Kunle: If shopping carts and checkout optimisation is of interest to you, then you’ll have to listen in to this show. My guest on today’s show takes us through ecommerce checkout best practices as well as how his company’s very unique ecommerce checkout solution, used by over 50,000 retailers, aims to reduce checkout and payment friction by eliminating payment at checkout completely. I know, it sounds counter-intuitive. It’s a simple, yet quite clever solution and that’s why you have to listen in to this episode.
Welcome to the 2x ecommerce podcast show where we interview founders of fast growing seven and eight figure ecommerce businesses and ecommerce experts. They’ll tell their stories, share how they 2x their businesses and inspire you to take action in your own online retail business today. And now here he is, the man in the mix, Kunle Campbell.
Hi 2Xers, welcome to the 2X ecommerce podcast show. I’m your host, Kunle Campbell and, as usual, this is the podcast where I interview ecommerce entrepreneurs and online retail marketing experts who will help uncover ecommerce marketing tactics and strategies to help you to grow your business. I’m very concerned about growth, growing your e-tail venture. So if you’re looking to double metrics such as conversions, average order value, retention, repeat customers, traffic, and ultimately sales, you are in the right place.
On today’s show, I have a very interesting chap. He’s by the name of Niklas Adalberth, he’s a cofounder and deputy CEO of Klarna. It’s a super-fast growing European ecommerce checkout solution that uniquely assumes store claims for payment and handles customer payment thus eliminating the risk for sellers and buyers. It’s more like a payment intermediary. He’s going to shed more light about how it works. They’re a funded ecommerce stat-up with investments from VC giants such as ACOA, Atomico, DST and General Atlantic, so really interesting. Welcome to the show, Niklas.
Niklas: Thank you very much.
Kunle: Could you take a minute or two to tell us our audience and listeners about yourself?
Niklas: Well, I’m 33 years old and started the company, Klarna, 10 years ago together with two friends. Previous background to that is basically nothing. I was flipping burgers at Burger King, I’ve done some travelling and so on and then, after I entered university, we got this idea and we gave it a shot.
Kunle: Phenomenal. A lot has happened over 10 years. We need to dig into your back story. So where are you from?
Niklas: I’m from Uppsala, which is about an hour North from Stockholm and the company is situated in Stockholm but is now in over 16 countries.
Kunle: Ok, let’s dig a little bit into your childhood. Were you entrepreneurial while growing up? You’re about three cofounders in Klarna, is that still the situation? From my background research, I gathered you were three.
Niklas: That’s correct. We were three from the start and two of us are still operational in the company. But to answer your question, I had nothing in my family or anyone that was an entrepreneur. That was not really a popular thing to become in Sweden all these years back, so being brought up in this universal town Uppsala, my father always said that I can do and be whatever I want, as long as I became a doctor.
Kunle: Is he a doctor himself?
Niklas: You bet it, yes he is.
Kunle: Like my dad. When I decided to study economics, he was like “No, you have to be a doctor”, you know how it goes. When did this journey start to the set-up of Klarna? I really want the first part of this interview to talk about the entrepreneurship and in the second part we’ll talk more about ecommerce. So how did the journey start? When did it really kick off to setting up Klarna?
Niklas: Making a long story short, I think you can say it started when me and Sebastian, one of the cofounders, decided we should travel around the world without flying. It’s a really stupid idea, because you see the world from a window basically. The problem was that Sebastian had to get back within 130 days so he could do his re-exam, so he could get into his master’s program, so we were very much in a hurry. We got all the way by hitchhiking, train, buses and so on. We came all the way down to Australia, but we missed the boat across the Pacific Ocean, one of these big cargo ships. The problem with that was that the next one would leave tree weeks later and hence he would miss his re-exam and need to stay over one year before he could get into his studies. For me, I had nothing really to come back to, so I was going to continue anyway and he didn’t want to give me the credit for the trip I guess, so he said “Ok, I’ll stay over a year and finalise this trip”, and so we did. Back in Sweden in 2003, you had the “.com” bubble so it was pretty hard for Sebastian to find a job and needed finance for himself for one year without studying. The only job he could find in the end was as a telesales person at a finance company basically selling financial services over the phone. The companies he contacted said “No, we’re not really interested in this”, bit then he got in contact with ecommerce companies and they said that “We don’t want your service, but if you guys are able to take the risk in a transaction so that customers can buy online and they can get the stuff and then pay for it 14 days later and you guys handle all the risk, then we’re interested.
