Klarna CEO: SaaS is Dead: Why Systems of Record Will Die in an Agentic World

We've gone from 7,000 people, we're now below 3,000. We've shrunk 50%. And I didn't ask for a single dime to do all this. And the reason for that is because I've seen the acceleration of AI and I know we can ship all these things on the existing organization.

No. It may very well be even less than that.

I am so happy to be here. This is going to be a lot of fun, dude.

You should think that the cost of creating software is going down to zero. That's it. And that means that everyone will be able to generate software at any point of time. So it is a massive change and I was 100% convicted about this already when I saw this one or two years ago. So that's been very, very clear to me.

So the key thing right now is, so far the only thing that's gone down to — or not to zero yet, but become extremely much cheaper — is the generation of software. The next thing that's going to hit everyone bad is the switching cost of data, because so far what you're seeing is you have proprietary data stuck in, for example, the CRM vendor or the other software as a service that you're using currently. So you may replicate and build the same dashboard or build the same processes in your own tool, but all your data is in there according to their data model, according to their setup. What's going to happen is people are going to start solving that problem: how do I get all of my data from the existing vendor and move it to the new vendor with the help of AI through one click that brings down switching cost, and that's when the real threat to SaaS comes.

Yes.

Exactly. That's exactly what's going to happen. It's happening already.

I think the stock market woke up to that in the last few weeks, right? The question is just like — I mean, it's not like any business is going to disappear overnight because people tend to stick, they have used these things for a long period of time, they like them, etc. The question is what multiples should they trade? And if you look at historically, software could trade at a price to sales — I'm not going to talk price to earnings because some of them aren't profitable, so it's not an easy way to compare. But if you do price to sales, they've been trading at 20, 30, and now they're down at 5, 10. But if you look at utilities, normal companies that are more utility, they may trade at 1 to 2. So from that perspective, you would argue there is still some potential to come down even further. Is it going to be — look at Chegg in the US, right? They're now trading at 0.2. ChatGPT was seen as basically wiping out their business a few years ago, and now they're trading at a depressed value, and now the revenue is also coming down, actually 30, 40% last time I checked. Is that going to happen? I don't think so. That's probably too extreme. 0.2 would be very extreme for some of these companies. But is it likely they could come down to 1 or 2? Yes, I think so.

No, I understand that some people are of that opinion. I am not, because I think that one thing is also like currently the way AI is set up — and I've already started seeing people doing this differently — but one thing is right now AI is allowing us to reinvent the wheel all the time, right? So if you come in and say I want to write this piece of code, somebody else prompted the same AI the exact same thing somewhere else, we're still using tons of server power to generate the exact same code. What people are going to start realizing is why don't I cache these things if I'm getting the same question, if I'm getting the same — or why don't I use existing open source components and reuse software? Like what if software becomes more like Lego pieces that you put together? It's going to be more and more efficient to just bundle things together. And this also means that things like what you're talking about — production-ready, security-assured, and all these things — they will become more standardized building blocks. And I think in the future, I'm not sure AI is even going to code that much, just going to pick some pieces together and stitch them together to come to what you really need, which also actually means less need for compute.

Mhm.

I think that's to some degree correct. But like, funny, the same weekend that this whole Claudebot thing exploded on X, I was actually sitting myself and playing around with a project which I was just calling company in a box, right? And the idea was just — I just wanted to test a little bit. And the idea was to do very similar to what Claude did, but more on a company level, like for a small company. And I just put like a small workspace in there with accounting, and in that I put an open source accounting software, and then I put like a CRM, and I put an open source CRM, and then I put a Claude agent on top of that. And then I told my Claude agent, hey, can you bookkeep this invoice for me, or hey, can you set up this customer account for me on top of that software, right? And it worked really, really nice. I just wanted to test the idea because the point is that — and that's actually where I also see the risks of even more jobs being threatened, because to some degree if I'm a small company today, then I may have an accountant firm that's helping with accounting, and those are the ones I would email like, hey, can you fix this invoice, or how much money do I have on my cash, you know, what's the current P&L look like, etc. But now I have Claude as an accountant on top of the accounting open source software, and then I'm just asking, hey, bookkeep this invoice, or check my balance, and it works really, really well. So I think — I'm not saying — I don't think the plumbing firm, the electrician of the future will vibe code this themselves, definitely not. They will buy off-the-shelf products for this. But the thing is, the question is most of our ERP systems that we see today, or software as a service, because coding was so difficult and hard, are still fairly siloed, right? They are not broad in their spectrum of what they cover. And the kind of winner of the future is much more likely to be extremely broad. They're kind of coming with a Claudebot or Claude of companies like those services. That's how I think the future of that kind of thing is. It's different for a company like Klarna because in our case, to some degree, this is the operating system of the company. And what we realized when we looked at SaaS and all these things already two years ago — which is why we started closing down SaaS for us — was because we need to provide our AI the best context. We need to provide as good context as possible to be able to perform a job. And if your data is separated in these silos — a little bit in this SaaS, a little bit in that SaaS, a little bit here, here's all the project management stuff, here's all the product definitions, here is the accounting stuff, here is this, here's that — it's just harder to provide it the appropriate context, right? So to us it was like, no, we need to reimagine the tech stack with AI first, being AI-native, and incorporate AI and deterministic and probabilistic code into one tech that becomes the operating system of the bank. And I think that's like the future of larger enterprise. And that's why to us we're very mindful — like we do still use some SaaS for sure, like we use Slack as an example today, which is a Salesforce company, right? So that...

