Al: Hi, welcome to the Infinity Nation and Beyond podcast. Today we have with us Rob Beattie from Klarna. We’re going to delve into the world of “buy now, pay later” and how it will harness and gain you the best results in your ACR growth model – acquisition, conversion retention.
And we’re also going to look at the morality of these solutions, pros and cons.
Welcome, Rob. How are you today?
Rob: Thanks, Al. All good. Thanks for having me.
Al: Cool, thanks for coming. Before we begin, can you tell us a little bit more about Klarna for those that may not have heard of it?
Rob: Yeah, absolutely. I guess worth introducing myself as well… So, I’m one of the partner managers here at Klarna in the UK, so in terms of my sort of day-to-day role here, managing quite a broad range of partners across agencies and SIs, platforms, PSPs, in-store solutions, etc. And in terms of Klarna itself; so founded in Sweden in 2005, I guess with the aim of making it easier for people to shop online, and ultimately our mission is to make paying a simple, safe and above all, as smooth as possible. We’re the leading provider of “buy now, pay later” services globally, so providing smarter and more flexible shopping and purchase experiences to over 90 million shoppers globally now. And that’s through over 250,000 retailers and brands. We’re live and available in seventeen core markets across three continents, and that’s via direct payments, pay-after-delivery options and instalment plans.
Al: Some staggering numbers for a company that’s fifteen, sixteen years old. Amazing.
Rob: I mean, yeah, it’s going like that as well.
Al: An impressive solution, and I think, as you say, it’s just phenomenal growth. So, with that in mind, there’s been a phenomenal change in the last couple of years, really for these solutions to come to the fore. So, with just vast change in the sector, what kind of impact has “buy now, pay later” had on of key e-commerce metrics that you’ve seen?
Rob: I think firstly, it’s worth pointing out that this sort of, this model has been around and available for years. You know, if you look at markets such as Germany, for example, that sort of invoicing model has long been the preferred way to pay, I guess. Here in the UK specifically and I guess other markets as well, have maybe just been a bit later too to adopt this way to pay.
But yeah, I think in the UK, as you say, over the last sort of two to three years, demand and growth has been huge and I think I think firstly, that that’s largely driven by consumer demand and ultimately the fact that consumers want more flexible ways to pay. And that’s without getting hit with, you know, sky high interest rates that you might get from credit cards or a more traditional sort of revolving credit offerings.
We’re seeing a huge shift away from credit cards so something like a fifty percent drop in credit card spending during the pandemic – fifty percent of millennials now don’t have credit cards and there’s been, I think, a five x growth in debit card volume compared to credit cards in the last decade.
So, there’s been this huge shift over the last few years and I guess what you get with “buy now, pay later” are a lot of the benefits of credit but using debit, so you can spread the cost of an order over time before you buy. And I guess there’s the added layer of trust and security from a consumer’s perspective as well. In terms of growth; I guess there’s, well, there’s no doubt really, that the huge shift in e-commerce that with everything that’s happened over the last couple of years has accelerated adoption.
Interestingly, we’re seeing a slightly older demographic than we might expect to have been adopting “buy now, pay later”. So, in terms of our spend data over the last couple of years is that 45 to 54 year old age group has been the fastest growing and 55 plus after that.
And then in terms of the impact of implementing “buy now, pay later”, it really spans full funnel from acquisition to conversion retention and loyalty. Yeah. So if we look at the acquisition pieces as a starting point, retailers and brands, there’s a huge opportunity for them to showcase their brand in a large core cohort is a really loyal consumers and shoppers. And if you look at the UK alone, Klarna has roughly 15 million consumers, so that is a great opportunity here to drive traffic to the return of sites through things like our app.
Apple Own has had about five million downloads in the UK, 40 million downloads globally, and you’ve got our shop directory, which is where if the merchant chooses, they can be featured there; our social media channels which have huge followings; and I think in terms of the acquisition piece, there’s a huge opportunity for retailers and brands to acquire and we know how much that costs at the moment.
Al: Do you have any tangible examples that you can share?
Rob: Yeah. Cox & Cox is a brand that I reference all the time… So they implemented Klarna, I think it was around maybe April of last year, something like that, and within the first few months of go-live, they saw that roughly fifty percent of those checking out with Klarna were new customers to Cox & Cox.
