Klarna, the Sweden-based bank and payment giant, has raised $460 million in an equity funding round and is now valued at $5.5 billion. The payment company, which provides a “buy now, pay later” installment service for shoppers, said it would use the new funds to continue expanding into the U.S. market, which is already growing at a rate of six million users per year.
The Klarna shopping app, which allows its users to shop with Klarna at any store or brand online, has driven 3X more daily downloads than direct competitors, with 50% of the app users purchasing each week, the company said in a statement.
More than 130,000 merchants worldwide (3,000 in the U.S.) use Klarna, processing one million transactions daily for 60 million consumers. New partners TOMS and Superdry recently introduced the payment platform to their customers, while existing partner ASOS just extended the Klarna financing option to U.S. shoppers.
Klarna processes $29 billion of transactions annually, earning fees from them as well as interest from customers who pay late. In 2019, it made an operating profit of $19 million on revenues of $627 million. Merchants that offer the “Pay in 4” installments feature report a 68% increase in average order value, a 44% increase in conversion compared to cards and 21% higher purchase frequency.
Dragoneer Investment Group, a leading San Francisco-based growth-oriented investor, led the funding round. Other investors in the round include the Commonwealth Bank of Australia (CBA), HMI Capital LLC and funds and accounts managed by BlackRock.
Klarna is establishing an exclusive partnership with the CBA to enter the Australian and New Zealand markets. Australia appears to be an attractive destination for installment payments companies, with businesses such as Afterpay, Zip Co and Humm all based there. U.S.-based competitors Sezzle and Splitit listed on the Australian Securities Exchange (ASX) in 2019.
Klarna’s valuation rose from $2.5 billion at the start of 2019 to $3.5 billion in April when existing shareholders such as Hennes & Mauritz (H&M), Sequoia Capital and Permira invested more than $100 million in fresh equity.
The Swedish company joins a handful of European fintech startups that are expanding into the U.S. German online bank N26, which was valued at $3.5 billion last month, recently launched its mobile banking app in the U.S., while British app-only bank Monzo started offering its services to U.S. customers in June.