Kunle: Roughly how many ecommerce businesses did Sebastian ring before he realised there is a problem, there is an issue, there’s demand and to warrant the need for a start-up?
Niklas: I think it was only one ecommerce firm that gave him this idea that was significant enough to say that “This is what we think the customers want”, they want to pay after delivery if possible or at least have it as an option. So if you guys can provide that, that’s what we want. I think that was enough to get that response.
Kunle: Did he go in depth with them and ask more questions or was it just one phone call that sparked the idea?
Niklas: No, he managed to get in relation with that person, they exchanged some ideas do I think it went a little bit deeper, he tried to present this to the management team of his former company, they were not interested so he said that maybe it was a bad idea after all. Back in school, I started to study as well, he presented this idea to me and Victor and we said “Yeah, it sounds quit nice, why don’t we give it six months and see what happens?”. So it was all a coincidence in the beginning. If we wouldn’t have missed that boat, there would be no Klarna today.
Kunle: That’s fascinating, and getting the job also, and finding that pain and addressing it. Are any of you techies? Did you guys start to build a proof of concept to get Klarna off the ground? What were the next steps after the idea was conceived?
Niklas: That was quite a big challenge. We had the idea to start up a fintech company, which required a lot of money, a lot of tech obviously, and we knew nothing about tech, we had no money, and my experience was from Burger King, so there was quite a gap there to start with. Now looking back, I think that that was a good thing because what that meant is that we needed to reinvent everything because we had no clue how a payment worked. We didn’t know that there was a terminology called “issuer” or “acquirer” or “PSP”. We had no clue. We just knew what the customer wanted. What we did is that we went around to different businesses trying to raise a small amount of money for us to get this off the ground. We ended up finding an angel investor that put in £60,000 to the company for 10%. But we also found 5 techies that did the initial platform, that did the initial programing. So that’s how we started.
Kunle: Did they work on a salary or was it sweat equity?
Niklas: They got equity. So it took us about 5 months and then we were live with the first test merchant, which was very exciting, it was a big milestone of course to see it actually work. Once again, back here in 2005, the idea was that you only enter top of the mind information, as a customer when you are in the checkout, you select “pay after delivery” and based on that data, top of the mind which is basically email and address, we do a risk assessment and based on that, if that is approved by us, you get an answer immediately saying that your transaction is approved, you will get your stuff at home and you need to pay 14 days later.
Kunle: So individuals are treated like businesses. Businesses tend to have 30 days after you receive your invoice, or 28 days or whatever the terms on the invoice are. Yours is 14 days. Prior to Klarna, what was it like buying items online for a typical Swedish or EU consumer?
Niklas: The typical way was basically as it was all over, I guess, just that you needed to enter your Visa or Mastercard number. Either that, or you needed to transfer the money directly to the ecommerce company. In both ways, you needed to pay in advance and just hope that you would get your stuff one or three days later, or maybe never get it, or maybe get a product with just stones in it or whatever. And newspapers in Sweden love to write about different fraud cases and so on, so a lot of people were afraid not only in Sweden but in the Nordics, in Germany and so on, to pay in advance and that’s where a payment method such as ours really did a lot for ecommerce because you never need to enter any sensitive data or pay in advance.
Kunle: So you take the risk of fraud and you pay the merchant. So if I was to shop on ASOS.com, who happen to be customers of yours I saw on your website, if I bought a pair of trousers and a few things from them worth £100, you give them the £100 immediately and then you come and take the £100 from me in 2 weeks’ time, as a consumer after I’ve received the goods?