Yeah. Yeah. Happy to try it.

Happy to hear that. So, you see what I mean? So, it's just like for a large company, I think that obviously not everyone needs to reinvent everything. I don't think the plumbing firm will reinvent. I don't think they're going to vibe. That's not the point. I think they will buy something that looks like Claudebot or company-in-a-box kind of thing.

Yep. That's exactly — you're exactly right. That's what's going to happen.

It depends on what kind of company you are. As I said, like if you are a plumbing company, maybe Claude will offer a solution for all of this, Anthropic, or maybe there will be somebody else who kind of uses Claude and empowers this kind of company-in-a-box experience. That I think is still the kind of unknown answer. We don't know what's going to happen.

And they're building their own.

I mean, we were one of the early ones, right? So this is actually one of the things we were surprised by. But I think I announced already in '23 that, you know, our AI customer service had, you know, done the equivalent of 600 agents' jobs, and it caught a lot of attention at that point of time. Now, you know, media always tends to simplify these stories a little bit. The truth was that at that point of time, you know, our customer service was doing very simple questions. It's like, hey, did I pay Klarna? Yes, you did. Okay, thank you. You know, like so obviously that wasn't that hard to do. But it's still like — I mean, to some degree, a large company like ours, what do we do? We try to improve our product partially. We try to do that so that fewer people contact us and ask, hey, it isn't working, or I don't understand what I'm supposed to do, right? That's part of it. You just want your product to be so good that people don't feel they have to do that. So we've always tried to reduce customer service calls, right? The only, to me, shocking experience back then was that like we rolled this thing out, we rolled a lot of product improvements out. I've never rolled a product improvement out that instantaneously took away the equivalent of 600 agents' worth of work. Now, these — because we don't hire these people ourselves, they work for customer service companies — they just shifted and started working on... Fortunately, in that situation, nobody lost their job, but it was still like an eye-opener for us. Like, wow. And then the point is what you realize when you're early on that journey is again, for customer service agents, whether it's AI or humans for that sake, for them to be able to answer questions really well, they need as much context as possible. Where is that context? It's in the source code of your software. How does Klarna calculate interest? Well, we can have a documentation of that, but the truth is in our source code is somewhere deep in our source code where that interest calculation is actually explained, right? So even if a documentation may be inaccurate — so what you realize when you pursue this is that like customer service isn't just like, hey, I need an agent that answers questions. Sooner or later you want it to read the source code and explain to the customer how it works. You want them to provide as much context as possible to be able to give the right answers. And that's when you start realizing that it's not something you — in our case at least — we come to the conclusion we cannot buy it off the shelf because it actually becomes part of our tech stack.

I'm not sure. I think there will be — no, I think obviously I believe that for Klarna the right thing was to be early to, you know, try to find what we can do with this technology and where it can bring us. And I think it's going to be a competitive advantage over time to incumbents that haven't done that. But a lot of incumbents will obviously procure fantastic AI customer service solutions in order to try to, you know, reduce the gap between what we're doing and they're doing. So, you know, who knows? We'll see what happens. But in our case, it was very evident that we needed to do this ourselves.

Yes. It's — but it's a good, very valid question. And one of the things we also realized is that, I mean, like I obviously — like as a Polish person, I think when things are about to change, I look at them very cynically, right? Like I'm just like, okay, this is what's happening. I'm not that kind of person that's like going to try to gloom things over. I'm like, okay, this is happening. It's going to be a big change to the world. How do I adopt? What do we do the best out of it? And I'm sure there's going to come a lot of positive things, a lot of negative things. In this case also, when we announced this, we obviously had some people being very frustrated with us, like, oh, you know, you're laying people off because of AI. People were angry to some degree as well.