And they really went to town on things like promoting Klarna in direct mail so that the direct mail catalogs, any advertising they do with the likes of the Times or the Telegraph, the Klarna logo will always be displayed there.
Any sort of display advertising they do, again, they’ll be referencing Klarna there, so that at any point in the shopping journey, that’s where they’ll be positioning Klarna, and I guess that’s where the sort of the conversion side of things comes into play, right?
Al: How long do you think until you see yourselves on a TV advert like a Trustpilot for a while, you know, people starting to reference them in their DM pieces and will there be a Klarna logo on the TV advert, if it hasn’t already?
Rob: Yeah, I’m pretty sure that that has already happened. And specifically, on the Trustpilot side of things, Klarna as a brand, has a really high rating itself. So, I think, that is already starting to happen and we’ll probably see more of that.
Al: As you say, it’s almost like adding these buying signs to new customers and it’d be interesting on the Cox and Cox example, and you probably won’t know it, it was how much of that DM work that went on was to prospecting a cold list, versus existing customers and reiterating that you were using Klarna then. So, there are so many facets as you say and I think, as you said, I think people often just focus so much on let’s drive traffic to the website, but aren’t really considering what are the key consideration points whilst going through the purchase journey that could make someone drop out or falter? The 1% gain.
Rob: Yeah, it is not uncommon to see a ten percent plus increase in conversion and having implemented Klarna. Here it’s really about promoting and positioning Klarna as high up the funnel as possible, so the sooner the consumer sees the pink logo and understands that they can check out with Klarna; ultimately, they are more likely to add to basket, they’re more likely to add more to basket, and subsequently convert.
And it is actually really easy to do as well. So, we have an on-site messaging widget, for example, that has pre-built integrations into many of the most common platforms that you’d expect. And that will do things like break down the cost of instalments on PDP, it’ll pull in FAQs, links to Ts and Cs, all that sort of stuff. So, we’ve made it really easy for the retailers and brands to really position and make the most of positioning Klarna on site.
Ultimately, the more they can do to reduce friction from the buying journey, the better. And then, as I mentioned as well, will impact retention and loyalty as well. So, from a retention perspective, I guess here it’s all about building trust and driving loyalty with experiences that are really going to add value to the online or even in-store experience. And then, from a loyalty perspective, we know that shoppers who used “buy now, pay later”, certainly Klarna have roughly a forty-five percent higher purchase frequency, so, if they’re engaged in the right way, there’s a very good chance they’re going to be repeat customers.
Al: Did you also say to me, typically that customers where they’re using “buy now, pay later” are also spending a little bit more in terms of average order value?
Rob: Yeah, yeah, absolutely. Especially well, I mean, we’ve got a couple of different payment methods, so we’ve got pay later in 30 days, and that’s where the consumer has an option or the opportunity to place an order today and then they’ve got 30 days to ultimately pay for what they want to keep. So really well suited to fashion and that sort of try-before-you-buy model where the consumer might want to touch and feel the product before knowing what they want to spend and without having to wait two or three weeks for a refund, potentially. So, there’s that side of things, which always has an uplift in terms of conversion and AOV, but pay-in-three which is our most popular product in the UK that really drives more in terms of the uplift in AOV – on average, it’s more than forty percent. And the reason here is, it’s a more considered purchase and it really is that sort of, I guess, upgrade player. So, you might land on site thinking I’ve got £100 to spend on a pair of trainers, but actually why not spend £150 or add a few extra items to the basket and spread the cost of that over three months without paying interest, you know? Homeware for example, would be one of our most popular verticals, reference Cox and Cox is a good example there. There’s huge benefits in terms of that uplift in sales and AOV.
Al: One thing that intrigued my interest just now, was you saying one of the fastest growing segments were the 45 to 54 year olds and then the 55 plus… I understand the millennials and the younger generation seeing the benefits or being more akin to using this type of solution, as you said, with them less using credit cards, using more of these sort of break through banks and the likes. How do you build trust for this sort of 45, 54 or 55 plus category? You know, it isn’t a solution, I’d imagine that many of them may have heard about historically. So I appreciate they’ve been around for a while. But how do you as a as a platform build that trust to see growth in these age demographics?
