However, cards – a payment tool built for the physical world – present a challenge in delivering a completely smooth and completely seamless customer journey. Given that consumers are constantly looking for ways to make their lives easier, it is no surprise that demand for alternative methods of payment is increasing, even in the most established and card-dominated markets.
Merchants realize that change is in the air, with one recent study by ACI and Ovum finding that 79% of merchants in EMEA are aware that customers want a broader choice of payment types and are investing in payments as a result.
ACI’s Michael Grillo sat down with Michael Rouse, chief commercial officer at Klarna to discuss.
Michael Grillo: New partnerships are being forged by payment vendors in order to keep up with the shifting frontiers of merchant payments. How does the recent announcement regarding Klarna and ACI’s partnership make it easier for merchants to offer Klarna’s range of payment products?
Michael Rouse: We are very happy to extend our cooperation with ACI and simplify access for merchants to use our services. The best-in-class integration between Klarna Payments and ACI allows merchants to quickly add deferred payments and installments to their checkout, with the support of ACI’s Developer Portal. This empowers consumers to pay when and how they want, as merchants can offer them to pay after delivery with instant access to point of sales financing.
MG: Klarna’s recent growth has seen not only an increase in terms of the markets where it is available, but also in the variety of payment methods offered. Briefly, what are these payment methods?
MR: Consumers can choose to settle the payment after receiving the goods with a deferred payment, or simply divide it over time with installment plans. The checkout experience from the consumer perspective is very smooth, as they only enter top of mind information, and the credit assessment that is carried out in the background takes only a couple of seconds.
MG: It’s interesting that while these might be considered ‘alternative payment methods’ in certain card-dominated markets, they are the incumbent and preferred way to pay in a growing number of European countries. Can you speak a bit about why these methods of payment have become well established in these markets?
MR: The initial business idea of Klarna – giving consumers the option to pay after receiving their goods – actually has some of its roots in the Swedish mail order catalogue market. Our offering was introduced to the market more than a decade ago, at a time when consumers were hesitant to shop online, as it was widely regarded as unsafe, complicated and frustrating. Ecommerce has come a long way since then, but the possibility to separate purchase decision from payment is still relevant and very attractive. If you allow consumers to pay when and how they want, you remove a major obstacle from successfully converting shoppers to buyers. We offer direct payments as well, for instance immediate bank transfers that are very popular in Germany, but we see an increased demand for smooth point of sale financing overall, especially in the U.S. and U.K.
MG: And in your view, what has held back adoption of this approach to payments in other markets, given the choice and convenience they offer shoppers?
MR: Offering point of sale financing in an online environment typically means risk for the merchant. Well, Klarna’s approach is to make it risk-free for merchants as we take on both the credit and fraud risk for the purchase. However, it’s not an easy task to know when and when not to offer that credit. We have been fine-tuning the algorithms that decide approved credit limits for more than a decade now, and are able to perform credit assessments in a couple of seconds without redirecting the consumer or asking detailed questions about their personal life. This enables us to offer consumers a safe, simple and smooth shopping experience, while delivering the highest acceptance rates in the business.
MG: Regarding this ’smooth’ shopping experience, amongst both payment providers and merchants there’s been a lot of talk throughout 2017 about how the role of seamless checkout experience in lifting conversion rates. Just how important is this, from a business perspective?
MR: It’s all about removing obstacles for the consumer. Entering the online checkout to discover that it requires you to fill out extensive forms and register an user account causes friction that makes it less likely that you continue without the purchase, and it becomes more likely that those shoppers pressed for time postpone their purchase. Adding to that, in a scenario where you are killing time shopping, while on public transport for example, you are far less likely to complete a purchase if you need to pull out your wallet and find a credit card. Separating purchaset from payment simply removes that unnecessary friction and provides a hassle-free checkout experience.
MG: It seems that mobile is a key driver here, and somewhat related to this, ”Millennials” was another of 2017’s big buzzwords – but do you think that merchants should be putting so much focus on this demographic? What are some other considerations on the demographic front?
MR: The preferences of millennials are definitely driving changes, with increasing demands and expectations around smooth shopping on mobile devices. Case studies, such as “Emotional eCommerce”, clearly show the importance of adapting to changing behaviors and habits as online shopping becomes an increasingly emotional experience. Removing friction for consumers and providing an intuitive customer journey will become even more important in 2018.
MG: One final question, how does Klarna see its partnership with ACI as a driver for its growing eCommerce footprint?
MR: It’s great to be working closer with ACI; building upon and strengthening our existing relationship as Klarna becomes more easily available to merchants, while becoming part of ACI’s expanding payments universe. Merchants can offer consumers flexibility in payments with deferred payments and installment plans, diversifying checkout with payment options. We strongly believe that this will help us accelerate our growth and adoption, especially in the U.S. and U.K. markets, which makes this even more exciting.
How will the frontiers of merchant payments shift in 2019? Meet with ACI at NRF 2019 Retail’s Big Show, taking place in NYC Jan 13-15.
ACI Fraud Management for Merchants 
