Payments companies PayPal and Stripe are getting a new competitor in the U.S this week as Stockholm-based payments upstart Klarna makes its first move in the U.S.
Klarna said Tuesday that it has partnered with online retailer Overstock.com to power its mobile payments.
Similar to PayPal (PYPL) and Stripe, Klarna helps retailers process payments. But instead of requiring customers to have a log-in, enter credit or debit card details or store a credit card in a profile, Klarna simply asks users to enter their email and shipping addresses for the first order.
Shoppers are then sent an email to pay for the item using the usual methods. In some cases, the shoppers’ high or low creditworthiness, which Klarna’s algorithms take seconds to establish, allows for the payment to be made later when the item is shipped.
Klarna actually pays the merchant for the item, and the purchaser pays Klarna.
Because Klarna offers the ability for consumers to never enter any financial details until later in the transaction, the company says it can increase conversion rates by as much as 30%. This rate increases even more on mobile apps and websites, the company said.
Since launching in 2005, Klarna has attracted 52 million users. It currently powers payments for 55,000 online retailers in Europe. Because the company issues credit to purchasers in some transactions, Klarna also has a banking license in Europe.
Last year, Klarna brought in $300 million in revenue and is currently cash-flow profitable, the company said. Around 10% of all e-commerce transactions in Europe are made using Klarna.
Fraud is potentially a challenge for Klarna since retailers are offloading risk of fraudulent transactions to the company. But the company claims that its fraud detection technology is superior to others, and that Klarna’s risk models are extremely sophisticated.
Now with a big U.S. push, Klarna has scored a large deal to power mobile payments for Overstock. Beginning Tuesday, Overstock.com will use Klarna Checkout for purchases by mobile shoppers and those who don’t have an existing Overstock account. Returning users that have shopped with Klarna previously can complete a purchase with just one tap.
All that is required for a new mobile web shopper to complete the transaction is minimum information like an email address and delivery address. A credit card number or additional registration information may not even be necessary to check out. If approved, the shopper has two weeks from the shipping date to pay. Potentially, customers may receive their orders before paying.
Klarna CEO Sebastian Siemiatkowski says that Klarna will differentiate itself from Stripe and PayPal because it is going after larger, established retailers such as Overstock in the U.S.
But PayPal and Stripe already have a strong foothold among app developers and retailers. And Klarna faces competition from the established giants in the processing space, including Chase Paymentech.
It’s also worth noting that although they are now competitors, Stripe and Klarna share an investor-Sequoia Capital. Klarna, which was valued at $2.25 billion last August, has raised nearly $300 million from Sequoia, private equity firm General Atlantic, Yuri Milner’s DST Global and others.
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