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Speaker 1: British consumer credit company Klana has grown from one point

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Speaker 1: five million customers here in the UK and twenty eighteen

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Speaker 1: to over eighteen million today. Twenty twenty three is seen

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Speaker 1: as a bit of a litmus test for the buy now,

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Speaker 1: pay later at They do more than that, they like

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Speaker 1: to remind us, giving rising interest rates and the cost

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Speaker 1: of living crisis. Of course, this as UK lawmakers are

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Speaker 1: moving ahead with long awaited plans to regulate the buy now,

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Speaker 1: pay later part of the business that Klana, Clearpay and

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Speaker 1: others like PayPal operate as well. Let's bring in Klana

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Speaker 1: chief executive Sebastian Ciamatkowski, who is always a pleasure to

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Speaker 1: talk to because he's always very frank and straightforward and

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Speaker 1: there's a lot going on. Sebastian, good morning, thanks for

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Speaker 1: joining us. You made some product changes as well. The

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Speaker 1: rates environment we can touch on, and of course the

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Speaker 1: impact of artificial intelligence already rippling through the markets today. Certainly,

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Speaker 1: let's start with the top line though, Sebastian, how's the

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Speaker 1: business been doing in the first quarter of this year.

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Speaker 2: Well, actually, in our kis fairly well.

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Speaker 3: Obviously, we do have seen a slow down in growth

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Speaker 3: in general, especially in online e commerceon and UK is

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Speaker 3: a performing worse than the other European countries, so you

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Speaker 3: can you can see in even worsening situation in the UK.

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Speaker 3: But in general at the same point of time, you know,

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Speaker 3: what we see is that the average order value is

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Speaker 3: actually fairly similar in our case about seventy five pounds

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Speaker 3: as it was you know before the crisis. So what

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Speaker 3: it seems to be people buying more cheaper sorry, more

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Speaker 3: cheaper items and less expensive items, but it ends up

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Speaker 3: being the same basket value for a lot of those retailers,

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Speaker 3: but definitely a slow down in growth in general, and

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Speaker 3: it's still you see a very clear trend of return

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Speaker 3: to physical stores and restaurants and kind of spending more

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Speaker 3: there and less online. Right, so we still have a

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Speaker 3: little bit of that going on after you know, COVID

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Speaker 3: kind of year and year comparisons are still a little

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Speaker 3: bit COVID impacted, so.

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Speaker 1: That evolution continues. Let's bring in Lean Gerin's from Brmberg

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Speaker 1: Radio now as well, who hasn't air to the ground

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Speaker 1: on this subject matter as well. Leah Sep, good morning

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Speaker 1: to you.

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Speaker 4: Traders are now pricing in UK interest rates at five

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Speaker 4: point five percent. How much does this hurt your business

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Speaker 4: offering zero percent short term loans, Well, it.

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Speaker 3: Actually doesn't hurt it because, as you just said, like

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Speaker 3: I mean, that makes our offering to the consumers even

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Speaker 3: more attractive, right because it is zero percent interest and

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Speaker 3: interest rates are going out, So it's the opposite we see,

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Speaker 3: we see more interest in our product. Credit Cards are

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Speaker 3: becoming more more expensive. They can cost forty fifty sixty

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Speaker 3: percent APR if you're unlucky, right, and so on the

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Speaker 3: cost site. However, for us, you got to remember that

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Speaker 3: we're not a credit card business. We're not about trying

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Speaker 3: to build big balances.

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Speaker 2: In general.

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Speaker 3: Outstanding balance on a credit card in the UK is

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Speaker 3: one one hundred pounds in our case seventy five pounds,

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Speaker 3: and people pay it back within three months or thirty days.

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Speaker 3: So we turn around the balance sheets almost twelve times

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Speaker 3: a year. So the interest rate cost for us, it's

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Speaker 3: actually very very small, a few percentages of our total

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Speaker 3: cost base because we can take that money and borrow

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Speaker 3: it out again again again, multiple times on the same year.

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Speaker 3: So to us it's actually almost like a benefit in

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Speaker 3: the sense that we have a higher interest rate environment.

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Speaker 2: From that perspective, no Obviously it's a little bit more expensive.

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Speaker 3: I'm not going to say that it hasn't impacted at all,

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Speaker 3: but it's actually margin.

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Speaker 5: Is the product lost leader then for you because there's

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Speaker 5: a cost.

