This year, Swedish buy now, pay later (BNPL) giant Klarna has been knocked off the top spot as Europe's most valuable company, and suffered a massive valuation crunch of 85%. Yet it still keeps growing — in the last few weeks it's launched in Greece and the Czech Republic.
Sifted sat down with the company's head of UK, Alex Marsh, at the Sifted Summit to chat about what's happened this year and where the company's going.
How’s your year been?
There’s been a real shift on the investor side in the last six months from hypergrowth to profitability. And now there’s a real shift for us in our business towards that. It’s challenging right now — consumer confidence and investor confidence is very different to nine to twelve months ago, when we made the plans for year.
But you did just move into two new markets. That’s expensive.
It’s a constant balancing act. We've invested most heavily in the US. The challenge is it is vast, and there's also the challenge of state-level restrictions.
What does growth spending in the US look like for Klarna over the next 12 months? What about competition from Affirm and Apple?
A lot of getting our new investment was geared towards growth in the US. The competition for us is the credit card companies. Apple’s move actually gives us confidence that BNPL is where they see consumer preference and behaviour shifting. We see it as a validator of success. If I look at the growth metrics we’ve see for Klarna, it's over 100% in the last year in the US. But it does require significant investment to reach consumers.
The US consumer watchdog just announced it wants to regulate BNPL. Are you confident it will be as friendly as regulators in Europe?
We’ve had really encouraging messages from the UK's FCA (Financial Conduct Authority) about moving towards an outcomes-based approach. The tide that’s turning in the UK has actually been helped by looking at regulation. It’s early days to say how we feel about the US, but we’re not waiting for regulation to come — we’ll progress ourselves proactively, because regulation takes years.
What happened with the layoffs?
12 to 14 months ago when we laid out plans for the year, you couldn’t have predicted what would happen with interest rates, consumer spending, the war in Ukraine… It was on us that we needed to make sure we had the right people in the right places for our growth.
What about the second round of layoffs? Will there be more?
To be fair from our side, I don’t think we've communicated the latest reorganisation very well. It was part of our new COO coming in in the summer and restructuring. It’s very different from what happened in the spring. Seeing the potential we have, we feel very well-placed in terms of the consumer base we’ve built and the recent funding round, and the challenges competitors will be having too. That drives a lot of excitement within the organisation and that feeds through to things like job security. I feel like we’ve moved on from that fortunately.
So layoffs won't happen again?
I would say there are no plans for any large-scale planned layoffs. It was very difficult in the spring and now it’s full focus on going forward.
Has Klarna spent too much in the US?
We acknowledge the fact it’s been expensive to grow in the US, but we’re encouraged by the consumer adoption. Our growth in the UK took a lot of investment and a while, and we’re seeing it pay off. We’re starting to see that in the US now, where we’re seeing that investment start to pay off.
Your valuation was down 85% earlier this year. Why such a drop?
If you look at it on a sector level, at the share prices of PayPal etc, it’s a very similar trend. A lot of that is investor sentiment. When you’ve got unparalleled external factors going on, it’s unsurprising that investor sentiment towards technologies will change to profits, while for years it was 'show me you can grow and that your product works'. Now we’ve got a huge opportunity to grow after our recent investment. It was hugely encouraging that it was existing and new investors. We now need to show them our value and hopefully that will be reflected in our valuation. We need to show reduction in credit losses in the US.
What are Klarna’s long-term goals?
If you look at our most mature markets like Sweden and Germany, we have a full suite of services including current accounts and savings accounts. And that’s an indicator of what we want to be globally. It’s to be one of the five truly global retail banks. A couple of those are likely to be incumbents, a couple will be big tech companies like Apple and Amazon, and we think one of them will be Klarna. We think that will happen in the next five to ten years.
This interview originally appeared in Sifted's fintech newsletter. For similar insights in your inbox each week, subscribe here.
