Making sense of Klarna

'If you are of a political viewpoint that credit is always bad, I'm going to have a hard time arguing with you'

Sebastian Siemiatkowski, the co-founder and CEO of Klarna — the Swedish fintech “buy now, pay later” sensation that is currently Europe’s most valuable private tech company — is dismissive of the suggestion that non U.S. companies should relocate to Silicon Valley if they really want to grow.

“We did hear that and I think it’s very poor advice,” he says. An overheated market for tech talent and the fickle nature of employees that are constantly job-hopping, he argues, make it harder to build a company for the long term.

Then he goes further.

“When I went to San Francisco for the first time about 10 years ago, [it] was a magical place. It was the early days of Facebook, there was an amazing vibe. When I go to San Francisco today, it’s changed to become, in my opinion, fairly cold.”

Siemiatkowski, a Swedish national and the son of two immigrants from Poland, is also sceptical of the “American dream.” In contrast to America, he points out how Sweden is among the most successful societies in the world from a social mobility perspective — referencing its free education and free health care, which sets up as many people as possible for success. But there is one caveat: he doesn’t think first-generation immigrants in Sweden do nearly as well as their children.

“We didn’t have a lot of money,” he tells me. “My father was driving a cab, he was unemployed for many years, even though he had basically a doctorate in agronomy. That’s kind of the unfortunate part of this, but that has obviously created a massive amount of hunger with me.”

As second generation success stories go, the rise of Klarna is up there with the best, even if it has already been 15 years in the making.

Backed by the likes of Sequoia, Silverlake, and Atomico, a new $650 million funding round in September gave the company a whopping $10.65 billion valuation — almost double the price achieved a year earlier, cementing its status as a poster child for Europe’s ability to build tech companies valued far above $1 billion. Siemiatkowski still owns an 8.1 percent stake.

Klarna is also, perhaps, even more mythical than a unicorn: a fintech that has been profitable nearly from the get-go. That only changed in 2019, when it decided to incur losses in favor of investing millions trying to conquer the U.S. market, choosing New York and L.A. over San Francisco for its American offices.

The company has been built on the concept of giving consumers a way to buy things online without having to pay for them upfront, and without resorting to a credit card. It does this both by offering online retailer integrations where Klarna appears as an option at check out, and through its own “shopping mall” app, where users can browse all the stores that let you pay with Klarna. On the back of this, the company hopes to foster a bigger financial relationship with its users as a fully-fledged bank.

If a bank is partly about corralling enough users on to your platform to pay money in and out, Klarna is well on its way. Today, the company boasts a registered customer base of 90 million, 11 million of which are in the U.S. In the last year alone, 21 million users were added globally. Klarna’s direct to consumer app, which sits alongside its 200,000 strong merchant point of sale integrations, has 14 million active users. Combined, Klarna is processing over 1 million transactions per day through its platform.

Image Credits: Klarna

This growth has continued apace as Klarna rides one macro trend and bucks another: Prompted by the pandemic, e-commerce has gone gangbusters, while, conversely, consumer credit as a whole has been in decline as people are paying down longer-term debt in record numbers. Even before COVID-19, Klarna and other buy now, pay later providers had been successfully picking up the slack created by a credit card market that, in some countries, has been steadily contracting.

Yet with a business model that generates the majority of its revenue by offering consumers short-term credit — and against a backdrop where the idea of easy credit and infinite consumption is increasingly criticised — the fintech giant is not without detractors.

When I mention Klarna to people who work in the European tech industry, the reaction tends to fall into one of three camps: those who reference the company’s “weird” above the line advertising and social media campaigns; those who use the service regularly and talk in terms of guilty pleasures; and those who are outright scornful of the impact on society they perceive Klarna to be making. And it’s true: You can’t help but be suspicious of something that gives consumers the feeling that they can spend money they might not have. And those “Smoooth” ads (below) certainly don’t offer much reassurance.

Delve a little deeper, however, and it becomes clear that the company’s business model can be misunderstood and that the arguments playing out in the media for and against buy now, pay later is only one part of the Klarna story.

In a wide-ranging interview, Siemiatkowski confronts criticisms head on, including that Klarna makes it too easy to get into debt, and that buy now, pay later needs to be regulated. We also discuss Klarna’s business model and the balancing act required to win over consumers and keep merchants onside.

We also learn how, under his watch and as the company began to scale, Klarna missed the next big opportunity in fintech, instead being usurped by Adyen and Stripe. Siemiatkowski also shares what’s next for the company as it ventures further into the world of retail banking after gaining a bank license in 2017.

And, told publicly for the first time, Siemiatkowski reveals how he once sought out PayPal co-founder Max Levchin as an advisor, only to learn a little later that he had started Affirm, one of Klarna’s most direct U.S. competitors and sometimes described by Europeans as a Klarna clone.

But first, let’s go back to the beginning.

