Klarna’s expansion into ecommerce is part of its diversification strategy to help it expand and acquire new customers.
Klarna – the European leader in buy now pay later (BNPL) services – is expanding into ecommerce. Early in 2021 it updated its app, transforming it into a marketplace for online shopping by making it possible for its customers to directly shop with over 250,000 retailers (both partners and non-partners) through the app. In July 2021, it announced the acquisition of virtual social shopping platform Hero.
This move highlights Klarna’s desire to change the way consumers engage with online shopping. Hero’s technology enables online shoppers to get a personalised experience by interacting live with a store assistant through video or chat. This social ecommerce solution shrinks the gap between online shopping and physical stores by offering in-person customer service via an online experience. This will have a greater positive impact on consumers than simply reading online reviews or browsing a website. According to Hero, its solution reduces cart abandonment at checkout by 40% compared to traditional online shopping.
Given the rapid growth of ecommerce (particularly mobile commerce), it is increasingly important for ecommerce platforms to develop solutions that enhance consumers’ online experience.
By turning its app into a hub for online shopping, Klarna is able to follow consumers’ shopping throughout the entire journey – from discovery to checkout. This is a strong advantage for Klarna, as it can collect large volumes of data on consumer behaviour. In turn, this data can be used to improve its behavioural model and develop a customized experience for each of its users, which should lead to increased stickiness and retention – and thus higher revenues. And the Hero deal was not Klarna’s only July 2021 acquisition in the ecommerce space. It also acquired Stocard, which enables consumers to save their loyalty cards within a digital app.
Klarna’s desire to expand into ecommerce is motivated by the growing interest of regulators in the BNPL sector. While no announcements have been made, we expect regulators across the world to pass regulations that will reduce Klarna’s and other BNPL providers’ revenues. Expanding into ecommerce will help Klarna diversify its revenue model and should offset losses due to regulatory changes. Another factor motivating this diversification is the growing number of competitors in the sector. In addition to direct competitors such as Affirm and Afterpay, technology companies are also entering the market. PayPal and Amazon are already providing their own version of BNPL loans, and Apple is the latest to join the space. Apple is renewing its partnership with Goldman Sachs to launch BNPL services integrated with Apple Pay.
If Klarna is successful in expanding into ecommerce, it will be able to generate more revenue and also expand its BNPL service to a larger audience. If Klarna succeeds at integrating these innovative solutions it could become an ecommerce “super app.” This would give it the potential to have a dominant impact on the ecommerce industry the same way Amazon did when it expanded from being a simple online bookstore to the leading online platform in the world.
This was written by Chris Dinga, GlobalData banking/payments analyst.