Why launch a card?

Klarna has been a player in the online payments space since 2005 —long before it became synonymous with Buy Now, Pay Later (BNPL). Klarna’s online checkout product is at the core of its business and has been successful for good reason: it’s fast, secure, and genuinely increases conversion for prospective customers browsing an online merchant’s website.

Despite its success in online payments, Klarna’s leadership has always been interested in expanding its product portfolio. We made a mobile app for paying off purchases and browsing for new items. We made a browser plugin to make checkout even smoother at merchants who don’t use Klarna. And in 2018, we launched a card so that people could pay with Klarna literally anywhere Visa payments are accepted.

A 2020 Klarna Card promotional still by Pontus Gustavson

So why do this, why invest in making a card when the core online payments business is doing fine? The answer is pretty simple: frequency. Most people only shop with Klarna occasionally, and they’re usually using Klarna for big purchases like furniture or electronics. However, Klarna saw an opportunity to get more people using our payments infrastructure more often if they could shop anywhere, anytime.

Having people shop with a card means more frequent purchases and higher transaction volume with Klarna, which in turn means people are more likely to use Klarna for future purchases. Since we primarily make money from merchants paying Klarna to drive purchases on their sites, having more people choosing to pay with Klarna meant we would have an easier time pitching merchants and improve our bottom line.

Quick wins for onboarding

When I joined the company in 2020, we had already launched cards in Sweden and Germany and they had a modest userbase, but data showed that we weren’t getting very many new users through our onboarding flow. We were running card-focused ad campaigns and saw a lot of people coming into the flow, but the vast majority of them dropped out on the first screen. One of my first responsibilities as part of the onboarding team was to figure out why people were bouncing and try to fix it.

Looking at the flow, I saw that the first page was a static screen that had some studio photography of our nice-looking card, but I also saw that any information on how the card worked was buried on an easily overlooked marketing sub-page. We were focusing on how the card looked, not what it did or why it might be a helpful thing to have.

Some quick user research with German and Swedish users confirmed our suspicions: people simply didn't understand what the card was or why they should take the time to get one.

My first concepts focused on how we might still highlight the card’s design, but also explain its features and usage in a simpler format. In Sweden and Germany, the card is basically a vessel for Klarna payment methods. You can choose whether to Pay Now or Pay Later in 30 days, and even set a threshold for paying later (i.e. Pay Now for anything under €100, Pay Later for anything over). By explicitly calling these features out on the landing page, my hypothesis was that more people would be interested in getting the card for themselves.

We ran A/B tests with the new designs and found a major increase in conversion from the first page. That was a big boost in Sweden, which has a very simple one-step method of verifying someone’s identity called BankID. Swedish users would breeze through the flow if they passed the credit check, so the landing page experiment was successful there.

Germany, meanwhile, has stricter verification laws and requires a very long identification flow, which led to diminishing returns on our gains from the first page. To this day, we still have an extremely long identification flow in Germany and it’s been a constant pain as we try to make improvements elsewhere in the flow, but the new landing page did lead to a subtle increase in end-to-end conversion.

Expanding to U.S. and U.K.

As we achieved maturity in Sweden and Germany, we had already identified the UK and the US as our next target markets. The US is a massive country, and shoppers there already lean heavily on credit — one could argue to an unhealthy degree. UK consumers are also very comfortable with credit, so it looked to be a good potential testing ground for us to refine the card’s value proposition prior to launching in the US.

We were also very aware of the reputation that credit cards already have in those markets as predatory and damaging to those without the means to pay them off.

I want to be very clear on this: while I was working there, Klarna was doing everything in its power to avoid giving credit to people who couldn’t pay it back. We worked very closely with our underwriting teams and third party credit agencies to make sure that we had a clear picture of the credit histories of anyone who wanted a card. We tightened our credit approval policy to be stricter even though it meant issuing fewer cards. Giving credit to people who can’t pay it back is not good for society, and it’s not good for Klarna’s finances or public image, full stop.

With that in mind, we had to spend a lot of time figuring out what kind of product we could offer in each market while adhering to local credit regulations.

U.K.

In the UK, Klarna already had a product called Pay in 3 where you pay in 3 installments: one at the time of purchase, one after 1 month, and one after 2 months. This schedule makes sense in the UK because paychecks are typically delivered monthly. Since you could potentially make many purchases of varying amounts on a card and you might not want to split them all up into separate Pay in 3 repayment schedules, we were looking at a potentially very complicated product that might deliver a bad experience for our users.

In the end we simplified and focused on two payment methods in the UK: Pay Now and Pay Later in 30 Days. Like in Sweden and Germany, you could set a threshold where anything under a specified value is paid in full, while anything over is paid later. In this way, you still get the value of paying later when you need it, but don’t need to worry about paying off a coffee a month later.

Early user research helped us to refine the product enough that it felt like it had a unique selling point in the UK market, namely being a flexible card that could pay now or pay later, but we did get strong indications that people felt like Pay in 3 should be part of it. Pay in 3 was synonymous with Klarna in the UK, so a card that didn’t have it felt like it was missing a core part of the Klarna value proposition.

U.S.

In the US, we had to take a different approach to launching the card. Since Klarna doesn’t have a US banking license, we needed to find a banking partner who would actually be providing the funds. We did find that partner in the form of WebBank, and we worked closely with them on every step of concepting, design, testing, legal review, and analysis phases for the card. I handled a lot of this communication and approval process alongside my PM partners, and found the process to be pretty smooth in spite of how much time it took.

