Klarna & Sofort merge. UK still isolated from payment innovation.

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.

Yesterday, two of Europe’s leading APs, Klarna and Sofort,  have announced a merger. This is why it’s important:

  • 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 comment

  • 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.

Klarna management

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.


Mobile Payments, Speed, Loyalty and Burritos. Nachos.

Fast food can be a highly profitable business but matching supply and demand is always a challenge. At peak times, outlets can make more food than they have capacity to sell which can lead to long queues, unhappy customers and lost sales.

Many QSR’s (quick service restaurants) have been toying with reconfiguring their ordering process so that customers would no longer have to queue at the till; instead they could order on their phones and pick up at a serving point, Argos-style.

Burrito Mama (the new venture from the Wahaca founders) is one of the leaders so I went along to One New Change, in the heart of the City of London, to try out their new app.

The home screen is friendly with a very simple choice to make.

Home screen

Menu screen

The app uses geolocation to position you in the right restaurant. Right now, there is only one Burrito Mama but if you hit the St Paul’s button there is map to help you find your way to One New Change. Then it’s just a question of choosing what food you want.

Menu options
Menu options

There’s a very intuitive menu to choose options and side orders. Then comes the payment. Burrito Mama are using Flypay – a digital wallet provider that offers an API for application vendors. I’d already signed up for Flypay so just had to enter my PIN code. If you haven’t signed up for Flypay, you’d need to enter your card details at this point which takes 5 – 8 minutes. Most likely, you’d give up the mobile journey in frustration at this point and order at the till or one of the unmanned kiosks instead.


At this point, my purchase got frustrating for a different reason. The app couldn’t get an Internet connection despite the purported Everything Everywhere 4G connection displayed in the top left corner of my iPhone screen. Fortunately, Burrito Mama offers free WiFi without requiring registration.


Back on track, I only had to choose which card to pay with. I’ve only loaded one card so that was an easy but unnecessary decision.  Then, rather unexpectedly, I had to enter my CVV code. For this, I needed to pull out my wallet and check the reverse of my Barclaycard. Ugh.


The CVV code slowed things down but was partly redeemed by the option to order for pick up in 15 or 30 mins. You don’t have any choice about these delays but I can imagine busy office workers liking this feature, especially if they are picking up a large order for colleagues.

Loyalty Screen

Payment completed, you get an order number that is displayed on a large screen on which you can watch its progress.

Pick-up Screen
Pick-up Screen

When ready, you just show your phone’s screen and pick up your Burrito. There’s no barcode scan or other confirmation. Finally, the screen shows a very basic but pretty generous loyalty offer – buy five and get one free. The offer is only available for people who order and pay with the app. Some other QSR’s might not warm to this approach as it penalises loyal customers who pay in other ways but it gives a clear incentive.

Conclusion: anything that gets the queues moving quicker at lunchtime is good for Burrito Mama and good for its customers. Regular customers may be persuaded to use the mobile ordering/wallet app either for the ability to pre-order or to take advantage of the loyalty offer, but

  1. registering for Flypay will be a disincentive. This is no disrespect to Flypay but it’s 5 – 8 minutes you don’t have when you’re looking for a quick lunch.
  2. the extra CVV code step makes the kiosks (which run the same app as your phone) a quicker option.

In the 20 minutes I spent in Burrito Mama, munching lunch and watching the clients, I spotted only one other app user. Despite the crowds, and it really was VERY busy, the customers still preferred either to queue at till or use the kiosks.