Klarna dancing with Paypal

Klarna’s CEO bought Twitter ads to make the following claim:

Thank you CNBC for making it official: Klarna is now the global innovation leader and Paypal the follower. We are humbled but eager to push the innovation and customer centricity in this industry forward at an increasing pace!

A few observations:

1. No matter how innovative you think you are and how bold your vision is, the difference in the market is made by the strategic execution, not by public statements.

2. Business and thusly the leader and its followers are solely decided by the customers and their wallet, which ultimately dictates everybody’s market share.

3. So why this reaction? Public statements are usually signals you want to send to the market aka your stakeholders.

One way to interpret this is “we’re leaders and not afraid of the threat of increased competition”.

But… it can be translated into showing a lack of self confidence. When you publicly claim you are not afraid, you usually are afraid - leaders are busy leading, not publicly shaming followers. Besides, leaders are always wary of risks which is also controlled fear.

4. Who is the recipient of the message? The customers? The employees? The shareholders? Unlikely. There’s direct better channels for talking to them.

The other competitors, particularly PayPal? Likely. They get a direct mention in an ad purchased by their competitor - btw, comparative advertising is very unusual and generally prohibited in Europe.

But there’s backdoor channels with competitors too.

Fact is, this ad is an unusual move in the European ecosystem. It looks like an impulsive reaction not vetted by the PR and made when you feel threaten.

And another fact is that Paypal is gaining market share in Europe at a higher pace than Klarna has been advancing in the US. And, rather a personal observation, Americans are better at business development than Europeans.

And my intuition tells me that there’s a background story that led to this reaction.

5. Maybe there was a background deal between the two that didn’t work out and this is an ego burst - maybe Paypal wanted to buy Klarna but offered too little money and things escalated, or something.

6. Or maybe Klarna started losing key business to Paypal in its home markets and this is some hurt ego reflection.

Or a combination of both.

7. Also in Paypal’s advantage: better brand awareness and a few strategic acquisitions, including a $2.2bn iZettle from Sweden (Klarna’s turf), a payment processor already working with most of the Euro retailers.

Providing a solution covering the whole spectrum of needs down the chain for a merchant can be a differentiator, see the next point.

8. Also on topic, interesting to note a quote taken this week from the founder of Lunar, a Danish neobank which also wants to eat Klarna’s lunch:

The “schizophrenic” Nordic banking market is the reason why Lunar is launching BNPL. The Nordics is the most profitable banking landscape in the world, but also the most defensive, with least competition from the outside. This means that the traditional banking customer is buying all their financial products from their bank.

It is within this context that Lunar’s BNPL products are built as “post-purchase,” where Lunar will prompt its users after they have bought something. For example, if you were to buy a new television, the app will ask if you want to split the purchase into instalments. This does not require merchant agreements etc, and will work on all transactions both retail and e-commerce.

We do not view Klarna as a direct competitor as they are not in the Nordic clearing system. Hence, you cannot pay your bills, get your salary and use it for daily banking. Klarna is enormous in Sweden, but relatively small in Denmark, Norway and Finland.

9.  Whatever. If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

So there’s that. Increased competition, different points of market attacks and the feeling that all of a sudden you are not just a pioneer opening markets and risking arrows in the back. You are fighting head to head with solid competitors on multiple fronts. The game has changed. 10. It is a complex strategic one that requires different skill sets than building a company from scratch.

It is also a bit unusual that a founder is involved in the management thus far in the company’s lifecycle such as Klarna. At this point, the beast needs to be steered differently and usually investors prefer professional CEOs for handling $6bn companies. Not impossible for founders, take Daniel Ek as an example. But definitely a different cup of tea.