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First Move with Julia Chatterley
President Gives Speech to Mark Anniversary of Peace Deal; CEO says He's Cut about 80 Percent of Company's Staff; Economist: Transportation, Housing still very Elevated; U.S. Inflation fell for the Ninth Month in a row in March; Estimate: Buy-Now-Pay-Later Market to hit Nearly $4T by 2030; Buy-Now-Pay-Later Firm Klarna to Offer AI Interface. Aired 9-10a ET
Aired April 12, 2023 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
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JULIA CHATTERLEY, CNN HOST, FIRST MOVE: Hello and welcome to "First Move", fantastic to have you with us on this busy Wednesday where we discuss peace
prizes and even pooches so clearly we have to start there. Elon Musk saying in a rare interview that there is a brand new CEO of Twitter, his dog, or
Elon might be an improvement at times.
Musk also claiming Twitter is close to break-even with 6000 fewer workers plus he said major advertisers are now returning. Does Moscow finally have
the terminal at Twitter licked? We will discuss. Plus, Biden in Belfast, the U.S. President delivering a keynote speech at Ulster University to mark
the 25th anniversary of the Good Friday Agreement saying the U.S. is committed to keeping the peace in Northern Ireland.
Biden also had coffee with U.K. Prime Minister Rishi Sunak, a live report and all the details just ahead. Also Taiwan tensions Taiwan's Foreign
Minister saying in an exclusive interview with CNN, that China appears to be preparing for war following three days of military drills around Taiwan.
Fresh comments too, from Chinese President Xi Jinping today, not helping quell concerns more on that shortly, but first important new economic
numbers just out from the United States. U.S. consumer prices up 5 percent year over year, the ninth straight monthly drop in that headline number the
month over month data coming in slightly below expectations up just 1/10 of a percent.
The main problem and it's been this way for a while remains core inflation, which strips out food and energy costs. Those numbers remain sticky that
speaker as you can see in front of you up 5.6 percent year over year. Still the bottom line is this is well above Federal Reserve targets.
That said, here's the market reaction and it's positive the major U.S. averages which had been trading in a pretty narrow range all week in
anticipation of this data are all solidly higher Europe on the advanced to a bit of catch up going on here ahead of this data too.
We were pricing around a 75 percent chance of another quarter point hike from the Federal Reserve in May. That said Fed members do seem split on
what to do next, given the recent turmoil in the financial sector. And of course, the International Monetary Fund's saying just yesterday that
financial system strains have contributed to a "fog" around the World Economic Outlook.
Well, the fog does seem to lift a little on inflation in the United States. Clare Sebastian joins us now with the details. Clare it's a bit of a head
scratcher or at least a head turner when you get a core inflation rate. So after stripping out food and energy that's actually higher than the
headline number here but the bottom line isn't? I think I've made it; it's still too high for comfort.
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, core is the key word today, Julia, I think this is the headache for the Fed the fact that when you strip out
food and energy, those more volatile factors. The number did re accelerate this month to 5.6 percent year on year. Shelter is the key contributor
we're talking rents housing cost that is the thought really in the Fed side as it continues to fight inflation.
The other contributors to the increase motor vehicle insurance, airline fares, household furnishings, things like that. Well, food, the index for
food remained unchanged and energy was down 3.5 percent. So the energy driven shock to inflation seems to be in reverse.
Now as we see the overall number come down what this means I think for the Fed Julia, certainly if you look at the Fed Funds Futures, they've come
down in the last half hour from pricing, about a 75 percent chance of a quarter point rate hike at the next meeting down to about 66 percent about
two thirds.
I think this means the next meeting is possibly in play, although perhaps not enough to spark a pause. If you talk to experts, because of course of
that very sticky core inflation but certainly it does add to the debate around that next Fed meeting.
CHATTERLEY: Yes, he's got to manage expectations, whatever they do at that meeting about what more they have to do beyond? We'll be discussing this
later on in the show. Clare Sebastian, thank you for your analysis. Now, just a few moments time U.S. President Joe Biden will leave Northern
Ireland.
He's headed south of the border to continue his trip in the Republic of island. The visit which he began by meeting political leaders in Belfast
commemorates a quarter of a century since the signing of the Good Friday Agreement that brought peace to Northern Ireland. He spoke at Ulster
University a short while ago.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF THE UNITED STATES OF AMERICA: So let's celebrate 25 extraordinary years by recommitted to renewal repair by making this
exceptional peace the birthright of every child in Northern Ireland for all the days to come. That's what we should be doing.
[09:05:00]
God willing to be able to do it thank you all for listening and May God bring you the peace we need thank you!
(END VIDEO CLIP)
CHATTERLEY: Nic Robertson is in Belfast and joins us once again on this. Nic, it is a moment to celebrate and as the President Biden said, no one
really knew when that agreement was signed 25 years ago, whether indeed it would hold, but I think we also have to talk about the fact that he was at
Ulster University.
We've got a paralyzed Parliament there and the Brexit negotiations have made this very difficult. He had a fine line to walk, did he achieve it?
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: In the short term, the answer's no. We've really heard or it's been reported that the leader of
the Democratic Unionist Party that's the main political party here, the Unionist political party, pro-British, if you will.