With a partner backing us, we had to figure out what kind of card we were going to launch. The biggest challenge by far was to create a product that offered the popular interest-free Pay in 4 payment method, but also adhered to very specific and restrictive US regulations designed for revolving credit cards. Even though we weren’t offering a revolving credit account (i.e. you are approved for a limit and need to pay off a portion of that every month), we were forced to fit into that ecosystem because it was already well established and understood by regulators. This meant that instead of doing what we initially wanted, where you could choose specific purchases and convert them into Pay in 4, we had to adopt a monthly statement similar to all other US credit cards.

Early user research gave us pretty strong evidence that this was a confusing product structure that undermined the whole “flexible payments” selling point we were hoping to lean into. It was functionally just another credit card like any other, but we also didn’t have a compelling rewards structure like AmEx or Chase. People who liked Klarna liked the idea of using our card, but they also already had credit cards of their own and didn’t see the need for another one.

Mixed Success

Despite our frequently repeated concerns about the product offerings in both the US and the UK being potentially confusing, the ball was already rolling and were were moving inevitably towards our launch window in late 2021. At this point, Klarna’s leadership was willing to risk an imperfect rollout, working under the assumption that we could change anything that didn’t work afterwards. Normally I would agree, but when you’re working with something as complex as financial instruments, it can be pretty tough to change things after they’re out in the world.

After early revisions to clarify our selling points as much as possible in each market, we launched a waitlist in both countries to build hype and get a feeling for how much interest there was in the products. We were pleasantly surprised to see nearly 1.5 million consumers join the waitlist in the US with no marketing. UK numbers were more modest, but still respectable.

When we did launch in the UK and the US, it was a very mixed bag. A lot of people seemed to love what we were offering, since it was simpler than many established credit cards and the in-app experience was very high quality relative to the competition. Many others were just confused about where this card could fit into their wallet. Prospective customers universally liked that there were no currency exchange fees, but for most people it didn’t become the everyday shopping card we had hoped it might be.

Our numbers were not where we wanted them to be, and for a while that was okay. We knew we could run experiments to drive up conversion and run marketing campaigns to get more people into the funnel, but there was a fundamental problem lurking under the surface: the card was bleeding money, and in early 2022 the global economy was about to get a rude awakening.

Doing more with less

In February of 2022, Russia’s invasion of Ukraine shocked the world and sent the global economy into turmoil. Where once it had seemed like VC money was limitless and companies could focus on growth at any cost, suddenly Klarna's valuation shrank, our runway looked a lot shorter, and we had to focus on making each business unit within the company profitable as quickly as possible.

At this point we were issuing and shipping physical Klarna Cards to every new customer, which made us a lot less profitable than the core online shopping product. This cost can be worth it to get people using Klarna more often, which is why we launched the card in the first place, but when faced with the reality of an economy in recession we had to change our mindset. We needed to find a way to cut costs and contribute to the business.

The first choice we made was a tough one, but it made the most sense considering the circumstances. We decided to turn off the signup flow for new customers in the UK and US and instead allowed them to join our waitlist. This effectively stopped the bleeding and gave us the time and space we needed to rethink our approach.

After brainstorming for a while, we arrived at a pretty simple but significant change in our approach to issuing cards: don’t print out a physical card for every single new customer. We called this approach 'virtual-first' since we would give every customer a virtual card by default, and allow them to order a physical card if they wanted one.

We had to overhaul every part of the experience to account for this, from onboarding to issuing to renewing your card. This required a ton of coordination between eight internal teams, Visa, WebBank, marketing, and regulatory partners. I led the design side of this effort alongside my PM counterpart Izabela Florea. Together we set up frequent syncs and kept track of each team's design and engineering deliverables for our milestones. With many teams pulling in the same direction, we were able to deliver a lower cost 'virtual-first' card experience in about five months.

We also needed to make a slick design for the virtual card — consistent with the existing card designs, but also visually distinct and appealing in its own right. My colleague Marina Gomes and I made a card design that checks all of those boxes and is still in use today.

Applying a virtual first approach in Sweden and Germany helped us save $400,000 per year on card issuing costs, which put us a long way closer to achieving profitability. We also experimented with more aggressive ways to drive up profits, including a monthly fee for using the card and a one-time fee for getting a physical card.

We also experimented with more aggressive ways to drive up profits, including a monthly fee for using the card and a one-time fee for getting a physical card. While adding fees would obviously help us make more money, our user research indicated that consumers didn’t feel there was enough value included with the card to justify the price tag. The card didn’t have a strong rewards program like with AmEx or Chase cards, so it wasn’t delivering a clear return on investment.

Eventually the card did re-launch in the UK and US with fees — £2.99 and $4.99 respectively. They were live for a while at those price points, but consumer behavior made it very clear that our initial concerns from user research were right: people just didn’t feel like the value was there. Some cancelled their cards when the fees were rolled out, and new signups also slowed down.

I moved to another problem space in late 2022, right as the fee changes were being rolled out in the UK and US. I’m pleased to say that in the intervening years, both products have ditched monthly fees and adapted the included payment methods to be more in line with what customers were expecting.

The team managed to work with regulators and Visa to make the US card to work more as it was originally intended: the monthly statement is gone and you can now convert individual purchases to Pay in 4 on demand. The card remains a core part of Klarna's strategy to get more people paying with Klarna anywhere, and the experience of getting and using the card is still extremely smooth.

I’m very proud to have worked on scaling this product to new markets, even if it did come with a lot of road bumps along the way. It was a massive learning experience and growth opportunity for me, and the team I worked with was exceptionally smart and capable.

Credits