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Speaker 3: It's very profitable actually in the UK and in other

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Speaker 3: auto markets. It's making a good gross market. But that

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Speaker 3: the cost of the interest rate is a small piece

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Speaker 3: of it, you know, it's more other costs. Associate operational

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Speaker 3: cost and offer a thir associated with this product. If

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Speaker 3: you remember, we only borrow out this money for a

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Speaker 3: short period of time, right it's about you know, thirty

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Speaker 3: days to ninety days, and hence you can borrow out

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Speaker 3: the same time at the same money multiple times, and

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Speaker 3: hence interest rate cost is actually very different if you

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Speaker 3: borrow out mortgages or car loans and things like that.

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Speaker 1: So the change in the products around this opt out.

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Speaker 1: You've got a lot of headlines around it in the

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Speaker 1: last twenty four hours or so. So you're providing the

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Speaker 1: option for your customers to opt out of the buy now,

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Speaker 1: pay later tool that you have of course on the app.

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Speaker 1: Talk to us about the rationale behind that and is

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Speaker 1: there a cost of the business for providing that and

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Speaker 1: maybe giving the customers something that they need in this

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Speaker 1: kind of more challenging environment.

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Speaker 3: Well, look, I think first and one was like we

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Speaker 3: we believe that there is you know that credit has

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Speaker 3: a purpose to fill that sometimes people need to use

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Speaker 3: it for different reasons. Why they're shopping online, they want

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Speaker 3: touch and field the product before they pay for it,

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Speaker 3: or they may be just out of salary and they

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Speaker 3: need to buy something because they see a great discount

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Speaker 3: that they needed and stuff. So there is a purpose

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Speaker 3: to credit. The question is good forms of credit and

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Speaker 3: bad forms of credit? In our case is zero interest,

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Speaker 3: low late fees, easy to use, low risk, pay back

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Speaker 3: on installments. It's a better form of credit than traditional

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Speaker 3: credit cards. You should want Netflix credit cards. Explain sorry

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Speaker 3: for making some competitive advertising here, but I think you

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Speaker 3: know in twenty minute sums up a lot of the

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Speaker 3: bad practices the banks of applied in credit card space.

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Speaker 3: So but with that said, we are obviously still providing

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Speaker 3: credit and so we still have to be mindful how

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Speaker 3: do we underwrite. Our losses are forty percent below credit

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Speaker 3: card industry standards, so we think we do a pretty

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Speaker 3: good job. But in this case, as you know, as

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Speaker 3: our as our MP Andrew Griffith highlighted this idea that

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Speaker 3: we should also allow people to opt out. You know,

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Speaker 3: we don't want to be a company that when we

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Speaker 3: get a great idea and when it makes sense, we

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Speaker 3: can act quickly. We can actually deliver on it and

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Speaker 3: do it. And in this case we urge all the

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Speaker 3: banks and others to do the same because it actually

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Speaker 3: it exists in other industries.

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Speaker 2: Credit is in general.

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Speaker 3: A good thing, but obviously, unfortunately some people may over

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Speaker 3: use it or over extend themselves. How do we help

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Speaker 3: them to put mechanism place in order for them to

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Speaker 3: control that, just like you can do in other industries

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Speaker 3: like gambling or whatever. And so I think this is

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Speaker 3: a good thing, and I think more banks should follow

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Speaker 3: and offer these kind of services.

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Speaker 4: So does this mean that you're getting ahead of regulation

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Speaker 4: that could come in that the government is discussing at

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Speaker 4: the moment as you've just spoken to us that you

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Speaker 4: have been talking to Andrew Griffith.

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Speaker 3: Well, I think that you ahead of regulation. Like look,

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Speaker 3: I think the challenge what people forget with regulation and

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Speaker 3: banking sector is that we've regulated in a bad way.

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Speaker 3: We regulated about saying you have to ask these questions

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Speaker 3: when you give somebody a loan, you have to do

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Speaker 3: this and that. I mean, you're still probably suffering from

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Speaker 3: the European union stupid decision of asking you to consent

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Speaker 3: to cookies every time you go to a website. How

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Speaker 3: has that increased privacy online? It doesn't work. These kind

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Speaker 3: of prescriptive regulations are very poor. So what we're trying

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Speaker 3: to always lead on a show is like, let's look

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Speaker 3: at outcome based regulation. For example, I think government here

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Speaker 3: in this case should regulate and say your losses cannot

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Speaker 3: be higher than credit cards. That's the great. However, we

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Speaker 3: manage to solve that because the benefit with that. The

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Speaker 3: problem is when you do very prescriptive regulation says you

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Speaker 3: can only do this and that. The problem is, first

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Speaker 3: the less serious companies tends to find a way around it,

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Speaker 3: so you usually over time don't accomplish what you want anyway.

