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Klarna: The payments and ecommerce platform with BNPL functionality

Buy Now, Pay Later

<div>
 
 A deep dive into Klarna's financials, product, business model, competitive environment and market opportunities...
 
</div>

<div>
 <ul>
 <li>
 
 Sacra estimated that Klarna generated USD 2.1 billion in revenue in 2023, a 22% increase from 2022, and processed USD 92 billion in gross merchandise volume (GMV), reflecting a 17% YoY growth.
 
 </li>
 <li>
 
 As of March 2024, Klarna's valuation stood at ~USD 7.85 billion, based on its latest funding round.
 
 </li>
 <li>
 
 Klarna offers &quot;Pay Now,&quot; &quot;Pay in 30 Days,&quot; and installment plans, boosting merchant conversion rates by 20%&ndash;30%. It earns mainly from merchant fees on BNPL transactions, with a net margin of USD 1.55 per USD 100 GMV, covering processing fees and credit risks.
 
 </li>
 <li>
 
 Klarna faces competition from other BNPL providers like Afterpay and Affirm as well as traditional payment processors like PayPal. It differentiates itself through its larger merchant network (250,000+ partners) and its pivot toward becoming a comprehensive shopping app.
 
 </li>
 <li>
 
 Klarna aims to evolve into a direct-to-consumer shopping app that integrates merchant marketing and consumer financing, enhancing user engagement and driving traffic to retailers.
 
 </li>
 </ul>
 
 
</div>

<div>
 <ul>
 <li>
 
 Overall funding volumes declined despite Coinbase's massive USD 1.1 billion debt finance
 
 </li>
 <li>
 
 Continued adoption of AI-powered products and expansion into new business lines witnessed across multiple industries
 
 </li>
 <li>
 
 Diversification and acquisition of licenses drove M&amp;A activity
 
 </li>
 </ul>
 
 
</div>

<div>
 
 This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech vertical from January 2024 to March 2024 (Q1 2024): FinTech: Banking &amp; Infrastructure, FinTech: Blockchain, FinTech: Payments, Wealth Tech &amp; Sustainable Finance, and InsurTech.
 
 <hr/>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 <h3>
 Regulations
 </h3>
 <ul>
 <li>
 
 SPAA Scheme gained traction; cryptocurrencies subject to sanction violations in the EU: 
 The SEPA Payment Account Access Scheme (SPAA) saw notable progress in Europe, with numerous
 FinTech Infrastructure startups
 , such as TrueLayer and Token, aligning with it. The scheme aims to foster an open and competitive European payment system. Moreover, the EU introduced new regulations targeting 
 <a href="https://www.europarl.europa.eu/news/en/press-room/20240308IPR19002/eu-sanctions-new-rules-to-crack-down-on-violations">
 sanction violations
 </a>
 , particularly concerning 
 cryptocurrencies
 , with potential 
 asset freezing
 for non-compliance.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Funding
 </h3>
 <ul>
 <li>
 
 Coinbase&rsquo;s debt financing round stood out, but overall funding fell again: 
 The FinTech sector saw total funding decline 
 59% YoY
 to 
 USD 4.3 billion
 in Q1 2024 (vs. USD 10.5 billion in Q1 2023). The sector witnessed 
 10 mega deals
 (USD 100 million+) similar to Q1 2023, collectively raising more than USD 2.9 billion (~67% of total) with the Neobanks, BNPL, and the Financial Wellness Tools industries accounting for two deals each. The 
 Cryptocurrency
 industry emerged as the highest-funded industry, primarily due to 
 <a href="https://sp-edge.com/companies/95666">
 Coinbase&rsquo;s
 </a>
 massive debt financing round of USD 1.1 billion, with the funds earmarked for paying off its existing debt and cost of capped call transactions as well as for general corporate purposes.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Product updates
 </h3>
 <ul>
 <li>
 
 Continued adoption of AI-powered products and expansion into new business lines witnessed across multiple industries: 
 During Q1 2024, we counted 10 product launches (nine in Q4 2023) related to AI. These AI launches were particularly notable within the 
 Business Expense Management 
 and
 Insurance industries
 , as companies look to incorporate these technologies to automate processes and enhance their offerings. Moreover, other product launches by startups were mainly geared toward 
 complementing
 
 existing offerings
 and 
 expanding into new territories
 .&nbsp;
 
