Klarna

If you live in the U.S., you might not be terribly familiar with Klarna, a 10-year-old Stockholm-based company that provides payment services for online storefronts in a somewhat unique way — by “separating the buying from the selling,” as company cofounder and CEO Sebastian Siemiatkowski explains it.

Put simply, you visit a site powered by Klarna, input only your email and zip code, and presto, your item is purchased. You then have 30 days to pay back Klarna, using whatever payment method you like. The big idea is to increase conversion rates, and whether or not they realize it, 35 million consumers have now used Klarna across the sites of 50,000 merchants, who understandably love the service. (The fewer keystrokes required, the higher the chance a purchase will be made, especially with a smartphone.)

Of course, what’s happening behind the scenes is a sophisticated fraud management operation, one that counts Sequoia’s Michael Moritz as a board member and which was most recently valued at $2.25 billion. Klarna plans to compete more aggressively in the U.S., too. Over the past year, it has set up offices in New York and Columbus, Ohio. Now it’s searching for space in San Francisco, where it eventually expects to employ up to 30 people to help it strike relationships with companies big and small.

Over coffee earlier this week, we talked with Siemiatkowski about Klarna’s roadmap and what he thinks of one competitor in particular: four-year-old Stripe, whose valuation is twice that of Klarna and which now has its sights on the Nordic countries where Klarna has become king. (Stripe also happens to be backed by Sequoia.) Our chat has been edited for length.

Much more here.

Later this year, the peer-to-peer student loan startup Social Finance (SoFi), will likely go public. If it does, the company – whose marketplace enables college alumni to provide student loans at better rates – will join a line of online lenders in the portfolio of Institutional Venture Partners with similar plans. (IVP’s other investments include OnDeck, the small business lender, which went public in December, and Prosper Marketplace, a peer-to-peer lending platform that appears to be laying the foundation for an IPO later this year.)

Last week, we caught up with Sandy Miller, a longtime general partner at IVP who once managed 3i’s late-stage technology business, as well as cofounded the investment bank Thomas Weisel Partners. We talked about just how many online lending bets the firm might make – and whether those companies could wind up competing head-on in the not-too-distant future.

SoFi just raised $200 million. It’s reportedly valued at $1.3 billion and poised to go public. But student loans are just the beginning for the firm. Is IVP at all concerned that its portfolio companies will start knocking into each other?

All of our investments are completely different businesses. OnDeck is lending to small businesses, a market that the banks have really abandoned. Meanwhile, SoFi lends primarily to relatively recent, well-educated college graduates, refinancing their student loans as a next step in these young professionals’ careers. We don’t know what the businesses will do [going forward], but online lending is an enormous category; there’s plenty of room [for everyone].

Everyone is so confident that big banks like Wells Fargo will completely cede this territory. Why?

Regulation and litigation from the financial crisis is part of it. It’s also a matter of technology. Most of the big banks have been built up through a series of acquisitions, and all are dealing with legacy architectures and cumbersome bureaucracies. Because their cost structure is so high, they can’t compete. They reflexively look at small loans as not profitable, whereas small loans can be very profitable for younger, nimble companies using advanced technology.

IVP has placed numerous bets on online lending companies. Are you actively looking for more?

We have four online lending companies: OnDeck, Prosper, SoFi, and Opportune, which focuses on the underbanked Hispanic community. There’s nothing imminent [in terms of new investments], but we’re really happy with the four companies we’ve backed and we think that finance overall is one of the most attractive areas of new investment because of several factors. First, it’s an absolutely massive category. Also, it’s all digital, compared with some companies that have to ship stuff that’s delivered to your door. Third, the big banks are ideal companies to have as competitors for the reasons we’ve just discussed.

You say it’s all digital, but people still need to go to the bank on occasion. Do you think we’ll see more of these lenders lease space for marketing and other business purposes, as we’re seeing happen with online retailers?

A lot of businesses do benefit from both an offline and online presence. Opportune has locations in targeted geographies. The others [of our portfolio companies] don’t have any plans [to create storefronts] as far as I know, but the concept is a valid one and I do think more tech businesses will be marrying offline and online.

IVP has finance companies beyond online lending. How much of your time do you think you’ll spend looking at and potentially investing in new finance companies in 2015?

We don’t really know until the end of each year. We just look at the best companies. We’re roughly half consumer and half enterprise, and finance cuts across both. We have Personal Capital, for example, an online wealth management platform; and Klarna, for online payments in Europe; and the leading crowdfunding site Indiegogo. There’s quite a range.

Is IVP looking at international opportunities, or do your U.S.-based finance companies have you covered globally?

We generally focus here, but we do find companies in northern Europe that seem to meet our criteria. Regulations vary by country, even state by state in the U.S., so [for these U.S.-based companies to branch out globally] isn’t a trivial task. At the same time, it’s all digital, so these are all potentially global markets. I generally think they’ll move cautiously since regulations are different everywhere and there’s so much opportunity here.