Klarna-CEO Sebastian Siemiatkowski: „Mit KI können wir die Zahl der Mitarbeiter von 3400 auf 2000...

To us it became very clear that eventually we will get to this. It's a little bit like self-driving cars—we've talked about them a lot but it hadn't really happened. But this summer I was with the kids in San Francisco and we went with Waymo, and it was amazing, it was fantastic, and it actually worked. So eventually it will happen, it's just a question of time. And this was the same for digital financial services. Ever since 2015, this has been the direction for Klarna. We wanted to build that digital financial assistant of yours that helps you save money, save time, make you feel in more control of your finances.

Yes, isn't it? It's crazy. Next year is going to be 20 years.

Right, right. Yeah, no, so we were... I mean, I don't know, I'm a Polish immigrant kid, right? My parents were from Poland and fled from the communist country. And I grew up in Sweden. I always had this wish to start a company for some crazy idea, I don't know why, but I was always very inspired by the founder of IKEA, Ingvar Kamprad, and H&M, and also I remember reading Richard Branson's book about Virgin and stuff like that. So it was always interesting to me. And then I went to Stockholm School of Economics, and, you know, a little bit too early, I wasn't too excited. I did a gap year. I spent backpacking as you were supposed to do, right? So we backpacked, we traveled around the world without flying—a little bit ahead of our time, without flying.

Oh, everywhere. We actually started in... I worked in Kinsky in St. Moritz. That's where we earned some money, and I did also learn a little bit of Swiss German, but I'm not too good at it, so don't ask me anything. No German at all? No, I understand German. If you speak, I understand well, but my speaking is not so bad. So we traveled from Switzerland over Russia—the Trans-Siberian, of course, the Trans-Siberian—and then we went down through China and got a boat from Australia to Mexico. It was cool, saw a lot of the world. The world is much bigger than you realize when you're on an airplane.

So the funny thing is, when I came back from that trip, we were a little bit late, so I couldn't continue my studies at university. As a consequence, I got an additional gap year. And coming back, I basically started working. I just got any job I could find at that point in time. It was a low economy in Sweden then, and so I found a job as a sales guy at a factoring firm that was doing account receivables and factoring and stuff like that. And it was hard to find clients that were interested. I was a phone sales guy, just calling companies, but I started calling these small e-commerce companies. And you have to remember, in Sweden we didn't have Amazon back then, so there was a lot of great small entrepreneurs that had gone online and they were like, oh look, I can put cat food on Google AdWords and I get a lot of people who want to buy cat food and sell cat food. So there was a lot of excitement, a lot of fun small entrepreneurs building businesses, and I realized that they really needed a payment solution. So that was kind of where the idea started.

Well, as I said, I've always had this—I don't know why, but I've always had this interest. I always thought it was a cool thing, even before it became much more fashionable to be an entrepreneur. I mean, I remember in my school, at least at Stockholm School of Economics at that point in time, 7%—only 7%—wanted to start a company. Today it's like 70, 80%, so it's really changed. But I thought it was super exciting. And I came back to school after a year at that company. The company was not really serious, so I pulled in a lot of clients, the clients were unhappy, and things didn't work out. But I thought, maybe I would have a chance. And then there was a small incubator at the school. I went to them and they said, oh, this is a great idea, you should try it. And then I felt like, okay, I'm a little bit embarrassed now if I wouldn't try it. So we pulled two friends together, Niklas and Victor, and then we started working really hard. And after six months, you know, we were quite early successful in Sweden. It went quite fast actually in Sweden to get success. And we started seeing it was profitable after only six months. So it worked really, really well. But then it took some time for us to get to other markets.

You know, the funny thing is that my Polish parents, obviously very ambitious, they didn't care about the company success. They were still like, you need a degree from university. So even though we were already—I don't think—we were employing like 50, 60 people and the company was profitable, but I still in 2007 decided to just quickly—I worked full-time and I fixed my university. So I did get my degree eventually.

Well, now you're into difficult things. I think they are. Both, you know, I had a pretty rough upbringing. Especially my father had fairly big issues with alcohol and abuse and stuff. So I think somewhere in his heart he was proud, but I also think to some degree, you know, he felt himself that he was intellectually smart, had the prerequisites, and ended up in Sweden doing work like driving a cab or other things. He felt himself as a failure. I think he saw himself as a failure. And I think to some degree, in some strange way, as much as he was happy about what I had accomplished, he also had a hard time comparing it to his own life. So it was a difficult thing for him. I don't think he really expressed pride over me in that sense. So that makes it difficult. But yeah, that's just how life goes, right?

