The UK may lead the world in e-commerce but its retailers only offer a very limited range of payment options at check-out. You can pay with a credit card, a debit card or occasionally Paypal. It’s rare to see a bank transfer option, pay by instalment or cash on delivery but all of these are common practice on the continent.
The anglo-saxon payment world refers to anything that’s not a regular card as an “alternative payment (AP) type.” If you’re interested, WorldPay publishes a handy guide.
- Klarna has a radical customer proposition. You can order goods on line but don’t pay until you’ve had them delivered and decided you want to keep them. Shoppers love this (see below) and Klarna claims its service gives a 10% – 30% sales uplift.
- Klarna has a proven business model and has long been profitable. Merchant charges are high (claimed to be 1.5% – 2.5% per transaction) but this is typically cheaper than Paypal. For the money, Klarna takes liability in the event the shopper doesn’t pay up but says its very clever algorithms mean bad debt & fraud are low. Klarna also has the ability to make money from shoppers by offering delayed payment (installments or credit) option. It’s even begun offering a sort of deposit account.
- Klarna is large and growing with 15m users, 15.000 merchants in Sweden, Norway, Denmark, Finland, Germany, the Netherlands and Austria. It accounts for 30% of all e-commerce transactions in its home market of Sweden. Already it has over 800 employees.
- Klarna is well funded having raised $250m from top drawer investors such as Sequoia.
- The Sofort acquisition adds scale and indicates its ambition. Sofort is big in Germany. It specialises in online bank transfers and the acquisition gives Klarna access to a further 25.000 merchants. The combined group will now account for around 10% of all online payments in Europe.
- The three clean-cut Swedish whizzkids who founded Klarna wear suits and ties. What better way to mark the business as highly disruptive to the established payment schemes? Formal dress is today’s indicator of corporate rebellion.
Fulfilment is the most hotly contested area of e-commerce today and the ability for merchants to offer something extra to their customers is critical. Sofort is active in the UK but has made little impact as the industry awaits Zapp’s long awaited launch of automated bank to bank transfers. In contrast, the highly innovative Klarna has largely ignored Europe’s largest e-commerce market although I’m sure it (or something like it) would get a warm reception.