Buy Now, Pay Later

JULIA LLEWELLYN SMITH met SEBASTIAN SIEMIATKOWSKI, the Swedish entrepreneur who revolutionised how millennials shop. As he’s got richer, is his no-strings credit company getting a generation hooked on instant gratification… and even more debt?

Julia Llewellyn Smith

What did you do during lockdown? If you’ve lost your job or been furloughed, probably very little. But for those still employed, deprived of so many other forms of entertainment, online shopping became one way of passing the evenings, with online purchases rapidly becoming more and more bizarre. While paying, it’s hard to avoid the pink little log that pops up next to Pay Pal. It’s Klarna, the newest kid on the payment block: the Swedish bank that effectively acts as a no-strings credit card, allowing shoppers to satisfy their retail cravings by buying now, paying later.

Twitter makes clear the part Klarna played in lockdown. One in six 18 to 24-year-olds used a pay later scheme like Klarna when shops closed. “It’s nothing to do with skills,” says Sebastian Siemiatkowski, who founded Klarna aged 22 with a friend he met at Burger King. The pandemic’s early weeks, Siematkowski explains, saw a huge rise in the countries Klarna operates. Then as people how to entertain themselves, there came a 155 per cent jump in the sale of games consoles. Thirdly came a massive increases in exercise equipment sales. Now it’s fashion.

Klarna prides itself on being different. It’s wooed audiences of Ru Paul’s Drag Race through campaigns by Lady Gaga, and its got investors onside with a Top Shop collaboration. Customers leave their name, email and address at the checkout, choosing to pay later, ‘in three’ (equal statments), or by ‘slicing it’ (repaying in installments from anything between three months and three years). Store credit is hardly a new concept. Companies such as Next, not to mention the giant Pay Pal all offer ways of delaying the dread. Where Klarna claims to differ is that it has no interest rates, fees or charges. Customers are approved by sophisticated algorithms that scan everything from their social media activity to buying patterns: people who spree at 3am or buy, say, four iPhones simultaneously, will have their applications blocked… a fairly frequent occurrence, judging by Twitter complaints. Profits come not from fleecing customers, but from retailers, who pay Klarna a slice of each transaction. They’re convinced by statistics showing a 30 per cent increase in the average online store order and a 34 per cent increase in the average spend.

The idea for Klarna came to Siemiatkowski in 2003 when, having dropped out temporarily from university, he was working in a call centre for debt collectors. Online retail was in its infancy and he was able to observe its pitfalls. “Swedes hated the idea of merchants holding onto their money while it was processed.” Klarna avoided these problems and, since 2005, the company has expanded rapidly across Europe. It arrived in the UK in 2014, and the following year in the US. Today, Klarna works with 205,000 retailers including IKEA and H&M, used in-store via an app. It has 85 million customers, 7 million of whom are British (the company last year attracted an average of 88,000 new customers there a week).

But for every Klarna devotee, there’s a vociferous critic. Many argue that the bubblegum branding and adorable adverts, with pencils slicing through wobbly jelly and dogs splashing in swimming pools, disguise the fact that Klarna is an old-fashioned loan shark, encouraging young people to spend cash they don’t pocess. Klarna’s website is upfront about the fact your credit score will be affected if you don’t pay. There’s a warning that people who haven’t paid after 120 days may be referred to a debt collection agency.

More worrying, perhaps, is that many of the retailers who’ve partnered with Klarna are some of the most notorious proponents of fast fashion, estimated pre-corona to be the biggest wrecker of the environment after aviation. Klarna’s frictionless shopping encourages customers to snap up cheap clothes, only to bin them or, with huge emissions, send them back to retails who themselves often confine them to landfill. “They’re making huge efforts to improve,” Siematkowski says. He’s working on having the Klarna app inform shoppers of their impact and he’s recently invested in Depop, the secondhand clothes platform beloved of teenagers. Others are uneasy that Alibaba, China’s Amazon, took on a stake in Klarna, but Siemiatkowski says he’s “happy to work with them”.

The son of hard-done-by immigrants, Siemiatkowski takes the Metro around town and his children work to earn money. They go to state school (not that there’s much alternative) and his son’s just been picking pine cones to earn a toy he wanted. The person who found his fame hardest to deal with was his father, who died in 2014. He will never get the real recognition he deserves but, like many tycoons, he will never feel he’s achieved enough.

JULIA LLEWLYN SMITH is a freelance writer.

For the latest Nordic news, follow @FikaOnlineBlog on Twitter.

This article has also been published (unamended) in The Times.

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