Swedish fintech Klarna, which offers ‘buy-now-pay-later’ financing has been valued at $11 billion after its latest investment round. The company, which is also expected to launch an IPO in the near future, is now officially Europe’s most valuable fintech after investors including BlackRock, Silver Lake and Singapore’s sovereign wealth fund GIC injected $650 million at the sky-high price tag.
Klarna itself bullishly promised to “wreak havoc” on the payments and banking industries, with chief executive and co-found Sebastian Siemiatkowski announcing the fresh funds would be used to fund further expansion in the U.S. The anticipated IPO is also expected to be a Wall Street listing.
If Klarna does indeed wreak the promised havoc, the established payments and banking players won’t be able say Mr Siemiatkowski didn’t give them fair warning. He yesterday enthused that the payments industry was currently “a dream for an entrepreneur”, due to obsolete technology, incumbents who have lost their focus and high barrier to entry. Confident his own company is scaling those barriers, he seems convinced the defenders waiting behind are ill-equipped to deal with the descending hordes.
Like most fintech start-ups, Klarna has racked up rising losses over the past year but has still managed to more than double its valuation in less than twelve months thanks to stellar growth in the USA. Revenues rose by over 33% over the first 6 months of the year despite the coronavirus crisis.
Of the new $650 million investment closed, $500 million reportedly comes from Silver Lake alone. The big name private equity house has been active over the past several months, taking advantage of more attractively priced deals to pick up stakes in Airbnb, Expedia, Twitter and Reliance Retail. It’s hard to term Klarna’s valuation as bargain bucket, having more than doubled in a year but Silver Lake has seen enough value, or potential, to commit to half a billion dollars.
When directly asked if the latest round would represent Klarna’s last before going public through an IPO, Mr Siemiatkowski responded:
“Who knows? It might, it might not. It could be that’s the case, it could be that we stay private slightly longer. What it does is puts us in a very strong position. It allows us to keep growing.”
In a similar pattern to how markets value electric carmaker Tesla, Mr Siemiatkowski is convinced the retail banking sector will be transformed from “being a balance sheet play to a tech play”, and that Klarna will help improve “people’s everyday finances”.
Critics say Klarna’s model preys on vulnerable consumers, encouraging them to get into debt. From a business model point of view, there are also concerns over rising credit losses, which have doubled over the course of this year as the company has scaled in the USA.
Klarna’s service works similarly to a credit card by allowing consumers revolving credit to spread payments on goods purchased over time. It offers more flexibility than standard hire purchase agreements, which involve equal monthly payments. The company also has a banking licence in Europe and has started offering debit cards and savings accounts in Sweden and Germany.
The fintech makes money from its core business by charging retail partners that include Ikea, Nike, H&M and Asos fees in exchange for it taking on the payment risk of online shoppers buying on credit.