Yeah, we don't think so. I think Bloomberg changed kind of the headline and then that got misinterpreted. But what we were trying to say a little bit later on is that like, to me, as we explore this further, we were like, well, but to be honest, if AI can do customer service, it means it's going to be the cheap customer service. It's going to be the one that everyone gets because it's cheap and simple. But as has always happened historically, like when people started in factories making cheap clothing or cheap furniture, we started appreciating artisan things. We started appreciating an artisan coffee shop and artisan, you know, furniture that was done by artisans. So we said the future of VIP experience will be the human connection, the relationship. And then we genuinely believe. So we said we need to transform our customer service from thinking about it as like, okay, yes, it's officially just like good customer service, but to some degree when I kind of challenge it internally, I said, look, what I've seen has happened is also too much focus on cost, right? There's been too much focus on that. We have to rethink this and make customer service into this human part of what Klarna is and make sure that we offer everyone who wants a human connection. That's going to be what VIP service looks like in the future. Like, oh, I'm not dealing only with machines. I'm dealing with a human. You know, that's what we think at least. So that's the message we try to get out.

Is going to be eroded faster than ever before.

But you're right, and that's exactly why we started changing. So one thing that we've done that has worked fantastic for us, and we're rolling this out, we started saying, okay, to your point, if we looked at like these agents that we were hiring previously, even through other companies, we didn't really have a relationship with them. We don't know who these people were. Like some of them were great, but it was like, to your point, a mix, right? And we said, how do we create something very different? And so what we started since then, which has worked amazingly well, and we were kind of just starting to ramp it up, is we actually built like our own Uber model, which means that we encourage today, we recruit our own customers, the most passionate customers that live in rural areas and so forth, and we say, hey, do you want to work extra or do you want to work part-time in our customer service? And they actually, just like somebody can go and drive an Uber for a while, they can actually jump on and work for Klarna's customer service. And these are our most passionate customers. They love our product. They love how it works. They know Klarna in and out. And now they earn extra money by actually working on our customer service. And obviously the NPS and the customer satisfaction of those interactions with our customers is through the roof. So, to your point, we needed to change. And that was what we were trying. But it's like very hard in the Bloomberg article. Like I'm not going to blame the journalist. Like I think actually if you read the original article, it's actually fairly balanced and it kind of tries to describe this. But then the headline is like, they're rolling AI back, you know, and then the whole media circus goes on like, oh, Klarna has just announced that they're rolling it back. It's like, no, that's not at all...

I was just laughing with them because like yesterday on X somebody wrote like, Klarna — like obviously Klarna — like company is going to offer buy now pay later on rent. It was Klarna — like it was actually another company, but people didn't see that. They just say Klarna is going to offer buy now pay later on rent, and then suddenly we're all over the press. People are calling us like, and it's like, what are we going to do? Like it's just not true.

Yeah.

Yeah.

Well, I think unfortunately I think that is going to happen. Like I don't think it's — and I feel like Dario maybe is one of few that actually is willing to stick up and say that officially. I feel a lot of the other executives of these big tech companies are getting nervous. They don't want — they're seeing the negative backlash of talking about this and then they're trying to portray something different. But I don't want to be one of them. I'm more in Dario's camp. I want to be honest about the fact that I do think there's going to be a very big shift. Now in addition to that, then like I think more like Elon, that it might lead to a golden age of humanity where, you know, AI does more of the jobs and more people can enjoy themselves and do other things, that we can have a richer society. That is not an unthinkable outcome. It could be a positive outcome. It could happen and I think it's not unlikely that it could happen. So I still — I'm an optimist at heart, but I also want to be realist around what's going to happen in the shorter term, and it's going to be a lot of turmoil in this.

Nothing.

