Fintech
The low-key Swedish fintech unicorn that is Klarna’s quieter cousin
Europe is the global leader in open banking, the system that makes it easier to share customer financial data between providers.
But even then the payments transition has only just begun. Between 2023 and 2027, open banking is expected to grow 479% to a total transaction value of $330 billion globally.
Trustly, a Swedish scaleup, is already riding the wave. Founded three years after Klarna in 2008, it provides direct account-to-account payments, which help reduce costs for merchants, as they pay significantly lower interchange fees for instant bank payments compared to card transactions.
It has 9,000 merchants as customers and reported annual revenue of $265 million in 2023. In recent years, it has focused on international growth, particularly in the United States, and as a result, the value of its transactions has grown by 79% between 2022 and 2023. 2023, from $33 billion to $58 billion. (This is two-thirds of Klarna’s transaction volume 94 billion dollars in the same period.)
This upward trajectory shows no signs of slowing. “We saw 27% growth (in terms of revenue) in the second half of last year. This growth continued until 2024,” CEO Johan Tjärnberg tells Sifted.
Largest US market in four years
Trustly may be a well-known payment solution at home, but it flies under the radar in the rest of the world, especially compared to its bigger cousin Klarna.
“We see ourselves not as a consumer brand but more as an invisible wallet. We just want to be safe [payments] work in a very simple and safe way. But we will not follow the path that Klarna has followed (in terms of consumer-targeted branding),” says Tjärnberg, who took over as CEO two years ago. He was previously co-founder and CEO of Swedish fintech Bambora, which was sold to French payments giant Ingenico for 1.5 billion euros in 2017.
That said, the two companies share some things in common. The US is now Trustly’s (and Klarna’s) largest market, four years after launching its takeover there.
In 2019, before the pandemic, Trustly acquired PayWithMyBank, a Silicon Valley-based payments startup with just 10 employees. Four years later, half of Trustly’s 1,000-person team is based in the United States.
“I think we planned our expansion perfectly when we entered the United States. Open banking didn’t exist before and then we saw incredible demand from large merchants,” says Tjärnberg; his US clients include Verizon, PayPal and eBay.
Adding recurring payments for subscriptions
It’s not just geographic expansion that’s helping Trustly grow; it also created new products.
In May last year, the fintech launched an AI and data engine called Azura, which recognizes consumers (who have agreed to share their information) before they enter the checkout. This eliminates the need for customers to manually select their bank and account at checkout.
“Traditionally, in open banking the consumer chooses to pay from their bank. So you need to start by selecting which bank you have. In a market like the German one, where there are hundreds of banks, it is complicated,” explains Tjärnberg.
“With Azura we can recognize the customer and provide the last used account, the buyer clicks on it, we use facial recognition and that’s it. With this we are unique in the sector. I would describe it as an Apple Pay experience,” he adds.
AI software can also predict when people are most likely to have money in their accounts, which has opened the door to merchants using Trustly for recurring payments for subscription services, instead of cards. This feature launched last week in Sweden, France, the Netherlands, Italy, Germany, the United Kingdom and Spain, Trustly’s top markets in Europe.
“The problem that almost everyone in the world has is that a fairly large portion of what is called involuntary churn is due to the customer not entering the correct details, resulting in some form of error during onboarding. Another big problem is non-sufficient funds, which means that when a charge is made to your card… there are no funds available on the card,” says Tjärnberg; Trustly’s predictive algorithms hope to solve this.
Technology acquisitions in 2023
Trustly’s third growth path (particularly in Europe) is through acquisitions. In May last year it acquired London-based public sector payments specialist Ecospend, which provides open banking services for HMRC, for £28 million.
“We see quite big opportunities in the public sector vertical. I believe we already have a couple of million British citizens paying their taxes via Trustly instead of making a manual bank transfer or even using cheques,” says Tjärnberg.
Trustly also bought French startup SlimPay for €70 million last year. Its technology, which Trustly has incorporated into its technology stack, forms the basis of the algorithm that identifies the best time for recurring payment withdrawals.
IPO suspended
Trustly was said to be planning an IPO in 2021, but put the plans on hold in 2022 following criticism and a Fine of 11 million euros by the Swedish financial supervisory authority Finansinspektionen. It believed that Trustly was not fully compliant with anti-money laundering procedures, particularly when it came to its largest customer group: the gambling industry. Trustly is now trying to limit its reliance on the gambling sector, instead focusing on sectors such as e-commerce, financial services and travel. Following the 2022 fine, the authority received no further complaints about Trustly’s compliance with anti-money laundering procedures.
An IPO is currently not expected for at least 18 months, Tjärnberg says.
“I think we benefited from having some peace and quiet for a couple of years and being able to focus on innovation and our whole product agenda,” he says.
The expansion also has deep-pocketed backers: In 2018, private equity firm Nordic Capital bought a majority stake in Trustly. In 2020, Trustly raised an undisclosed amount with BlackRock as the lead investor. And in 2023, Trustly raised another €130 million from its shareholders, at a valuation of $1.35 billion, a decline from its peak valuation of $7.7 billion in 2021.
Trustly’s payments competitors include British fintech GoCardless, Apple Pay for merchants, Stripe Connect and Swedish fintech Brite Payments, although Tjärnberg isn’t too phased compared to most of them.
“Looking at the open banking market, there are many local and relatively small companies. We are the only ones who have managed to build a ladder and reach some form of dimension. I believe this will be an advantage in the future,” says Tjärnberg.
“When we work with large merchants, helping them with account-to-account payments in the Nordics is not enough. We need to be able to handle the big markets in Europe and the United States.”