Niklas: Exactly. The cool thing about this is this is how we started the company, this was a service. You actively need to select “I want to pay after delivery”. With this, we built up very sophisticated ways of doing risk scoring, actually being able to tell you as a consumer, just based on your name, email address and normal address, if we should allow this or not. So we’re thinking how we can use this even better to increase conversion rate for ecommerce companies. That’s when we developed the Klarna checkout just two and a half years ago. What this product means, this is the one we launched in the UK, is that you go to any ecommerce merchant that is connected to Klarna, you click whatever stuff you want, you end up in the checkout and that entire checkout is actually hosted by us. The only thing you do before selecting any payment method or anything, you ask them the “top of mind” data and you press “Buy now”. Then, when we confirm that order, it takes half a second, you end up on the confirmation page and that’s when you select a payment method if you want. If you don’t make an active decision, you will just need to settle this within 14 days. But the big thing here is that you don’t need to do it at the time of purchase. So if you are, for example, sitting in a subway or something and you want to do a purchase on your phone, it’s super quick to do it and you don’t need to enter your credit card details in advance, you can just place the order immediately.
Kunle: I have two questions. One is, what I gather from here is that you reduce that friction of entering my card details there and then, and with mobile I could be in so many places I don’t necessarily want to pull out my card or want to remember my card number, it’s too long for crying out loud, to actually make that payment. So it’s a commitment when I hit that “Buy now”. Because this is quite new to UK consumers, what other cues do they know that indicate that they’re making a commitment and should/must pay in the next 14 days?
Niklas: It is all down to the copy write. If you look at Klarna now, we have 50,000 merchants connected all over Europe to our payment system, we handle a quarter of a million transactions every day and since we host this, essentially it’s an iframe but it can be totally customised by the merchant, we’ve been able to do daily updates to the copy so that it’s perfectly clear to you as a shopper what you’re really engaged in and when you press that button, it’s an actual purchase.
Kunle: That makes huge sense. I have some stats here about Klarna which I want to share with the audience. We all know Klarna is headquartered in Stockholm, Sweden. 50,000 retailers use Klarna. Over 350 million shoppers across Europe have shopped with Klarna. 250,000 transactions a day are made with Klarna. Klarna has about 10% ecommerce market share in Northern Europe, Scandinavian Europe, and they have, correct me if I’m wrong, 1,200 employees in 10 years? That’s phenomenal.
Niklas: Yes. Actually our market share in the Nordics is 35%. So 35% of all online sales in Nordic is handled by Klarna. If you look to Northern Europe, we handle 10% of all ecommerce.
Kunle: Ok, that’s impressive. And you’re making a foray into the UK market now. How long have you been active in the UK?
Niklas: I will say 6 months. We have a team over there of 12 people and we’re now actively reaching out to large merchants, and medium and small of course, to tell about this new way of how you should deal with payments. That if you remove this friction, it’s much more likely that you’re going to get a much higher conversion rate.
Kunle: What has been the uptake like ASOS, as I alluded to earlier from your website “our customers”? Do you have any other customers our audience may know about in the UK?
Niklas: In the UK we are having four very big names going live this quarter. Apart from that, we have about 100 merchants that are live. One is DrEd for example, another one is Celebrity Fashion. So it’s not the giants, but they will come out now, this quarter so we look very much forward to that. The biggest one we will launch actually next week is Wish.com.
Kunle: Wish.com. We’re looking forward to that. I want to go back into your start-up story. How do non techies actually start and grow an ecommerce tech company?
Niklas: I think it’s a combination of naivety and really low self-consciousness and quite good self-esteem. So we really want to prove to our parents, I guess, and everyone around us that we can do this and we want to try to achieve this.
Kunle: Having other people, likeminded people around, a team of three initially to push each other together must also have been a catalyst to helping you grow the company I guess.
Niklas: Yeah, for sure. Anyone who has their own business, they know that it’s very much ups and downs. When you have your downs, it’s very good to be three founders that can actually help out in such moments to give energy. So that’s very important. Since we didn’t have a lot of experience, we did a lot of mistakes. The way we compensated for that to some extent was to work very very hard. I remember we had 5 free days the first two years, weekends included.
Kunle: That’s tough. But the dividends are certainly paying off now. Ok, you mentioned a moment ago about the new checkout package. I wanted to ask you a question. From a consumer perspective, once I’ve shopped with an ecommerce store that is powered by Klarna in terms of its checkout, do I have a Klarna account afterwards? Is it almost like a PayPal in that sense.
Niklas: To some extent, yes. What differs us from any other wallet or whatever is out there, is that you don’t need to register for Klarna, you don’t need to download an application, it just works instantly and that’s the big difference. We think that if you need to register, that just kills conversion and you should try to avoid that as an ecommerce company for sure. So Klarna works instantly.