You know what, Harry, like in 2015, in 2015, I sat down with my management team at that point of time. We have been trying to compete with Stripe and Adyen for five years and we were like losing it. Like they were just, you know, crushing us and we were like, this is it. And Adyen had just signed with Daniel Ek, my neighbor, and I was like, this is over, man. Like we're not going to win in this checkout wars, like payments wars, forget it. So we're like, what are we going to do as a company? What are we going to do? And then we sat down as a team and we're like, what's the future of banking, right? So the future of banking is going to be some kind of digital financial assistant wakes you up in the morning, say, I checked your mortgage, you're overpaying like hell, and I have renegotiated for you, and I can do all the paperwork. You just need to say yes to save 50 quid, right? And like that's the future of retail banking. And that we said in 2015, okay, so what does that mean for Klarna? We're like, hey, let's become your digital financial assistant. Let's be that assistant that saves you that time and money. And ever since that, it's been like, where are we going? So all these things now, obviously I didn't predict ChatGPT, I didn't predict all this stuff happening, but that to me, that we're going to become a digital financial system and we need the kind of technology that AI is to accomplish that was, you know, crystal clear for me for the last 10 years. And I've just been running down that path continuously. And to me it's like self-driving cars. We all know it's going to happen. And first it was a huge hype and every day we're reading the paper like, oh my god, it's happening tomorrow. Tomorrow everyone's investing and it's crazy. And then the hype dies away. But like I was always saying, people asking me like, what do you think about stuff? I was like, look, it's going to happen. My daughter is not going to get a driver's license.

That's — I mean, I love Revolut. I think Nick is a fantastic guy. I think it's an amazing company.

I love Nick. He's amazing. I've always felt very competitive with Nick and, you know, and I think he feels competitive with me. We have a common friend, Oleg, who we talk to a lot about these things, which is funny. But the point is that if you look at it, Klarna has 110 million customers worldwide. Revolut now has 65. Right? So I'm twice the size in number of customers. The engagement that I have is not as high yet as it is with Revolut. So people may use us more, less frequently, and for other things, right? So what I'm doing right now, what we're doing at Klarna, is moving from being kind of your infrequent payments solution to being your high-engagement banking provider, right? And that transition is going extremely well. It's going extremely well and it's accelerating. People are adopting our banking services at a very rapid pace.

Yeah, absolutely. But we all have different entry points. I mean, Revolut to some degree was like an early like, hey, I'm an expat, I travel a lot in Europe and like this is better for my currency, or I trade in crypto. That was kind of the early adopter thing. I think, you know, Robinhood was like, I'm trading, I love trading. Klarna is very different. Like our customer is like, I shop online, I do shopping. You know, we skew more female than male. We have a very different brand. I would think of us more like a lifestyle brand, like a digital version of American Express. That's how I think about Klarna. I think all of these growing fintechs, you know, I know David from Nubank since early days, right? Like I have a funny story where like I was down in Brazil meeting David when he was just leaving Sequoia starting, and you know, we had a fantastic conversation. We talked about the future of banking, and then he sends me an email which was like, hey, Sebastian, would you like to advise me a little bit? I'm starting this new company. And I was like, I'm sorry, I don't have the time. So I lost out on a lot. I would have been a great angel investor there. But that's how life goes. Yeah. You know, that's how life goes. So anyway, so that...

No. Okay. Okay. Okay. Yeah. I don't think anyone will cry for me over that. I will cry over myself. That's okay. I can fall asleep crying over that. But no, but the funny thing is that like so you have these fintechs now, right, who are actually starting to become really big. I mean, Revolut is really big, Klarna's really big, Nubank, you know, etc. So and but we're all coming from slightly different angles. We're all coming from slightly different. And now the people who are going to be threatened by this is the incumbents primarily. Like of course I'm going to partly compete with Revolut. I'm partly doing that already. But if you look at like they're very big in Romania. Romania is not a big market for me, right? Like I think there's the second largest market or something for Revolut. If I look at like number of users, like Romania is not a big market for me, you know? I'm very big in other markets. So like it's the — so that's going to differ, right? But whose market share are we eating? You know, Barclays, you know, the Wells Fargo, the Capital One, those are the companies that we are going after, right? So I don't really see there's a big conflict between us. It's more the incumbents that are going to lose customers.