That refuses to go into the power sharing assembly at the moment, because they think that the terms of the Brexit negotiations over the relationship
between Northern Ireland and Mainland U.K. They don't feel that the government's got that right and its negotiations with the EU.
So President Biden, in his speech there said I don't want to be presumptuous. But he talks about the importance of that huge achievement of
the Good Friday Agreement, which was the power sharing government and the importance of keeping that up and running as a way of ensuring the peace
here.
But we've heard or its being certainly reported that the leader of the Democratic Unionist Party, Jeffrey Donaldson is saying that, what President
Biden has said doesn't change the political dynamic here that they still want to see more concessions, essentially, from the European Union.
But I think in broad terms, President Biden's speech, laying out how to try and lay to rest some of the perceptions here that he might be pro, the
nationalist pro, the United Ireland parties here in Northern Ireland, he tried to lay that to rest talking about his English ancestry and Captain
George Biden and our captain in the English army back in 1828.
And he said, or 1842, he couldn't remember the precise date. But I think he was trying to sort of, you know, bridge the perception that he is just
trying to sort of support the nationalist parties here. But the universe parties are saying, yes, but this doesn't resolve our issues.
CHATTERLEY: Yes, and we'll forgive him the date slip. That was quite a while ago. Nic, great to have you with us from Belfast there! And it was
saying we're going to keep up with President Biden's movements over the coming hours, including his departure from Belfast, and heading south to
Dublin expected any moment, we'll show you Air Force One when we see it.
For now, Elon Musk opening up about the challenges of running Twitter, in an interview with the BBC, he got into the company's financial woes, and
how he's trying to fix them, including laying off a significant proportion of the firm's staff.
(BEGIN VIDEOTAPE)
ELON MUSK, CEO OF TWITTER: I think it was right just under 8000.
UNIDENTIFIED MALE: 8000?
MUSK: Or right less than 1500 right now.
UNIDENTIFIED MALE: OK, and has it been hard letting that many people go?
MUSK: Yes. Not fun at all. It's painful.
UNIDENTIFIED MALE: Do you have any regrets for buying Twitter?
MUSK: Oh, my -- was something that needed to be done.
UNIDENTIFIED MALE: And you said it's quite difficult, Elon.
MUSK: I will say its like; the pain level of Twitter has been extremely high. So hasn't been some sort of party. So it's been really quite a
stressful situation over the last several months, not an easy one. But apart from --, I mean, so it's been quite painful.
But I think at the end of the day, it should have been done, I think, where the money mistakes made along the way, of course, you know, but, you know,
all's well that ends well.
(END VIDEOTAPE)
CHATTERLEY: Clare Duffy joins us with more on this. I mean, there's a lot we can say about this interview, the fact that it even took place, and
actually why it took place. Clare, but there was a bit of a mea culpa there with the difficulties, how painful it's been particularly painful for the
people that lost their jobs not so sure all's well, that ends well, though? There's a lot of work to do.
CLARE DUFFY, CNN TECH WRITER: Right, Julia, what I think is so interesting about this is that, you know, Elon Musk is trying to paint this picture
that he's trying to rescue this company, this platform that he loves, but this is a situation that is all of his making, in a lot of ways.
You know, he didn't have to buy Twitter almost, you know, offered to buy Twitter almost a year ago. And, you know, at the start of his takeover, he
sorts of issued advertisers. He brought back rule violators on the platform, which made advertisers nervous, and that threatens the business.
You know, so he's sort of said some of these problems existed. Certainly Twitter wasn't perfect before his takeover. But a lot of this sort of
difficulty that he's talking about here is something that he's brought on himself.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Do you feel that you're an impulsive person?
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MUSK: I mean have I shot myself in the foot with tweets multiple times? Yes, do you feel like bulletproof shoes at this point?
UNIDENTIFIED MALE: I mean you've definitely done that the issue is that you're now Twitter owner. Do you feel like you should be look at your
tweets more? You have more a higher responsibility when you tweet something out for it to be accurate?
MUSK: I think I should not tweet after 3 am. That's the rule. Yes, well, maybe --
UNIDENTIFIED MALE: That's the new rule?
(END VIDEO CLIP)
DUFFY: I mean you hear exactly there. He's talking about not tweeting after 3 am. You know, so many of the policy decisions he's made have been sort of
last minute. And you know he's not consulting experts on these things. And so I think that is sort of important to keep in mind when you hear him do
interviews like this.
CHATTERLEY: Yes, I think we've learned for a long time now that rules are more like guidelines where Elon Musk is concerned. But I think what he said
in the beginning was his heart was in the right place.
He cares about freedom of speech. It just got far more complicated not to mention the price tag. I'm just fascinated to see whether he can do more
with so much less in terms of staff work, not over Clare Duffy, thank you so much for that.
DUFFY: It's a big question.
CHATTERLEY: Yes, OK, let's move on China appears to be preparing to start a war. That's what Taiwan's Foreign Minister told CNN in an exclusive
interview after Beijing's recent military drills. Just a day earlier, Chinese President Xi Jinping visiting a navy unit and stressing the
military is increasingly ready for combat.