Kunle: That’s friction again. That’s actually going to take me to my next question which is one page checkouts to be or not to be? What’s your opinion about one page checkouts? You guys are experts in checkout technology and payment. There’s always an argument in the ecommerce world “Should we go for a one page checkout, or should we go for a step-by-step checkout?” What are your thoughts on checkout?
Niklas: I have a very strong belief. The less steps, the less friction, the better. We’ve been national and a lot of merchants are seeing this over and over again that the more steps you have, the more you lose conversion on every step.
Kunle: Do you have any hard figures on how much more conversion you could possible get with fewer steps in the checkout process?
Niklas: Unfortunately, not by the steps. I know the Klarna statistics. If you take, for example, Adlibris, which is the Amazon of Nordics, we increased their conversions by 80% on mobile. So that’s quite big numbers. Wish.com, one of the fastest growing ecommerce companies in the world, I guess right now, we increased their sales by 4k% when they integrated Klarna. And that’s, once again, by removing this step of not forcing your customers to enter credit cards and creating this friction at the checkout.
Kunle: Do you have any videos that I could share on our website, in the show notes, as to how Klarna actually works in a live checkout scenario?
Niklas: Absolutely.
Kunle: That would be super useful to show that to our listeners. What’s your take on account creation in checkout process? Should that come afterwards or should that never even happen?
Niklas: I should more or less happen in the background I think. It’s different legislations in different countries of course, but the way we work is we always collect the email address first, that’s the first question we ask the customer to enter in the checkout, and by giving us that email address, you basically have a unique identifier to a customer. So what more do you need? Why should you force them into the registration, which kills conversion? Instead, you should encourage them to enter as little data as possible and you can still use that by having that in your terms and conditions.
Kunle: That’s interesting because also with cart abandonment software, all you need is the email. Some merchants go further to get the phone number so they can call, especially for high ticket items so they can call the customer back to see if they’ve abandoned their cart. So my question is how does Klarna work with cart abandonments software? Do you work specially with any third party providers or do you plug-in seamlessly with anything out there in the market?
Niklas: Yes, both basically. The Klarna checkout is like an open API so you can connect any provider you have to connect to this first question that we always ask, which is the email address so we can use that. Even more beautiful, if you look at how Swedish merchants are doing it, since we are able to provide this one-click checkout experience, basically, we collect the email as the first question, you can email the customer with a full basket in just one click to finalise this purchase that they haven’t succeeded with or didn’t finalise. That’s very efficient and something that I think every ecommerce company should work with.
Kunle: Absolutely. And you can do that from Klarna?
Niklas: Yes, we have a couple of partners that are very much integrated that you could use, but also if you want to do it yourself, you could also do that.
Kunle: Is it manual or could you set it up as an automated process in Klarna?
Niklas: Not in Klarna. You would have to use one of our third party providers to do this, if I remember correctly.
Kunle: Just to wrap up my questions around checkout best practices, how do you envision the future of ecommerce checkout, say 10-20 years from now?
Niklas: I think it goes back, again, to making it as easy as possible. Don’t mess up your conversion by combining buying and paying. Make buying as easy as possible and if they want to pay for this purchase immediately, let them do that. If they want to wait 14 days when they sit at their desktop or whatever, let them do that. I think that’s one key ingredient. I also think that finance in your purchase will be more and more popular. For example, if it is a high ticket item, you should be able to offer a finance solution with just a couple of clicks. This in order to create a higher average order basket, but also increasing the conversion. And third, I think it’s also important, depending on the country, to make the buying very easy, but also making the paying very easy if the customer wants, for example, say their credit card, they should be able to do it so that it just becomes one click and they can just forget about the payment.
Kunle: What do you think about payment platforms such as Apple Pay? Apple Pay has been testing now offline. When it makes that online move, what are your thoughts on Apple Pay?
Niklas: Good question. I think it will come down to that. People will have different preferences. I think some people would love Apple Pay and hence it needs to be included in the checkout. The way we work is whatever method of payment is popular, that is included in the Klarna checkout. For example, in Germany we’re connected to 7 different ways of paying and this is, once again, on the confirmation page. Because people have different preferences. In the UK, it’s very easy, it’s very credit card centric, it’s basically Visa, Mastercard, American Express. But we see all these different flavours in the market, so I think that, for sure, if Apple Pay nails it in the online world, that needs to be included as well as an option because some people will prefer it.