No, but listen, it's like this. It comes back to what I said in '15. We're like the future of financial services is going to be this digital financial system. Okay. So then the next question is who is going to participate in that challenge and why would Klarna stand a chance? Those are the two questions we need to answer, right? And we say, well, first and foremost, there's going to be three types of companies participating: the tech companies, Google, Amazon, Apple; there's going to be fintech, Revolut — and so we didn't know, I mean, Revolut hadn't even started, but we knew they were going to come — and then banks. Right? That was kind of our view. Okay, so why would Klarna? So like what's going to be critical for us to win in that big transformation? Global. We first — if we're just big at that point of time, we weren't even in the UK yet. Like if we're only in the Nordics and Germany, we're not going to have the scale to be able to win this big transformation that's coming. So we need to be global, and global means US. Like if you're not in the US, if you're not big there, you're just not going to be big enough, and the risk is you're going to get acquired by somebody in the US. So to us, like nailing US was like super high priority. Super high priority. Second, we realized that data — the more I understand about you as a customer, the more likely I am to give you that advice that you said, hey, you know, you should pick up the flowers when you go there or whatever. So the key thing we saw is a difference than Revolut and all the others. We have our own payments network just like AMX. We have our own rails. Every time you shop with Klarna, the information that flows on the rails isn't just the amount that you purchased for. It's the exact products. We have the full digital receipt. So we know you shopped at Sephora, but also what cosmetics you bought at Sephora. And the benefit of that is if I'm then supposed to advise you on your purchases or your day-to-day finances, I just have much more richer information that allows me to provide you good advice. Oh, these contact lenses were really expensive, you can get them cheaper, etc. Right? So if I want to help people in their everyday spending, like I have more information. So we said understanding the customer at depth is very, very critical, and data was going to be very, very important. And so it was being global and having a good understanding of our customer and having a lot of trust and brand. The other thing was brand. Build a brand that people relate to, that people feel emotionally connected to, and not just like a utility, right? Create something different.

Well, partially because competition is better. If you take your AMX app in the US and compare it to one here, it is significantly better there, right? Your JP Morgan app is significantly better. So the financial institutions in the US are just better. There's less. And the problem is that then people try to find an entry point that is probably, for example, very big lending, and then they, you know, walk into a lot of subprime and they make huge losses, or there are other things, right? So people struggle to find that entry point. But we have 30 million users in the US, right? Almost like I think it's 28 or something. So like but soon it's going to be 30. Our card is growing at a very rapid pace in the US.

Yes. And we saw we launched a card in the US, and I have to be careful now because we haven't released the new earnings yet coming next week. So I have to use the Q3 numbers, but if I remember correctly, we're like at two, three million active card holders in just, you know, a few months in the US. So we are transitioning these buy now pay later...

That's a good question.

Yeah, exactly. Who is going to do better? Klarna's going to do better. That's my answer. I can't tell you between those two. It's very, very interesting. I think that the... well, we'll see. I think I have to go with David.

Because I think Nick's challenge right now might be that he is so distributed. I mean, he's trying to go for the whole world, right? I mean, he's launching in Dubai, he's launching in India, he's launching everywhere. You know, banking is not your standard tech company. It's difficult. And so I just wonder if he's like running out of bandwidth, right? Like I think it's more risky. David at least has slightly more focus. He has a very solid base in Brazil making a lot of money from there. He has his Mexican thing and the other thing that are growing pretty good, but then he does the US, that's just like one more big market. It's very different. Nick is so thinly spread right now.

Happy is a strong word. No, but I think, look, to us it's like we have over the years so many shareholders, so many employees. Like at some point of time it's actually easier to be public for us. We were already reporting on an earnings, you know, on a quarterly basis. We're a bank. So like I'm not sure that the difference is that big, to be honest, from our perspective. So it is what it is, but like, yeah, of course if I could own the company 100% and be private I would prefer it, right? But that's not reality.

Historically, yes, but this has changed due to AI, right? So the thing is that I mean one of the things I remember vividly is that when we came to the board and said that like the same plan that I said from '15, right, grow global, get customers across the board in all countries, and then once you have the love and affection of these customers and the relationship with them for day-to-day purchases, then basically, you know, go deeper with them, offer them more banking-like services and increase the revenue per customer. Right? So that was it. But we had this interesting board meeting where we're like, 'Okay, now it's really going to happen, guys. We are now going to truly start focusing on this transition from just like single payments customer to banking. And we're going to launch peer-to-peer. And we're going to launch, you know, potentially, which is also leaked to the press already, trading. And we're going to do like a lot of like the other banking services that we at that point of time didn't have. And we're going to, you know, increase the card and we're going to increase balances and deposits and we're going to do, you know, international remittances and all these things.' And then the board looks at this like, 'Yeah, you know, these kind of transitions can be hard. It changes what the bank is.' We had this discussion for an hour. Thank you, board.

