I was going to blog about something different, when I spotted this article in The Financial Times about Klarna gaining a banking license over the weekend (thanks to Pascal Bouvier). The commentary has two key sentences, which I’ve highlighted, that illustrate all the things I have been saying about Banking-as-a-Service and curated marketplaces brilliantly, namely:
Banking becomes a curated marketplace of specialist providers who do one thing really well, rather than a thousand things averagely
Swedish business bosses are known for being careful with their words, even some might say dull. Sebastian Siemiatkowski is different.
It might be his tech background or his age, he is 35, but the chief executive of Klarna is not afraid to speak his mind. Announcing this week that his company had become the biggest fintech in Europe to receive a banking licence, he said he wanted Klarna to become the “Ryanair” of the sector and attack the high-voltage incumbents.
“Ryanair has pretty bad customer service,” sniffed one senior Swedish banker. But in the next breath, she added: “That’s to take nothing away from Klarna. What Sebastian has achieved there is remarkable.”
Mr Siemiatkowski and two university friends took a deceptively simple idea on invoicing and applied it to the digital age. The result is an online payments system that is simpler for customers and better for merchants, with fewer dropped transactions caused by people balking at filling in too much information. Instead, customers pay for online goods after they receive them, and Klarna takes the credit risk from the sellers in return for a cut.
Entered 12 years ago in an entrepreneur competition at Sweden’s leading business school, the idea was rejected by many of the country’s leading executives. The desire to prove that elite wrong still clearly motivates Mr Siemiatkowski. “For me personally, it’s a day I’ve been looking forward to for a long time,” he said of Monday’s decision by Swedish regulators to give Klarna a banking licence.
Mr Siemiatkowski has also long stood out in Sweden as one of the few business people willing to give his opinions about politics. Many others are unwilling to rock the boat in the consensus-driven country.
Speaking after the most recent national elections that saw a breakthrough for the anti-immigration Sweden Democrats, Mr Siemiatkowski told the Financial Times: “We believe that Sweden becomes a much better place because people from all over the world are working here. Seeing the Sweden Democrats growing feels like taking the country back 100 years ago.”
That impatience with the traditional ways of doing things has led to Klarna becoming one of the most highly valued technology groups in Europe. A round of fundraising in 2015 valued it at $2.25bn. And it is solidly profitable, making an operating profit of SKr138m ($16m) in the first quarter on revenues of SKr992m.
Klarna’s ambitions go way beyond increasing profits. Mr Siemiatkowski talks about how the financial industry is unusual for being a sector still dominated by national players, offering a broad range of services. His vision instead is of a group of global players offering specialised services.
So Klarna will use its banking licence to offer bank cards and salary accounts to its 60m users. But it will not offer mortgages, savings products or share dealing. Instead, Mr Siemiatkowski expects other fintechs to do that, with the possibility of several of them teaming up loosely to provide the full offering.
Its large userbase, mostly in Germany and the Nordics, means Mr Siemiatkowski thinks he can get around one big problem for fintechs of being largely unknown to the general public, who hesitate to trust them. “We are still moving at the speed of a fintech, but provide the trust and security of a bank. That makes us a super rare animal.”
The big goal for Klarna, however, may only be tangentially connected to the banking licence. It is trying to crack the US and UK markets. Some wonder whether Mr Siemiatkowski has bitten off more than he can chew by becoming a bank.
“Online payments is one thing. But being a bank you end up being heavily regulated. I wonder if they can cope with that,” says another top Swedish banker.
Mr Siemiatkowski is not worried. He says: “Companies are cool, but banks are cooler. Building a bank is even cooler.”