Klarna’s debut transaction took place at 11:06:40 am on April 10, 2005 at a Swedish bookshop called Pocketklubben, according to the abbreviated history published on the company’s website. However, what is made less explicit is that there was likely very little technology involved. The real innovation was a business one, with Klarna’s young and non-technical founders, Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsso, taking an old idea and reconfiguring it for the burgeoning e-commerce industry.

By enabling customers that shopped online to be mailed an invoice with 30 days to pay, online shopping could be made easier and safer for consumers, which in turn helped increase sales for retailers.

“The invoicing company”

“When they started, they didn’t position themselves so much as a startup or as a tech company,” recalls Skype founder Niklas Zennström, whose venture capital firm Atomico would eventually become a Klarna investor in 2012. “People referred to them as the invoicing company.”

Today, Klarna is most certainly a tech company, employing 1,300 software engineers out of a staff of over 3,500. The company is now entirely cloud based and with various fully automated processes, from credit risk processing to algorithms in the Klarna shopping app to personalize content for individual consumers to AI/machine learning for 24 hour customer service.

Crucially, however, even this early and rudimentary version of what would become ‘buy now, pay later’ ticked two important boxes. Consumers, especially those who were distrusting of e-commerce, could be sure they’d receive goods before being charged, and if for any reason a product needed to be returned, customers wouldn’t have to wait weeks to be reimbursed as they hadn’t outlaid cash in the first place. Arguably both problems were already solved by credit cards, but in countries like Sweden, credit card take up was low, while the humble debit card doesn’t carry the same consumer protections as a credit card.

“The reason that we were able to launch it and be successful was because we were in a market where debit cards were much more prevalent than credit cards,” says Siemiatkowski. “And most people who have credit cards don’t reflect on the fact that if you have a debit card and you shop online, you face a number of struggles that a credit card holder does not.”

Those “struggles” include tying up your own money for the time it takes to return an item and process a refund. In contrast, when you spend on a credit card, the merchant is effectively holding your credit card company’s money.

“If I am buying some items and feel a bit unsafe about the merchant I’m using, if there’s a credit card, I don’t feel like I’m risking my money. If it’s my salary money you’re actually holding as a merchant for three weeks while you’re processing the return, that’s a problem,” Siemiatkowski argues.

Instead, Klarna would step in and offer to pay the merchant up front while providing customers 30 days to settle their invoice. Later this would be extended to include installments as an option. In return for taking on all of the risk and promising to increase conversions, merchants would give the Swedish upstart a percentage cut of the transactions.

“They wanted to make it really simple by just putting in your name, your Social Security number, and then you can instantaneously get an option to get an invoice sent to you later on. So what it did was remove a lot of friction from buying,” says Zennström.

Meanwhile, the more retailers sold, the more revenue Klarna would generate, all without consumers having to be charged interest on what might otherwise be described as a short-term loan. Pitch perfect, you might think. However, in early 2005 and before the company was incorporated, the concept was stress-tested at a “Shark Tank”-style event held at the Stockholm School of Economics and attended by the King of Sweden. The judging panel, made up of prominent Swedish financiers, were not convinced and Klarna’s invoicing idea came last in the competition. Despite the loss, Siemiatkowski held on to feedback from an unknown member of the audience, who surmised that banks would never launch something similar. Siemiatkowski left undeterred.

Angel investment from a former Erlang Systems sales manager, Jane Walerud, followed and she put Klarna’s founders in contact with a team of developers who helped build the first version of the platform. However, it soon surfaced that there was a misunderstanding in relation to the equity promised and how it should be linked to a longer commitment to the project.

Reflects Siemiatkowski: “One of the drawbacks that we had at the company was that none of the three co-founders had any engineering background; we couldn’t code. We were connected to five engineers that by themselves were amazing engineers, but we had a slight misunderstanding. Their idea was that they were going to come in, build a prototype, ship it, and then leave for 37% of the equity. Our understanding was that they were going to come in, ship it, and if it started scaling they would stay with us and work for a longer period of time. This is the classic mistake that you do as a startup.”

Eventually, the original five engineers quit, leaving Siemiatkowski to manage something he didn’t understand. “We obviously hired a CTO, but I also needed to be able to evaluate his decision making and all of these things in order to be able to assess whether we had the right setup to achieve what we want to achieve,” he says.

Between 2006 and 2008, Klarna continued to grow as more people started shopping online. The company expanded beyond Sweden to neighboring Nordic countries Norway, Finland and Denmark, with a headcount that had reached 120 employees. Even though there were signs of growth, Siemiatkowski says it still took a long time to realise that if Klarna was ever going to be really successful, it needed to fully transform into a tech company.

“We were really good at sales, we were okay at marketing, [and] we were service oriented: we really delivered to our customers. But it wasn’t really that technology driven,” he concedes.

