This reminds me of PayPal from 25ish years ago. There wasn’t a convenient way to transfer money online and they built a solution. To achieve critical mass, they offered people $10 to sign up and a $10 referral bonus (if your friend get $10 and you get $10). PayPal burned a lot of investor money to do this, but it paid off when they became the dominant payment method for eBay auctions. In short, it was a costly investment that paid off.
Klarna is trying to become the PayPal of e-commerce, displacing credit cards (and PayPal) and becoming the default means of paying online. Once they start to slow in their growth, they can do the following:
Charge merchant fees.
Charge service fees.
Charge interest, (waiving it for debit-like transactions).
Offer purchaser subscriptions with enhanced features and reduced costs.
Push exclusivity agreements by offering discounts against steep fees.
Sell data.
This last point is particularly powerful because they also have the bill of sale, which most payment options don’t. If they offer point-of-sale systems that also collect detailed data, it would further allow them to track people.
I suspect that they are classified in a way that existing restrictions on payment networks do not apply to them. E.g., they may technically be a lending company but act as a payment network; they may be considered the customer in a transaction, that resells the item to the purchaser, etc. Lending companies aren’t expected to work with the copious amounts of detailed data that stores and payment processors do (e.g., Payday Loan doesn’t know I spent part of my loan on a suitcase of Bud Light). Imagine an insurance company knowing how many drinks your table bought at a restaurant, then holding it against you when you make a claim. Or having a job offer revoked because you bought a copy of the Communist Manifesto to see what all the hubbub is about.
This reminds me of PayPal from 25ish years ago. There wasn’t a convenient way to transfer money online and they built a solution. To achieve critical mass, they offered people $10 to sign up and a $10 referral bonus (if your friend get $10 and you get $10). PayPal burned a lot of investor money to do this, but it paid off when they became the dominant payment method for eBay auctions. In short, it was a costly investment that paid off.
Klarna is trying to become the PayPal of e-commerce, displacing credit cards (and PayPal) and becoming the default means of paying online. Once they start to slow in their growth, they can do the following:
This last point is particularly powerful because they also have the bill of sale, which most payment options don’t. If they offer point-of-sale systems that also collect detailed data, it would further allow them to track people.
I suspect that they are classified in a way that existing restrictions on payment networks do not apply to them. E.g., they may technically be a lending company but act as a payment network; they may be considered the customer in a transaction, that resells the item to the purchaser, etc. Lending companies aren’t expected to work with the copious amounts of detailed data that stores and payment processors do (e.g., Payday Loan doesn’t know I spent part of my loan on a suitcase of Bud Light). Imagine an insurance company knowing how many drinks your table bought at a restaurant, then holding it against you when you make a claim. Or having a job offer revoked because you bought a copy of the Communist Manifesto to see what all the hubbub is about.