Klarna, the Swedish buy-now-pay-later (BNPL) pioneer, has taken its first step towards going public, marking a major development in the fintech world.
Klarna files for IPO
Klarna disclosed on Wednesday that it has confidentially filed initial public offering (IPO) documents with the US Securities and Exchange Commission (SEC), aiming to list on the US stock exchange.
The company has yet to determine the exact timing of the IPO, which will depend on market conditions and SEC review processes.
This IPO is expected to value Klarna between $15 billion and $20 billion, a striking contrast to its valuation in recent years.
IPO Valuation
Founded in 2005, Klarna soared in valuation to $46 billion in 2021, making it Europe’s highest-valued start up.
However, with rising interest rates and a re-evaluation of fintech valuations, Klarna saw its worth dip sharply to $6.7 billion in 2022.
Now, as it approaches public listing, Klarna appears to be regaining stability.
CEO Sebastian Siemiatkowski has expressed that the company is ready for an IPO when market conditions permit, positioning this move as a response to favourable conditions in the US financial market.
Klarna’s decision to list in the US, as opposed to its home continent, is significant.
The US market offers Klarna a robust environment for growth, particularly as the company has heavily invested in American expansion.
Klarna’s intensified efforts to increase partnerships with US merchants place it in direct competition with Affirm, a leading US-based BNPL provider.
It has also bolstered its capital by divesting £30 billion worth of UK loans to Elliott, a hedge fund.
One of Klarna’s key competitive edges is its commitment to artificial intelligence, which Siemiatkowski says will streamline operations and significantly cut costs.
Klarna has already initiated a hiring freeze for roles outside of engineering and is increasingly automating customer service and marketing functions, signalling a strategic shift towards efficiency and profitability.
Regulatory Scrutiny
Yet, Klarna’s IPO also comes at a time when BNPL’s business model is facing global regulatory scrutiny.
While the company claims that its fees are considerably lower than those of traditional credit cards, BNPL services have been criticised for pushing consumers into debt.
The UK Labour government has moved to regulate BNPL as consumer credit, while the US Consumer Financial Protection Bureau has proposed similar regulations to align BNPL with credit card standards.
Klarna’s IPO will likely fuel debate over the BNPL sector’s impact on consumer debt and prompt further discussions on regulatory measures.
As Klarna makes strides in the US market and prepares to go public, its evolution will serve as a critical gauge of both the sustainability of BNPL and its role in the broader financial landscape.
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