For large purchases online (and everywhere else) we’re all used to proving our credentials and our ability to pay for things if we use a credit product. Risk is assessed and if we’re deemed to be ‘good for it’ we’re approved. It’s slows things down and puts friction in the way of people getting the goods or services they want. It’s not just about speed; simply applying for credit can affect your credit score, and a rejected application can leave a consumer with fewer options. For smaller purchases online we’re used to filling in our credit card details. Over and over again. Security can be an issue. Privacy is increasingly so as fewer consumers are happy their payment history is used to feed ads. In many parts of the world, Cash On Delivery is still the norm (even where e-commerce is widely used); the UAE for example sees 75% of e-commerce paid for in this way.
In the Middle East and other regions, Cash on Delivery may appear to be a barrier to the adoption of e-commerce, but conversely the pay on delivery model is being exported to markets where previously this has not been the norm - as a differentiator. Whilst credit checks, and the business of managing risk hasn’t fundamentally changed, we’re seeing a new breed of financial service from the payments space - one that appears to do away with making the risk issue the customer’s issue.
Klarna the already successful billion dollar payments ‘startup’ is (along with PayPal perhaps) leading the way in helping customers manage their payments and credit online; and taking the (credit) risk is a key part of their success. Millions of customers are using Klarna to complete transactions because it’s so easy, just a name and address will suffice. The proposition includes ‘pay now’, ‘pay after delivery’, and ‘pay over time’.
But what’s next? Removal of the risk part of the customer journey has been achieved (made possible by Klarna’s ability to attract huge VC investment) but can Klarna go further? According to Business Insider Nordics, Klarna is working on a digital wallet solution “to rival banks’ and Fintech solutions”. In our world of many failed digital wallet initiatives, there’s clearly plenty more to do to make a digital wallet a default payment method online or elsewhere. Can Klarna apply its ballsy counterintuitive risk taking to removing yet more friction in the customer journey? Can Klarna, unlike its rivals, understand that to radically improve ‘paying for stuff’ you need to radically improve ‘buying stuff’. I.e. shopping is about more than just paying. There are lots of other causes of friction in the customer journey. Klarna has commissioned a report into basket abandonment recently showing how poor checkout process halts sales. But can Klarna or any wallet innovator help upstream too?
What is the next wave of wallets going to have to offer before they become useful?
- Intervening earlier in our shopping process wherever we shop - offering budget tips / budget impact / ways to pay / alternatives?
- Being customer driven - e.g. the customer chooses how to pay at a retailer, rather than the retailer determining how a customer can pay?
- Managing returns / same day returns so ‘buying’ becomes ‘trying’?
- Being ‘truly’ mobile - so customers feel entirely in control?
- Being trusted - sharing / taking risk goes such a long way in achieving that?
We're excited to see true innovation in this area - after all, paying for stuff is still just the annoying bit you do at the end of shopping!