Sweden boasts one of the most vibrant tech scenes in Europe, if not the world. It is host to a large number of high-value tech companies, including music streaming service Spotify, games developer Mojany, and King, the Anglo-Swedish group behind the video game Candy Crush, all of which are valued at more than $1bn. Quite an achievement, given that only 0.27% of the European tech companies launched since 2000 have reached this landmark, according to research by GP Bullhound.
Klarna, a Stockholm-headquartered online payment processing company, is the latest company to hit this landmark, it is currently valued at $1.4bn. What is behind the company's success? ”From day one, we have worked towards one goal: to make buying [online] simpler, safer and smarter,” says Sebastian Siemiatkowski, the company's CEO and co-founder.
Klarna allows online merchants to integrate popular payment methods into one checkout, so that customers can make purchases using a 'buy now' button. For the customer, this means not having to repeatedly type out their credit card details, and for the retailer it improves the rate of transactions that are completed, as customers do not have as much time to rethink their purchase.
The system can be compared to the 'one-click ordering' introduced by online retailer Amazon and Apple's iTunes and iPhoto online stores. The difference with Klarna, however, is that the customer's payment is processed by a third party.
Established in 2005, originally under the name Kreditor, the company was set up by Mr Siemiatkowski and two fellow co-founders, all of whom were just 24 at the time. In just two years, the company grew to a 30-employee-strong operation and by 2008 it had expanded to Denmark, Norway and Finland. In 2009, the company's name was changed to Klarna, in order to appeal to non-Nordic consumers. Then, boosted by backing from leading Silicon Valley-based venture capital firm Sequoia Capital, the company entered the western European market, subsequently increasing its workforce more than 10-fold.
By 2014, Klarna's headcount had reached 1200 and the company was making an estimated 250,000 transactions per day across 15 European countries, including Germany, where, at the end of 2013, Klarna made a $150m acquisition of Sofort, a major local direct payment company. Now the company is targeting growth in the mobile market. “Our biggest market is mobile. The fact that just 3% of buyers complete at the checkout, on average, represents an enormous opportunity for our retailers,” says Mr Siemiatkowski.
The company is still targeting further geographic growth as well, and is planning to launch its online payment services in the US in early 2015. “We see an increasing number of retailers who want to offer payments to multiple markets as they expand. We can offer 'all of Europe' to US retailers,” says Mr Siemiatkowski.
At the beginning of December 2014, the company announced the opening of its first US office, in Columbus, Ohio. With a population of 790,000, Columbus is the largest city in the mid-western state of Ohio and, in 2013, its economic growth outpaced the US average – 3.3% versus 2.2%. Still, it is not famed as a hotbed for tech companies. But, according to Kenny McDonald, CEO of Columbus 2020, a local economic development organisation, it deserves to be more widely recognised for its talent pool and business networks.
“Columbus's market has an extraordinary ecosystem for retail from top to bottom, from headquarters of retail companies through to their back-office operations, and a university system that provides the right talent base,” he says.
Brian Billingsley, a Columbus native who was put in charge of establishing Klarna's US presence, adds that the local work ethic provided a huge draw for Klarna. “When Sebastian [Siemiatkowski] came here, he said that it reminded him of Stockholm, because people here just focus on getting things done,” he says. An eight-year, 60% tax credit, which the company received on setting up in Columbus, no doubt helped the company's decision to open its first US office in Ohio, too.
As its US business grows, the company is also hoping to establish a presence in New York eventually. However, the majority of its operations will be conducted out of Ohio, says Mr Billingsley. “New York will be more of an executive hub. But for day-to-day operations, for all the backbones that make for a successful payments and credit services company, such as compliance, credit risk and merchant services, we need the [kinds of talent], which you cannot find in Manhattan or San Francisco,” he adds.
Checking out the competition
Before it can realise its ambitious plan of opening an office in New York, the company must first crack the difficult US market. The US mobile and online payments market has grown exponentially since PayPal, a pioneer in the space, was launched in the late-1990s. Now, PayPal's annual revenues exceed $6bn, and there are countless start-ups, including Venmo and 2Checkout, that are looking to revolutionise the online transactions market even further.
Established companies, including consumer electronics firm Apple, have also joined the payments race. In September 2014, the company launched Apple Pay, a service providing mobile devices with a credit or debit card functionality.
Klarna is unfazed by the competition, however. “Actually, we are really excited about Apple Pay, because it is going to make people more active buying on their mobile phones,” says Mr Billingsley. “Plus, there is still a huge proportion of the population that [do not have access to the devices that are required to use] ApplePay, and so we want to go to merchants and say hey, we will take make sure that every important payment scheme is part of your checkout."
Mr Siemiatkowski is also keen to stress the distinction between Klarna's offering and that of the other firms in the payments space. “Most players are trying to solve another problem than the problem we focus on, namely how to replace cards in stores, which works fine as it is. What is broken is buying online,” he says.
When it entered the market at the end of 2014, Klarna was described as the “PayPal of Europe” by journalists and marketers. If the company is to achieve the same level of success as its multi-billion-dollar rival, then very soon Sweden will be able to boast of yet another homegrown tech company exceeding the magic $1bn valuation mark.