Klarna CEO: Large retailers on edge as consumers love online shopping amid pandemic

Klarna CEO Sebastian Siemiatkowski joins Yahoo Finance's On the Move to talk about what consumer trends the global payments giant is seeing amid the COVID-19 pandemic.

Video Transcript

ADAM SHAPIRO: And welcome back to Yahoo Finance "On The Move." We're watching the Dow-- not much change, still down about 40 points. We talk a lot about retail and the impact of the pandemic on brick and mortar retail and e-commerce. We want to invite back into the stream Sebastian Siemiatkowski. He is the CEO of Klarna.

Now, this is a payment system for e-commerce merchants. And the last time you were with us, we were talking about the pay-- buy-now-pay-later program. But I also want to point out that Klarna has reported that the average order value for a retailer using your platform has increased as high as 310%, versus people who transact in other ways. Sounds like things are going very well for you. Is this a sign that the economy is rebounding or just that Klarna is rebounding?

SEBASTIAN SIEMIATKOWSKI: Well, I wish it-- I hope it's both. But it's interesting to see, obviously, that, you know, there's been a massive shift of consumption, obviously, also going from physical retail to online. So that's obviously benefiting us as well. But there's a big demand among the younger generation, who don't have credit cards-- 70% percent of Americans don't have credit cards-- for these type of solution that gives them an easier way to shop online.

JULIE HYMAN: Sebastian, it's Julie here. We last talked to you in May, and you talked about that Klarna tries to offer your services to people that you are confident can repay. How much have you had to tighten your credit standards because of what's been going on in the broader economy, say, over the last three or six months?

SEBASTIAN SIEMIATKOWSKI: So we have, obviously, taken a conservative approach and been slightly careful. What's a little bit all about the economical situation we're in right now is that you have-- for the people who have not lost their jobs, they actually have more money than ever. So most of the big banks in the US are seeing a contraction of balance sheets because people are using that money to pay down their debt. And while they're spending more consumption online, it's not close to what they have stopped doing offline, right?

So in general, the people who have not lost jobs have more money than ever before, and savings are up. If you look at the people that have been unfortunately impacted in their job situation-- this also due to the stimulus that Trump has done-- are also in a better-- many in a better financial situation. They're using that to pay down debt and to spend more online but spend-- you know, but they're spending less.

So the odd situation is even though we're approaching something that, you know, obviously is going to be an economical downturn, the actual current status of most consumers is that they're financially better off. And so we're trying to balance that and look at that. How do we then, you know, react to that as-- when we underwrite consumers in the US?

JULIA LA ROCHE: Hi, Sebastian. Is Julia La Roche. Well, I have to confess that I've never used Klarna, though I feel like I've maybe seen it while doing some online shopping. Maybe I've come across it. Talk to us a bit more about what you're seeing from the consumer, someone who might be buying.

Are they more interested in using Klarna now? Is that kind of seen as a better way for them to think about how they want to spend their money-- rather than spending it all at once, kind of break it up a bit? And then you mentioned earlier at the top, the interest you're hearing from merchants. Talk to us a bit more about that.

SEBASTIAN SIEMIATKOWSKI: Yep. So I think first and foremost, you know, again, I think most of maybe us here will have a credit card. But you've got to remember that millennials and Gen Z in the US, 70% do not hold a credit card. They only have a debit card. And shopping online with a debit card is a sub-par experience because you don't have the money. For example, you're waiting for you salary comes next week, or what if I make a return and the merchant holds onto my money for three weeks? It's my Saturday money. That's not a problem on a credit card. That's a problem on a debit card.

So when we can offer people a interest-free installment where they can take $100, split it every second week, $25, it makes them-- it's more affordable. And the benefit compared to a credit card, it doesn't cost them. There's no interest, so it's free because the merchant is funding it. So obviously, that's much more of an [INAUDIBLE] way for people, and they're only using it for a specific purchase, as opposed to kind of lending against groceries and stuff, which you do when you do it on your credit card.

So that's where we're seeing a big demand among that generation to use a solution like Klarna as a buy now, pay later, and we're seeing a big interest growth from merchants. I think what's happened also is that-- what we experienced during COVID is that a lot of the large retailers, who would obviously prioritize online because it's an important channel but also had a big offline, suddenly when COVID came along, you know, all-- the whole company's focus came about online and what can we do to grow our online channel faster. How can we get better conversion rate, more customers through the online channels?

So we had these massive organizations, large retailers in the US who suddenly, the whole management, you know, everything they were talking about was suddenly only online. So that's been a massive shift, and we've seen that in interest-- in income-- inbound interest from merchants and relationships that, you know, all these retailers are now solely focusing-- and some of them are obviously very nervous about, will people even come back?

Like, people-- we're seeing people are learning to shop online, to a large degree. They're getting even more accustomed to it, feeling that it's an even better experience. And we think this is a long-term, you know, strong shift towards online or over offline.

ADAM SHAPIRO: All right, Sebastian, thank you so much for joining us. Sebastian Siemiatkowski is the CEO of Klarna. We wish you the best.