Klarna the $5.5 billion Swedish fintech known for its ‘buy now, pay later” scheme has racked up a net loss of 522 million Swedish krona ($59.8 million) between January and June, a sevenfold increase from the same period since last year, CNBC reported.

Reports had it that its interim report from January to June showed the losses were partly caused by its credit losses almost doubling 1.2 billion krona ($139 million) due to customers defaulting on loans. To fix this, Klarna launched a loyalty program, Vibe in the US which rewards customers for timely repayments and as it turns out, this is the first loyalty scheme in the ‘buy now, pay later’ industry.

However, these credit losses account for only 0.6% of the 215 billion krona ($24.9 billion) total sales made through the Klarna platform between January and June. Most of the losses was caused by Klarna’s heavy investment in international expansion.

Was it Worth it?
Klarna grew its payments presence in the US market in 2019 after raising $460 million, an accomplishment that made it one of the most highly valued private fintech companies in the world. The fintech had been a huge success in Europe largely because of its unique value offering- the model is very easily appealing to its target market.

However, Klarna’s heavy investment in international expansion is what has caused most of the losses, but it seems to be paying off. Business Insider reported that daily downloads of the Klarna app has quadrupled in the past year, to almost 20,000 for the first half of 2020, and in recent weeks this has skyrocketed to 45,000. The company says 1 million new customers from the US alone joined between May and August, bringing its total user base in the country to almost 9 million. Klarna has also grown in popularity in Western Europe and Australia and currently processes around 1 million transactions per day.

Expansion is a Question that needs to be asked and Answered…

Expanding always sounds like a great idea to any business owner, tech or not. Not expanding internationally could almost be considered taboo in today’s business atmosphere. There a many reasons and upsides to expanding including diversification, financial growth, profitability and much more. However, in deciding if international expansion is right for one’s business or not, it is important to consider a few important factors:

  1. A strong Value Proposition: In the end, what stands out is what sells. You have be offering something no else is, something no one else is willing to or something someone else is in a unique way. You may even need to add on new offerings in order to appeal to a new market.
  2. Set realistic goals: Hope for the best, expect the worst. You may assume the organization is ready for a new market and but there are different dynamics in different markets, so in spite of preparedness, an expansion could affect a business in a million different ways.
  3. Strong Employees: To succeed internationally, a strong team of employees is a given. You staff needs to be ready for additional work, new demands and a new set of challenges.

Klarna can record some success from risking expansion because, the companies had tested and proven its offerings to be successful in over 10 years since its conception in 2005. Additionally, the industry in which it thrives continues to expand, so it has had good reasons to.

However, to be successful in expanding it is crucial to be prepared to put in time and effort and maybe even be prepared to experience some financial losses in the process. But if done right, the expansion for any company, yes exciting and promising can truly pivot a business to incredible new heights.