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Alternative Payments Firm Klarna Hits $5.5 Billion Valuation

Buy now, pay later is gaining steam as new consumers adopt alternative payment methods that allow them to budget their way.

Fintech firm Klarna announced it has raised $460 million in an equity funding round led by Dragoneer Investment Group, which the digital payments provider will use to further its U.S. expansion strategy.

The funding brings the company’s valuation to $5.5 billion, making it the largest private fintech firm in Europe.

Klarna offers a range of payment solutions, all designed to streamline buying and make luxury items more attainable. Consumers who shop at participating retailers can spread out their purchases, paying Klarna over four sessions versus a traditional lump sum to the retailer. It’s a strategy that specifically targets millennial and Gen Z consumers, generations eschewing credit cards in favor of debit cards. A recent Morning Consult study found 77 percent of Gen Z adults primarily use cash or debit cards to pay for everyday items.

The company has partnered with more than 3,000 U.S. merchants, including Rue21, Asos, Toms and Lulus. H&M, Abercrombie & Fitch and Boohoo Group will also soon go live.

With its app, Klarna customers can make purchases at any store or brand online, and the firm reported more than half of app users make a purchase each week.

Klarna, which said it’s acquiring 6 million new U.S. consumers each year, views itself as more than simply a provider of tech; in an interview with Sourcing Journal earlier this year, CEO Sebastian Siemiatkowski said Klarna often acts as a consultant for retailers needing new services but struggling to execute.

“The challenge retailers have is ‘How do I navigate this technical legacy of all these different systems that I have, and how do I get quickly to market with something that creates a different experience for our customer?’ So a lot of our time is consulting them on their tech stack,” he said. “What we tend to do today, and what I feel like my job is when I speak to merchants, is to show them that there are ways in which they can go live super-fast.”

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Siemiatkowski cited IKEA as an example: “They asked us, ‘Please, just help us. Is there a way we can go live, like, now?’ And we said yes! We have developed technologies that allow us to take a piece of Javascript code, drop it into your website, and we will make the integration on your behalf. They were live in one week. They saw a huge and very sudden percent jump in sales, which was very dramatic and unexpected.”

Klarna records more than 1 million daily transactions thanks to 60 million consumers and 130,000 retail partners, and could soon hit $1 billion in annual revenue.

The Commonwealth Bank of Australia participated in this most recent round of funding, which Klarna said will allow it to establish an exclusive partnership for the Australian and New Zealand markets.