Ivan Watson joins us on this now. Ivan, I think it's hard perhaps to say anything else in light of the simulation videos that we've seen in there's
obvious preparations, military drills that we've seen, but we also have to provide context on likelihood and probability too. I think we need your
context.
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: While there's an awful lot of posturing going on a lot of signaling. Beijing very unhappy with the
trip that the democratically elected President of Taiwan recently made to Latin America and to the U.S. where Xi met with the U.S. House Speaker
Kevin McCarthy.
It's showing its displeasure by conducting three days of military drills around the self-governing island of Taiwan, which the Chinese government
content considers to be a rogue region of China itself. The government in Taiwan says that those exercises were a threat to its security. Take a
listen.
(BEGIN VIDEO CLIP)
JOSEPH WU, TAIWANESE FOREIGN MINISTER: Look at military sizes, exercises and also their rhetoric. They seem to be trying to get ready to launch a
war against Taiwan. The Taiwanese government looks at the Chinese Military trip as something that cannot be accepted, and we condemned it.
(END VIDEO CLIP)
WATSON: Right, so on top of those tensions, you also have we're hearing Chinese civil aviation authorities informing the governments of Taiwan,
South Korea and Japan that they want airspace close to traffic to the northeast of Taiwan for a 27-minute window on Sunday for something that the
Taiwanese Officials say our aerospace activities.
The South China Sea is claimed almost all by China for itself. You have contested claims from other countries like the Philippines and get this to
add to the complexity in the region. The Philippines is and now currently conducting some of the biggest joint military exercises with the U.S. and
18 days of these kinds of drills involving more than 17,500 military personnel.
The Secretaries of State and Defense of the Philippines and the U.S. issued a joint statement and they criticize China accusing it of disrupting
fishing activities by the Philippines threatening the Philippines food security. That is something that did not go over well in Beijing.
The Foreign Ministry of firing back with a statement claiming "China has indisputable sovereignty over the islands in the South China Sea"
everybody's positioning and posturing in this hotly contested region, Julia.
CHATTERLEY: Yes, I was about to say we've come full circle on the posturing and its taking place in many places. Ivan Watson thank you so much for
that. OK, straight ahead, price rises continued to cool down ahead of the summer. We take a closer look at inflation and the Federal Reserve with
Economist Torsten Slok after this.
And later the Buy-Now-Pay-Later boom the CEO of online shopping giant Klarna joins us to discuss the future including AI to help you shop till
you drop. Stay with us, we're back after this.
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CHATTERLEY: Welcome back to "First Move", and America's continued battle against pricing pressures. Consumer prices rising in March by 5 percent
year over year, the ninth straight month of slowing inflation the rate of price rises easing ever since it hit a four-decade high last summer.
But of course the challenges it remains a long way away from the Federal Reserve's target. And it's not only these data points that matter though.
Consumers' expectations of where prices are headed are also a crucial part of what the Federal Reserve watches. And my next guest also tracks data
like this very closely.
And as this chart shows, the data does suggest Americans do see inflation continuing to ease and dramatically. Joining us now is Torsten Slok Chief
Economist at Apollo Global Management. Torsten, it's always brilliant to have your wisdom on the show. First and foremost, what do you make of this
latest number and tie it to consumer's expectations of where inflation is headed to because this is critical?
TORSTEN SLOK, CHIEF ECONOMIST AT APOLLO GLOBAL MANAGEMENT: And this is very important, Julia, as you're saying, the good news is that inflation today
just came out at now the lowest level in two years. We peaked last summer at 9 percent and as you said, went out down to 5 percent. So that's the
good news.
The bad news is that the Federal Reserve has a target that inflation should be 2. So from that perspective, 5 is just still too high. And if look in
the details of the report, as you're highlighting, there's a lot of things that are hitting consumers that are still showing very elevated level of
inflation.
For example, if you look at cost of transportation that went up, if you also look at airline ticket prices also went up, if you look at the cost of
housing, still very elevated. So from a consumer perspective, we have probably picked the lowest hanging fruit now that inflation came from 9 to
5.
But we got to get all the way down to 2 and this is the difficult part for the Federal Reserve and for markets that getting from 5 to 2 is probably
going to be a good deal harder than it was to get from 9 to 5.
CHATTERLEY: 9 to 5 and if you -- what we saw today and the progression that we're expecting in consumer's minds to the jobs data, and the resilience
that we've seen in the jobs market. Does that argue that the Federal Reserve, even if they're more calibrated, perhaps on what comes beyond May
that they still have to do another quarter point hike?
SLOK: Yes, because exactly the employment report last Friday was relatively solid. So a very significant part of the inflation problem at the moment is
that in 2022, we saw goods inflation come down during the pandemic, we were all sitting at home, buying things online and once the supply chains gotten
straightened out that inflation in goods and the things that we were buying online suddenly became cheaper and inflation started coming down on the
good side.
[09:20:00]
In 2023, the story will be that we need to see inflation come down on the services side and one very important driver of service sector inflation is
wages. If we think about that, we go to a restaurant, if you stay at a hotel, if you fly on airplane, a very significant part of the costs for
services is wages.