To attract the kind of tech talent required, Siemiatkowski decided he needed to woo a renowned tech investor. Further backing had come in 2007 from Swedish investment firm Investment AB Öresund, but by 2010 the Klarna CEO had two new targets in his sights: Niklas Zennström, the Swedish entrepreneur who had already achieved legend status back home after building and selling Skype, and Sequoia Capital, the Silicon Valley venture capital firm that had invested in Apple, Google and PayPal.

“Part of our thinking about how we make Klarna attractive for people with engineering backgrounds was to get an investor that really had the brand and could kind of put their mark on us and say, ‘this is a tech company,’” says Siemiatkowski.

There is every likelihood that Zennström’s Atomico would have joined Klarna’s cap table in 2010 if it weren’t for a single line of text published on the VC firm’s website, which read something like, “don’t contact us, we’ll contact you.” Europe’s startup ecosystem was still immature and what now seems like aloofness was probably nothing more than a crude way to deter cold pitches from non-venture type businesses. But whatever the intent, it would be another two years before the firm eventually had the opportunity to invest in Klarna at what was almost certainly a much higher valuation.

“That was our loss for being too arrogant,” says Zennström. “Clearly we didn’t pursue them, we didn’t discover them because we didn’t have them on our radar. When we got to know them [two years later], what we liked a lot as a firm was the pain point that they were addressing.

“E-commerce was a relatively low single digit penetration of all retail, but of course growing, and we have always believed that e-commerce is going to continue to grow and become bigger than physical retailers. We thought that if you can remove that friction of the payment, and offer people different payment methods, that’s a really big proposition.”

“I always tease Niklas about it,” admits Siemiatkowski. “They wanted to, you know, keep it exclusive and I get it. So we were like, ‘okay, we can’t get hold of them, so let’s talk to Sequoia instead.’”

However, cold calling Sequoia wasn’t going to cut it either, not only because the firm didn’t generally invest in Europe, but also by Siemiatkowski’s own admission, Klarna didn’t look much like a tech company at the time. Luckily, a mutual contact got wind that Sequoia was on the lookout for interesting companies in the region and Klarna’s name was promptly thrown into the mix.

“Chris [Olsen], who was working at Sequoia at the time, called me, [but] I had this idea that I needed to be hard to catch. So I decided to not call back for three days, which was a very nervous time where I was just sitting on my hands not doing anything,” he said. “It was like, I don’t want to look like I’m too interested in this. Eventually, after three days, I call back and we did an exclusive deal with them, which I don’t recommend companies do.”

In hindsight, the Klarna CEO advises that it’s always smarter to foster competition in a round. As the only show in town, Sequoia invested at a $100 million valuation. “They bought 25 percent of the company and that was kind of it,” he says.


Siemiatkowski believes a company is made up of three things.

The first he calls internal momentum: “How fast are we moving as an organisation? How good are the decisions we are taking? How much are we avoiding [company] politics? How much of a true meritocracy are we?”

The second is profit and loss.

And the third is valuation. In a small company these three things are closely correlated in time, he says, “so if you have great internal momentum, you will instantly see it in your P&L, and then you will instantly see that hopefully in your company valuation as well.”

But in a large company, because of its size, the challenge is that they start to become disconnected. “They’re obviously in the long term always 100% correlated, but in the short term, they can vary a lot,” cautions Siemiatkowski.

Unsurprisingly, fueled by Sequoia’s cash, Klarna continued to grow in 2010, ending the year with $54 million in annual revenue, an increase of 80%. In December 2011, General Atlantic and DST would invest $155 million in a round that gave Klarna the coveted status of a unicorn.

Siemiatkowski says, compared to the company’s subsequent $5.5 billion and $10.65 billion valuations, this is the one that put him under the most self-scrutiny.

“In just one and a half years, we went from $100 million to a $1 billion. And then I felt the pressure,” he tells me. “I felt like we made it such a competitive round because we wanted to compensate for what we saw partially as a mistake with Sequoia that we kind of went too far the other way.”

Klarna finally took Atomico’s money in 2012, and within two years had grown to over 1,000 employees. Along with multiple offices around the globe, the company moved to bigger headquarters in Stockholm and expanded to the U.K. with an office in central London. Yet, somewhere along the way, Siemiatkowski says Klarna had lost internal momentum.

“As the company scaled and we started adding more markets and growing fast, for me as CEO and co-founder, I found that very difficult,” he admits. “As long as we were up to 100 people, I found it easier, I understood how to talk to people, how to get things done, how to develop new products or features and so forth. It was all much less complex, and then we started approaching a couple of hundred people and I felt more and more lost in all of that.

“It was difficult, and at the same point of time, we still had a lot of success because we had built this product that worked really well and there was a lot of momentum coming solely from the product itself.”

Siemiatkowski says that most startups don’t recognize that “once you get the snowball rolling, you can actually do quite a lot of stupid things, and the snowball will continue rolling.”