 Another prominent trend observed throughout the quarter across several industries was startups announcing a 
 significant shift
 in their strategy and operations, 
 exiting legacy businesses
 to focus on other
 business lines
 . For example, 
 <a href="https://sp-edge.com/companies/583046">
 Oxygen
 </a>
 terminated its banking activities to focus on health insurance and 
 <a href="https://sp-edge.com/companies/119402">
 Zwipe
 </a>
 exited the biometric payment industry to focus on biometric access control.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Partnerships
 </h3>
 <ul>
 <li>
 
 Activities centered around enhancing existing product portfolio and value additions: 
 Most partnership activities within FinTech during the quarter were aimed at forging alliances to develop and/or add new features to 
 complement existing offerings
 as well as 
 expand market reach
 . In addition, there was a rising number of partnerships in the 
 InsurTech sector 
 between insurers and infrastructure providers targeted at developing and
 enhancing underwriting
 and 
 claims processing capabilities
 .
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 M&amp;A
 </h3>
 <ul>
 <li>
 
 Diversification and acquisition of licenses drove M&amp;A activity: 
 We counted 
 16 M&amp;A transactions
 within the FinTech sector in Q1 2024. Most centered around 
 diversifying businesses
 and 
 enhancing existing product offerings
 . In addition, within the 
 FinTech: Blockchain sector
 , companies resorted to M&amp;As as an 
 alternative strategy
 to quickly 
 obtain licenses
 to expand offerings and market presence. A promising development this quarter was 
 <a href="https://sp-edge.com/companies/301319">
 Virgin Money
 </a>
 receiving an all-cash takeover
 offer worth USD 3.7 billion from Nationwide Building Society. The transaction is pending approval from shareholders.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Outlook
 </h3>
 <ul>
 <li>
 
 Adoption of AI and GenAI technologies is imperative for organizations to gain a competitive advantage: 
 As 
 <a href="https://sp-edge.com/industry/163">
 GenAI applications
 </a>
 continue to disrupt the market, the FinTech sector is poised for significant integration of this technology, including AI. Companies are strategically incorporating these technologies to gain insights from data and to automate and enhance processes to gain a competitive advantage. The first quarter saw a prominent increase in the adoption of AI within InsurTech, as insurers aimed to improve their underwriting and pricing capabilities. We expect the integration of GenAI technologies (such as chatbots) to increase within the FinTech sector for customer service support as well as to assist employees with internal workflows.
 
 </li>
 <li>
 
 Funding volumes to gradually recover in 2024: 
 The US inflation rate was recorded at 3.2% for the 12 months ending February 2024 according to the Consumer Price Index, compared with an annualized target of 2%. Analysts are expecting rate cuts of around 70 basis points this year beginning from mid-year. The potential easing of monetary policy is expected to act as a catalyst for funding across FinTech industries, with VC funding likely to favor companies that demonstrate greater efficiency and profitability. Moreover, the tight funding environment over the past year is also expected to lead to startups raising cash later this year, as their cash runways begin to diminish after their efforts to conserve cash.&nbsp;
 
 </li>
 <li>
 
 IPOs to make a return, as investors seek exit strategy: 
 After a subdued 2023 market for FinTech IPOs, marked by valuation markdowns, many startups and investors are now looking forward to going public, as market conditions turn favorable. Several startups, including 
 <a href="https://sp-edge.com/updates/27565">
 eToro
 </a>
 , 
 <a href="https://sp-edge.com/updates/27044">
 Klarna
 </a>
 , 
 <a href="https://sp-edge.com/updates/27295">
 Monzo
 </a>
 , 
 <a href="https://sp-edge.com/updates/27220">
 WeBull
 </a>
 , and 
 <a href="https://sp-edge.com/updates/27702">
 Zilch
 </a>
 , have announced plans to list in the next 12&ndash;24 months.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 
 
</div>

FinTech (Q1 2024): Funding dip continues despite Coinbase’s large debt round; InsurTech adopting AI rapidly

<div>
 <ul>
 <li>
 
 Overall funding volumes declined despite BNPL startups attracting mega deals
 
 </li>
 <li>
 
 GenAI-related product launches gained momentum particularly within the Neobanks, Business Expense Management, and Wealth Tech &amp; Sustainable Finance industries
 
 </li>
 <li>
 
 Partnership activities centered around expanding market reach and developing new AI-powered products
 
 </li>
 </ul>
 
 
</div>

<div>
 
 This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech vertical from October 2023 to December 2023 (Q4 2023): FinTech: Banking &amp; Infrastructure, Wealth Tech &amp; Sustainable Finance, InsurTech, FinTech: Blockchains, and FinTech: Payments.
 
