Reflections on Klarna: The Paper Invoice

Klarna’s IPO marks an incredible 20 year journey for the company which has built one of the world’s largest commerce networks with close to 111 million users and 790k merchants. But what many people might not realize is that Klarna was born out of the most untechnical of products - the humble paper invoice. Buy Now, Pay Later is still today ultimately the same concept, just digital. I had the opportunity to launch a very similar product, but passed. Who knows how things might have turned out…

I began my entrepreneurial career in 1997, building one of Europe’s first online stockbrokers, which eventually sold to ETRADE and helping to create Tradera. It was the early days of the internet and buying things online was emerging as one of the most important consumer use cases, and even then it was clear: for ecommerce to thrive, payments had to be frictionless, and cards seemed to be the answer. So I invested in one of the first payment service providers - PSPs - to solve this problem. The company was called DIBS.

DIBS grew quickly, and it wasn’t long before we acquired a company called One Credit. It had a war chest full of cash, some interesting technology, but also a product that let people pay for goods bought online through printed invoices. We couldn’t see the appeal - why would people want to receive and pay a paper invoice offline when they could just enter their card details? It wasn’t long before we closed that product down…

A bit later, a company called Kreditor launched with essentially that same product - buy a product online, receive a paper invoice and pay within 30 days. Kreditor recorded their first transaction on April 10, 2005 at a Swedish bookshop called Pocketklubben. In 2010, Kreditor became Klarna and the rest is history.

What we got wrong at the time - and Klarna obviously got right - in closing down One Credit’s invoicing platform was:

1. The trust gap - In the early days of the internet people were still wary about entering their card details online.

2. Poor UX - This was back when credit card companies introduced the first iteration of 2-factor authentication or 3D secure which was a very cumbersome process and a horrible consumer experience. 

3. Try before you buy - Consumers liked receiving the goods they bought online and trying them out before paying, it mirrored the physical shopping experience they were used to. 

4. Merchants loved it - Making online shopping easier and better for consumers was win-win for retailers as it helped them increase their checkout conversion online.

We at the time believed that modern ecommerce would render the analogue paper invoice obsolete - and I wasn’t alone, most VCs didn’t get it. But what Sebastian and the team at Klarna saw was that invoicing offered a great customer experience, which in turn helped drive online sales for merchants. It was counterintuitive to combine analogue (invoices) and digital (ecommerce) but it clearly worked. 

Creandum Funds invested in Klarna in 2016, and I had a chance to rectify my misjudgement from all those years ago. Since then, we have seen the company become a fully licensed bank, launch in the US, and grow to now serving more than 111 million consumers, 790k retail partners, and process 3 million transactions daily.

From time-to-time I do think back and wonder how things might have been if I hadn’t been so dismissive of paper invoicing back in 2004. But when I look at Klarna’s stellar execution, I think again.

Congratulations to Sebastian and the entire Klarna team!