Swedish Buy Now Pay Later ( BNPL) payments startup Klarna recently raised a whopping $1 billion in a private fundraising round. This takes the company’s valuation to $31 billion, about three times the initial estimates. This new funding round that makes the BNPL firm the most valued startup in Europe was reportedly oversubscribed four times. The round was attended by several new and existing investors whose names have not been disclosed yet. The Sweden based firm founded by Sebastian Siemiatkowski is now the world’s biggest BNPL platform. Overall, it is the second biggest Fintech startup in the world after Stripe. The valuation also puts Klarna next to some of the most prestigious financial institutions around the world.

It is worth noting that at current valuations, Klarna is now worth more than German banking giant Deutsche Bank. The CEO of the company still believes that this is just a fraction of what the company can achieve and that it could rise up to retail bank valuations. While there have been recent claims that it may look to list in the United States, the deal leading to it is not expected to happen before 2022.

Klarna’s exemplary performance in fundraising rounds is a clear indication of investors’ confidence in Fintech companies. This is made even more significant by the constant scrutiny that the BNPL business model has been put under during the Covid-19 crisis. Many countries including the U.K have been looking to bring in legislation to help protect consumers from spending more than they can afford to. The company has confirmed that a SPAC merger is out of the question as of now and that it is more interested in a direct listing on the New York Stock Exchange. This move could be inspired by Klarna’s rival Affirm Holdings staging a hot IPO at the NYSE in January this year. Affirm’s stock rose as much as 110% within the day during its first session.

Klarna’s customer base and sustainability initiative

 Klarna’s business model makes them immensely popular with millennial and Gen Z consumers. Through their BNPL model, merchants can offer customers the option to make payments in multiple monthly instalments at no extra cost or interest. This is incredibly helpful for consumers who want to purchase goods on credit, but are leery of traditional credit cards. Sebastian Siemiatkowski, co-founder and CEO of Klarna elaborates:

‘Consumers want transparent products to help them bank, shop and pay that reflect the way they live their lives, not just outdated traditional models’

Klarna’s retail clients range from small businesses to industry giants such as Etsy, Macy’s and Urban Outfitters.The company’s mobile app ranks among the 10 most downloaded mobile apps in the United States last year. This helped them increase their loan volume to more than $50 billion. This translated to a 40% increase in revenue figures, bringing them to about $1 billion.

In an interesting turn of events, founder Siemiatkowski also announced that Klarna would pledge 1% of the newly acquired capital towards an initiative that tackles key sustainability problems around the world. This initiative is to be launched on 22nd April (World Earth Day). He said that he hopes this move will inspire other tech companies to create a big and meaningful impact in the area. By doing this, Klarna joins a generation of young, socially responsible corporations that have pledged funds to sustainability initiatives.

Future of the Fintech Industry

The spread of coronavirus has raked in major profits for tech companies around the world. If the general trends were already leaning in their favour, the suspension of numerous physical business activities has only further strengthened their cause. Financial corporations have historically been major money-makers and a cornerstone of numerous economies.

However, Big Tech seems to have taken the baton in the 21st century. Fintech lies in the sweet spot between the two, combining the volume of banking transactions with the convenience of the internet. This unique mix of features is what seems to be driving companies like Klarna towards meteoric highs and promising future prospects.