The Klarna CEO doesn’t say it, but one of those “stupid things” came in 2012 when the startup faced a backlash in its home country. Instead of sending payment instructions in the post, the company had switched to email without considering that messages might go to spam or simply remain unread. This saw customers unintentionally defaulting and then being chased for payment, leading to accusations in the media that Klarna was tricking people so it could generate more revenue through late fees.

Image Credits: Klatna

Siemiatkowski says the company learned from the incident and that the next few years were spent just dealing with growth. At the same time, he didn’t feel that the organisation was getting any smarter. “I rather felt the opposite,” he says, “and I was getting frustrated that we were becoming more political, it was harder to take decisions, [and] slower moving.”

Riding high on Klarna’s success and because “we were very cocky, we were 28 years old and we were like, we can do many more things,” the team developed a new ambitious strategy they called Klarna Checkout.

Siemiatkowski put together a board presentation saying that Klarna was no longer going to offer one payment method, but would help merchants achieve better conversion rates by removing all of the “ugly steps” associated with online checkouts, making shopping online much more user friendly regardless of payment method. In the same presentation he highlighted three competitors that Klarna would need to keep an eye on: PayPal, which Siemiatkowski predicted would continue to have success, and “two very small startups that almost nobody had heard of”. They were Netherlands-based Adyen, who the Klarna CEO says really understood global payments, and San Francisco-based Stripe, which had figured out automatic onboarding and “a product that developers love.”

Fast forward to 2013. Siemiatkowski remembers seeing a press release announcing that Adyen had launched 50 payment methods in Southeast Asia. ‘I was like, ‘oh my God,’ we were struggling to add one payment method in Germany,” he recalls. “We are going to lose this massive opportunity if we don’t get our act together and I felt frustrated about that. I still hadn’t really figured out how to make a big company work.”

Then, in 2015, news broke that Klarna’s neighbours, Spotify, had signed with Adyen, and Siemiatkowski instinctively knew too much ground had been lost. “I just had to look myself in the mirror and say, ‘look, guys, this opportunity that we identified, it’s fascinating, it’s interesting, it’s great, but the train has left the station.'”

After a lot of soul searching and asking, “what now?” he concluded that there were only two options remaining. The first was to dress the company up as a worthy Adyen or Stripe competitor and try to find a deep-pocketed buyer, something Siemiatkowski says never really excited him or the other ambitious people at Klarna. Having previously been correct about what consumers wanted and how the industry would develop, the second option was to see if Klarna could figure out once again where the puck was skating.

“We said, ‘okay, let’s hope and assume, and take the bet that maybe we’re lucky enough to spot the next big trend’,” recalls the Klarna CEO. Only this time, the company would need to actually execute.


I wonder out loud if, when Siemiatkowski was younger and perhaps more idealistic, he ever envisaged starting a company that offers short term credit. “For those that are unable to meet the installments, they have actually borrowed money. Is that what you wanted to do?,” I say.

“I get your point, I get your question,” answers Siemiatkowski, with the patience of a man that has been asked to defend Klarna many times before. “I think first and foremost, we started Klarna on this idea of ‘try before you buy,’ right, that was really it. So the credit was less about people borrowing money, it was more about the ability to touch and feel the goods before you paid for them.”

From a starting point of issuing 30-day invoices, adding an installment option was a logical next step.

“It wasn’t like we were, ‘Oh, this is going to affect the world, this is going to be a solution used by millions, what is our social responsibility?” says the Klarna CEO. “To be honest, in 2005, not a lot of people felt like that because also the mentality has changed, right? We were young and it was a small company… we didn’t reflect much on these things.”

As the company started growing and the team realised it had become something that actually has an impact on people’s lives, “then obviously, you start reflecting and thinking, ‘okay, what does that mean?’” says Siemiatkowski.

“Where we have landed is a couple of things,” he continues. “One is that if you are of a political viewpoint that credit is always bad, then I’m going to have a hard time arguing with you, right? Because, what am I going to say?

“As a company, you have a responsibility to make sure that people don’t overuse your product, or use it in a way that is bad for them. I do believe that there’s a responsibility on both sides: the consumer has the responsibility to be wise in their decision-making, the company has a responsibility to try to make sure and help consumers to be as wise as possible. So there is a balance there.”

“Has Klarna got the balance right?”

“Today? Yeah,” says Siemiatkowski. “I think that we have improved, [but] I’m not sure that if you look over the 15 years, every decision that we ever made, we had the right balance. We have, as every other company, made mistakes.”

The Klarna CEO is keen to point out that credit cards have been around for over 50 years and, he argues, “most people tend to think that credit cards play a meaningful role in society, and they are not something that should be banned.”

And, he says, if you believe credit cards are acceptable then you shouldn’t have a problem with Klarna’s buy now, pay later product, since it doesn’t charge interest, and in markets like the U.K., there are no late fees.