But the funny thing, and then they say yes, and I just like I went out and I was like, why was that so easy? Like I was like, how come that went so easy still? Like it makes... oh yeah, now I know why. Because usually when a CEO comes to a board and says we're going to do all of these new services, we're going to launch all of this new stuff, hence I need to increase my investment and my cost by $100 million if it's the size of our company to be able to do all of this. But at the same point of time we were showing them a budget. I mean, Klarna has been shrinking. We used to be 6,000 or over 7,000, 6,000 people, and we're now less than 3,000. And I didn't ask for a single dime to do all this, right? And the reason for that is because I've seen the acceleration of AI and I know we can ship all these things on the existing organization. We've gone from 7,000 people, we're now below 3,000. We've shrunk 50%. And the majority of that is just through normal attrition. We initially when we had 2020, we did a little bit of layoffs, but that was, you know, not that big of a number compared to what has happened since then. And so that was the reason it was easy for the board to take decisions. I didn't ask for a single dime in investments.

Less, for sure.

No. I think it may very well be even less than that.

Yes. But listen again, relationship cannot be replaced. One of the...

Yep. I think that the thing is that the one thing that's important for us is relationships. We have relationships with merchants, as an example, retailers, and we have those relationships locally. So I have people in Portland talking to Nike. I have people in China talking to Shein. I have people in Amsterdam talking to Adyen, etc., etc. So we have over 50 locations where there's people. AI is not going to move those jobs like that. What we need is very important, the relationships with our partners and the same customer service. This is going to be... I'm still going to argue that it's going to be vital to offer a human connection there. Yeah. So those jobs will remain, but for the rest it's going to be definitely smaller. So we're shrinking through natural attrition with about 20% per year. It's just people leaving. They stay about five years and then they move on, which is natural. And then what we have said very clearly is that like we're not going to recruit. So we're recruiting a little bit. People then came again on X like, 'Oh, it's not true. Look, they're recruiting.' It's like, come on, guys. Yes, occasionally we hire somebody here and there, but if you look at the net, you go to LinkedIn and look at the insights, you're going to see how the company is shrinking. So the point is that we've shrunk 50%. But we also promised our employees, which is very important. We said, 'Guys, this is going to mean we're going to do much more with much less people. This is going to make more profit for us and you're going to share in that profit.' So our employee compensation has grown almost 50% per head during the time. So we have given a lot of that money back and that creates safety for our employees. They know that like through this AI transformation, using these utilities, they are, you know, getting some of the benefit of that.

Well, I think it's very clear when we compare American companies to European companies, there's a huge difference. I mean, I think that like American companies are 5 to 10x more than European companies do. And Klarna, from that perspective, we're a European company. We have come from very low levels. We have increased because we need to stay competitive for talent, and talent today can move between the US and EU pretty easily with the help of companies. But I still think also like the thing that's going to happen, there's been these industries, they're called tech and they're called fintech, right, financial services. They have all had this amazing thing which is that you create this service and there's a huge switching cost, so your customers can't really switch that easily, and hence you create this money-printing machine, and then life is sweet, right? And then you build these campuses and you play volleyball in your office and you go and get free lunches and you know, and you live off the spoils of this money-printing machine in your basement. And that's not how normal business works. If you're in retail, if you run a restaurant, you freaking wake up every morning and you ask yourself, how do I put the right product in front of the right customer, bring them into my store so that I can actually sell them and make them happy and so forth. You have to wake up every day and care about that, right? And so the point is that like this is going to be a brutal awakening for fintech and tech that like that's what's going to happen to all of us. Like we're going to have to wake up every morning, make sure that we serve our customers, we work really hard and effortlessly to make them happy with what we're offering them, and it's not going to be what it used to be, right? And so I think that like share-based compensation, as an example, like everything that was, was it really because, you know, it made sense, or to what degree was it just a sports? And I think to some degree it's sports. That's right. In some degree it's relevant, like because some people can make a huge difference, but there's a balance between the two.

I think... so that again comes back to what we talked in '15. Our conclusion was there's going to be different. So what I thought was interesting, Solomon also recognized this at Goldman Sachs. So he created Marcus. And then talking about public companies, the challenge was that when fintech was like everything was high, 2021, you know, valuations up, Marcus is the best thing Goldman ever did. And then suddenly what ends up happening is, you know, Marcus turns, and then it's very hard for Solomon to defend Marcus. But the problem is like Marcus would have needed five, ten years to fully mature, and when you're a public company that's hard to defend. I don't know, maybe Solomon doesn't agree and he's like, 'I did the right thing and I changed it,' but like in my opinion he should have stuck to his guns doing that. Jamie is now doing neobanking, he's going in, but he's going in a bit later now. And so you will see different banks. I think some of them will reinvent themselves, become neobanks, become tech-led, use AI to like, you know, reinvent themselves. Some of them will not, and they will wither away, right? Like which is always what's happening, the disruption of an industry. So it will depend on the leadership of those financial institutions.