And on Friday, with the employment report being so strong, that means that we have seen the correction in goods play out but now we need to see the
correction in services play out, and a very critical driver of services is that the labor market is just still strong. And therefore, service sector
inflation is probably also going to take quite some time.
That's why the debate around the Fed is about well, how long time is now going to take before we will get inflation all the way down to the 2
percent target.
CHATTERLEY: You know we've had the IMF warning about clouds on the horizon once again and the uncertainty in the outlook. And you were the first
person I called when we saw the banking turmoil in the United States and what the impact was going to be.
And you explained to me the importance of small banks, lending to small businesses and small businesses being a huge and a significant chunk of the
hiring that takes place in this country. And you also provide great data of how banks behavior, even in the last two to three weeks, has changed in
terms of their willingness to lend the amount that they're lending, and the deposit outflows that they've seen.
Just talk to me about some of this data and what you think the likelihood that it's sustained is and what the economic impact because this is also
what the Feds having to juggle at this moment too?
SLOK: Yes, and that is indeed a very important point. We just still don't know quite yet how severe this will be, but it is certainly a downside
risk. The main issue is that the small banks and here remember, the Fed data bank number 1 to 25 is defined as a large bank and number 26 to 5000
is a small bank.
And those banks number 26 or 5000, they account for 40 percent, of all lending in the U.S. economy to consumers, to companies and to real estate.
So that means that the small banks do play a quite significant role.
And if the regional banks now are going through a process of repairing their balance sheets, because they are facing higher cost of borrowing,
they're facing also asset price declines and them also facing more regulatory scrutiny.
That does mean that the risks looking ahead that credit, meaning borrowing in the economy is simply going to get more difficult. In other words, think
about the simplest example. You and I walk into a bank, we would like to borrow $30,000 to buy a car, and the bank needs to turn around and find
that $30,000 somewhere.
Do they want to take that money from deposits? Well deposits, there's some uncertainty about now the duration of deposits and the stickiness of
deposits. So maybe they will not be willing to take it from there. Maybe borrowing in the money market, maybe borrow from the Fed, maybe the Federal
Home Loan banking system.
There's just a lot of uncertainty is about how are the banks not going to provide the credit, provide the loans in the economy. And that's the risk
that we add on to the economy already slowing as a result of the Fed hiking rates.
And that's why; as you said that the uncertainty is still significant. But the data coming in is pointing more and more towards some downside risks,
at least over the next several months in terms of credit conditions tightening.
CHATTERLEY: Yes, it's that challenge of is this a knee jerk response? Does it settle down? Do they go back to lending again? We're just in this gray
period now where we just have to wait and see how this data plays out. Something else that I think I've heard a number of times, Torsten, and it
also ties back to the significance of lending to a particular sector from some of these smaller banks too is the commercial real estate market.
How worried are you by activity there and the sheer fact that we know that a lot of these office buildings around the country have remained empty post
COVID? How concerned are you by this too, even for the smaller banks?
SLOK: Yes, so the smaller banks account for 70 percent of commercial real estate lending from the entire banking sector. So the smaller banks have
been a very important reason why we have built so much office space in the last few years, why we have been built skyscrapers here in Manhattan.
And if you look at occupancy rates, including here in Manhattan and also in Chicago, they are now less than 50 percent of where they were before the
pandemic. So that means that we still have a lot of empty space in offices and adding on top of that, that the price per square foot over the last 18
months has declined now by 30 percent because there's simply less need for office space.
And if we think about that over the next several years that means that we'll probably see a fairly significant decline in the construction of
officers, a very significant decline in the construction, also of retail sales. So that brings you to the conclusion that just similar to after
2008, where it took several years 2, 3 years to correct after the housing crisis, where we had residential investment and in construction of homes
being relatively weak for three years.
We should probably also look at the next three years and expect to see relatively weak construction of skyscrapers of office space. And that
therefore also means that we probably see lower growth in the economy, very similar to what we saw after the financial crisis in 2008.
[09:25:00]
CHATTERLEY: Wow, who'd want to be a Central Bank setter of monetary policy in this day and age? I have no idea. Torsten, just very quickly if we try
and wrap this all up can we say then, in your mind, probably one more quarter percentage point hike from the Federal Reserve? And then we wait
and see, but we're certainly not seeing cuts this year.
SLOK: I think that they have reached the peak now. And I think just to summarize what you and I have talked about here.
CHATTERLEY: Yes.
SLOK: I think the narrative in financial markets is going to go away from inflation, towards focusing on growth and earnings, because for the last
literally 18 months, or 24 months, the market conversation has all been about oh, inflation is too high, inflation is too high, we got to get that
under control.
And the data that we just got this morning suggests that we now have inflation, at least a good deal more under control. The trend is certainly
your friend. If you think about it from a Fed perspective the worry now is of course focusing on growth and earnings over the next several earning
seasons.
In particular, the one that's coming up here will only still be solid, or is there a risk that because we had to get inflation to go down. The Fed
had to raise interest rates, and therefore growth is at risk of beginning to slow down. That's what the Fed is saying and they don't forecast. That's
what I would expect.
That's what the consensus was expecting. So therefore, for earnings, it becomes a very interesting next few weeks focusing on how bad will it get
and are we seeing more of us faster slow down, in particular because of these banking sector problems?