(In some countries, including the U.S., Klarna does charge a late fee and there is an ongoing debate within the company whether late fees should be introduced in all markets since it may incentivise customers to pay on time and not inadvertently fall into debt. Klarna also has a separate lengthier 6-36 month traditional credit product in some markets for which interest is charged.)

I tell the Klarna CEO that a number of tech industry people in the U.K. I’ve spoken to have compared the company to Wonga, the now disgraced payday lender originally backed by venture capital firms Accel, Balderton and others, which, like Klarna, built technology to do automatic credit risk processing. One reason for the comparison, I posit, is that Wonga’s defence was along the lines of, ‘we are less bad than the really, really bad guys’ — a line that the tech press, this now much-wiser journalist included, tended to swallow wholesale. “There is something similar to your argument, which is, ‘we are less bad than credit cards,'” I say.

“There is a similarity in the argument, but there’s a very big difference in the business model [and] Wonga was an extremely different business,” says Siemiatkowski. “When we have been criticised around this, we’ve always decided to listen, to be transparent, to take to heart, to try to adjust and fix if we feel that the arguments are solid and it makes sense.

“That’s the biggest difference, in my opinion, compared to the company you mentioned. I don’t really feel like that was the case, they were just arguing that their line was right, but there was never any real intent to try to adjust.”

Alice Tapper, a financial campaigner in the U.K. who in June started the #regulateBuyNowPayLater campaign, doesn’t dismiss the credit card defence entirely, saying that “Klarna’s products may well be a better alternative to credit cards for some consumers”. However, she argues, it doesn’t mean buy now, pay later products should be exempt from regulation. “They’re different products with different risks. Klarna is unique and arguably more dangerous in that it offers credit at the point of purchase, on impulse and with no risk-wording,” she tells me.

Klarna “Smoooth” ad campaign

That’s because buy now, pay later offered by retailers falls outside of U.K. regulation designed to protect consumers from credit-based financial products.

“It’s a classic case of regulation not keeping up with tech giants; the consumer credit act, written back in the 1970s was not drafted with algorithms and split-second lending decisions in mind,” says Tapper. “What this means in practice is zero consumer protection. Consumers are given no information about risk at the point of purchase or in ads. No mention of debt collection or responsible spending. This is particularly concerning for young and vulnerable consumers, who may have no prior experience of using credit products.”

Tapper adds that there’s a broader risk that buy now, pay later — and in particular Klarna, since it “markets itself as harmless and risk-free” — could be a gateway into more significant financial problems.

“I think good regulation that’s written in a meaningful way could make sense,” says Siemiatkowski. “We’re not against it at any point, as long as it makes sense, as long as it’s equal for all players in the market.”

But does the Klarna CEO accept that the company’s buy now, pay later product — which, after all, is designed to increase spending — can push young people into debt?

“In essence, no, I wouldn’t use the terminology of ‘push,’” Siemiatkowski says, “but I do think that any product that offers credit could result in somebody falling into a situation where they use too much of it.”

To help prevent this, Klarna has added a number of budgeting tools to its app to let customers put a limit on how much they use the company’s credit products. Siemiatkowski compares the functionality to the limits that can be placed on a credit card.

Another criticism that Tapper levies relates to credit reporting. In the U.K., Klarna doesn’t conduct a “hard search” with third party credit rating agencies (CRAs), such as Experian, for its buy now, pay later product. This is hailed as a good thing since purchasing via Klarna’s buy now, pay later option won’t unwittingly impact a consumer’s credit score in the same way that applying for a loan might. However, the downside is that Klarna isn’t then required to share data back to CRAs. This effectively means that other lenders are kept in the dark with regards to how much a consumer has leveraged buy now, pay later.

“It’s a complex issue and it’s important to also acknowledge the less than perfect credit referencing system in the U.K.,” she tells me. “However, by not reporting a missed or default payment to a CRA, Klarna is bypassing an important communication mechanism between lenders. If someone can’t pay their Klarna bill, other lenders won’t be aware of that, meaning a consumer may go on to accrue more serious debts.”

Perhaps the biggest single defence of Klarna’s buy now, pay later product comes via an examination of its core business model and how this is reflected in default rates. The old journalist adage of “follow the money” points to Klarna making the overwhelming majority of its revenue from retailers who pay Klarna a percentage of each transaction. In other words, late fees or interest charged is not how Klarna’s buy now, pay later offering drives the majority of its revenue.

“In Sweden, there’s been complaints that they’re making money on late fees… But my understanding is that is not really the business model,” says Zennström, whose venture capital firm has developed a framework for so-called “ethical scaling.”

“It’s not to make money off late fees, that much I know. I think if their model would be, we’re going to make it very unclear to people, and we’re going to obfuscate and we’re going to charge them more and more on late fees and rack up our margins there, then we have a big problem,” he tells me. “I would tell Sebastian that I have a big problem with it and I will also tell him I think that’s going to be hurting his business long term.”