By who? It was off bank, no.

It's a good question. I think that when you're in that kind of high-growth phase, one thing to keep a close eye on is your multiple expansion going faster than what your revenue is growing. Right? If your revenue is growing faster than your multiples, then you're probably fine. But if you start seeing the opposite, where multiples are expanding faster than revenue growth, that may potentially be a problem longer term, right? So I think today maybe that like I could have been, you know, more careful specifically on the hiring side because it was very sad and difficult to me to like a few quarters earlier be hiring at a high pace and then a few quarters later have to announce layoffs. That I felt that like I should have predicted and been more cautious about.

No, he doesn't. No. Angry is not the word for my...

No. I mean, it's actually less scary because he doesn't get angry. What he's like is disappointed.

No, he... No, but you... No, I mean, yeah, he... I mean, he's so amazing. I love him so much. I think he's fantastic, but you obviously care a lot to make sure that like you want to see that he's engaged.

Look, I've worked with him so many... It's a funny story how we ended up working with him because at that point of time, uh, Sequoia, there was a guy called Chris Olson, which is amazing, still a friend of mine, who was at Sequoia, and he did kind of found Klarna in...

Yeah, exactly. And he did the Klarna investment. So, you know, there was like this story where like I'm talking to this guy saying, 'Hey, do you...' because there was a guy in Stockholm that knew Sequoia a little bit. So I was like talking to him, 'Hey, do you think that Sequoia could be interested in investing in Klarna?' And he's like, 'No, that would never happen.' And I was like, 'Okay, fine.' So we just talked to the European funds. We're just like, 'It's not even worth it,' right? But I was still looking there in Google Maps. I was looking like Sand Hill Road. And I was like dreaming, you know, could I have the chance to work with these guys? And then suddenly my phone is buzzing and I'm like, 'Oh, I had a message.' I was like, 'This is Chris Olson from Sequoia.' You know, I was like, 'Oh my god.' I was like, 'Uh oh.' So what I do is like I know like, 'Okay, this is like dating, right? I can't call back in three days. I have to wait. I have to wait three days before I call back.' So I'm just sitting there like counting the hours like I cannot... I don't want to look too interested. Yeah, exactly. So and then I call Chris and we take a meeting and they get super excited and we instantly wanted to work with Sequoia. We were like, they're the best. That's how we saw it. Like we saw this was going to be a huge, you know, brand uplift for the company. At this point of time, you know, Daniel Ek, Spotify is getting all the tech credibility. Like all the engineers in Stockholm want to work with Spotify. Klarna is some boring, you know, invoicing company. People are like, 'What the hell is that?' Like so we're like we need tech, we need tech credibility, right? Sequoia is going to give us that. So anyways what happens is a little bit later on Sequoia decides to make the investment. Chris flies to Stockholm and we had Michael Moritz in a hotel breakfast here in London and then we come and Chris comes and he makes this beautiful presentation, right? And the presentation is like these are the Apple guys in the garage, these are the Google guys in the garage, and these are the Klarna guys in the garage, and you're going to be the next Google, you know, and we're just sitting there just like, oh my god, we're going to be Google, you know, like we're just like we're buying it all. And then I feel after a while it's like this is not good. Like we have to do something cocky here. We can't just like, you know, just swallow this and be like, 'Okay, please can we work together?' So when Chris exits the room and he's just about to leave, I say, 'Hey, Chris, just one thing. If we are genuinely the next Google, how come you're the only one from the Sequoia partnership that's here in Stockholm today?' And then Chris looks at me, 'Oh, I'm so sorry. The other guys couldn't make it.' You know, whatever. You have to remember they invested, they took a 25% stake at $100 million valuation, right?

Yeah. At $100 million valuation. That was the deal. They eventually did that. So Chris is like, 'I'm so sorry. I couldn't make it.' And he goes into the elevator and literally 20 seconds later, this is so impressive, 20 seconds later my phone starts buzzing and it's Michael Moritz. And Michael Moritz is like, 'Hey, I'm so sorry I couldn't make the meeting. And if we get to do this investment, I'll join the board.' So thanks to me saying that and being a little bit cocky and not being so freaking Swedish, you know, we actually got Mike on the board. And then since then, I've worked with Mike and gotten to know him. The thing people don't understand with Mike is that like Mike has this, you know, I always think that for you to be really good, for you to really understand the topic, you need to be in every freaking detail. You need to read up a lot, and he does. But the point is it's almost like sometimes I feel like he can just take this huge mass of information and he can like without, you know, a second of thought he's just, that is important, and he just gets that at a level I... other people I don't interact with like I interact with like it's just he's just brilliant at that. It's just amazing. He can like he called me in 2019 in summer. I don't know why he called me but he was like, and this was when we had been in the US for a few years. We weren't getting any traction. The business wasn't doing. And then Nick, another Nick from Afterpay in Australia, was starting to get, you know, traction in the US with buy now pay later. And Michael just calls me out of the blue and just like, 'Sebastian, I think it's now or never. If we don't do US now, we're never going to do it.' And I was just like, I don't know how the hell he knew that, but he was like so spot on. It was exactly the thing. And I just dropped everything and I was just like, we have to win the US. And then I just spent, you know, the next two years focusing 100% on that.

