Klarna provides a payment service that enables online merchants to offer their customers the option to pay by invoice or installments after the delivery of their goods. We had the chance to talk to Barbaros Özbugutu, Vice President Sales Germany of Klarna about Klarna and invoice-based payment services in e-commerce.
Payment Observer: Can you give us some background information and numbers on Klarna?
Barbaros Özbugutu: Klarna was founded in Sweden in 2005. Since then – with more than 14,000 online merchants and yearly transactions of currently EUR 1.9 billion – we have become the European leader for invoice-based payment solutions in the e-commerce market. Last year, we managed to double revenues company-wide. In Germany, where we launched in 2010, we grew by 1,100 percent.
Payment Observer: What services does Klarna provide?
Barbaros Özbugutu: At Klarna, we offer two secure and user-friendly payment solutions for online shopping, Klarna invoice and Klarna account. Klarna invoice allows customers to shop in a convenient way through a very simple concept: they don’t pay for the goods until after they have received them. With Klarna account, we extended our service by also offering the option to pay in a chosen amount of monthly installments. On top of that, if customers order a number of goods using Klarna account, we bundle everything into one monthly invoice, helping shoppers to keep track of their purchases.
Payment Observer: How does it work in detail, do you completely take the default risk?
Barbaros Özbugutu: Our goal is to enable a smooth shopping experience for both customers and merchants. So, as soon as a customer purchases an item in an online store through Klarna, we step in and take care of the rest of the payment process. For merchants, this means they can quickly dispatch the goods and focus on more important things than waiting for the payment to come in. We will pay them and assume all credit and fraud risk. Customers, on the other hand, actually receive their order before they have to pay. What’s equally important is that they only have to give out a minimal amount of personal information at checkout: there are no complicated forms to fill out nor login information to remember. All that we ask for is the customer’s name, date of birth and address.
Payment Observer: What was the motivation to start such services, how can online merchants profit?
Barbaros Özbugutu: Klarna’s services stem from the idea of making online payments safer, easier and more transparent. Before we began, we looked at a number of customer studies dealing with online shopping. Many of them asked: “How do you pay online?” The question much more relevant to us, however, was: “How would you like to pay?” We quickly realized that a great number of customers were not satisfied with the sometimes cumbersome payment processes. Particularly with regard to upfront payment, many shoppers are left feeling uneasy, afraid of falling victim to fraud. With Klarna invoice, customers pay after they receive and examine the goods they ordered. This way they can make sure they only end up paying for what they really want.
At the same time, we did not only have the customer’s needs in mind when we created our services; online sellers profit from integrating Klarna’s payment solutions just as well. A quick look at the numbers supports our approach to online payment: on average, sales increase by twenty percent after merchants start offering Klarna’s payment solutions. Compared to other methods, invoice payment offers the highest conversion rate.
Payment Observer: Klarna recently received a huge funding of $155M led by General Atlantic and DST Global – How did this come about?
Barbaros Özbugutu: Naturally, investors are always on the look-out for interesting trends and developments in the market. With DST Global and General Atlantic, we were fortunate enough to attract two top investors after already having received support for our growth through Sequoia Capital in 2010. Given their previous investments in internet start-ups like Twitter and Facebook, both investors have clearly demonstrated their expertise in this sector, so we are extremely pleased to gain their support as well.
Payment Observer: What are your company’s plans for the future?
Barbaros Özbugutu: We see a great amount of potential here in Germany. The success so far has confirmed our growth strategy, so we will continue to follow this path. At the moment, we are expanding our capacities with regard to staff as well as infrastructure. In Cologne, for example, we have recently set up another office in addition to our German headquarters in Nuremberg.
Payment Observer: What are your top e-commerce trends for 2012?
Barbaros Özbugutu: I believe that invoice payments will continue to be an important issue for online merchants. In our opinion, it will be crucial for online merchants to cater to the needs of their customers, as the fundamental rule here is quite simple: the easier the virtual payment, the higher the chances that a website visitor actually becomes a customer. For retailers, this means reducing the payment process ideally to just one click while, at the same time, asking for as little client information as possible. With that said, after delivery payment represents the ideal solution as it separates the payment process from the actual purchase, thereby requiring no more than the customer’s name, address and date of birth.
Our commitment to making online payment as simple and safe as possible is reflected in our “Zero Friction Vision”. In this vision, the relation between customer and merchant is shaped by mutual trust, allowing the e-commerce market to further expand and flourish. In 2012, e-commerce could take a significant step in that direction. At Klarna, we certainly will continue to work on making this vision become reality.