Citing low default rates — 0.6 percent globally and much lower levels than average credit card defaults — Zennström says the company has always tried to minimize that part of the business. “I know that they are trying to avoid that because it’s not going to create a great brand,” he says.

However, one weakness in the revenue model defence is another old adage: who pays the piper calls the tune.

And although it’s not always that simple when trying to build a two-sided marketplace — not including that a number of retailers have also invested in Klarna, such as Swedish fashion giant H&M — it does invite the question of who is Klarna’s primary customer, the consumer or the merchant?

Siemiatkowski laughs. “You can imagine the amount of fun discussions we’ve had about that internally,” he says. “It took us some time to figure this out but there’s two answers to your question.”

Image Credits: Klarna

First and foremost, Klarna has to serve the interests of consumers, since it operates within an environment where there are typically multiple payment buttons on a merchant’s online store. “There’s going to be a PayPal button, an Amex button, an Apple Pay button… There’s a number of buttons there,” says Siemiatkowski. “The key question that Klarna needs to answer is, why would anyone click our button over anybody else’s button?”

A number of times during the interview, he also says “it would be foolish as a company to rely on a single feature as a competitive advantage.” In addition to buy now, pay later and Klarna’s other payment options, he says the company is the only player of its size that has SKU-level data on every transaction. In the U.S., Australia and Sweden, the Klarna app provides digital receipts, images of items you have bought, the ability to initiate returns and track delivery, and various budgeting tools.

Siemiatkowski says that if Klarna is successful at building something that consumers like and have a preference for, it allows the company “to do amazing, fun and interesting things” with merchants. “It allows you to find new customers for them, help them drive more success with their business, and so forth.”

A merchant could do a joint campaign with Klarna by offering a discount targeted at customers the company thinks are mostly likely to be interested. “That’s the overall thesis,” he says. “Make the product great for the consumer and then go to your partners and find ways of working together… But never do that at the expense of your customers.”

It isn’t an easy balancing act and the Klarna CEO says there has been examples of companies in the industry that call themselves payment schemes, “but I sometimes jokingly refer to them as extortion schemes.”

For example, American Express has been criticized by merchants for charging high fees and using that revenue to incentivize its customer base. “That’s always the problem when you have a three-party model. To your point, who are you serving?” he says.

“My vision for Klarna is to try to do what is much harder [and] much more complex, which is to serve both sides. Obviously, in the details, sometimes there will be situations where you have to make tradeoffs and you have to decide how to act in a specific situation.”


“Is Klarna a payments company or a lender?” I ask.

“Haha,” replies Siemiatkowski, before surprising me with the answer. “I think we are, in my opinion, a retail bank. And so that’s how I think about it.”

Klarna might not be the first name that springs to mind when you think of challenger banks in Europe — the likes of Monzo, Revolut and N26, certainly have greater mind share. Yet the Swedish company received a full bank license in 2017, and offers regulated banking services, such as debit cards and savings accounts, in Sweden and Germany.

“What is traditional retail banking?” Siemiatkowski asks rhetorically. “The core fundamental businesses of a bank is basically facilitation of payments, lending and savings, right? And that’s exactly what Klarna is doing. We offer deposit accounts, we have savings solutions, we offer lending products, and we do payments, so we’re a retail bank.”

In fact, Klarna’s banking ambitions go much, much further. The company’s next big bet is that banking will be re-imagined with a combination of open data and artificial intelligence and this is where Siemiatkowski believes the puck is skating. He just doesn’t know when it will arrive.

“Sooner or later — and it’s a little bit like self-driving cars, [in that] I don’t know when this is going to happen — you’ll wake up in the morning and your phone or whatever will say ‘hey, I analysed your mortgage tonight and I realized that by switching provider, I can save you five pounds a month. And the only thing you need to do is say yes’. That’s where financial services is going.”

He predicts this will see the banking industry move towards a “perfect functioning market” where you will never pay more interest than you have to, and the interest that you do pay will be “perfectly aligned” with your economic behavior and risk profile. A huge enabler of this is open banking legislation that means incumbent banks are now forced to give customers back their data, which is why Klarna acquired payment provider SOFORT, a company that was at the forefront of pushing for open banking legislation in Europe.

“All of your spending, how you pay your bills, whether you pay on time… all of the data that the bank holds, is now in the hands of the consumer,” says Siemiatkowski. “And the consumer can, under the doctrine of open banking, bring that data to anyone.” This creates greater competition in banking because it solves what economists call the information asymmetry problem — where one party has more or better information than the other — which results in a poorly functioning market and higher than expected profits for incumbents. In this instance, when you join a new bank it has very little information about you, compared to your existing bank, limiting its ability to serve you with credit cards, loans, etc. Open banking has the potential to change that.