Rob: Yeah, I guess a lot of different ways, I mean, I sort of alluded to the fact that the pandemic has really accelerated e-commerce and there’s been a huge shift in people shopping online… a lot of those probably haven’t shopped before and now they’re landing on all these retailer’s sites and seeing the Klarna logo and I guess almost looking at that badge in itself as a bit of a security blanket, if you like, especially for smaller retailers, may be where you know, they don’t they don’t know or trust the brand.
So there’s that side of things. Something I guess not many people know is we are a fully licensed bank, so as a business where we’re used to operating in a heavily regulated environment and I guess upholds, you know, extremely high operating standards across all of our products and services. Here in the
UK, for example, we work very closely with various sort of government bodies, the likes of the Advertising Standards Authority, for example. So ensuring that we’re following best practices and the sort of standards in authority and ensuring that we’re following best practice guidelines here so making sure that retailers are very clear in how Klarna is positioned; ensuring that terms are clearly displayed; 18 plus only. Really making sure that, from a consumer’s perspective, what you see is, is what you get. So, there’s that side of things, and then we’re very proactive in terms of financial wellness and that side of things from a consumer facing perspective.
For example, there’s a section of our site that’s dedicated to this. I highly recommend anyone listening to this to take a look at that. And then in terms of responsible lending, we only lend if we believe the consumer can comfortably afford to make the payment.
So, we conduct strict eligibility checks on each and every transaction so it’s not an open line of credit, and we’re constantly assessing our lending criteria. It’s very different to our credit cards operate, for example, where you might make that first-time application and you’re approved with x amount of credit and then it’s yours to play with. And often that’s where people get caught up, whereas with pay-in-three, for example, the cost of that order is going to be paid after those three payments and it’s interest free.
Then I guess from a merchant’s perspective, we take on the fraud and default risk. So, there’s the added benefit to the retailer from that perspective. And then for the consumer, we offer them buyer protection so they have the comfort of knowing that if anything goes wrong, we’re there to support, really. So yeah, a lot of different ways, so hopefully that that helps.
Al: Yeah, it’s really interesting. I think especially the fraud one for the retailer must be also quite comforting because historically, I’ve definitely been stung on a few transactions where people would put credit card things through and have it delivered and suddenly, you get a phone call a month later going, “why have you charged me this on our credit card?” And you’re like, well that was the order that was placed. And they’re “it’s not us, and it wasn’t delivered to that address”, and whoever had placed that order is now going round in some nice outdoor clothing or camping out in a nice tent. So yeah, that I think from a retailer’s point of view, that’s why because you’ve got a huge advantage to prove that they’re a physical person with a real address. Interesting.
Rob: So we’ll act as a go-between, between the consumer and the retailer, so, often heavily involved in disputes and that side of things so as you say, just another added benefit really.
Al: Brilliant. And I suppose if I was sat here as a retailer, there are a plethora of payment platforms now available to me to use, especially places like America. So, for the European-based listeners to the podcast; what criteria should they be looking for before making a decision of taking a solution in this space?
Rob: I feel like the opportunity to acquire and tap into that sort of consumer network, I’d say, often plays a key role in that decision making process. So what’s the opportunity there?
If you’re selling internationally, which most retailers do nowadays, then think about the markets that you’re selling into and have a look at what the preferred ways to pay are there. So in the Nordics, for example, I think it’s about forty percent of e-commerce transactions go through Klarna, and Klarna really is seen as a badge of sort of security and trust.
We did a survey there recently, and it was something like over fifty percent of shoppers said they haven’t shopped with the store because Klarna wasn’t available. And then over fifty percent of those went on to shop somewhere else. So, by not offering Klarna, you’re you literally giving your competition business? And then in Germany, for example, something like sixty percent of all German checkouts include at least one Klarna payment option. So, I think that that probably needs to play a key role in terms of the sort of decision-making process., if that makes sense?
Al: Yeah, I think it is really valid and as you say it’s all great wanting to roll your e-commerce solution out into wider shores but understanding the psychology and the preferred payment methods of those countries is a critical factor in being successful. Just doing what you do in the UK, for example, and then say you want to take it to Germany. I know and I’ve witnessed numerous people that have tried that… It just doesn’t work, that’s not how they want credit and trust it that way. And that doesn’t work for them. So, I think it you said it’s that key… If you’ve got a solution that’s then breaking down those barriers across multiple borders or different ways of wanting to purchase, it just makes your life as an e-commerce manager, or e-comm director or business owner much easier.
