Klarna is looking to “wreak havoc” on the payments and banking industries after the Swedish “buy-now, pay-later” group was valued at $11bn ahead of a likely stock market listing by the most valuable private fintech in Europe.
Sebastian Siemiatkowski, Klarna’s chief executive and co-founder, told the Financial Times that it would use $650m invested by US private equity firm Silver Lake, Singapore’s sovereign wealth fund GIC, BlackRock and HMI Capital to expand further in the US ahead of a probable IPO there.
He added that the payments industry was “a dream for an entrepreneur” thanks to outdated technology, incumbents that have lost focus, and high barriers to entry. “There’s a lot of havoc to wreak.”
Klarna has doubled its valuation to $10.65bn in the past year despite rising losses. It was last valued at $5.5bn in August 2019, already making it the joint most valuable private fintech in Europe, but has since enjoyed rapid growth in the US with its revenues increasing by more than a third in the first half of this year despite the pandemic.
Silver Lake, which has been investing heavily during the coronavirus crisis snapping up stakes in Airbnb, Twitter, Expedia and Reliance Retail, is alone putting $500m into the Swedish group, said people familiar with the deal.
Asked if it would be the last fundraising round before an IPO, Mr Siemiatkowski replied: “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.”
Mr Siemiatkowski believes retail banking is moving from “being a balance sheet play to a tech play” and that Klarna, which became one of the first European fintechs to get a banking licence in 2017, can improve “people’s everyday finances”.
Sceptics worry about Klarna’s rising credit losses — which almost doubled in the first half of 2020 compared with a year earlier, leading to operating losses to increase nine-fold — and whether it preys on vulnerable consumers.
Mr Siemiatkowski conceded that the increased valuation “comes with a sense of expectation”. But he argued that Klarna was better positioned than other fintechs such as Affirm of the US and Afterpay of Australia.
He recounted an interview with a “very senior PayPal executive” who told him “internally there was some anxiety over Klarna, and I quote: ‘Affirm and Afterpay were the dogs nipping their heels, while Klarna was the big European bear coming to rip them apart’.”
Egon Durban, Silver Lake’s co-chief executive, said: “Klarna is one of the most disruptive and promising fintech companies in the world, redefining the ecommerce experience for millions of consumers and global retailers, just as ecommerce growth is accelerating worldwide and rapidly shifting to mobile.”
TCV, the US venture capital group, bought shares off existing shareholders as did Merian Chrysalis, Northzone and Bonnier. Existing investors in Klarna include Sequoia Capital, private equity firm Permira and China’s Ant Group.
Klarna, which was founded by a trio of business school friends in 2005, took the idea of factoring — customers paying only when they received an invoice — and applied it to online shopping, becoming well-known for ecommerce payments first in the Nordics and Germany, then in the UK and finally in the US.
It increased the number of customers in the US six-fold in the first half of this year compared with a year earlier. It makes money by charging retailers such as Ikea, H&M, Nike and Asos fees for taking the payment risk on online buyers.
Klarna also gained a banking licence in Europe and has started offering debit cards and savings accounts in Sweden and Germany.