That's a good question. Have I met... well, the only one I met is the founder—or the big guy behind H&M. I met Stefan Persson once. But I've had opportunities to meet cool founders after that. No, I didn't. I never—I really regret that I never met Ingvar Kamprad, the founder of IKEA, because I still think that's maybe the... I mean, today when I look at Richard Branson, he's kind of cool, but a lot of it is also just branding, right? It's just a great marketing effort. I probably today don't view him as the number one inspiration source for building a business. But I think IKEA is just such an amazing story. I also read actually this summer the biography of Sam Walton, who built Walmart. I love that story. It was also very much my kind of story. He's out in the countryside, he says, I don't compete in the big cities, I'm just in the countryside, and then builds this and just refines this business for like 30 years, and then once it's perfect, it just swoops the world with it. Now it's the biggest company in the world by revenue. It's crazy.

Well, I think our biggest challenge for once is that we were not—I think actually I would say poor advice, in our perspective. And that's because when Klarna was founded in 2005, there was really no other companies that had done similar things in a long period of time. So we had a few companies, but the one that we were most inspired by was Skype by Niklas Zennström, because it was the only digital company or tech company that was not American, wasn't based in Silicon Valley, and that had still really created international success and global success. And so in the early days, before we got an investment from Sequoia and Michael Moritz joined our board, which was 2009, for the first five years we had a lot of people that we were listening to that were advising us on what to do that actually hadn't built a business like this. And I think many times they were just not advising us well. I had, for example, our technology side wasn't too good at the beginning, and I had a lot of thoughts around how to improve it. And I had a person on my board who was consistently not advising me correctly.

But I was 24, 25, and I felt, look, this guy is like 15 years older than me, he's been an engineer his whole life, and he must know this much better than me. So I didn't trust my own instincts. I listened a lot, and I feel that was actually—I say that to a lot of people nowadays—I think people in general should trust their own instincts more. And the benefit of that is that if it's your own decision, then you have to take accountability for it and learn from it if it becomes a mistake. But the downside of listening to others is you can say, well, it was because I listened to others, and then the problem is you don't really learn. So I think those are the things... today, you know, I'm not sure that's good advice for people today, but I wish I would have learned to code myself and actually been much more involved in the technical side of the business earlier on, because I think that would have helped a lot.

Ah, there's so many. But I think one that I'm frustrated about is from the more recent years, when valuations were so high and everything was going in that direction. I definitely saw and recognized that this is going to be a hype, and then the hype is going to deflate again, because I've already been in this industry for enough years to see that you'll have these hype moments and then things go down. From 46 billion, right, exactly, and then it crashed down to 7 billion. So that's a pretty big difference. Even though any company in the stock market saw the same valuation change in tech. But what hurts me there is I wish I would have been a little bit more cautious about hiring. I wish we didn't hire as many people as we did during that time, because then when we had to change direction, it obviously is tough and not something positive at all for anyone involved.

Well, I think what happened—basically from our point of view, there are a few things to it. First and foremost, if you look at what Klarna is doing, being in the banking industry and being a competitor to traditional banks, that is an industry in itself that has over a trillion dollar market cap. So if you look at it, is it realistic that if we get disruption in banking—be it Revolut, Klarna, any of these contenders, Nubank in Brazil—is it realistic that we can see hundred billion dollar market cap companies being built in these industries? I think the answer is yes. So I don't think the valuation itself is that crazy. It's more a question of investor willingness to give you credit for the future versus what they see today. For a period of time, investors were really leaning into the future with low interest rates and so forth. They were leaning into that vision of the long-term opportunity much more.

And what then ends up happening for us is, if you're looking at it, we were making a loss of about a billion dollars a year, which obviously is a lot of money. But taking into consideration that we were valued at $50 billion, that is a 2% dilution per year, which isn't that much from a dilution perspective for existing shareholders. So the point is, it makes sense to be very aggressive and invest a lot when valuations are that high and everyone is rewarding you for being forward-looking. And then the investor sentiment shifted very drastically. We saw PayPal, Block, Square, and other companies dropping 85, 90% in the stock market, and at that point we obviously also needed to quickly adjust and start focusing on profit again. Fortunately for us, we have a very profitable business model. We've been profitable for 15 years of our existence, so it was definitely something we could do.

Well, it's a combination of things. Obviously our cost structure—I mean, the amount of people we had working on new stuff and so forth was too big. But partially it was also because we have seen over and over again that when we go into a new market, initially it's very hard to underwrite, so take the risk, because we don't know customers. Every customer is new, and when you have more new customers, you just have more credit losses. But when you have more repetitive customers that are using the service over and over again, then your losses come down. And in this case, we were a little bit unfortunate in the sense that we started growing massively in the US, but it was still a lot of new customers in the US. And so this happened to coincide with this, and this is what was pushing our costs to that extreme. But when we then basically slowed down a little bit the growth in the US, we had much more repetitive customers. That, in combination with some of the other tough decisions we had to make, turned the company around. So that's why we're profitable again.