CHATTERLEY: Yes, and what these companies are saying about the outlook too vital. Torsten, always great to have you on, thank you so much!
SLOK: Thank you.
CHATTERLEY: Torsten Slok, Chief Economist at Apollo Global Management there, thank you. OK, coming up after the break, changing the way we shop
online Buy-Now-Pay-Later giant Klarna harnessing the power of ChatGPT. It could be a game changer when it comes to searching for what you want. Stay
with us.
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[09:30:00]
CHATTERLEY: Is that -- Wall Street there fist pumping in the background, I hope I didn't get that mascot wrong. But anyway truly welcoming Wednesday
on Wall Street there from the New York Stock Exchange. U.S. stocks on the rise in early trade with interest rate sensitive tech stocks, as you can
see the NASDAQ down by some four tenths of 1 percent so a bit of a reversal there.
Just released CPI data shows the Feds inflation battle far from done that looks more like it. By the way, look at that change there, seven tenths of
a percent higher for the NASDAQ. We were a little early, showing you those levels.
But a bit of relief, I think is the key on today's numbers that they didn't come in higher. Fresh challenges face U.S. investors Thursday, of course
too when we get a new report on prices at the factory gate and U.S. banks began reporting first quarter profits on Friday and as Torsten Slok was
just saying, earnings going to be really key this quarter especially.
Now the concept of Buy-Now-Pay-Later is firmly embedded in the global shopping landscape Apple, the latest to join the fray and letting consumers
pay for purchases over time. Back in 2020, this sector as a whole was worth around $91 billion.
Well, that's set to explode to nearly $4 trillion over the next decade according to allied market research. In this fiercely competitive
marketplace Connor, who we've spoken to many times, is now incorporating ChatGPT functionality to improve the shopping experience.
The company which offers both pay now and pay later options is building an AI plug-in from its website, which allows a conversational style searches.
Here to discuss our Sebastian Siemiatkowski he is Klarna's CEO. Sebastian, always great to have you on the show! We obviously have to talk about AI.
But I do want to talk about the business just tied to the conversation before that I was having. I think the beauty of the product that you offer
was we've discussed in the past is that you can calibrate dynamically for credit conditions as they change. The U.S. is also your biggest market, I
believe now. Talk me through what you're seeing and how you're adjusting.
SEBASTIAN SIEMIATKOWSKI, CEO KLARNA: Well, very much aligned what we've been talking about, it's great to be back Julia. Thank you for having me.
Look exactly as expected, right? The fact that we underwrite every transaction, as opposed to kind of extend the credit limit, and then let
people max out on it.
The fact that we have short period of people pay back basically in only 60 days, and that it's fixed installments. We are seeing losses going down,
you know, a lot compared to where they were a year ago. So it's really working out as expected.
And you know the strength of the model, when we change our underwriting model, after just 60 days, 50 percent of our balance sheet is underwritten
according to a new model. That's agility that none of the large banks have. So that obviously is extremely helpful in an environment like this.
CHATTERLEY: And when we're talking about credit losses, I think we have to also put that into perspective as well. I think in the fourth quarter, it
was 0.58 percent. So we're talking significantly less than 1 percent. And you have a 99 percent repayment rate at this stage too, can you maintain
that?
SIEMIATKOWSKI: Well actually, yes. If we've looked at like, I mean, I've been, you know, I'm celebrating my 18 years here, some finally climb as an
adult, I guess. But it's, you know, this is exactly what we've seen over those years is that like.
If you provide a form of credit that is much healthier, I always advise people go and watch Netflix credit cards, explain 20 minutes, you see all
the bad practices that banks have applied in the last 20 years to make people, you know, borrow too much, right?
Because they wanted to max out their credit card maximum on interest rates and if you don't apply that if you have a better, healthier credit, you'll
have better and healthier losses. So it's very, very consistent with that.
CHATTERLEY: But you are adjusting to some degree too because I remember when we first started talking about this, you never charged late fees. And
I see that now. I think the UK is one example where you are charging late fees. So you are saying, look, we're going to have to incentivize people if
they're not going to pay it back in the time that there will be a penalty for that.
SIEMIATKOWSKI: Correct. I mean, we've tried. We wanted to see if that was even better to not charge any late fees. But we did see that a little bit
of an incentive actually helps people pay on time and makes people more treating and using the credit in the more responsible way.
So little bit like a city without parking tickets. Doesn't work that great, but it's also not great if the government starts making money on parking
tickets, right? So you have to put it at the right level.
CHATTERLEY: Yes, it's like carrot and stick. At some point there needs to be a stick if you decide you're going to not pay.
SIEMIATKOWSKI: --that's right. I think it's all that.
CHATTERLEY: Yes, and I agree with that. Let's talk about competition. I saw some comments that you made last August and you said Apple coming into the
market and offering Buy-Now-Pay-Later facilities is testament to the power of this tool for customers.
And that they want something that isn't like a credit card with extortionate higher fees, but it is also competition. How are you thinking
today and what impact it's early days I know but do you expect to see an impact on market share?
