Klarna, the Swedish payments company, raised $460 million in venture funding at a post valuation of $5.5 billion, making it the largest private fintech company in Europe and among the biggest across the globe.
The startup has reimagined the buy now pay later payment method for eCommerce, enabling shoppers to pay over time without facing hefty interest rates and fees. Klarna buys the products from the retailers and then bills the customer monthly.
Proceeds from the round, which was led by Dragoneer Investment Group, will go to expand in the U.S. where it said its growing at an annual rate of six million new consumers. Klarna’s popularity lies in the fact that it's providing an alternative to credit cards. Consumers are increasingly looking for different financing alternatives to revolving credit lines. Installment payments have long been tied to traditional lending in that customers apply for a loan at the retailer or online and then pay off the product over a set period of months, paying an interest rate along with the purchase price. The new offerings see themselves more as layaway services but ones in which consumers get the product before paying it off.
Klarna recently launched a shopping app that enables users to shop with Klarna at any store or brand over the Internet that accepts its payment method. Klarna claims the app has been downloaded daily at a rate that is three times more than its direct rivals. Of those who use the app, more than 50% purchase weekly, the fintech company said.
“This is a decisive time in the history of retail banking. Finally, transparency, technology, and creativity will serve the consumer, and there will be no more room for unimaginative products, non-transparent terms of use or lack of genuine care of ones customers,” said Sebastian Siemiatkowski, co-founder and CEO of Klarna in the press release announcing the capital raise. In April Klarna raised funding above the $100 million target due to strong demand from existing investors. In January American rapper Snoop Dogg invested in the payments company. His involvement in the startup has boosted Klarna’s name brand recognition with consumers in Europe and the U.S.
Klarna is among a group of European fintech companies that are storming the U.S. market. In recent weeks Monzo, the UK bank challenger and N26, Germany digital bank, have entered the market. They are bringing along multi-billion-dollar valuations and millions of customers. They are betting the popularity achieved in Europe will be similar in the U.S. Klarna’s business model appears to be resonating. The company said it’s nearing $1 billion in revenue on an annual basis.