 <hr/>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 <h3>
 Regulations
 </h3>
 <ul>
 <li>
 
 The UK joins global efforts to regulate the cryptocurrency industry: 
 Following several cryptocurrency regulatory developments in the US as well as the EU's finalization of the Markets in Crypto Assets (MiCA) regulation earlier in 2023, the UK announced a set of recommendations in October 2023 to regulate the cryptocurrency industry by 2024. It intends to subject cryptocurrency companies to restrictions similar to those of banks and other financial institutions. 
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Funding
 </h3>
 <ul>
 <li>
 
 Overall funding volumes declined despite BNPL startups attracting mega deals: 
 The FinTech sector saw total funding decline 40% YoY to USD 4.3 billion in Q4 2023 (compared with USD 7.2 billion during Q4 2022). The sector witnessed 11 mega deals (USD 100 million+) compared with 21 in Q4 2022, collectively raising more than USD 2.8 billion (~66% of total). During the quarter, the Buy Now, Pay Later (BNPL) industry, accounting for four mega deals, emerged as the highest-funded industry, comprising 37% of total funding. 
 <a href="https://sp-edge.com/companies/821874">
 Tabby
 </a>
 , a leading BNPL provider, notably secured the most funding, leading up to its planned IPO in Saudi Arabia. The company successfully obtained a 
 <a href="https://sp-edge.com/updates/25103">
 USD 700 million credit line
 </a>
 from JP Morgan and further raised 
 <a href="https://sp-edge.com/updates/23310">
 USD 250 million in Series D
 </a>
 funding, reaching a post-money valuation of USD 1.5 billion. These funds were earmarked to strengthen its balance sheet in order to meet growing demand for its BNPL offering.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Product updates
 </h3>
 <ul>
 <li>
 
 Increased adoption of AI-powered products across multiple industries: 
 During Q4 2023, we counted ~
 60 product launches
 , with the rising adoption of AI-powered products, particularly GenAI. This trend was observed across industries such as 
 Neobanks, Business Expense Management
 ,
 
 and
 Wealth Tech &amp; Sustainable Finance,
 as companies look to incorporate GenAI assistants to complement their core offerings. For example, 
 <a href="https://sp-edge.com/companies/438759">
 Bunq
 </a>
 , a Dutch neobank, launched 
 <a href="https://sp-edge.com/updates/25000">
 Finn
 </a>
 , a GenAI chatbot to replace the search function within its app, enabling users to enquire about their finances in natural language, covering aspects from spending habits to account details. Furthermore, other new product launches by startups were mainly geared toward 
 complementing
 and 
 diversifying
 existing offerings. 
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Partnerships
 </h3>
 <ul>
 <li>
 
 Activities centered around expanding market reach and developing new AI-powered products: 
 Most partnership activities within FinTech during the quarter were related to 
 growing business and market reach 
 by leveraging counterparties&rsquo; expertise and market presence in new geographies. Similar to product updates, partnerships were focused on developing 
 new
 
 AI-powered products
 , particularly within the 
 Business Expense Management
 and 
 Neo Insurance
 industries, with disruptors such as 
 <a href="https://sp-edge.com/companies/37710">
 Basware
 </a>
 and 
 <a href="https://sp-edge.com/companies/780841">
 Ramp
 </a>
 partnering with 
 <a href="https://sp-edge.com/companies/201465">
 Microsoft
 </a>
 to develop GenAI products and services.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 M&amp;A
 </h3>
 <ul>
 <li>
 
 We counted 
 14 M&amp;A transactions
 within the FinTech sector in Q4 2023. Most were centered around 
 enhancing existing product offerings
 by acquiring companies that provide complementary services. The most valuable deal was 
 <a href="https://sp-edge.com/companies/347285">
 JAB Holding&rsquo;s
 </a>
 acquisition of 
 <a href="https://sp-edge.com/updates/24519">
 Embrace Pet Insurance
 </a>
 for USD 1.5 billion, as the company sought to strengthen its presence in the global pet insurance industry. In addition, companies were using M&amp;As as a strategic approach to 
 swiftly penetrate new markets
 and 
 diversify their geographical presence
 .
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 <ul>
 <li>
 <h3>
 Outlook
 </h3>
 <ul>
 <li>
 
