If physical stores encouraged the same habits that e-commerce shops do, they'd fail right away, said Klarna's Brian Billingsley.
"Imagine if you were in line at a checkout counter with 100 people, and all of a sudden 80 of you walked away from your full shopping carts without buying or paying. It would be ridiculous. People would get fired and the store would go out of business," said Billingsley, the CEO of North America for Klarna, a Stockholm-based e-commerce company that is plotting its expansion to the U.S. It expects to launch with a U.S. merchant in the first quarter of 2015.
The e-commerce market suffers from cart abandonment issues, which Klarna hopes to reduce in part by eliminating the need for consumers to pay for purchases at the time they place an order. "We want to make the checkout seamless to use," said Billingsley.
Klarna takes minimal information, such as an email address and postal code, to accept an order online. The consumer provides payment at a later date.
The company will target a range of merchants in the U.S., but will focus on e-commerce merchants that ship tangible goods. The buy-now-pay-later model would, in most cases, result in the consumer paying for the item after receiving it in the mail.
Klarna assumes all of the risk, paying the retailer immediately and collecting funds from the consumer within 14 days. Billingsley did not reveal the specific fee structure for the U.S., though the company charges transaction fees in Europe. In its current markets, Klarna has more than 25 million users and 45,000 retailers including ASOS, Spotify and Zara, with projected 2014 revenue of $300 million.
Klarna uses an internal system for risk modeling and analytics. "We have a risk team in Stockholm and will bring people over [to the U.S.] as well," Billingsley said. "On the page, we are looking at variables on that person, such as geolocation and purchase history, to vet them before they make the payment."
Depending on the results of Klarna's analysis, it may require a particular shopper to pay before an order ships. The risk engine can also trigger additional verification questions for the consumer before approving an order.
In the U.S., Klarna is also adding people who have experience in e-commerce and with Klarna's business model. In addition to Billingsley, who came to Klarna from the retail and loyalty card company Alliance Data, Klarna has added hired Carol Hargrave, a former director at PayPal and its Bill Me Later unit, as its chief marketing officer (Bill Me Later, now called PayPal Credit, offers a similar service to Klarna). Klarna also recently hired Jin Han, a former Apple payments counsel who will serve as Klarna's chief legal counsel for North America.
"[Klarna] has been such a success story in Europe. I do think it can export its success into the U.S., although it is likely to face an even more competitive market than it did at home," said Zil Bareisis, a senior analyst at Celent.
This competition comes from PayPal Credit, as well as new technology from existing e-commerce, payment companies and social networks, all of which have the same goal of reducing the steps needed to make a purchase online.
"[Klarna] will have to compete for merchants and consumers with the new breed of checkout buttons, from Visa Checkout to checkout by Amazon, all of which aim to simplify the purchasing process for consumers and increase conversion rates for merchants," Bareisis said.