Rob: Yeah. And you know, what we offer in the UK, for example, will be different to what we offer in Germany or France or the Nordics, for example. So, our solutions are really tailored and designed to consumer preferences in each of those countries.
So it’s not one size fits all. And actually, you will see that with a lot of “buy now, pay later” solutions. They might be offering pay-in-four. And it’s bi-weekly payments, for example, in the UK.
But really is that relevant if where most of the population here are paid monthly, for example. So I think that’s something to consider as well.
Al: What would your advice be to anyone that’s looking at diversifying their payment types but are hesitant to do so at the moment? And I think I’m just going to add that, also we should look at the morality of it. I know there are people that are concerned about, are we empowering or enabling people to buy things that they can’t afford?
Rob: So, on that on that latter question, I would always ask if they’re offering credit cards, payments at checkout. If so, I think that question should be thrown out the window, fairly early on.
Al: Just elaborate on that…
Rob: I think as consumers, you know, why should we have to pay to pay interest? There’s an opportunity now to spread the cost of a payment, get all the benefits of traditional sort of credit cards and those types of payment methods, but actually without interest rates. I alluded to it before, but as a consumer, you know, if you are spending on credit cards, there’s probably a much bigger opportunity to actually get yourselves in a lot of debt and then get caught up in revolving credit cycles, minimum payments every month, all this sort of stuff. Whereas with pay-in-three, for example, you know your order is paid after three payments and there’s the added benefit of not paying interest.
That plus the fact that we’re doing affordability checks and every transaction means actually, it’s a much more sustainable form of credit, is an easy way to put it, if that makes sense. And then, as I say, all the work that we’re doing in terms of, working closely with the Advertising Standards Authority and being heavily involved in the Willard review, which was the review around these sort of non-regulated and “buy now, pay later” solutions and what that looks like.
There’s a very proactive approach that we take to all of that sort of stuff. So, credit cards and that side of things are very much an old school way of sort of spending. So going back to your question about, if you’re hesitant to do so, why not? I’d say, what have you got to lose? If you’re running on a platform such as Shopify, Magento, BigCommerce, WooCommerce or even PSPs like Sabady checkout.com, DNA, etc. it’s really easy to integrate. it’s very light touch project from that perspective.
We’re just coming up to peak. We did a survey recently and here in the UK and people are planning on spending more, and earlier. Something like fifty-seven percent of those that we surveyed said they were increasing budgets anywhere between one to five-hundred pounds, so don’t miss out on that opportunity to acquire and convert. And added to that, utilize the opportunity to showcase your brand to our network of shoppers. Obviously, I’m biased! But you know, it should be a no brainer.
And as I say, it’s easy to implement. So why not?
Al: Yeah, I think it is hassle-free in the main for a retailer to add it, and if it’s going to add a new way of – we all saw the jump when people added, you know, maybe a competitor to yours – but Apple Pay and just how much easier that made a mobile checkout progress and the conversion benefits of that. If you’ve got now a trusted solution and it allows people to obtain the products that they want, but without risk of getting into debt, spread the payments, it seems a win-win for my position.
Rob: Can you share any any insight into, obviously work with many retailers, have you seen any implement Klarna or another “buy now, pay later” provider? And have you seen what sort of benefits it can drive yourself?
Al: I’ve seen benefits of even if it’s not a “buy now, pay later” solution, just offering multiple payment types that people are comfortable to use, and that’s seen I think as some figures you quoted earlier, I’ve seen typically somewhere between fifteen and twenty percent improvement in conversion rate and checkout revenue going up because different payment type that that pocket of consumers were happy to use over and above the typical, you know, Visa, MasterCard, Amex rarely.
We’re all different people, so one of the things we’ve got to make sure is that we all have that ability to service our customers in the way in which they want to be served and they want to buy the product. I think you’re just providing choice. I mean, if we go back 20 years, e-commerce didn’t exist and part the addition of e-commerce for some retailers, was just a different way to service customers to let them self-serve… They wanted to buy online at a time that was suitable to them. They didn’t want to have to phone mail order, they didn’t want to have to post an order in, and they also didn’t have to time to go to a different store.