 Adoption and integration of GenAI technologies to intensify: 
 As 
 <a href="https://sp-edge.com/industry/163">
 GenAI applications
 </a>
 continue to disrupt the market, the FinTech sector is poised for significant integration of this technology. Companies are strategically incorporating GenAI assistants to offer customer support, along with enhanced insights and analytical capabilities. Moreover, this disruption is expected to yield substantial improvements in internal workflows, with companies leveraging tools like 
 <a href="https://sp-edge.com/companies/201465">
 Microsoft
 </a>
 Copilot to boost employee productivity as well as ensure regulatory compliance and enhance fraud detection and prevention within the FinTech landscape.
 
 </li>
 <li>
 
 Funding volumes expected to recover
 
 in 2024, as inflationary and regulatory headwinds ease:
 In November 2023, the US inflation rate hit its lowest point in five months, registering at 3.1%, according to the Consumer Price Index, compared with an annualized target of 2%. Analysts now project possible rate cuts as early as March 2024. The potential easing of monetary policy is anticipated to serve as a catalyst for funding across FinTech industries, after a 23% YoY decline to USD 28.5 billion in 2023. Furthermore, VC appetite is likely to favor early-stage startups due to the potential for higher future returns as well as those that demonstrate strong profitability.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
 
 
</div>

FinTech (Q4 2023): GenAI gains momentum; BNPL booms despite overall funding dip

<div>
 <ul>
 <li>
 
 Regulators propose laws to improve crypto-related tax compliance and safeguard investors
 
 </li>
 <li>
 
 Funding recovers on the back of mega deals, which accounted for 86% of total funds raised
 
 </li>
 <li>
 
 Notable product updates from incumbents across FinTech verticals
 
 </li>
 </ul>
 
 
</div>

<div>
 
 This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech Services vertical from January 2023 to June 2023 (1H 2023): FinTech: Banking and Infrastructure, Wealth Tech and Sustainable Finance, InsurTech, FinTech: Blockchains, and FinTech: Payments.
 
 <hr/>
 <h1>
 Key takeaways
 </h1>
 <ul>
 <li>
 <h3>
 Funding:
 </h3>
 <ul>
 <li>
 
 Significant slowing in funding volumes; mega deals accounted for three-fourths of all funding: 
 FinTech Services saw total funding declining 43% YoY to USD 13.5 billion. However, the sector witnessed 20 mega deals (USD 100 million+), which collectively raised more than USD 10.0 billion (~75% of total). Leading payment services startup 
 <a href="https://sp-edge.com/companies/57000">
 Stripe
 </a>
 secured the largest amount of funding by raising USD 6.5 billion in 
 <a href="https://sp-edge.com/updates/17162">
 Series I
 </a>
 financing, achieving a valuation of USD 50 billion.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Regulations: 
 </h3>
 <ul>
 <li>
 
 Stricter laws being finalized for cryptocurrency exchanges and digital tokens issuers: 
 The 
 <a href="https://www.reuters.com/technology/eu-states-approve-worlds-first-comprehensive-crypto-rules-2023-05-16/">
 Markets in Crypto Assets
 </a>
 regulation finalized in May 2023 (to take effect from 2024) was the first set of laws aimed at regulating crypto exchanges and digital token issuers. This regulation offers clear definitions for crypto assets and enforces laws pertaining to governance, reporting, and capital requirements of such exchangers and issuers. In the same month, the International Organization of Securities Commissions (IOSCO) also published a 
 <a href="https://www.reuters.com/business/watchdog-proposes-first-set-global-rules-crypto-sector-2023-05-23/">
 set of standards and policy recommendations
 </a>
 proposing a global approach to regulating the crypto industry.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Product updates:
 &nbsp;
 </h3>
 <ul>
 <li>
 