As banking opens up and consumers are encouraged to make use of their data, the Klarna CEO argues that profits will shrink and we’ll see a contraction in the market size of retail banking overall, to the benefit of society. “Klarna can actually be part of that transition,” he says, “and so then the question is…”

This time I interrupt: “Then the question is, why would you want to get into a business that is going to contract itself into a commodity?”

“Exactly,” he replies. “So then the question is, what position do you have in that?”

Firstly, a commodity business is fine, argues Siemiatkowski, as long as you’re big enough to achieve economies of scale. Rather than providing a multitude of services, spanning retail banking, corporate banking, investment banking and more, banks will increasingly choose to specialise, he says. “Those niches are not really niches, they’re massive, but they’re niches from the perspective of they’re just a subset of what these banks offer today,” he explains. “Klarna is going to operate primarily in your everyday finances, your everyday spending, that is our place, that’s where we want to be”.

Secondly, once consumers decide to share their data, it then becomes a question of how good a bank is at using that data to provide advice, save you time and money, and make you less worried about your finances. “That’s the key,” says the Klarna CEO. “That’s the thesis.”

Presuming his thesis pans out, Siemiatkowski says Klarna is well-placed to seize the opportunity. The company processes a million transactions per day and can use its SKU-level data to build various services on top and give Klarna an element of first mover advantage. It is also both a fintech and a licensed bank, meaning that the company can offer highly regulated financial services and still move fast within the less regulated parts of its business. Unlike most retail banks, Klarna has already amassed 90 million customers, albeit mostly via its legacy payments business. Come for the buy now, pay later, stay for the bank account is a customer acquisition strategy other challenger banks, such as Chime, Revolut and Monzo, don’t have.

“When we looked at all of this, we said this is super exciting, this could potentially allow us to become one of the disruptive forces in the transformation of this industry,” he tells me.


When surveying Klarna’s competitive landscape, it quickly becomes apparent that the company has picked multiple fights. From credit cards (although Visa is also an investor) to online payments to incumbent and challenger banks, if Klarna is to continue succeeding it will need to take market share from legacy players and upstarts alike. However, Atomico’s Zennström says he doesn’t think it is a “zero sum game” because online payments and e-commerce is still growing and the pie is getting bigger.

Within the buy now, pay later market, Klarna’s three biggest competitors are Australia’s Afterpay, long-running PayPal, and Affirm, a company founded by PayPal’s Max Levchin. Just a few weeks after Siemiatkowski and I talked, eight-year-old Affirm filed to go public, while 15 year old Klarna has steadfastly remained private.

For comparison, Affirm’s S1 revealed revenue of $510 million for the fiscal year ending in June 2020. During the same period, Klarna reported $878 million in revenue. Affirm is a lower volume business, too, extracting more revenue from fewer but higher priced items ($4.6B in gross merchandise volume versus Klarna’s $41B). Affirm also appears to be very reliant on a single merchant, with Peloton making up about one-third of revenues.

Intriguingly, I’d heard from sources that Levchin and Siemiatkowski had history going back years before Affirm existed. In 2010, following Sequoia’s investment in Klarna, Siemiatkowski reached out to the PayPal co-founder to discuss the burgeoning business. The pair both attended the venture capitalist Yuri Milner’s wedding the following year, before eventually holding a breakfast meeting in San Francisco in February 2012 where the Klarna CEO’s intention was to convince Levchin to formally join as an advisor.

Siemiatkowski says he elected to share information about how Klarna’s model worked and the company’s longer-term vision.

Then — or so the story goes — a few months later, Siemiatkowski learned that Levchin had put together a team who were building a company that bore more than a little resemblance to Klarna.

“Yeah, that is a [true] story,” says Siemiatkowski, sounding surprised by my sourcing. “I thought that bringing somebody like Max [Levchin] on our [advisory] board would be a smart thing because he obviously had co-founded PayPal and he had all this experience.

“Then, in July, I suddenly get an email from somebody saying, ‘hey, there’s a rumor in the valley that Max is starting a Klarna clone, and I was like, ‘what is this?’

What Siemiatkowski perceived as a “rumor” may have been prompted by Levchin presenting Affirm — then thought to be called “Expedite” — at the Allen & Co Arizona conference held in March, approximately one month after his breakfast with Siemiatkowski. I understand that Affirm also closed its Series A round that July.

“I reached out and then, you know, Max said, well, I already had the ideas when I met you… and all the kind of stuff that you would expect somebody to say,” says Siemiatkowski.

Affirm would get an even more public outing at the DLD conference in Munich in January 2013. The following month, in an exclusive launch piece, industry journalist Kara Swisher described Klarna as Affirm’s “most similar competitor.”

