Our guest for this new episode of #FintechInterview is Francesco Passone, Country Manager Italy at Klarna, an innovative idea of smoooth shopping and responsible spending, which today is the most valuable fintech in Europe ($31 billion).
Francesco, can you tell us about your professional background and how you started working for Klarna? In particular, what do you like about fintech?
I was born and raised in Udine. Later, during my Master at Politecnico di Milano, I took part in a double degree program in Stockholm focusing on ICT. My plan was work for a telco, but I had problems in finding a job in Sweden. So, after many applications, I received an offer from a newborn Klarna and I started working here almost by chance, at the beginning as a business analyst and then as a solution engineer. I really liked that job, since I had the opportunity to travel around the world to help our retailers to understand our products and integrate them. After four years at Klarna I decided to gain new experiences and to learn something new, so I started working in another startup. However, as soon as Klarna opened in Munich I went back there and, for a few months now, I have been responsible for the Italian market. Arriving at Klarna has not just been a matter of reaching a goal, but meant starting a real journey – we call it “irregular career path”, since we want you to follow your passions and improve your talents, that may develop and change over time. And if you look at my personal path, I’m the best example of that! The most fascinating thing about fintech is surely the daily challenge of trying to connect the dots between technology and finance in order to create ever more innovative products!
Regarding Klarna, how would you briefly explain what it is and what it does?
Klarna is hard to define, it does so many things that it's almost impossible to encapsulate in a single definition. I could sum it up with two words: "smoooth shopping" and I underline the three o's that are our hallmark! Klarna wants to become the consumer's preferred method of shopping through financial and banking services. It is not just a payment method, but it is a truly full experience.
You recently opened the Milan office, what role does this hub play and how is the Italian market responding to your innovation?
Klarna arrived in Italy relatively later than other countries, our company focused first on more mature markets. Italy has a strong growth rate and now is ready for the innovation that fintech brings and is responding very well. We are trying to create products that are as close as possible to the habits of Italians, indeed the services we offer are not the same in all countries but are adapted to the country we are in. Getting in touch with small operators gave us the opportunity to observe even better the different facets of the market in which we are in order to offer better and better services.
In Italy we have started with the payment in three monthly instalments which represents a good compromise between flexibility and costs and is especially good for young people.
So, you offer different products, how does Klarna change from country to country?
Our goal is to be the preferred payment method for our customers and to achieve this we try very hard to integrate Klarna with the very different habits of our customers. The Germans, for example, are used to paying instalments every 14 days while the Italians are used to a monthly instalment system. Compared to the United States, Europe is a very fragmented reality that is very different from the point of view of local culture and therefore the product must be calibrated differently, becoming unique in each country. We also have to respect the different legislative systems.
In a nutshell, we diversify products according to the type of instalment payment on paper (without interest and additional costs), then the frequency of payments and finally the customer recognition system (for example, in Australia recognition is done with the driving license, in Italy with the tax code and in Germany general information is enough).
Then there is the deferred payment and traditional financing that Klarna offers as a full-fledged bank.
What is Klarna’s business model?
Our business model relies on both consumers and merchants, who act by enhancing each other. On one hand, with our banking license we have been able to reach the consumer more closely with a wider range of services. For example, in Germany and Sweden we offer our own credit cards and current accounts, and we are launching savings accounts. On the other hand, we work with merchants to offer their customers the possibility to use Klarna. We work with all kinds of merchants, and in some cases it's the smaller ones that allow us to get an even better look at the different facets of the market we're in. Again, there is a difference between Europe and the US: in the US you can use Klarna even if the merchant is not our partner by creating a virtual credit card that is used at the check-out.
How does the integration between Klarna and the operator work?
Let's say that at a technical level, the integration is done through API cores, messages that are exchanged between the merchants' system and Klarna, and it depends on the type of system used by each merchant. The advantage of these systems is that they are preconfigured in every case and therefore do not need to be coded every time. Klarna offers plug-ins that integrate quickly with the systems, without the need for a technician to follow the entire integration process.
What happens every time you have to authorize a payment? How do you manage the credit risk?
When we make a decision, we assess two components, identity and actual creditworthiness, and so every time there is a request for authorization of an order, using a scoring method, we check creditworthiness with both internal and third-party data. We identify the customer with tax code and address, and we also check that a mobile phone is always connected. Obviously, every decision is a risk, both of fraud and credit, but we try to minimize this risk with our control systems and by taking a new credit assessment at every purchase.
How do you manage the ethical risk related to the offering of micro-loans that allow people to spend more than what they have?
I'll make a premise: every market is very different from the others, and so is consumer behavior, and there are different propensities to access credit. In Italy, for example, it is more usual to spend only what you have. We believe that it is right to give everyone a choice, and we also offer a product that has no hidden costs and is as transparent as possible. The financial well-being and responsible use of Klarna are indeed core values of our business. We are customer obsessed and for anyone who does unfortunately end up in a situation that has changed, we encourage them to get in touch with us as soon as possible and speak to our team to arrange the best solution. Moreover, there are measures we use to limit this risk, for example in Italy you cannot place more than two orders. We should also consider that most of our revenues come from the merchants, who pay a fee. The aim of our deferred payment is to provide an experience that allows you to manage your online purchases with peace of mind. I can conclude by saying that ethical risk control is one of our main priorities.
Klarna has grown very quickly and has become the most valuable fintech company in Europe, what is your competitive advantage?
Our brand is clear and strong, we use an unconventional way of communicating, and I think we have been the first ones to do this. Another aspect that makes us unique is how the product is engineered and made available to consumers. And last but not least, the possibility in some countries to use Klarna everywhere, a real ubiquity! And not everyone offers a pink, glittery card!
What will be the future of Klarna?
It's hard to say what the future holds for Klarna, the fintech world is constantly evolving and we are a fertile ground for ideas that are born organically within all our teams. We're always looking for market winning solutions and additional services that allow us to maintain the highest standards. We are investing heavily in international expansion, so that we raised $1 billion in an equity funding round – showing the global potential of our business.
What advice would you give to people who would like to join the FinTech ecosystem or be part of a startup? What are, in your opinion, the most important skills to succeed in this sector?
Be curious! I always tell my team: "You need to connect the dots!". So, try to understand also how the tech part of fintech is structured so you can have a clearer view of how your ideas can integrate with technologies and maybe find new ways to connect the dots!
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