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Speaker 3: And then secondly to that, the bad thing about it

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Speaker 3: creates less mobility in the market, meaning less competition. It

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Speaker 3: becomes harder for consumers to switch. You don't want to

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Speaker 3: go to a different banks because it's so much paperwork.

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Speaker 3: That paperwork is partly there because of that regulation, and

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Speaker 3: then makes that's why we see excess profits in this industry.

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Speaker 3: That's why the banks have been making such an excess

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Speaker 3: process for so many years.

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Speaker 2: That needs to end.

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Speaker 3: That money needs to come back to the consumers, to society,

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Speaker 3: and that will happen through more competition.

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Speaker 2: So you have to buy regulation increases competition. Yeah.

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Speaker 5: No, and I understand the pitch, you know, that kind

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Speaker 5: of the fintech, the innovative pitch that you try to

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Speaker 5: make versus the kind of traditional players in this space.

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Speaker 5: I suppose I would be challenging back to you though,

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Speaker 5: and say that these rules in some ways remind me

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Speaker 5: a little bit of the limits on gambling websites. You

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Speaker 5: know that these are the gambling industry has got these

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Speaker 5: kind of voluntary agreements that basically means you can limit

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Speaker 5: betting on various platforms, but we know that there are

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Speaker 5: loads of workarounds that ultimately it does not work this

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Speaker 5: kind of voluntary industry sort of standard. So is your

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Speaker 5: effort really going to affect reduce unsecured lending on your

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Speaker 5: platform or across the industry? Is that actually the aim?

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Speaker 3: Yes, the aim is to make sure that we take

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Speaker 3: responsibility for consumers, and most consumers are actually great. Payers

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Speaker 3: are ninety nine percent of our customers pay on time,

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Speaker 3: they don't overextend themselves, and they actually use our credits

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Speaker 3: because it's a healthier form of credit. It's installments, it's

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Speaker 3: fixed installments. They don't revolve, we don't offer revolving, we

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Speaker 3: don't charge sixty percent industry. So most consumers use these

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Speaker 3: price very responsibly. Can we find anything that can contribute

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Speaker 3: to the people that, for different reasons, are not aren't

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Speaker 3: using their products in the responsible way? And I think, yes,

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Speaker 3: this may be one. There are people that are aware

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Speaker 3: that they have an issue that they may over extend themselves,

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Speaker 3: and they may want to create a little bit more

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Speaker 3: ficient I think most of you may. I at least

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Speaker 3: have done it on my social media apps. I've created

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Speaker 3: this you know limit on my phone so I can't

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Speaker 3: use it for more than an hour a day, and

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Speaker 3: then it reminds me that.

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Speaker 2: I still have to say I approve it.

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Speaker 3: It works for me, So I think this will work

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Speaker 3: for some people as well, to help them have a

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Speaker 3: little bit of extra friction on an individual basis, to

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Speaker 3: set that up for yourself.

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Speaker 1: So yeah, okay, well we need we need to we

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Speaker 1: need to get you back into beast in a couple

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Speaker 1: of months time to see if it is playing out

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Speaker 1: as it is for your social media addiction or efforts

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Speaker 1: to curb that addiction on AI. Look, I know you're

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Speaker 1: focused on this topic as many are. We're trying to

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Speaker 1: cut through the height get to the real kind of

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Speaker 1: real world implications of this. How significant are the trends

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Speaker 1: that you're seeing as a result of what's been happening

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Speaker 1: with large language models generatively AI, And specifically what are

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Speaker 1: you and Klan are doing around the underwriting and the

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Speaker 1: use of AI in the underwriting part of the business.

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Speaker 3: Well, first and foremost, like obviously you have to always

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Speaker 3: be mindful of the privacy and technology, you know as

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Speaker 3: security aspects of this. I think also I would just

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Speaker 3: quickly on like more societal level. One thing is that,

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Speaker 3: like when I was starting to experience this with chutchdpback

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Speaker 3: in November and so forth, I leaned into this. I

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Speaker 3: took contact with Sam Outman, I really wanted to learn

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Speaker 3: and spend a lot. I've really nerded out on this.

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Speaker 3: I've gone down very much in dtais. I've written my

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Speaker 3: own lang ching just to give you a sense for it.