[09:35:00]
SIEMIATKOWSKI: Look, I have to tell you, and this may sound maybe potentially a bit arrogant, but all of that is noise currently, like
through my 18 years and industry going through financial crisis going through COVID. Everything that I've seen, I have never seen anything, like
ChatGPT has launched this technology and what AI means.
This is a fundamental changed the business. It is going to have a dramatic change. I mean, basically, for all software cost companies. And if you look
at banking, it is softer at large, right? So only thing I'm thinking about right now is how do we apply this technology? And how do we really lean
into this?
Now I was one of the ones who are like, you know, whatever, Bitcoin Crypto, that's noise, a lot of these trends, I usually don't -- I'm not the one who
would jump on something as much as this, but this is I've never seen anything like it. So that is the only thing that I focus on at the moment.
CHATTERLEY: But you're answering one question with a different answer. But are you saying that the functionality that you can see in the benefits of
incorporating ChatGPT outweigh any perhaps market share, give up that you see from Apple, is that what you're saying you can grow the bigger pie, and
you worry less, perhaps about the competition how?
SIEMIATKOWSKI: Indian you know credit cards, its a trillion dollar market cap industry right?
CHATTERLEY: Right.
SIEMIATKOWSKI: And it's hard lack of transparency, high switching costs, and massive barriers of entry for new competitors. You can have ChatGPT,
right, your bank application, and it will do a pretty good job at it, right?
The switching costs when you can have a computer say look, I don't like the mortgage, go and find me another bank and negotiate a better mortgage for
me. Yes, but the bank needs all of my data in order to be able to understand what credit risk profile I have no problem transfer it.
I mean, we are seeing fundamental shifts to how the banking industry will work and what retail banking would look like. We in inside Klarna, I have
14 ongoing initiatives. They range from recruitment, marketing, legal financial analysis, compliance, risk control, management, software
development, underwriting, fraud prevention, it's everywhere.
This technology allows us to scale and move at a pace that was unthinkable a few years ago. My vision for what Klarna was about was always to be the
financial assistant that really, really cared about your customer.
The customers best interest help them save time, help them save money, make them less worried about their finances. These were difficult goals to
aspire for and to deliver on. It is actually doable now. So like I think this is a massive, tremendous shift.
CHATTERLEY: Yes, but deliverable goal is also making money doing it. And final question on this at this Apple point, and then we'll move on because
I want to ask the how, again, with ChatGPT.
SIEMIATKOWSKI: Yes.
CHATTERLEY: Is there a risk that there is a sort of race to the bottom in terms of what fees you can charge or that you have to push out the time
that people get to pay back simply because perhaps the first option, particularly if you've got an iPhone product phone that the first option
you get is Apple Pay.
And then if you don't choose to do that, then you've got your Klarna or your PayPal option behind that, because I've sort of already had that. And
I worry about that for your business.
SIEMIATKOWSKI: Yes. But I think again, like it's a little bit a misunderstanding of the market that like it's all about Buy-Now-Pay-Later.
Klarna offers both debit and credit. But in addition to that, the key differentiating is the fact that we actually have access to SKU level data
right?
Which makes that every purchase you make with Klarna we know not the amount that you buy, but the full the digital receipt and that allows us to
provide a much richer experience. And a lot of these features are far beyond what Apple has introduced now with Apple Pay Later.
That also only works on safari and only on an iPhone and only for customers that activated it and so forth. So I don't expect this to be any meaningful
impact on our business in the near term.
CHATTERLEY: And this is an interesting point to you, because we should also talk about your merchant partners when you have 450,000 of those I believe
now. So let's talk about perhaps what ChatGPT means to push traffic to certain merchant partners perhaps if that's what a consumer that's using
Klarna is looking for?
Can you better monetize those merchant partner relationships going forward using GPT functionality too because this seems to me like a potential
revenue opportunity too?
SIEMIATKOWSKI: Absolutely. So marketing revenues, the fastest growing revenue line right now Klarna. One other thing that we've experimented with
is to say to people look, you have decided to trust so much of your data with Klarna.
Now would you like to share that data to get a better retail experience to get a better advice for what you should purchase? And a lot of people say
yes, I may not want to, you know, share it with everyone indefinitely, but I'm happy to share it in a onetime relationship where I want to get the
right advice for my next fishing trip to Alaska, whatever it might be.
And when we feed that data then because consumers want to give their consent just like you know you would step into a normal best buy store and
they would ask you, well what's your budget?
[09:40:00]
And what are your preferences? And what brands do you like or whatever, in orders to advice you on your purchase? When you do that the quality of this
technology, the advice, it gives the opportunity to provide you with the relevant answers.
It just explodes, like I was listening to Microsoft presentation of Bing. And one thing that they highlighted is that 40 percent of Google searches
are the results are not relevant, because they're not customized to you as an individual.
So we have this amazing opportunity to help customers provide this data to make those answers more relevant. And that's something that we're seeing,
you know, it is growing tremendously and customers love that experience.
CHATTERLEY: Yes, I mean, I've just read Reid Hoffman's book, the LinkedIn Co-Funder on the difference between ChatGPT and GPT4 and oh, boy, when that
comes, then we were really talking. I've run out of time, Sebastian, you're going to have to come back. I always do this. I've got a million more
questions. Great to chat to you and excited to hear what you're doing.