Yeah, so I think we've pivoted the business and changed the business direction a few times. Between 2005 and 2010, we were very much focused on buy now pay later and that kind of thing, and that worked really well. Between 2010 and 2015, we tried much more to focus on the merchant services—basically offering all payment methods, debit cards, credit cards, Visa, Mastercard—and build a universal checkout for merchants, which we were competing with companies like Stripe and Adyen. And in 2015, we concluded that they were winning, they were doing that much better than us. At that point, my two co-founders had left and I was myself left at the business in 2015. It was kind of a pivotal point for the company where we were like, okay, we pretend to be Stripe and Adyen and then we sell the company to some private equity or some industrialist, and that's probably going to be a good financial outcome. But we also want to see maybe there's something else we could do.

Because the learning from 2010 and 2015 was that we had correctly understood where the market was going. The products and services that we had planned for, Stripe and Adyen did them, and they became $100 billion companies. We understood the market well, but we hadn't executed as well as they had. So in 2015, we sat down and said, okay, if we don't do merchant side, maybe we should focus on the consumer side. We said, what does the future of consumer financial services look like? And what's funny is that has actually been very consistent for the last almost 10 years. We said, in the future, you wake up in the morning, your digital financial assistant will have analyzed your spending and say, hey, I looked at your mortgage and you're paying 50 too much every month, and as a digital financial assistant, I've renegotiated and found a new bank that will drop your cost. I'll also do the paperwork for you. The only thing you need to say as a customer is yes, do you want to save 50? And to us, it became very clear that eventually we will get to this. It's a little bit like self-driving cars—we've talked about them a lot but it hadn't really happened. But this summer I was with the kids in San Francisco and we went with Waymo, and it was amazing, it was fantastic, and it actually worked. Eventually it will happen, it's just a question of time. And this was the same for digital financial services. Ever since 2015, this has been the direction for Klarna. We wanted to build that digital financial assistant that helps you save money, save time, make you feel in more control of your finances.

Well, I think what you can do today already—the way it works, what people mostly think of Klarna today, right—that's when they go shopping online and they see the button, and they see, okay, it's a button, I have a PayPal button and a Klarna button. In most markets today we offer both a credit payment, like pay after delivery, but we also offer sort of pay now, instantly. But then people start opening the app, and in the app they start realizing, wow, the app is actually different than all the other banking apps. You have the full digital receipts, so you can see not only that you purchased 50 at H&M, you can see the actual sweater and the color and the size and all the things. And then we start building other financial services there. You can also save money with us, we can help you track your shipments, find out where your packages are, we can help you with budgeting and get all of your bank accounts in there, etc. So it kind of builds into a full banking experience, but the starting point is always somebody shopping online or in store and seeing that you can get a card from us. We have a few hundred thousand cards in Germany as an example, people using that. So basically all of the banking services are coming, but it starts very much with wanting to make a purchase and then seeing the button. But eventually you have to become a complete bank.

Well, it's happened to some degree. In Germany, for example, it's one of the markets where we're furthest ahead. You have a savings account, you have the full thing, you can pay your bills through Klarna now, you can do more and more. But to us, it's happening in steps and we're getting more and more mature, because there's a lot of infrastructure to build out. The banks have been around for 100, 150 years, so there's a lot of services that they provide, and we're still figuring out exactly what we do and what we don't do. For example, we're not offering trading, which Revolut does—trading in stocks and stuff like that. We have decided to not do that.

Yeah, I think that trading, to me—I mean, the basic savings, that you can save your money in a deposit account and so forth, that we are going to offer. But the more advanced trading, when it's trading in stocks and so forth, it quickly becomes a different kind of service where people are very nerdy about it and they have a lot of opinions and expectations. It just becomes—I think those are going to stay as two separate services.

Yeah, I don't think so. I think there will be some things that are separate. Trading is one example that I believe will be separate from others. But again, it becomes a question of how advanced a trader are you. I'm sure there are people in Germany who buy stock directly with Deutsche Bank or with Sparkasse, but there's also tons of German people who have special trading apps and use something else for trading on the stock market. So it's a little bit like you may have the more basic services but you may not necessarily compete with the full offering. It's just a question of where do you want to be really good.

Yeah, I mean, what we're really happy about is the fact that we are getting closer and closer to the full banking offer. So we both now will have the Klarna balance, which means that you can have positive balances and send money to friends, and you can use those when shopping online. And then we will also offer cash back, which is more traditional but also very important for bank users. So you can get up to 10% when you use our app. And you can also save money with us in the app directly, where we offer up to 3.6% interest. So this is pretty cool. In Germany especially, people love savings accounts, so it's a great part.