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Speaker 3: So I've been very much into details. My belief is

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Speaker 3: this is one of the biggest things that's happened in

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Speaker 3: a very long period of time, and I think everyone

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Speaker 3: that I speak to on a senior level tech leaders

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Speaker 3: are expressing fear and are worried. So I just want

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Speaker 3: to make sure that that's very clear. And I'm also worried.

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Speaker 3: I'm worried predominantly what's going to happen to jobs. I

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Speaker 3: think a lot of jobs are going to become obsolete.

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Speaker 3: And I think, you know, on the right side of

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Speaker 3: the political structure, people will say, well, there will always

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Speaker 3: be new jobs that's happened before Industrial Revolution.

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Speaker 2: Whatever, and that's easy to say.

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Speaker 3: But if you're a you know, a fifty five year

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Speaker 3: old translator in Brussels, you know you're not going to

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Speaker 3: retrain and become a YouTube influencer. So I think that

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Speaker 3: you have to look at it on a individual basis,

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Speaker 3: and I think what is necessary from a political perspective

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Speaker 3: is to offer people that may be affected some kind

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Speaker 3: of solution, right, some offering some support, because I think

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Speaker 3: we are going to see a tremendous impact on job

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Speaker 3: creation and jobs over the coming years due to this,

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Speaker 3: So I think that's very important for Klana in particular

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Speaker 3: what I want us to do and what I've been,

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Speaker 3: you know, encouraging the company to do. We have fourteen

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Speaker 3: ongoing AI initiatives internally, they range across a number of

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Speaker 3: different initiatives. And what is the purpose is to learn

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Speaker 3: to go and not discussed on a hypothetical level, but

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Speaker 3: actually go in tests, learn iterate, and learn how to

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Speaker 3: use it. And we see that there's some fantastic opportunities

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Speaker 3: to take away work tasks that aren't that exciting, that

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Speaker 3: have been fairly boring and time consuming, and allow people

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Speaker 3: to focus on things that are more creative, more fun

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Speaker 3: and remove someone that's workstars. And so that's that's a

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Speaker 3: fantastic opportunity for us.

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Speaker 4: Sebastian. Sebastian, does that actually mean job losses for you

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Speaker 4: in the future, then if you're going down the route

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Speaker 4: of AI, well, we have.

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Speaker 3: The benefit of being a growing company, right So in

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Speaker 3: our case, what that means is we'll be able to

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Speaker 3: continue growing but not necessarily have to increase headcount. Right

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Speaker 3: So in our case that is kind of resolving itself.

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Speaker 3: But I do think unfortunately for companies that don't have

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Speaker 3: that level of growth, it may be more challenging, right,

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Speaker 3: and so I do expect to see people and I've

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Speaker 3: already seen some companies start announcing that they have done

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Speaker 3: changes due to AI taking over some jobs. So I

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Speaker 3: just want to I think people should, in my position,

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Speaker 3: should be honest about this. I don't think we should start,

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Speaker 3: you know, just say and say, oh, you know, industrial revolution.

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Speaker 3: Whatever I think we should be honest about this is

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Speaker 3: going to have an impact on society. The important thing

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Speaker 3: is that as a greater society, we have an answer

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Speaker 3: for the people affected.

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Speaker 5: Okay, speaking of society. Then, in the last few weeks

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Speaker 5: in the UK, there's a lot of focus on the

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Speaker 5: investibility written whether there is a big plan for the UK,

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Speaker 5: I mean either from business leaders, all from government or wherever.

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Speaker 5: I wonder what your view is on the investment case

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Speaker 5: now for the UK. I mean we've almost we've stopped

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Speaker 5: talking about breaks. It really is about where Britain goes

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Speaker 5: from here. How investable is the UK? You know? How

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Speaker 5: interested are you?

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Speaker 3: You know at Klara, you know when Brixley was about

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Speaker 3: to happen, there used to be this old pop song

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Speaker 3: you may remember, like please don't go, don't go.

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Speaker 2: You know, I really know that to everyone in Britain.

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Speaker 2: I was like, please don't go, and I wanted to

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Speaker 2: do that.

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Speaker 3: I'm like, gather all the Europeans I know, and I

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Speaker 3: really miss you guys, like I really would love to

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Speaker 3: keep you in this.

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Speaker 2: But now the decision has been made and you know,

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Speaker 2: life moves on.