SIEMIATKOWSKI: Thank you so much.
CHATTERLEY: Thank you. The Klarna CEO! OK, as we've been telling you all hour President Biden is about to depart Belfast for Dublin. Here are some
pictures of the President getting on Air Force One just moments ago.
CNN of course will be staying across his trip marking the 25th anniversary of the Good Friday Agreement. So that's Air Force One there and President
Biden on his way. I think it's about an hour and 10 minutes to Dublin, where he will arrive shortly.
And finally, a sports fan with deep pockets is no doubt walking on air today after a historic auction in New York City. These pair of iconic Air
Jordan sneakers or trainers in my world worn by Michael Jordan himself has been sold for $2.2 million.
They are officially the most expensive trainers ever to sell at auction. Jordan played in the trainer's sneakers in his final NBA championship
tournament 25 years ago on. I wonder what size they are.
That's it for the show. If you've missed any of our interviews today, it'll be on my Twitter and Instagram pages. Search for @jchatterleycnn. I don't
think they're going to be -- "Marketplace Asia" is up next. I'll see you tomorrow.
(COMMERCIAL BREAK)
[09:45:00]
KRISTIE LU STOUT, CNN CORRESPONDENT, MARKETPLACE ASIA: In Asia luxury is big business from contemporary art to high end watches. The luxury market
has grown exponentially in the last decade, and there are no signs of it slowing.
On this month's show we dive deep into the art market here in Hong Kong. And we need a new generation of entrepreneurs and crafts people who are
shaking up the luxury timepiece scene. I'm Kristie Lu Stout and this is "Marketplace Asia".
(BEGIN VIDEOTAPE)
STOUT (voice over): From digitized masterpieces to dizzying displays of both color, and characters. This is Art week in Hong Kong, the biggest
event on the city's cultural calendar at its heart, Art Basel Hong Kong, Asia's largest art fair.
Here, every March, scores of the world's top galleries descend on the city to showcase and disown. Hong Kong has long been considered Asia's leading
art marketplace. But after years of pandemic restrictions, and the rise of other regional art centers, where does the city stand now? In late March
2023, Art Basel Hong Kong state its largest fare since 2019, featuring 177 galleries from across the region and the globe.
STOUT (on camera): With the last COVID measures dropped the international crowds are back here at Art Basel Hong Kong and you certainly feel the buzz
in the room and the collectors they are spending big.
STOUT (voice over): This Yayoi Kusama Pumpkin sold for $3.5 million while this bold worked by -- went for $5 million.
STOUT (on camera): What do you make of the strength of the sales that have been posted recently?
ANGELLE SIYANG-LE, DIRECTOR, ART BASEL HONG KONG: Well, the buying hasn't really stopped even during the pandemic, the art galleries continue to
stage exhibitions. Auction House continues to make incredible results. And now with the border reopening we will see a much stronger sales coming up.
STOUT (voice over): Mainland China's border reopening in January was welcome news for Hong Kong. The city is a gateway to greater China's art
market. In 2021, Chinese art collectors accounted for the world's highest share of spending at the $1 billion level according to Art Basel's Art
Market Report.
STOUT (on camera): Asia is big and you have these emerging art hubs, like Tokyo like Seoul, do you think they are turning into formidable challengers
to Hong Kong?
SIYANG-LE: We actually think that is a great thing for Asia, because we now show to the rest of the world that Asia is big enough to have like multiple
international art platforms.
STOUT (voice over): Hong Kong's global art reputation is thanks to its long history of art trading, its access to Chinese Collectors, and most
importantly, its favorable tax laws which make it cheaper to buy and sell art. But the city's art ecosystem has encountered challenges in recent
times.
EDIE HU, DIRECTOR, CENTERPIECE ART ADVISORY: Some of the challenges that the Hong Kong art market faced in the last four years included some civil
unrest in 2019. I think people stayed away. A lot of galleries in the central area were affected by protests. And then unfortunately, we had also
2020 and COVID we never fully locked down but the whole quarantine did scare a lot of people away.
STOUT (voice over): 2020 also marked a shift in Hong Kong's political climate with the introduction of a national security law which sparked
censorship fears among artists and creatives in the city. Despite the political uncertainty and international isolation during COVID-19, some of
the cities art scene found ways to adapt and thrive.
HU: The sectors that did well included the auction markets because they have a platform to reach out to all their clients, including through video
and media.
STOUT (voice over): The pandemic has also opened up opportunities for local emerging artists with?
MICHELE CHU, ARTIST-IN-RESIDENCE, HART HAUS: With the pandemic it definitely gave way to more independent art spaces opening and also many
local artists getting the spotlight as well. I hope that with now everything is starting to be back to normal again that people are more
willing to take risks and also will collect artworks from more emerging artists.
[09:50:00]
STOUT (voice over): And there are now more cultural spaces for art lovers here too. In 2021, the long awaited contemporary art museum and plus open,
as well as the Palace Museum in 2022, which houses national treasures from the Forbidden City in Mainland China.
To help boost the city's art sector for years to come, the Hong Kong government has created a $7.6 million arts and culture fund to help bring
more cultural spaces. Events like Art Basel, and much needed visitors back to the city.
