Investors recently learned that Klarna, the Swedish Buy It Now and Pay Later (BNPL) company, has closed another round of funding that valued the unicorn at nearly $ 50 billion, according to Reuters.
BNPL has done a tremendous job of increasing its reach, which includes rapid expansion into the US market. Competition in the BNPL space is intensifying and Klarna faces stiff competition from new and old competitors. With the company set to go public soon, here’s what you need to know.
Klarna, the European BNPL company, is causing a stir
Klarna is a Swedish bank that started in 2005 with the aim of making online shopping safer and easier. The company has evolved since then and provides flexible payment solutions for customers, including post-delivery payment options and installment plans – what we now call buy now, pay later.
The company serves 90 million active customers around the world and partners with 250,000 retailers in 17 different countries. Klarna is known for its pay-in-30 option, which allows customers to pay 30 days after an item is delivered so they can try it out and decide if they want to return the item.
However, the goal of the company is not to be at the checkout of every website like Pay Pal. Instead, she wants “to be at the center of payments, purchases and banking,” according to David Sykes, director of Klarna US. To do this, the company is focusing on its Klarna app, which allows customers to track packages, browse products. other retailers, and even earn interest on deposits with the company.
Klarna quickly expanded its reach, focusing on the US market in particular. The company has 17 million U.S. customers through the end of the first quarter of this year, doubling the amount from the previous year. Not only that, but the company is now a partner of a quarter of the 100 largest retailers in the United States.
Competition in the BNPL space intensifies
Klarna finds direct competition from other BNPL companies like Affirm holdings and After payment. Affirm went public in January, and US company BNPL had a market cap of around $ 16 billion at Friday’s prices. Afterpay, its Australian counterpart, had a market cap of around $ 21 billion.
These BNPL companies face competition from older companies that are not too keen on losing market share. PayPal, one of the first payment companies on the Internet, launched its Pay in Four product last summer, which allows customers to make four interest-free payments over six weeks.
Visa is another company looking to capitalize on the BNPL trend. The company wants to offer installment payment options to its customers who already have approved lines of credit. Given the threats to his business from Klarna, Affirm, and Afterpay, it’s no surprise that traditional businesses are looking to adapt.
A valuation that has quadrupled in nine months
Klarna’s recent round of fundraising included people like SoftBank, and that gave fintech a valuation of between $ 40 billion and $ 50 billion. This valuation would make Klarna one of the most valued start-ups in Europe, the largest financial company in Sweden and a larger entity than some of the major European banks, notably German Bank and Credit Suisse Group.
The company has seen its valuation skyrocket in its two previous funding rounds. In September, Klarna’s valuation was pegged at $ 11 billion, and in a March fundraiser, her valuation jumped to $ 31 billion. Now, with a valuation of nearly $ 50 billion, investors are eagerly anticipating what could be one of the biggest Initial Public Offerings (IPOs) of the year.
When will its IPO take place?
Sources told Reuters that this latest round of funding will be Klarna’s last before it goes public. The company flirted with the London IPO, although the regulatory issues involved could push the company to list in New York instead.
Bankers expect the company to complete an IPO or merger with a Special Purpose Acquisition Company (SPAC), although CEO Sebastian Siemiatkowski has said the PSPC path is highly unlikely. Some believe that the company could instead proceed with a direct listing. In a traditional IPO, a company will hire underwriters, set an IPO price, and determine how much stock to sell to raise funds. A direct listing is when the company lists its shares directly on the public markets without resorting to an underwriter and without raising new capital. Since Klarna has raised funds through multiple fundraisers before, a direct listing may be the most favorable option.
Either way, investors will be eagerly awaiting Klarna’s public debut, which could be completed as early as this year, although it could be pushed back to 2022. The BNPL space is an interesting space with a lot of competition, and it will be interesting to see how things develop in the years to come.
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