Buy Now Pay Later company Klarna has raised $1B at a valuation of $31B — 3x its valuation last September. The funding round comes a week after its CEO Sebastian Siemiatkowski said the company is considering direct listing to go public.
- Klarna's valuation over the years:
- 2015 — $2.25B
- 2017 — $2.5B
- 2018 — $2B
- 2019 — $5.5B
- 2020 — $10.5B
- 2021 — $31B
- Klarna has raised $3.1B in funding; its investors include Macy’s, Sequoia Capital, Alibaba’s Ant group, and rapper Snoop Dogg.
- Klarna’s operating income for 2020 increased by 40% to $1B. The company processed Gross Merchandise Volume worth $53B, up 46% YoY.
- The European firm has around 90 million customers overall, and by the end of this year, the U.S. is expected to become its largest market, surpassing Germany.
- In Q4, the company added 1 million new customers in the U.S, and it had 11 million customers as of October.
Buy Now Pay Later (BNPL)
- BNPL firms enable their users to purchase goods upfront and pay later in four installments with no interest fee. They earn most of their revenue from merchant fees of 2.5-4% for enabling the purchase. The late fee accounts for only a marginal portion of their revenue. For instance, fees for Peloton alone made up 28% of BNPL company Affirm’s revenue for the year ended June 2020, while only 9% of Afterpay’s revenue in the last quarter was generated from late payment fees.
- According to payment processing company Worldpay, the BNPL market is expected to grow from 1.6% of e-commerce payments to 4.5% in 2024.
- Another aspect leading to the surge in BNPL usage is its appeal for younger audiences compared to credit cards. Only 52% of the Gen Z segment has a credit card compared to 83% of baby boomers. 20% of millennials (born between 1981 and 1996) used BNPL at least once last year.
- Klarna’s CEO said that the additional funding will help them in competing with credit card firms. "This credit card industry is actually at its core flawed,” he added, going on to state that BNPL offers a better system by providing the same offers to everyone.
- However, around 40% of customers using BNPL have missed at least one payment, and the credit score for 72% of BNPL users was affected. Earlier this month, the U.K.’s financial regulatory body said that it will start to regulate the BNPL sector and that companies offering this service should “undertake affordability checks and ensure customers are treated fairly.”
Other BNPL firms’ growth:
- Affirm’s revenue for Q4 increased by 57% to $200M. Its share price has increased by 143% since its IPO in January, giving it a market cap of $23B.
- Australian BNPL firm Afterpay had 7.5 million U.S. users last year, and its share prices have increased by 10x since its March low of $12.44 last year.
This story first appeared in Inside Business. You can read the full issue here.