Swedish fintech leader chooses Toronto as tech hub to scale up buy-now-pay-later model in North America

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Swedish fintech leader Klarna Bank plans to establish a product and technology development center in Toronto as it seeks to expand its ‘buy now, pay later’ model into the wider North American market. more competitive.

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Klarna, which found rapid success in Europe, grew from a business school concept in 2005 to a multinational challenging some of the continent’s established financial services giants, before expanding into the US market in 2015.

Now, with more than 400,000 merchants on board and $1.6 billion in revenue, founder and CEO Sebastian Siemiatkowski is looking to take a spin on Toronto’s thriving tech scene and cash in on the country’s transition to the open banking system.

Klarna first set its sights on Canada in February, when it introduced its “Pay in 4” service to the country, which, as the name suggests, allows consumers to split a purchase into four payments. The company has partnered with retailers such as Harry Rosen, Mejuri and Frank And Oak as well as hundreds of others.

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For the tech hub, which would be Klarna’s first such center in North America, Siemiatkowski said the goal was to think small.

I always joke that when the company starts building the nice, big headquarters, that’s… the beginning of the end

Klarna founder Sebastian Siemiatkowski

“We had this strategy to … have multiple engineering centers, which we don’t want to be too big,” Siemiatkowski told the Financial Post. “I always joke that when the company starts building the big, beautiful headquarters, that’s… the beginning of the end, isn’t it?”

Siemiatkowski added that building a technology hub for up to 500 people would give the company a start-up feel as well as a foothold in the North American market.

“We compared it with all of the United States and Canada and so on and concluded that Toronto had a fantastic amount of talent, fantastic positioning (and) a very business-friendly government,” he said. declared.

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Being part of an ecosystem that has helped start-ups like Shopify thrive is another reason Klarna chose Toronto. Siemiatkowski anticipates the Toronto office will offer a mix of remote and in-office work opportunities once it launches.

The “buy now, pay later” (BNPL) model is already starting to take off in Canada, fueled by the shift to e-commerce during the pandemic. According to data analytics firm Research and Markets, BNPL payments are expected to grow 63.5% to $5.9 billion in 2022.

Klarna will join other major BNPL players, including Afterpay, Sezzle, Affirm, ZIP and PayPal, as it expands in Canada. On top of that, it has to deal with an established banking oligopoly and big credit card companies looking to include BNPL in their business models.

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Bringing BNPL’s range of financial services products to financial aftercare may mean stepping on the toes of incumbent financial giants, but Siemiatkowski thinks it’s competition that’s long overdue.

“We (in competition with banks) partner with our retailers,” Siemiatkowski said. “Retailers aren’t happy with banks either, so they’re very keen to help somebody create a little competition because they’ve paid a lot of fees and they haven’t been rewarded.”

BNPL, however, is not without its challenges.

After raising funds at high valuations during the pandemic – Klarna was valued at US$45.6 billion in a funding round in June 2021, although Bloomberg reported that the company could be valued between 50 and 60 billions of US dollars – space is under pressure amid the wider technological rout.

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While Klarna is privately held, its publicly listed competitor Affirm has seen its share price fall more than 80% since the start of the year, shaving billions from its market cap.

Some personal finance experts have also taken issue with the BNPL’s business model, saying it encourages consumers to overspend, potentially spiraling them into debt. Siemiatkowski said he was aware of those concerns, but they could apply to other loan services as well.

“Obviously, unfortunately, people don’t pay (and get hit with interest) and again, that’s true of any credit product,” he said. “But that said, if you look at our subscription source, it’s very different.”

I finally believe that one day, people who do business with us rather than with other banks will have to be more financially comfortable.


Siemiatkowski said that with traditional credit card companies, consumers enjoy a large credit limit and there are very few checks and balances to ensure the customer is still able to repay their limit. . In the case of Klarna, the company checks whether the customer has refunded each purchase on time. If they do, they provide more opportunities for consumers to purchase products.

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“It’s a decision for every trade,” Siemiatkowski said. “On top of that, we never lend people money, we never let them transfer balances, we are very careful about the stakes. So we’re using a lot of real-time data to kind of make those decisions.

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Canada’s move to open banking is one reason Siemiatkowski is optimistic about the opportunity here. The regulatory framework, due to launch next year, would give consumers the option to share their banking details with other financial institutions or move their information between institutions.

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Siemiatkowski told the Post that because banks are largely unchallenged by other businesses, the banking industry has been more interested in lining its own pockets than providing the best services to customers.

“The lack of competition comes from the difficulty for us to switch between banks and the difficulty of being mobile,” he said. “A lot of this problem is solved by open banking. So I’m a big fan of it. I think it’s going to have a huge impact.”

Siemiatkowski acknowledged that it will take time for the benefits of open banking to fully materialize, but he remains optimistic about its potential.

“At the end of the day, I hope – I’m not saying we’re there yet – but I ultimately believe that one day the people who do business with us rather than with other banks will have to be more financially comfortable,” he said.

“At the end of the day, that’s the goal.”

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