klarna
Banks Editor's Choice Fintech Companies

Klarna Boasts Huge Profits From Spend-Before-You-Earn Payments

Klarna has released its annual financial report for 2018, revealing that the challenger’s buy-now-pay-later service continues to resonate strongly with its young user base, merchants and partners.

With an average of 1 million transactions a day on the platform, Klarna’s total global sales volumes rose by 36% YOY in 2018 to 29bn USD. The rise in volume follows an equally formidable 31% lift in revenue to 627m USD in 2018. However, its critics argue that Klarna’s spend-before-you-earn payments service encourages irresponsible levels of spending amongst millennials.

“This form of introduction to credit does not encourage budgeting and supports the ‘I want it now’ purchases of items people may not be able to afford.” – PayPlan

Klarna provides payment services to over 130,000 retailers including the likes of IKEA, H&M, Ticketmaster Europe and Sonos. Klarna’s consumer base has also expanded rapidly, gaining almost 26 million new users in 2018. It users are mostly under 30 and shopping online, therefore Klarna’s buy-now-pay-later is bound to hold a near irresistible appeal as shown by Klarna’s gargantuan growth. Many markets are seeing up to 70% of consumers making repeat transactions during the year.

In a press release issued yesterday, Luke Griffiths (UK General Manager, Klarna) said;

“2018 has been a phenomenal year for us. Klarna has led the market in establishing an entirely new category with Pay later, that has proved hugely popular with today’s savvy consumers expecting more flexible, personalised and intuitive ways to shop. As a result, in response to demand from customers, we’ve seen a significant rise in the number of retailers adopting Klarna solutions in the last 12 months. This includes some massive global brands  like IKEA and H&M joining the family, with the pipeline ahead just as strong.”

Using the hashtag #iwantklarna, the platform’s would-be customers are petitioning their favourite brands to adopt the challenger bank’s payment system in the online equivalent of a mass temper tantrum. Petulant? Probably, but its working apparently. New retailers during 2018 include In The Style, Missguided, Swoon, Moss Bros, Beauty Bay and Gymshark, alongside Klarna favourites like ASOS, Topshop, Schuh and JD Sports. In all, Klarna UK currently has over 3,500 active UK retailers. 

Using the hashtag #iwantklarna, the platform’s would-be customers are petitioning their favourite brands to adopt the challenger bank’s payment system in the online equivalent of a mass temper tantrum.

During 2018, Klarna launched a short-term instalments product that allows shoppers to fund purchases in three equal interest-free payments. The popularity of this offering has soared with merchants since its launch, with Arcadia’s brands including Topshop, Topman, Miss Selfridge, Wallis and Burton among the first to go live in November 2018. After adopting this product, retailers see on average a 55% increase in AOV and a 44% increase in conversion.

However, Jane Clack, money adviser at debt advice firm PayPlan, argues that Klarna’s bottom line doesn’t tell the whole story:

“This form of introduction to credit does not encourage budgeting and supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.”

TFT asked the challenger whether Klarna’s spend-before-you-earn model encourages bad financial habits amongst its (mostly young) users but at time of going to press no reply there came…

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