As consumer preferences trend towards investing in experiences over material goods, retailers must work out how to attract and maintain patrons in an increasingly competitive environment. Shoppers are also less brand loyal, more frugal and smarter about how, when and where they spend their money.
As a result, retailers and brands that offer a more personalized shopping experience are winning out over those who don’t. And this point of differentiation also includes payment options such as Klarna’s “Pay Later” platform. The option services retailers and brands as well as shoppers, and it’s turning out to be a win for all, with clients such as ASOS, Topshop, Adidas and Zara come signing on — and seeing higher sales as a result.
For online merchants in particular, offering pay-later options to shoppers can address consumer frustrations in regard to size, fit and product returns. Physical stores continue to garner the greatest market share even as online commerce posts double-digit sales. The reason is simple: when shopping for fashion apparel, customers can “experience the merchandise” and ensure the proper fit, noted Klarna researchers in a recent white paper on the topic. As a result, fashion websites are at a disadvantage.
With Pay Later, Klarna said online fashion retailers can empower their customers, allowing them to receive and try their selection on at home before parting with funds. “Also, with Klarna the consumer no longer has to ask ‘Where’s my refund?’ They can receive goods and return them if not suitable within 30 days, and no money has ever left their hands,” says Klarna.
Klarna services both retailers and the end consumer. When used by a shopper, Klarna pays the retailer in full while the consumer adheres to a previously agreed upon payment structure. This lowers the risk for merchants while creating a positive shopping experience for the consumer.
Deferred payment alternatives will also streamline online shopping experiences where cart abandonment remains high. According to Statista, over 77 percent of online retail orders were abandoned during the second quarter of 2017, and almost 68 percent of fashion orders were lost during the same period. Klarna’s own survey revealed that 18 percent of respondents are discouraged because they can’t find a payment option they want to use.
By offering a pay-later option, online retailers can reduce cart abandonment, increase overall conversions and even increase average order values.
Klarna also offers options for point-of-sale instant financing, which increases consumer purchasing power. Another consumer survey conducted by Klarna found that 47 percent of participants would appreciate instant financing options while shopping online, and would spend more money while purchasing as a result.
However, the belief remains that applying for financing is a cumbersome and lengthy process. Klarna found in a survey that nearly 79 percent of Millennials expect to wait up to three minutes for financing approval. This is a valid concern as over 89 percent of consumers begin shopping with a competitor after a lackluster consumer experience. Recognizing this, Klarna designed its financing solution to be extremely simple and fast. The entire process aims to take seconds.
While it’s necessary for the checkout process must be immediate and instant, it also needs to be secure. As online fraud costs retailers in the U.S. $190 billion a year, the need for secure transactions is critical.
With that in mind, Klarna bolsters its services with premium security and protection features. Klarna absorbs the fraud and credit risk from every transaction it approves, and merchants get paid for every order. Looking ahead, retail analysts don’t expect the competitive landscape to change much. Consumer demands for greater personalization, and for a frictionless experience at checkout, including instant financing and pay-later options will only gain momentum. For their part, retailers and brand will need to deliver a heightened personalized product and payment options to ensure successful navigation of the current and future – retail climate.
Sebastian Siemiatkowski, co-founder and chief executive officer of Klarna, discusses developments within the payment solutions segment.
WWD Studios: What was lacking in the current market that Klarna aims to reconcile?
Sebastian Siemiatkowski: A simple and smooth checkout experience online which delights customers and drives value for merchants. We saw a level of friction and hassle buying online which was unnecessary. We knew there must be a better way.
WWD Studios: What in the shifting retail landscape has necessitated diversified payment solutions?
SS: A shift to digital has empowered consumers. Consumers now expect flexibility, transparency, and payment experiences customized to their individual needs. Merchants are recognizing that meeting these needs can drive higher order value and greater loyalty.
WWD Studios: In what ways have mobile phones disrupted payment options, in your opinion?
SS: What has become clear to us at Klarna is the need for speed and smoothness. When using fingers and thumbs on the go, you want a checkout experience with the fewest number of fields and pages to complete, and you only want it to provide the information you need to have on hand.
WWD Studios: How is Klarna’s pay- later service a win-win experience for both retailer and shopper?
SS: Klarna’s Pay later gives consumers the opportunity to try their purchase at home first, and only pay for the things they love. Shoppers have 30 days interest-free to pay for whatever items they’d like to keep, and there are no fees for the service. For merchants, Klarna assumes all responsibility for managing credit and fraud risks, which means they receive payment for the orders immediately. It’s truly a win/win.
WWD Studios: Brand loyalty is increasingly fleeting. How does Klarna help its merchants to maintain their shopper base?
SS: Experience is the new loyalty. That’s what consumers will return for. It’s crucial to keep customers engaged in new and unexpected ways. By doing so, we drive value and loyalty for our merchants.