Kunle: I just want to clarify one strong point here. Do you also have a desktop offering? Because you mentioned Klarna mobile checkout suite. Is there also a desktop solution?
Niklas: There is. It’s totally platform agnostic. It is of course an impact as well on desktop to reduce this friction, but it’s absolutely most powerful on mobile, because that’s where people are less likely to pull out their credit card.
Kunle: So “Whish.com”’s entire checkout process will be powered by Klarna?
Niklas: Yes, that’s correct. We do that already, where the entire checkout is powered by us in the Nordics, in Germany and now we go live, this month, in the UK.
Kunle: This connects me to Klarna right now. What’s your business model? How do you make money off the back of that? If retailers integrate Klarna into their checkout, do they pay you a fee or is it a transaction fee? How does Klarna make money?
Niklas: The absolute majority of income is through a merchant fee which is transactional based. For every transaction, they pay a percentage which is very similar to a credit card transaction in terms of fee structure. But also, in some countries, we offer financing, since Klarna is basically a registered bank in Stockholm, we’re able to offer financing in a very easy way and we also earn money on that to some extent.
Kunle: Is the financing feature going to be in the UK or is it just for the Nordics?
Niklas: It will be in the UK as well. We’re looking into launching that on top of the Klarna checkout as an option, once again, when you are on the “Thank You” page in Q3 or Q4 this year.
Kunle: That makes sense. Would that be under the Klarna brand or under another sister brand?
Niklas: It will be under the Klarna brand.
Kunle: Fantastic. Could you give us an idea of what turnover was like in 2014 for Klarna?
Niklas: The turnover for 2014 is not disclosed yet unfortunately and that’s due to the fact that we are regulated and we need to do it to the financial authorities first. But it’s been a strong growth obviously.
Kunle: Fantastic, good stuff. What about the US? Because half of our listeners to this show are based in the US and the other strong half is based in the UK. Do you have any expansion plans into the United-States?
Niklas: We do. We actually already have a 19 people team in the US in 3 different offices. We are connected to launch and go live by the end of Q2. So we’re very close to launch, so that’s very exciting. The same thing there, we’re seeing that merchants have a big problem with conversion rates on mobile and tablets. The average effect is that we match the conversion rate that you have on desktop and seeing how much the mobile traffic is increasing but you have a really bad conversion rate, that is also a very big problem for US retailers and we solved that with the Klarna checkout. So we think that we have a good opportunity in the US.
Kunle: Sounds really interesting because I think from a customer/client acquisition standpoint, that’s where your next phase of growth is going to come from, from the US. It’s such a massive ecommerce market. Around $300 billion the last time I checked in 2014.
Niklas: It is. But going back to the UK, we see the UK as a massive opportunity as well. It’s basically as big of a market as all our existing ones that we have now so it’s a huge commitment.
Kunle: I agree with you 100%. It’s over £100 billion now in the UK, ecommerce. Before you go, are there any books or resources about growth marketing in retail you’d recommend to our listeners?
Niklas: There’s such a long list of books I’m going to read and that I should read but I tend to procrastinate, I don’t know why, maybe the list is just too long. I wish I had it. I tend to settle for looking at 20-minute clips on Ted.com or something like that about personal development and stuff, so I’m sorry I don’t have it.
Kunle: No worries. Bite size info always works. Before you say goodbye, could you give our listeners one parting piece of advice around conversions or checkout? Anything that would help them grow their ecommerce stores?
Niklas: I think make it as easy as possible for your customers to shop, especially on mobile. And make sure if you do expand to other countries, to have the payments localised. It has a huge impact on whether you’re going to be successful or not.
Kunle: Fantastic, good stuff. Where can our audience find and reach out to you on social media? Do you hang out on any social media channels?
Niklas: I’m a little bit bad at that, so maybe it’s a little easier if they just email me at niklas@klarna.com.
Kunle: Fantastic. Thank you so much for being part of the show, Niklas. It’s been an amazing time with you and thank you for being on the show.
Niklas: Thank you so much for having me.
Kunle: Cheers.