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Speaker 3: I got to say, at the same pottle time, I

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Speaker 3: find Britain the most amazing entrepreneurial, ambitious, aspirational people are

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Speaker 3: people that work in Britain are fantastic. We are going

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Speaker 3: to continue to invest in Britain. There's such an amazing

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Speaker 3: also technology finance sector with a lot of knowledge and

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Speaker 3: deep on the standing of banking services and retail banking.

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Speaker 3: So at least from our perspective, like, we're very I'm

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Speaker 3: still very optimistic about it. But I you know, I

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Speaker 3: obviously see the challenges that the country is currently facing.

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Speaker 3: But but but you know, it's it's a it's a

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Speaker 3: fantastic island. I was very proud when I did my

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Speaker 3: DNA heritage study and it turned out that I am

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Speaker 3: twenty five or thirty percent British or something like that.

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Speaker 4: I was like, for you guys, sep so much praise

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Speaker 4: for us here in Britain. We love it, we loved

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Speaker 4: your singing. But on a serious note, will you IPO here?

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Speaker 4: I want to talk about fundraising. This is what we

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Speaker 4: want to know, all about how you're going to raise

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Speaker 4: money again and is this IPO going to be right

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Speaker 4: here in London.

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Speaker 3: Well, look, I you know, I'm not going to ask

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Speaker 3: that question because we're going to have no IPO for

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Speaker 3: plans right now.

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Speaker 2: But what I can say we do.

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Speaker 3: I can't tell you exactly what, but we do have

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Speaker 3: big plans to continue and increase our investments and increase

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Speaker 3: our presence in the UK because we still find it.

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Speaker 3: We still be leave at London as an example, is

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Speaker 3: a global financial center and we think it will be

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Speaker 3: continued to be so, and despite some of the banks

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Speaker 3: others decisions and what they've done. So we're very optimistic.

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Speaker 3: I think that the Sorry, the other thing you asked

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Speaker 3: me about.

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Speaker 4: Was fund raising.

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Speaker 2: Oh yeah, no, So the thing is.

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Speaker 3: That we're we we just you know, back in in

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Speaker 3: in May when unfortunately we had to make a change

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Speaker 3: to our head count because investors told us that like

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Speaker 3: you know, they didn't they didn't just listen to the

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Speaker 3: story about the trillion dollar banking market opportunity that we

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Speaker 3: were going for, and they actually wanted us to produce

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Speaker 3: profit here now as well, and that, you know, unfortunately,

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Speaker 3: you know, put us in the tough spot that we

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Speaker 3: had to make the changes that were you know, very

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Speaker 3: very demanding and sad to see some of our great

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Speaker 3: colleagues had to leave and we had to change the

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Speaker 3: setup and and but but already then we announced that

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Speaker 3: we were going to come back to profitability. We've been

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Speaker 3: a profitable company for our first sixteen years of existence

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Speaker 3: and we are now very good on that trend. We

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Speaker 3: still are committed to being profitable on a month by

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Speaker 3: month basis. Again around summer, we haven't been very specific

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Speaker 3: with what summer means, so that gives us a little

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Speaker 3: bit of room for maneuver. But but but in general,

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Speaker 3: like that's trending really well so and that will then

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Speaker 3: allow us to not have to raise more money going forward, right,

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Speaker 3: So so that's that's the plan, Curvet.

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Speaker 5: Yeah, absolutely, so can mean many things. Just lastly, then,

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Speaker 5: just returning to the idea of kind of the strength

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Speaker 5: of the UK consumer delinquency rates at KLAN, I mean,

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Speaker 5: you're still you're positive on how that's going how does

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Speaker 5: the UK compare to other European countries that you're operating in.

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Speaker 2: Well, actually, I wish I could answer that question.

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Speaker 3: I think I am not necessarily well placed to do

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Speaker 3: it because to some degree, again because of the very

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Speaker 3: short durations of our loans.

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Speaker 2: Right again, so we that's a very different thing.

