How to buy now, pay later and still make a fortune

Sebastian Siemiatkowski has an unusual ambition for when he leaves his role as chief executive of Klarna. “It would be cool to run an amusement park,” he says.

A rollercoaster ride of a different sort is likely to keep the 34-year-old busy for a while yet, though. Mr Siemiatkowski can see himself running Klarna, the online payments company he co-founded in 2005, for another 20 years.

Sebastian Siemiatkowski: We are not a start-up any more

The Swedish business, one of Europe’s most highly valued private technology companies, aims to improve online transactions for consumers and retailers and has spent much of the past decade building its business in mainland Europe, where the majority of the 45 million people who have used its services reside. In contrast, Klarna has a low profile in Britain, but that could be about to change thanks to deal with Sir Philip Green’s Arcadia group.

In future Topshop, Topman and Miss Selfridge will use its “buy now, pay later” product, allowing online shoppers who sign up for the service to buy and receive products before paying for them, and to place orders with nothing more than a couple of clicks and an email address. Those who want to keep the products settle the bill later with Klarna, which assumes the credit risk from retailers at the point of purchase. If the goods turn up and aren’t to the consumer’s taste, they simply return them without having spent a penny.

The idea is to make buying much easier and quicker for consumers and to increase revenues for retailers. Doesn’t that put Klarna at risk of fraudsters? “Sweden is a society built on trust, and we like trusting people,” Mr Siemiatkowski says.

Trusting it may be, but Klarna isn’t stupid. At the heart of the password-free service is some sophisticated anti-fraud technology that considers a range of factors on every transaction, from what is being purchased (and where from) to how long the purchaser takes to type in an email address. The more “suspicious” the software is of a transaction, the more information it will ask of prospective shoppers before deciding whether to approve a purchase. “If you are buying four iPhones, for example, it might be a bit suspicious and we will ask for more information. If you’re buying a college book on physics and delivering it to your dorm room, it probably isn’t fraud.”

Klarna has a valuation of about 1.7 billion. Nevertheless, it is operating in a tough competitive environment, battling it out with everyone from payment technology specialists such as PayPal and Square to traditional card groups such as Visa and MasterCard. With b2b payments growing in popularity, however, it doesn’t seem like the buy now, pay later trend is going anywhere any time soon.

Klarna has backers with real muscle, include Sequoia Capital, the Silicon Valley investor, and Mr Siemiatkowski says he is comfortable competing with much larger companies.

“We are not a start-up any more, we are a working, profitable business with a banking license. But we are still fast-moving and we can take risks in a way that a bank won’t. It’s exciting to be in the middle where I don’t see anyone else. That’s really cool.”