event is fun for pet-owning customers at Klarna, it also is an excellent marketing campaign to show the wealth of pay later partners who provide products for animals and not just women’s fashion, which the payments platform is predominantly known for.
Though these events may seem like simply expensive advertorial, they evolve to be much more. Not only does a user gain benefits of a digital bank, but they gain an additional sense of belonging from pop up events, which provide a touch of luxury to the brand.
Klarna has utilised one of its shareholders: media and cultural icon, Snoop Dogg. This is the sort of marketing campaign brands can only dream of. Klarna hasn’t just taken a big name and stuck it on an ad; it has found another brand with a complimentary values.
Snoop Dogg is written into the narrative of Klarna through three adverts: The coronation, longest toast and silky bed. Whether you think Snoop Dogg is the king of smooth or not, Klarna has crowned him as “Smooth Dogg.” These adverts explore the concept of smooth through the five senses, while also inferring that smooth often comes with a luxury price tag. This sets the basis for Klarna’s demand for splitting costs.
“Snoop is not only a rap legend, but also a successful businessman, with a genuine interest in tech, retail and e-commerce. He has a great understanding of consumer behavior and is exceptional when it comes to branding and marketing.” Siemiatkowski continues: “Teaming up with one of the smooothest people alive opens new doors for Klarna as we grow and develop as a company.”
Fintech today is about creating seamless and trusted solutions. Klarna focuses on marketing the former, emphasising this through its branding slogan “Smoooth payments.” Pair this with Snoop Dogg, a respected rapper known for his velvety voice and ‘easy living’ and you have an amplified ethos.
“I’ve been looking for an opportunity to expand my tech investment portfolio to Europe and seeing the way Klarna operates and how they challenge the status quo, I think it’s a match made in heaven,” sayid Snoop Dogg. From the company’s adverts with Snoop Dogg, this partnership shows that even shareholders are having fun with the brand, not just the customers.
A Smoooth business strategy
Klarna has struck the sweet balance of providing an indispensable solution, while creating fun experiences for customers, keeping its branding light and fun. The option to pay later provides the chance for customers to live a lifestyle that they may not have otherwise been able to have, interest free, a lifestyle enforced by popular media icons such as Snoop Dogg. When these components come together they form a cohesive brand identity that truly earns the bank its slogan of “Smoooth.”
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FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.