Fintech Disruptors: Klarna was established in 2005, just before the e-Commerce revolution took off in earnest. Since that time, you’ve enjoyed remarkable success as a company. Can you identify the factors that have helped to make the company so successful?
Michael Rouse: Being founded in Sweden was a great test-bed for us. We developed a solution that takes on the risk for merchants as our customers, and offered the consumer the option of paying by instalments with a revolving balance. This gave the consumer a great experience, and also helped the merchants feel more secure, knowing they were getting paid by us. So ours was a bold and innovative solution, because at that time banks were charging merchants 2% of the total transaction value for taking on the risk. Since those early days, we’ve been determined to maintain an innovative approach as we expand – and that expansion has most recently involved serving more than 60 million consumers through 89,000 merchants in 14 countries. As a management team, we spend far more time on solving problems for customers than we do looking at financial issues and regulatory work, even though these are still important, of course.
Fintech Disruptors: Can you tell us what trends you’ve seen emerging in financial technologies in recent years?
Michael Rouse: I haven’t seen many changes in how financial technologies operate, if I’m honest. The core element of fintech is much the same as any other business – listening to customers, and understanding their needs. Those who understand how the market is changing, because they understand the customers, and who have the courage to act and change things, are going to be the ones that are successful. What fintech offers that perhaps banking cannot at the moment is the chance for customers to get what they want without the friction sometimes experienced in banking. Yes, banks offer a wide range of services – but are they easy for customers to use? I’m not always sure. Sometimes it feels as though banks are good at maximising profit and managing risk, but that doesn’t mean fintech firms can’t offer alternatives that are just as safe, but better at delivering what customers want, when they need it.
Fintech Disruptors: Looking to the future, do you see some form of “tipping point” ahead when we’ll know that fintech has finally arrived as an alternative to traditional banking?
Michael Rouse: You mean a kind of “Uber moment” in financial services? I think those moments are very rare, and I’m not sure we’ll see it in one revelatory moment or by one entity but more a slow realisation it is already amongst us every-day by observing change in consumer behaviours and new types service/products being offered and used. In the 60s, credit cards were an “Uber moment” for the international banking business, which was tied up in credit controls, currency controls and the like. Fast forward to today, and one might wonder whether we need plastic any more, in a world where people are constantly on the go. There are a lot of customer problems out there that aren’t being addressed by the banks, despite the fact they are sitting on enough data to address more or less any customer challenge. That said, some banks are progressive: I can think of JP Morgan, for instance, as a bank that’s investing in its branch networks, creating new customer touchpoints and making sure it gets its digital platform right.
Fintech Disruptors: Some of our other interviewees have spoken about the regulatory environment for fintechs as key to the future. What do you see as the main drivers to change in the next few years?
Michael Rouse: I’ll return to the example of Sweden, where Klarna started, as a great test-bed for fintech companies. Ten or fifteen years ago, the consumer in most Nordic countries was not best served and there was an air of complacency in the financial services business. Notwithstanding the great growth we’ve seen in Sweden and other markets, the real interest going forward is going to be the expansion of market opportunities as the physical barriers to doing business disappear. There’s an amazing opportunity out there to blow up the back end of the banking business and effect real change in servicing customers and their needs. To take one example, I believe distributive ledger technologies will have a dramatic effect on how fintechs can scale their services across borders and become truly disruptive. I’m definitely excited by the opportunities ahead of us: now we need to continue building bridges and show customers that we’re listening to their evolving needs.