To Klarna North America CEO Brian Billingsley, bitcoin and the blockchain hold the promise to solve many of the “great problems” affecting the payments space.
However, he says his Sweden-based company, which boasts more than 1,200 employees in 18 markets, isn’t ready to join the list of online checkout startups like Shopify and Stripe that have embraced bitcoin as a payment method. According to Billingsley, the value proposition for the technology in payments and online commerce still remains unclear.
Addressing Klarna’s bitcoin strategy at this week’s Keynote 2015 conference, Billingsley indicated that his company’s overarching goal is to remove friction for online consumers, something that today bitcoin as a digital currency doesn’t quite achieve.
Billingsley told CoinDesk:
“We’ve done internal pilots with bitcoin. We love the concept of a consumer paying with bitcoin, [but] we haven’t seen a consumer experience to date that really makes it super frictionless.”
Billingsley did indicate that Klarna is “actively tracking” the technology’s development, even speaking to Swedish regulators to determine when they may allow consumers to spend bitcoin with their more than 50,000 merchant partners.
Despite moving forward on this front, though, Billingsley stressed that he feels that bitcoin as a digital currency, while appealing to a tech-friendly audience, won’t be effective at increasing sales for Klarna’s merchants.
“If shoppers have bitcoin, there are great use cases, but it will take us a while to figure out how to integrate this into our experience in a way that makes the average consumer happy,” he said.
In interview, the FIS and Alliance Data veteran elaborated on the potential he sees for the technology in payments, noting specific challenges that he believes could be solved by bitcoin or the blockchain even as more attention is directed toward their non-monetary use cases.
Technology disconnect
In his conference speech and in conversation, Billingsley spoke at length about friction in the online payments process, questioning how bitcoin as a digital currency could remove e-commerce hurdles given that any new user would need to first purchase bitcoin.
Billingsley suggested this roadblock weakens the use cases for the technology, even in areas where it could gain traction, such as allowing merchants to accept payment from high-risk shoppers without assuming this added liability.
“That runs into the chicken-and-egg problem. If you’re coming through the experience, our system says you’re a high-risk transaction and you need to pay with bitcoin, what if the consumer isn’t using bitcoin, does the conversion fall off?” he asked.
Even established companies like Coinbase, he said, face this issue, as no matter how easy it is to buy bitcoin with a credit card, most consumers won’t see the value in the transition.
“Unless there’s a very specific merchant that only accepts bitcoin, there isn’t that reason for the average consumer to set up and buy bitcoin,” he said.
Still, he suggested that a model similar to the Merchant Customer Exchange (MCX) where merchants band together to create a bitcoin payments system in an effort to lower fees would be one of the most compelling models.
“I think over time more and more people will be turned on [to the technology], but there needs to be some event,” he continued. “What if an MCX was successful and said ‘If you pay with bitcoin you get 3% off everything?’ Otherwise it might be this long slog.”
The comments echo strategies currently being executed in early stages by companies like Fold and Purse.
International payments
One trend that Billingsley does believe could be an indicator there are big problems for bitcoin and the blockchain to solve is the increasingly global reach of small merchants.
“It’s shocking how global merchants are becoming, even when they’re really small,” Billingsley said. “We’re seeing $5m–$10m merchants where 20% of their volume is from all over the world.”
These merchants, Billingsley explained, face significants tax burdens from e-commerce sales, a situation that sometimes forces businesses to establish multiple corporate entities around the world.
“If you’re a $10m merchant, it’s tough to figure out how to scale,” he said, calling this one of the biggest roadblocks to merchant growth.
Billingsley added:
“If blockchain can alleviate payments and taxes around local entities I think it would be really powerful.”
Such business use cases, he argued, are more compelling than those aimed at consumers, as feels even those who favor cash aren’t likely to adopt bitcoin.
“I think those consumers are probably some of the least tech savvy,” he said. “How do you convince them that bitcoin is as safe as keeping greenbacks in your wallet?”
B2B opportunities
Like other panelists at Keynote 2015, Billingsley was bullish on the ability for bitcoin and the blockchain to penetrate business-to-business (B2B) payments verticals.
“The cross-border payments companies should be trying to figure out how to use blockchain technology or they should be really scared about what could happen,” Billingsley said. “The Western Unions of the world should be really worried.”
Billingsley indicated that Klarna is curious about how it could leverage the bitcoin network to send payments between its global offices.
However, Billingsley noted that, as Klarna is a bank in Sweden, it is still weighing the risks of partaking in this use case, noting how the company remains cautious about garnering any added regulatory oversight on top of the credit and fraud risk it assumes in online shopping.
He concluded:
“There’s times when we’re needing to settle out to a variety of different merchants and here is a way we can potentially settle in a better, faster and cheaper way.”
Online commerce image via Shutterstock