In my opinion, they do. Yeah, I think so. I think they do. I think they are... I mean, I think that I've been very impressed with all the people I work with there. I think they're amazing. And there's a new generation now with Sonia and Andrew and the new guys coming. So like it's really cool. Pat and... um, yeah, what's his name from Zappos? Sorry. Alfred. Yeah. You know, so yeah, I think they're amazing.

Lending? What does that mean?

Why would it be a shitty business?

I think the way I thought about this is like when we started Klarna 20 years back, we were just like, 'Okay, look, why are we not just making these banking products better working online?' Because you got to remember in '05, I mean, the banks' internet offering were shit.

So it was just like they're all shit. So we were just like, 'Okay, we're going to take some of the stuff that the banks do and we're just going to do it better online.' We did that and then that grew and we were successful. I mean, people don't know this, but we raised $60,000 in our first angel investment. $30,000 of that was spent and then we became profitable and we were running this as a profitable company from '05 to '19. We had almost 10 consecutive years of high growth and profitability that actually got us like this reward because we were like I think only one of two companies in Sweden that ever had such a long streak of high growth and profitability at the same point of time. So the thing is that... but what we realized also over time was suddenly I'm sitting one evening and I'm looking at my P&L and I'm like, wow, what is that line? Oh shit, that's late fees, right? That's a big revenue line. And I was like, that's not going to be long-term sustainable, right? So at some point of time, I started thinking, wow, you know what? We're actually doing lending. What does that mean? What does it mean for consumers? What does it mean for their financial life? You know, what's the implications of this? And at that point of time, I thought to myself, there's two things I can do here, right? I can either sell this business and say, oh shit, we're making a little bit too much on interest and late fees. Let's go and do something else, you know? Or I can try to change this. And one of my co-founders left at that point of time, right? But I said, 'No, I'm going to stay and I'm going to make the change.' And I realized that the buy now pay later credit offering is a healthier one than your credit card. Like on your credit card, you put all your spending full month on that and then the bank tries to push you to revolve. You build up a balance of a few thousand dollars and then you pay very high interest. So I was like, but I remember when I worked at Burger King, it used to be like press one for debit, press two for credit when I would swipe my card. And so like where did that go? Well, banks didn't like it because the problem was if you were pressing debit now and then your bill at the end of the month was much smaller and you were less likely to revolve and borrow money and they would make less money. So they removed the debit button, right? And I was like, 'No, no, no. Let's bring that back. Let's make sure Klarna offers press one for debit. 20% of our transactions are debit and then the rest is credit, but the credit is interest-free, fixed installments, no revolving. Revolving, we've removed it. It cost us... we gave up $100 million of revenue when we removed revolving because we used to do it in the Nordics. We took it away. We even didn't have late fees in the UK for a period of time at all, but it turned out that that wasn't great either because then people to some degree were overextending themselves. So it's good to have a little bit of fee, some kind of consequence of not paying on time. So we got that back, but you have to be mindful of not making too much money on it because people will tend to use it in a way that's not good for them. So you just have to find the balance. But over the years we iterated on a model that we feel like is a better alternative to credit cards. If 10 years from now less people have credit cards and more people have debit cards and then use buy now pay later occasionally, I would argue it's a better society. Like that's my belief, right? And that's what we've been pushing. And the consumers now we see they love that. They reward us for that. They agree with that, right? And that doesn't mean you're still in credit. So you're still going to have unfortunately occasionally people who overextend themselves. You have to be mindful about that. You have to how you help them when they're distressed and so forth. It's a difficult business in that sense. It's a bank, right? So you have to be mindful about these things. But generally speaking, the type of product we're offering is a better product than the traditional products of the banks.

No.

No. Shit, I wouldn't be doing Klarna.