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Speaker 3: If you're a big bank, you know you change your

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Speaker 3: underwriting because there's a macroeconomical worsening right now, it takes

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Speaker 3: you about two years before you're balent sheet is underwritten

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Speaker 3: according to the new standards, So it takes a long

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Speaker 3: time to improve you know the setting and who you've

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Speaker 3: underwritten and what risk you you're taking. In Klona's case,

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Speaker 3: because we have so short durations, when we change our underwriting,

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Speaker 3: it takes only two months for half of the balance

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Speaker 3: sheet to be underwritten according to the new standards. So

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Speaker 3: we're very agile bank. We have a huge ability to

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Speaker 3: quickly adopt to a new macroeconomic environment and that's what

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Speaker 3: we did. We did it already with our slightly lot

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Speaker 3: because we do have a little bit longer credit that's

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Speaker 3: about twelve to twenty four months. We started with that already,

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Speaker 3: the more than one year ago, so about one and

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Speaker 3: a half year ago, and then for the short time

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Speaker 3: credit we did that about a year ago. So we

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Speaker 3: in the UK we've seen a tremendous improvement in losses

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Speaker 3: as we've seen an other up and countries. And to

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Speaker 3: be honest, we don't see that UK is currently performing

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Speaker 3: worse from a lost perspective. But I'm not highly sure

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Speaker 3: that my data is kind of, you know, accurately describing

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Speaker 3: the overall impact on the economy.

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Speaker 2: You know, take it with a pinch of salt.

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Speaker 5: I will listen Sebustin just to sort of, you know,

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Speaker 5: you've painted quite a positive picture I think of the

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Speaker 5: situation for the business right now, but actually the global

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Speaker 5: backdrop is pretty gloomy. I mean, Germany we just learned

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Speaker 5: went into a session at the end of last year.

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Speaker 5: There are worries around the session for the US, for

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Speaker 5: the UK, rising interest rates, I mean, the drum beat

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Speaker 5: of kind of even conflict between the US and China,

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Speaker 5: et cetera. Like, the backdrop is quite a bad. What

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Speaker 5: do you see as the big the biggest risk of

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Speaker 5: your business. What's the thing that keeps you up at night?

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Speaker 3: Well, first, I've been fortunate and maybe that's why I've

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Speaker 3: endured being eighteen years as an entrepreneur, is that I

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Speaker 3: always sleep like I've never had problems with sleeping, so

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Speaker 3: that you know, I just fall postily. I can do

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Speaker 3: that pretty much everywhere, by the way. But the point

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Speaker 3: is that, like, so I'm not falling. But to me,

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Speaker 3: it is like this, right, there's things that I can

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Speaker 3: control and there are things that I cannot control. And

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Speaker 3: that's the And then second to that, when it became

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Speaker 3: very obvious for us already back in April May last year,

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Speaker 3: that there was going to be a major shift that

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Speaker 3: we saw, you know, most for example, FINTE companies that

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Speaker 3: were publicly traded dropped ninety percent nine zero percent in valuations,

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Speaker 3: and I understood that this was going to be a

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Speaker 3: massive shifting sentiment in the market and stuff like that.

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Speaker 3: To me, once you've come to the conclusion that that's

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Speaker 3: the case, and it's just not like noise or just

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Speaker 3: you know, some short shift, I think as a CEO

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Speaker 3: and as a leader of a company, your you know,

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Speaker 3: your duty is to not put your head in the sand,

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Speaker 3: but actually go and act and make the changes. And

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Speaker 3: to some degree, you know, interestingly, we were so early

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Speaker 3: in taking decisions and make adjustments.

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Speaker 2: That at some point of time.

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Speaker 3: Media at that point of time speculated that it was

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Speaker 3: clawn as specific. If we would have made those changes

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Speaker 3: three to six minutes later, everyone was like, yeah, it's

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Speaker 3: like everyone else. But but to us, it was important

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Speaker 3: to act and be you know, be willing to act

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Speaker 3: and take tough and very hard and empathetically be very

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Speaker 3: difficult decisions and to adjust. And I think if you

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Speaker 3: do that at the same point of time, we have

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Speaker 3: a very solid underlying, you know, profitable business. We generate

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Speaker 3: over a billion dollars of gross profit in the European markets.

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Speaker 3: So it's not like, you know, we don't know how

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Speaker 3: to make money. We know how to make money. We've

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Speaker 3: made money before, so we had to now change and

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Speaker 3: adjust again.

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Speaker 2: But I think that's the important thing.

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Speaker 3: I cannot the things that I cannot control, I don't

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Speaker 3: worry about them because they are what they are, right.

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Speaker 2: I can be.

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Speaker 3: Interested and I follow that, but I have to focus

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Speaker 3: on what I can actually do. And I think we've

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Speaker 3: taken the actions to you know, prepare ourselves for a

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Speaker 3: tougher economical environment.

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Speaker 2: And I think we're fairly well prepared.

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Speaker 3: Now, we're better prepared than maybe some companies that we're

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Speaker 3: slow in adopting and changing to that