Klarna
Key Data
- Trading Name: Klarna
- Legal Entities: Klarna Bank AB
- Activities: banking, Buy-Now-Pay-Later
- Location: Sweden
- Regulations: regulated bank
- Key People: Sebastian Siemiatkowski, Niklas Adalberth, Victor Jacobsson.
Klarna is the brand of the Swedish Klarna Bank AB and provides payment services. They are focused on e-commerce and process payment services around online stores.
As of the end of 2020, the company had more than 3,000 employees, most of them working at the headquarters in Stockholm. In 2019, the company handled about $35 billion in online sales.
Klarna was founded in 2005 by Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson.
Offering
Klarna enables end consumers to pay for their online orders using invoice, instant bank transfer, or installment payments. With invoice purchases in online shops, consumers receive the goods before payment, which provides security for consumers but entails the risk of payment default for merchants. Providers like Klarna allow customers to make invoice purchases and guarantee payment to merchants. With instant bank transfer, customers pay immediately upon placing the order and then receive their goods. Installment payments allow consumers to split the due amount into multiple installments and pay them over a longer period. Klarna’s installment payment does not differ from traditional installment plans, but it is processed directly through Klarna rather than a third-party bank collaborating with the shop.
For Merchants Klarna enables merchants to integrate invoice, instant bank transfer, and installment payment as payment methods in their online shops. The company assumes the risk of fraud and default. This means that Klarna pays the outstanding invoice amount to shop operators if a consumer has not paid their invoice within the deadline, including in cases of fraud. On the other hand, Klarna offers online shops a system called Klarna Checkout, where orders can be completed with just a few clicks. If the end consumer has previously paid with Klarna, details such as the billing address or date of birth are already stored and do not need to be manually entered. It is sufficient for consumers to enter their email address and postal code.
Recent Developments
Under its terms, Klarna says that would does not accept unethical business models and thus excludes high-risk merchants. No customers from adult businesses, gambling, drug businesses, money and finance businesses, or MLM systems would be accepted.
Compliance Issues
Sofort
Klarna is facing criticism over its subsidiary Sofort. Investigations by FinTelegram revealed that Sofort has been providing payment services for numerous online casinos operating without the required licenses in the EU. For instance, Sofort was identified as a payment option for illegal platforms such as Atlantis Slots and PlayRegal. Although Klarna announced its withdrawal from the online gambling sector, Sofort continues to be active in this space, raising concerns about compliance with regulatory standards and the effectiveness of internal control mechanisms.
Klarna has faced several challenges and criticisms in recent years:
- Regulatory Scrutiny: In February 2021, the UK government announced plans to regulate the BNPL sector, including companies like Klarna, due to concerns about consumers accruing unmanageable debt.
- Customer Complaints: Numerous customers have reported issues with Klarna’s billing practices, including unexpected reminder fees and difficulties with customer service. In October 2021, the Verbraucherzentrale (Consumer Center) highlighted these concerns, noting that some customers received reminder fees without prior invoices.(Giessener Allgemeine)
- Data Privacy Concerns: In May 2021, a technical glitch allowed some users to access other customers’ personal information, raising significant privacy concerns. Klarna acknowledged the issue and stated that it was promptly addressed.
- Financial Performance and Valuation Decline: Once valued at $46 billion in 2021, Klarna’s valuation plummeted to $6.7 billion in 2022 amid rising interest rates and a reassessment of fintech valuations. The company has since been implementing cost-cutting measures, including significant staff reductions, to improve profitability.(Financial Times)
- Legal Challenges: In May 2023, the Handelsgericht Wien (Commercial Court of Vienna) declared several of Klarna’s contractual clauses unlawful, particularly those restricting customer communication to app or website channels. Klarna stated that these terms had been revised in early 2022.
Financial Statements
Klarna’s latest financial statements reveal a significant turnaround, with the company reporting an adjusted operating income of SEK 229 million in the first quarter of 2024, a substantial improvement from a loss of SEK 498 million in the same period the previous year. This positive shift was driven by a 29% year-over-year increase in revenue, reaching SEK 6.4 billion. The integration of artificial intelligence (AI) into daily operations has played a crucial role, with 90% of employees utilizing AI tools, leading to an 11% reduction in operating expenses. Additionally, Klarna’s U.S. market experienced a 38% revenue growth and a 97% increase in gross profit during this period.
Costumer Review
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Compliance Conclusion
Klarna is a regulated financial services provider with sufficient capital and has recently been moving toward profitability. This is why we have maintained Klarna’s Green Compliance rating despite its entry into the high-risk payment sector.
