Klarna expands to brick-and-mortar stores in 2016

With ecommerce currently accounting for less than 10% of total retail spending in Western countries, the move into physical stores could allow Klarna to address a much bigger market than it is currently focused on, wsj.com reports. Electronic payments have become ubiquitous in SMEs. In 2014, Sweden had the equivalent of USD 1,109 of cash in circulation per inhabitant, compared with USD 3,734 in the euro area and USD 4,218 in the US, according to a study by the Bank for International Settlements.

Under Klarna`s proposed service, customers would provide the merchant with a mobile phone number. Seconds later, they would receive a text message with a link to Klarna`s online portal, recreating an ecommerce environment inside the shop. The company is also exploring other forms of communication such as apps or near-field communication, which offers a contactless way of paying and is used by Apple Pay.

The system offered by Klarna pays merchants immediately, and only later collects funds from customers, while taking on the entire credit and fraud risk on the retailer`s behalf. Customers can either choose to pay immediately or settle within up to 30 days, potentially in installments – which comes at a fee. To assess credit risk, Klarna looks at more than 200 variables derived from data it aggregates on its customer, including time of purchase, the shopper`s address and shopping patterns. If a purchase is considered too risky, the shopper must pay immediately, perhaps by credit card.

In a bid to respond to the financial tech companies, six Swedish banks have launched Swish, a mobile-phone solution to transfer money between private bank accounts. Earlier in 2016, the Swish consortium launched an ecommerce service, but hasn`t expanded its service to allow for payments in brick-and-mortar stores. The closing in April 2016 of 60 branches of  Handelsbanken AB, another large Swedish bank, was due to “changing customer behavior as a result of advances in digital technology.”

Klarna will first introduce its service in physical shops at a Stockholm beauty store later in May 2016 and intends to gradually expand it to the rest of Sweden and other countries. Michael Gegerfeldt, manager of Eleven, a Stockholm store, considers that Klarna will be 42% cheaper than its actual traditional card terminals.