“When I meet founders today, if they are starting to pitch something that is kind of similar to what Klarna could be doing, the first thing I always do is I raise my hand and say, ‘before you tell me anything more, let me just make it very clear that Klarna is doing exactly those things,’” reflects Siemiatkowski. “You should be aware before you decide to share.”

Affirm declined to comment on the record.

Meanwhile, the Klarna CEO doesn’t rule out an IPO in the medium term or perhaps sooner, especially since the company already has a large cap table and, as a regulated bank, many of the reporting procedures that it would need to go public. However, he’s also wary of what he says are the downsides of “quarterly capitalism.”

“I am extremely long term in this,” he says. “And so it does sometimes make me slightly nervous when I see the violent reactions that people have to quarterly reports.” A better option might be to list on an exchange that allows annual reporting, although he admits this is something he still needs to read up more on.

Adds Zennström: “I remember a few years ago when I sat down with him and he said, ‘you know, I’m going to commit to at least another 10 years for this business. And [I thought], ‘wow, that’s commitment.’ It’s very rare to hear founders talking about it like that.”

“Half of my heart and passion is with the product, that’s where I spend a lot of my brain time,” Siemiatkowski tells me. The other half, he says, is spent thinking about how to create a workplace where people feel inspired and passionate about solving “complex problems.”

Like many startups, over the years Klarna has looked to the latest workplace fad for inspiration, such as when Google gave employees 20 percent creative time or “putting ping pong tables and Lego” in conference rooms. “And nothing happened, and we’re like, ‘why did nothing happen?’” he recalls.

After assembling a new management team in 2015, Siemiatkowski decided the company needed to consciously develop its own operating model and culture — if only to ensure that, unlike last time, it didn’t fail to execute on the next big opportunity. The realisation was that most companies are arranged according to the need for upper management to easily understand what’s going on in the business and to feel in control. However, the downside of this clarity at the top is that it can create “a lot of confusion for the people who are actually doing the work.”

“Much more important is that the person that actually does the job, the person who’s coding or doing the marketing campaign, I don’t want them to have the slightest doubt about why they’re coming to work,” he says.

By 2017, Klarna had reorganised along with what it calls the “accountability line” and the “competence line.” The accountability line refers to the problem space that a team is asked to solve (with team leaders chosen based on how passionate they are for the space and how well they understand the problem). The competence line represents a person’s craftsmanship, such as a designer, an engineer or a marketeer.

At Klarna there are 14 overall competences, and employees are hired into a specific competence, regardless of what problem space they are asked to tackle. There is also an understanding that craftsmanship shouldn’t be purposeless, and therefore titles and salary are tied to “actually producing results and getting things done.”

So, for example, in app shipping and delivery tracking would be the problem space and this might require a team made up of different competences, such as product managers, data scientists, engineers, designers and privacy/legal support etc.

One of the benefits of belonging to a competence rather than a static business unit is that it reduces fear that once a project is completed — or a problem space is solved or abandoned — a person’s job may no longer exist.

“And that fear creates resistance versus change, which hurts a company’s ability to continue to innovate and adjust to market conditions,” Siemiatkowski says. “But when people feel that they belong to the competence, they know that at some point of time, and we’re honest with them, this team will live until you’re done, and when you are done, it will dissolve and you will join another team on a different problem space.”

Externally, Klarna describes the resulting org chart as “300 small startups” as it chases the holy grail of remaining agile with enough fire in its belly to embrace uncertainty, while also functioning as a 3,000-plus person enterprise.”It’s a portfolio of investments” is how the Klarna CEO puts it.

One thing he is certain of is that an operating model can never be a substitute for having the right people.

“If the individual who took on a specific team is not passionate about that problem space, it is not going to work,” he says. “When I was growing up with the company, so many people were telling me you have to build an organization that is not dependent on single individuals, anyone should be able to go into any role.

“I always thought it sounded odd, because in the end, our success is so dependent on these individuals… it’s the difference. And you could say, ‘oh, that makes you dependent on single individuals.’ Yeah and every company is. Anything else is an illusion.”

Having given one and a half decades of his life to the business, outlasting Klarna’s other two founders, Jacobsson and Adalberth, who left in 2012 and 2015 respectively, it’s easy to see how much Klarna has become dependent on Siemiatkowski over the years, and that maintaining his interest might one day become the company’s next problem space. Unless, of course, it is a problem the Klarna CEO has already solved.

“The management team teases me that I can come up with 100 ideas in a single day,” he says, entirely believably, before revealing how the company’s flat structure lets him jump from team to team and venture wherever his passion takes him. “Rather than going to the same people all the time — let’s say, a chief product officer — I can engage with different teams in the company and we can have a nice debate, an interesting conversation, [before] I go somewhere else.”

Suddenly, the final part of the Klarna story falls into place: built in the image of its remaining founder, the company’s operating model isn’t only designed to help Siemiatkowski manage Klarna, but for Klarna to manage Siemiatkowski.