(END VIDEOTAPE)
(COMMERCIAL BREAK)
STOUT: Part fashion statement to part engineering marvel luxury watches are a status symbol like no other accessory and thanks to online shopping and a
booming pre owned watch market. They're gaining traction among wealthy GenZ and Millennials in Asia. In the South Korean capital to meet a young
watchmaker who is tapping into growing global demand for artisanal timepieces my colleague Paula Hancocks has more.
(BEGIN VIDEOTAPE)
PAULA HANCOCKS, CNN CORRESPONDENT (voice over): An understated piece of luxury meticulously designed and handcrafted here in this small studio in
Central Seoul.
MINHOON YOO, WATCHMAKER: When they make my watches, I view them as a sculpture, not a product. It is a sculpture that we can wear, bring with us
in touch with our own hands.
HANCOCKS (voice over): In a world dominated by prestigious Swiss brands, Minhoon Yoo is not your average watchmaker. At just 32 the largely self-
taught craftsman is a rising star known for his minimalist design and handcrafted elements in South Korea, a country not known for its watch
production.
YOO: When I make a watch style with my own hands, each time the results slightly differ. So in a way it becomes like an abstraction.
HANCOCKS (voice over): Yoo opened his namesake studio in 2020. And like many independent watchmakers uses social media to gain an international
following. He says it takes two months to craft and construct each manually wound timepiece. At $18,000 each they don't come cheap. And there is a
waiting list.
YOO: If you order now, I think you can receive it by the end of 2025.
HANCOCKS (voice over): Yoo was part of a new wave of independent brands that have garnered attention from international collectors in recent years
according to watch industry experts.
CARSON CHAN, WATCH EXPERT, GPHG ACADEMY: We are seeing new independent watchmakers from Asia, Malaysia, China, Japan and Korea. I think COVID was
a catalyst to push forward these independent smaller brands because when the market exploded, suddenly there were many, many more collectors into
the market, which made it very, very challenging to acquire a watch, especially to these heritage brands.
HANCOCKS (voice over): Prices for three luxury brands on the second hand market appreciated by an average of 20 percent a year between 2018 and
2023, outpacing the S&P 500 Index. Here in Hong Kong, the hub for what's trading in Asia, pre-owned trading platform wrist check is trying to
disrupt the resale industry. 26-year-old Austin Chu and his team have taken the traditionally brick and mortar business online.
AUSTEN CHU, CEO & CO-FOUNDER, WRISTCHECK: For us we're a completely transparent, low fee, consignment platform and so buyers know what sellers
net sellers know a buyers pay.
HANCOCKS (voice over): Launched in 2021 Wristcheck currently has more than 600 luxury watch listings on their platform.
[09:55:00]
Well, they wouldn't tell us their transactions to date the company says it's aiming for transactions totaling $70 million in 2023 with Wristcheck
making a percentage from each deal. Some of the watches can be seen here in their offline shop front in Central Hong Kong.
CHU: The Rolex, Rainbow, Daytona and Never Rose Gold. The retail at the time was, you know, slightly above $100,000 but right now they're going for
about 500 to $550,000.
HANCOCKS (voice over): As more Millennials and GenZ enter the watch market Wristcheck's focus is firmly on the young and wealthy.
CHU: 43 percent of our paying customers are actually under the age of 30. And actually 74 percent of our entire audience is actually under the age of
35. My generation GenZ we're very used to buying things online. I personally experienced what it was to be a young person entering watch
stores, you don't really get treated that well. And with us, we're trying to change that.
HANCOCKS (voice over): Supply and demand is driving the lucrative pre owned market. By 2030 it's estimated that this market will be worth $38 billion
and make up more than half of the Swiss Watch Industry's primary market, a positive sign for the future of the wider industry, with space for all
sectors to grow in the years to come.
(END VIDEOTAPE)
STOUT: On this month in the "Market Segment" we need an international model who is taking inspiration from our Indian heritage to disrupt the skincare
industry. CNN's Chloe Melas has more.
(BEGIN VIDEOTAPE)
CHLOE MELAS, CNN CORRESPONDENT (voice over): One woman is on a mission to disrupt the beauty industry. Her name is Pritika Swarup. She's an
international supermodel who has graced the covers of Harper's Bazaar, Elle and Vogue. She has now created a beauty line called "Prakti".
PRITIKA SWARUP, FOUNDER AND CEO, PRAKTI BEAUTY: Through my experience in the fashion industry and I somehow specialized in beauty so seeing that
space between super you know traditional brands like -- Indian brands, and then Western brands. And no brand really had the ability to appeal to all
women and really make Indian beauty accessible.
MELAS (voice over): Something she hopes resonates with women everywhere.
SAWARUP: I've been born and raised in America, and I'm very proud of my cultural duality. So this hybrid concept really represents women today
because we're hybrids of mixed cultures and races and backgrounds and goals and dreams.
(END VIDEOTAPE)
STOUT: And that is it for today's show. Thank you so much for joining us. For more on the stories and others, check out our website; just go to
cnn.com/marketplaceasia. I'm Kristi Lu Stout here in Hong Kong. I'll see you next time.
(COMMERCIAL BREAK)
[10:00:00]
END