It’s a similar ethos, in my opinion. We’re just saying look, if you want to put on a debit card and pay for it straight off, here’s an option. If you sold some products and you’ve got some money on account because you’ve sold some products off, here’s a way to do it. If you want to buy these products but haven’t got all the money right now, here is a great way of doing it without having to incur a penalty or an interest cost to do so.
Rob: To add to that, it’s not necessarily people who can’t even afford it. We’re talking, people who are more than able to afford it, but using or utilizing “buy now, pay later”, because it’s because it’s easy, because it’s flexible.
And through things like our app, for example, there’s a lot more that you can do there. In a way, it’s sort of an end-to-end shopping service. In the app, for example, things like building out wish lists and price drop alerts, following your favourite retailers and brands and that side of things. And then in terms of the post-purchase experience, you’ve got all your old orders in one place, you know exactly where you’re at in terms of outgoings and that side of things and you sort of financial spend when it comes to retail and then, things like customer service returns, all that sort of stuff that you can manage through it as well. So it’s not people who can’t necessarily afford it, but they’re using it more because it’s an easy way to pay in shop and and save as well.
I moved house recently. Whilst I probably could have afforded a lot of what we had to buy, it’s like, well, why not spread the cost of these orders over a few months and just make my outgoings a little bit less each month?
And you know, it’s just it’s easier. I think that’s the way that retailers and brands probably need to look at it, if they do have concerns.
Al: Yeah. Sorry, I didn’t mean that people were buying it that way because they couldn’t afford it. I meant that they may be cash flow savvy, and so they’re just saying as you did, I don’t need to create a massive spike in money out the door if I can make this a smoother outgoings, less spikes in my cash flow then happy days.
I think that coupled with some people being on furlough pay, you know it just again, allowed them to watch the pennies and be a little bit cautious on, I suppose being savvier at managing their finances.
Rob: And actually, I think a lot of people over the last couple of years have had an opportunity to save with not being out as much and everything else that’s happened. Actually, there’s more disposable incomes for a large percentage of the population. And I guess that that ties into that report I mentioned that hasn’t been published yet, but it’s soon to come out, that people are now looking to spend more because they’ve managed to save over the last couple of years so there’s an opportunity there, I think, for retailers and brands.
Al: Brilliant, and last one from me, what does the future hold? Any bits or elements you can let us know that coming through from Klarna?
Rob: What’s coming? International expansion is going to be big. So, we’ve got a couple of markets that will be launching in Q4 in Europe and then next year looking a bit further afield. I can’t say too much more on that at the moment, but that would be a big focus for us.
We’ve made some interesting acquisitions over the last few months, so this is all sort of public knowledge but there’s an in-store solution, customer service solution called Hero that we’ve acquired. So, waiting to see how that ties into the overall offering, but it’s a really, really nice solution.
There’s an influencer marketing platform that we’ve acquired called Apparel and also a mobile wallet called Stow Card. So, in terms of the product and our offering, it’s evolving rapidly.
All these additional sort of services that ultimately make it better for the consumer and as I say, it sort of ties into that end-to-end shopping experience. I think that the app and that side of things is something to keep an eye on over the coming months. Lots of exciting developments and progress there.
Al: Brilliant. Yeah, we’ve got a couple of clients using Hero, and it is a fantastic solution and hopefully we can do a separate podcast on that in its own right as well. It’s a brilliant way again of the consumer being able to – if they can’t leave their home or they haven’t got time to get to a – mean, we were talking about from a furniture retailer point of view – then they can physically go and own the product. They can be walked around the product, answer questions. It’s just another way to engage the customer building, launching in a more convenient touchpoint with your brand. I just think it’s fantastic.
Rob: Yeah, it’s really neat. Really excited to see how ties into the end-to-end proposition.
Al: Fantastic. Where we learn more about Klarna, Rob?
Rob: Website’s the obvious starting point, klarna.com – If anyone has any queries or they want to dive into more of what we’ve discussed today, feel free to reach out direct and LinkedIn or feel free to share my email, if needed. Feel free to reach out. More than happy to have a chat.
Al: Brilliant. Well, it’s been great chatting to you. Thanks for your time and providing great insight into the world of “buy now, pay later”. Hopefully we’ll catch up soon as and when this new feature comes, and we can do another post on those.
Rob: Absolutely, yeah, we’ll keep in touch. Thanks for having me Al. Appreciate it.
Al: Thanks, Rob.