The burgeoning “buy now, pay later” industry just got a sizable vote of confidence as one of its top names just hauled in its biggest investment yet.
Klarna, the Swedish financial services provider and bank best known in the U.S. for its installment payments platform, has secured $650 million in an equity funding round. Already the largest fintech company in Europe by valuation prior to the investment, Klarna is now valued at an estimated $10.65 billion.
The company is now also the fourth-highest valued private fintech company worldwide, behind payments giant Stripe ($36 billion), India’s One97 Communications ($16 billion) and investment and trading app Robinhood ($11.2 billion).
The funding will help Klarna further invest in its shopping offering, continue to grow its global presence, and accelerate its momentum across all markets, especially in the U.S. where the company is growing and now has more than 9 million users, an increase from the 7.5 million it reported in June. The U.S. saw a fourfold increase in monthly active from June 2019 to June 2020.
Klarna is the fourth-most popular buy now, pay later service in the U.S., according to an Ascent survey conducted by The Motley Fool in July. Like many of its competitors, it offers interest-free financing on retail purchases over a period of installments, making it a more appealing option to pay as opposed to using a credit card. The Ascent survey highlights that 39.4 percent of consumers use these alternative spending platforms to avoid paying steep credit card interest rates.
More than one in three consumers aged 18-37 say the availability of an installment payment option has influenced their decision to complete a purchase, according to 451 Research’s Q2 2020 Voice of the Connected User Landscape survey.
“We are at a true inflection point in both retail and finance. The shift to online retail is now truly supercharged and there is a very tangible change in the behavior of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and an overall superior shopping experience,” Sebastian Siemiatkowski, co-founder and CEO of Klarna, said in a statement.
Klarna’s app has more than 12 million monthly active users worldwide and services 90 million total, and is downloaded 55,000 times a day. Klarna claims that it has significantly outpaced its nearest competitor by almost three times as many downloads over the last year.
The firm has seen major financial growth in the first half of 2020, with volume of goods sold on the app jumping 44 percent to $22 billion and total revenue boosting 36 percent to $466 million.
The company attributed the growth to new consumer appetites during the Covid-19 pandemic, particularly citing a recent McKinsey & Company consumer survey that found that more than 75 percent of consumers have tried new brands, places to shop or methods of shopping during the pandemic. Additionally, 82 percent of those who have tried a new digital shopping method intend to continue using it even after the crisis ends.
But Klarna’s bottom line is taking hits as it ramps up global expansion, racking up a net loss of 522 million Swedish krona ($59.8 million) between January and June, a sevenfold increase from the net loss of 73 million krona ($8.4 million) it posted in the same period last year.
Credit losses—incurred when a customer doesn’t pay back a loan—almost doubled to approximately 1.2 billion krona ($137.5 million), a figure the group said was adjusted for “macroeconomic uncertainty.” Klarna says that new customers affect its net credit losses, but late fees as a share of volume have dropped to 17 percent.
Earlier in the summer, Klarna launched its first loyalty program within its platform, called Vibe, which is currently available to consumers in the U.S. and will soon be launched in additional markets. For every dollar spent through the Klarna app, consumers participating in the program will earn one “Vibe.” Members can then redeem these Vibes for rewards such as gift cards redeemable at major retailers. Free to join, the Vibe program enables users to earn rewards throughout Klarna’s 200,000-strong merchant network.
The app also now includes recently added features beyond typical payments offerings, such as enabling customers to wish list their favorite items, access discounts, set up price-drop notifications and track spending and deliveries.
The company has added more than 35,000 new retailers to its arsenal during the first half of 2020 including apparel and footwear retailers such as Gymshark, Timberland, Ralph Lauren, Shein, Vans, The North Face and Ted Baker. Klarna already included a network of more than 200,000 partners, with H&M, Nike, Asos and Abercrombie & Fitch leading the way.
The funding round is led by Silver Lake, a global technology investment firm with more than $60 billion in combined assets under management, alongside Singapore-based wealth fund GIC, as well as funds and accounts managed by BlackRock and HMI Capital.
Concurrently, Merian Chrysalis, TCV, Northzone and Bonnier have acquired shares from existing shareholders. They will join current investors such as Sequoia Capital, Dragoneer Investment Group, Permira, Commonwealth Bank of Australia, Bestseller Group and Ant Group in supporting Klarna’s future growth.
Klarna raised $460 million in an equity funding round led by Dragoneer in August last year.