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Monday, October 03, 2022

Exclusive: ‘The e-trolley dash’ – Alex Marsh, Klarna in “The Paytech Magazine”

Data from pandemic-fuelled online shopping gave Klarna an insight into our collective psyche. Can the payment solutions provider and its etailers now use it to ride a permanent digital wave? Head of UK Alex Marsh thinks so. 

Alex Marsh | Fintech Finance

The world slowed to standstill in 2020 – at least for many of us. No frantic commuting, no rushing to get the kids out of the door to school. We rediscovered family life, spent more time in the garden, took up bread making, even. The Sunday morning feeling extended into the rest of the working week.

That slowdown was only in the world visible to most consumers, however. Because, behind the scenes, the reverse was happening; online stores were surging with activity, payment platforms rushing to make themselves available to shops that had closed their doors but were now suddenly packaging up deliveries for new, online customers – everyone scurrying to get digital systems up and running as face-to-face retail evaporated.

A seismic shift was happening – and payments platform Klarna has been helping traders ride the resulting tsunami since March. What’s more, it looks like surf’s up for etail until at least March 2021, when a vaccine will perhaps restore some sense of normality.

Alex Marsh, Head of UK at Klarna, has been crunching the numbers: “ONS (Office for National Statistics) figures suggest there has been a 44 per cent increase in online purchases since January,” he says. But he doesn’t need the ONS to tell  him that; Klarna’s own data shows transactions across its payments platform increased by 43 per cent in the first nine months of the year. Klarna was already Europe’s largest fintech startup, having been valued at $5.5billion during a funding round in 2019.

“We’ve brought on up to 9.5 million UK consumers,” says Marsh – an astonishing proportion of the population, given that the 20 to 35-year-olds who typically make up the market for online goods only number 15 million individuals. But nothing this year is typical.

“All age groups and demographics are shifting to online: our fastest-growing age demographic during lockdown was actually Generation X, i.e. the 40 to 54-year-olds,” he adds.

So, it wasn’t that the pandemic caused millennials to buy more clothes from ASOS, then – rather, it caused people who’d never shopped online before to figure out how to fill digital baskets. This demand was met by a corresponding surge in supply – businesses that had never sold online before figured out how to use ecommerce.

“Savvy garden centres were even using Facetime to demonstrate the plants that they had on offer to their customer base, – I love that,” Marsh says.

COVID-19 has added £5.3billion to UK ecommerce sales this year – and,  while much of that was through Amazon, a significant amount has also been driven by smaller outlets that had previously put their fingers in their ears when anyone talked about digital opportunities.

As Marsh points out:  “It took six years for the proportion of ecommerce to move from 10 per cent to 20 per cent, and then in three months this year, between February to April, it moved from 20 per cent to 30 per cent.”

For retailers to put pedal to metal and get online so quickly, you might think they too had been on some kind of pandemic trial drug for traders. But it turns out, Klarna was all the boost they needed.

“Particularly for small merchants and independents, we’ve definitely seen super-strong demand for partners to support them on building the sort of capabilities they need to compete,” he says. ”Ecommerce platforms can often have Klarna as a payment method live within 24 hours of the initial enquiry.”

Being behind the scenes of such a shift offered Klarna a unique, sociological window to peer into the human soul during the pandemic. Marsh talks of a ‘very consistent pattern, across the different markets that we support’.

“First of all, consumers were thinking ‘we’re going to be confined during  lockdown, we’ll stock up on food and essentials’,” he says. “Stage two saw consumers looking for ways to interact with friends and family. We had this shift in terms of house parties and other mechanisms to interact with friends – with a 180 per cent uplift in gaming payments.”

By stage three, people were investing in leisurewear rather than sofawear – ‘a physical benefit to help the mental benefit’ of slowing down, according to Marsh. “We saw a really interesting shift into health, wellbeing and exercise, and a 105 per cent increase in running shoe sales.”

The fourth and final stage, where we are now, has ‘an element of return to normal’, says Marsh. “People are out of the house, they’re interacting more. That’s where we’ve started to see increased purchases of clothing and shoes again.”

More than therapists, businesses can learn from this pattern for future geopolitical and even natural events, suggests Marsh. For all the planning in the world, it is inevitable that businesses will sometimes get caught under a wave they failed to see crashing onto the retail shore – so wetsuits and protection in the form of digital  channels are advisable.

“We saw, during lockdown, that the key for merchants is being super agile, to react to customer preferences quickly,” Marsh says. So that is what it’s now focussed on helping them to do.

The great enabler

Klarna has invested in open banking outside of its main business model, connecting fintechs with more traditional financial institutions. The company wants to simplify open banking and open up the playing field to smaller players – it has already connected third party providers (TPPs) with more than 5,000 banks in Europe. It believes this will allow TPPs to go to market quicker, and improve customer conversion because, for example, the due diligence is less onerous. Indeed, COVID seems to have opened consumers’ eyes to the benefits of open banking – two million people in the UK now connect their accounts to trusted third parties’, up from one million in January.

Klarna is already an example of embedded finance – a button that consumers can click on at checkout for a straightforward payment process – but it is also enabling an ecosystem of similar services involving other financial institutions with which it can exchange data with the consumer’s permission. Already a licensed bank in Sweden, with an open banking platform, Marsh explains that this transparency, allows Klarna to make better decisions about who to extend its buy-now-pay-later credit scheme to, particularly now, with consumers’ wallets under even greater stress.

“Think about a consumer who has quite volatile income, or potentially has not used that many credit products before,” he says. “The access to open banking, and being able to see all of their transactions, can help us build a better picture, to make a decision about their ability to repay”.

He admits there is still a ‘battle to be won with consumers’ around sharing information, but it is about ‘bringing to life the benefits of doing that’ – such as access to an interest-free payment option that they wouldn’t have had previously. It’s a win-win for everyone, he says.

Post-COVID, Klarna is keen to make sure that online doesn’t become a poor substitute for in-person shopping – which is exactly why flexible payment methods, such as ‘try before you buy’ (its digital equivalent to changing rooms) are key. It’s also making headway with social shopping, which Marsh describes as ‘supporting consumers in terms of wish lists, the types of items they want to buy’, as well as, most appealingly, tracking price drops so that customers are aware when items they want go on sale.

Klarna realises there’s a vaccine on the horizon that could push the reset button – but it also knows the cat’s out of the bag when it comes to online shopping, and Marsh is confident that experiences during the pandemic will drive further adoption by merchants whose customers had previously shunned digital.

We might embrace our old way of life (quite literally) when social distancing is no longer the rule. But we might not be so keen to reclaim certain aspects of our previous shopping experience – queuing, wonkey-wheeled trolleys, packed changing rooms and out-of-stock items among them  – with the same enthusiasm.


This article was published in The Paytech Magazine #07, Page 81-82

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