Bolstered by $460m, Klarna to ramp up investment strategy beyond the US

Illustration of e-commerce functions

Klarna, flush with $460 million of new equity funding, is planning to conquer New Zealand and Australia, not just the U.S.

Expansion to the two Oceana markets were added are at the behest of Commonwealth Bank of Australia, Australia’s largest retail and commercial bank. Commonwealth participated in the equity round and, in turn, the Sweden-based bank and payments firm agreed to establish “an exclusive partnership for the Australian and New Zealand markets” with the bank.

On Tuesday, Klarna secured $460 million in equity funding to support its expansion to new markets, including the U.S., Australia and New Zealand, the company’s vice president of communications and policy Aoife Houlihan told Bank Innovation. The 14-year-old company, which has a bank license in Sweden, offers a bundle of financial services in 14 markets, including cards, payments, credit and an open banking platform, which allows access to more than 4,300 European banks through a single account API.

In the U.S., Klarna’s business so far has centered a point-of-sale loan offering. The company, which is partnering with such retailers as H&M, Asos, Toms Shoes, rue21 and Sonos, is operating its loan business in partnership with WebBank.

“We see a lot of opportunities in the U.S., and it’s growing extremely fast for us with the online market worth $600 billion in 2019,” Houlihan said. “We will make the investments in trying to bridge the gap between online and offline for retailers and provide seamless payment services no matter where [customers] are purchasing.”

Klarna currently works with more than 3,000 U.S. retailers. Globally, it serves more than 60 million consumers, has 130,000 merchant partners, conducts 1 million transactions daily and is close to $1 billion in annual revenue, according to the company.

As Klarna scales its product offerings to U.S. consumers, it faces pressure from other companies offering similar products, including Affirm, Afterpay, Bread and banks like Citizens Bank. Still, the company said its differentiators are the breadth of services it currently offers and plans to roll out.

“A lot of these players are focused on one thing,” said Houlihan. “We have multiple types of products that may be live in the U.S. in the future. We also offer an inline experience and don’t redirect to other sites.”

Klarna underwrites point-of-sale borrowers using a soft credit check pulling in some non-traditional data points. The point-of-sale loan model has yet to be tested in a recessionary environment, noted Aite Group senior analyst Leslie Parrish, in a recent report. However, the company countered that the growth of this product is part of a shift among younger generations away from revolving credit.

“There’s been a generational shift away from credit cards,” Houlihan said. “Millennials are averse to carrying debt forward [and] are using debit.”

The company’s latest funding round was led by Dragoneer Investment Group, with participation from HMI Capital, funds and accounts managed by BlackRock, as well as the Commonwealth Bank of Australia. The new funding injection puts Klarna’s valuation at $5.5 billion, making it one of Europe’s most valuable fintech companies.

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