A careful measure of speed is the key for international startups looking to successful expand into U.S. markets.

"Go slow to go fast," says Brian Billingsley, the North American CEO of Swedish payments processor Klarna. Prior to launching the concept stateside, he spent six months in Stockholm, where he reveled in the beauty of the startup's generous 400-day parental leave policy. He also spent quite a bit of time pouring over the reams of transaction data and trends. 

During Klarna's process of expanding into the U.S., Billingsley says it was critical to understand the "delicate balance" of being both a consumer, and a business-to-business service.

Klarna, for that matter, is not your average payments processor. By partnering with merchants, the system allows customers to purchase an item simply by entering their name, email address, and zip code. In the mere seconds before the purchase is approved or denied, an algorithm determines the customer's potential risk using data points such as purchase history, and the time of day that the order was placed. Once approved, a customer gets 14 days to pay the charge, though the item ships immediately. 

Klarna's user model encourages shoppers to buy more from third-party brands, while the company takes on most of the risk--which includes fraud detection. The concept seems to be working: Billingsley estimates that the company boosts merchant conversion rates for brands by as much as 20 to 60 percent.

Still, he's taking a slow, intentional approach to growth, because that's what he says the complexity of the model requires. "On the one hand, we're a very fast-moving tech company that pushes code releases daily, but on the other side we're a bank and we have to be very regulated," Billingsley explains.

With such an expensive bet to place, it's unsurprising that Klarna charges a high fee of 3.2 percent, on average, from its partners. (Stripe, by contrast, takes 2.9 percent from its merchants, plus 30 cents for every successful charge.)

In the future, Billingsley says the company could also bring in revenue by selling back the bevy of data it collects--including consumer purchasing behavior and trends--to retailers. To date, Klarna has raised more than $291 million in venture capital funding, including from such high profile investors as Atomico and Sequoia Capital. 

Founded  in 2007 by CEO Sebastian Siemiatkowski, Klarna launched in the U.S.  just over a year ago. Since then, the company has brought on major partners like Overstock.com--along with 20 smaller retailers, like Chubbies Shorts. In the U.S., it processes about 20,000 daily transactions, and has 100 employees across offices in San Francisco, New York City and Columbus.

Globally, Klarna processes billions of dollars worth of payments, with more than 50,000 merchant partners in 15 countries.

While some point out that company's growth in the U.S. -- by far its most important e-commerce market--has been sluggish, Billingsley isn't fazed. In fact, he says that Klarna is actually ahead of schedule, insofar as it's focusing on fully integrating with each of the merchant partners, and each of those partners' customers.

"A big difference between Klarna and other competitors is how local we have to get," he says. "It's not just processing credit card transactions. We're essentially giving interest-free credit to consumers." 

Billingsley is right to signal the competition stateside. Although Klarna boasts a $2.25 billion "unicorn" valuation--one of six such mythical creatures to emerge from  Stockholm--that's roughly half the valuation of Stripe, a Silicon Valley payments company. Stripe has been heralded for powering the "buy" buttons on social media networks Facebook and Twitter. That's not to mention PayPal, which last year was on track to process more than $50 billion worth of transactions through Braintree, its payments branch.

Surprisingly, Billinglsey says competition has not been the biggest obstacle to permeating the U.S. market. He's also bumped into some problematic cultural differences. For one thing, U.S. consumers initially disliked the font and titles associated with Klarna, even as those performed well in Scandinavia and the United Kingdom. Billingsley worked to quickly modify the API (application programming interface) on the service.

Another, and perhaps more significant hurdle, has been working with American banks to process card transactions. In Sweden, there are fewer than 40 commercial banks, whereas in the U.S., there are more than 10,000 major banks that a consumer might use. Because of that, "our infrastructure is not as good," Billingsley admits. There has also been far more demand for a loyalty program in the U.S, which he hints may be coming soon.

This year, the company is on track to achieve 700 percent growth stateside, and ultimately Billingsley's strategy is a simple one: "Grow like a startup, but maintain that profitable unicorn status."

Published on: Feb 17, 2016