 Complementary offerings abundant amid some notable launches from incumbents: 
 During 1H 2023, we counted 
 70+
 product launches, which focused on complementing existing offerings, diversifying business models, and creating additional revenue streams in response to challenging market conditions. For instance, certain neobanks launched investing platforms and premium subscription services, such as 
 <a href="https://sp-edge.com/companies/220119">
 Revolut
 </a>
 , which launched a new subscription plan called 
 <a href="https://sp-edge.com/updates/15855">
 Ultra
 </a>
 and a 
 <a href="https://sp-edge.com/updates/19814">
 robo-advisory
 </a>
 platform, while neo-insurers pivoted toward distribution services (Wefox&rsquo;s 
 <a href="https://sp-edge.com/updates/18304">
 Global Affinity Business
 </a>
 ). Moreover, the period saw incumbents such as 
 <a href="https://sp-edge.com/companies/1658">
 Apple
 </a>
 foraying into the 
 <a href="https://sp-edge.com/updates/17372">
 Buy Now, Pay Later
 </a>
 industry and 
 <a href="https://sp-edge.com/companies/46376">
 JP Morgan
 </a>
 piloting a 
 <a href="https://sp-edge.com/updates/17299">
 biometrics payment
 </a>
 solution with plans for a larger roll-out in 2024.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Partnerships: 
 </h3>
 <ul>
 <li>
 
 Enhancing existing product portfolio and value additions driving partnership activity: 
 Similar to product updates, partnership activity focused on launching new products or features that enhance the existing product portfolio of customers. In addition, incumbent activity remained strong, with notable partnerships between Microsoft, Goldman Sachs, Deloitte, and Cboe Global Markets to 
 <a href="https://finance.yahoo.com/news/goldman-microsoft-cboe-others-collaborate-152808338.html">
 develop a new blockchain network
 </a>
 for financial product smart contracts, and Wells Fargo, JP Morgan, and Bank of America developing a 
 <a href="https://www.cnbc.com/2023/01/23/bank-of-america-jpmorgan-and-other-banks-reportedly-team-up-on-digital-wallet-to-rival-apple-pay.html">
 new digital wallet
 </a>
 to rival Apple Pay.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 M&amp;A:
 </h3>
 <ul>
 <li>
 
 FinTech players actively seeking entry into youth money app market: 
 We counted 
 49 M&amp;A transactions
 within the FinTech Services vertical in 1H 2023. Most of these were primarily aimed at adding new products and services to complement their existing product portfolios. Furthermore, a notable trend emerged, with FinTech companies entering the youth money app and card market to capitalize on its significant growth potential.
 
 </li>
 </ul>
 </li>
 </ul>
 <hr/>
 <ul>
 <li>
 <h3>
 Outlook:
 </h3>
 <ul>
 <li>
 
 More consolidation expected as funding environment remains challenging: 
 As interest rates are expected to continue rising, access to funding may become more exclusive, favoring well-established and promising companies. Consequently, smaller, unprofitable companies may encounter challenges in raising funds, leading them to explore M&amp;A opportunities to survive.
 
 </li>
 <li>
 
 Crypto regulations to drive more adoption amongst retailers: 
 The implementation of more stringent regulations on the cryptocurrency industry will instill confidence among the public, encouraging greater adoption. Furthermore, the anticipation of additional regulations aimed at combating money laundering is likely to act as a deterrent against rug pulls and scams.
 
 </li>
 </ul>
 </li>
 </ul>
 
 
</div>

Financial Services (Q3 2023): Funding recovers on the heels of Finastra’s record-breaking private credit deal

<div>
 <ul>
 <li>
 
 Mega investment deals constitute 75% of all funding amidst a decline in funding volumes
 
 </li>
 <li>
 
 Regulators enforce stricter laws on crypto exchanges and issuers to improve consumer protection and adoption
 
 </li>
 <li>
 
 Product launches centered around complementary services and diversifying business models
 
 </li>
 </ul>
 
 
</div>

In 1H 2023, the FinTech Services sector saw a significant decline in funding volumes, but there were 20 mega deals that raised over USD 10 billion. Stripe secured the largest amount of funding at USD 6.5 billion. Regulations for cryptocurrency exchanges and digital token issuers were being finalized, with new laws aimed at regulating the industry. There were numerous product launches focused on complementing existing offerings and creating additional revenue streams. Partnerships were formed to enhance product portfolios, and there were several M&A transactions, with a trend of FinTech companies entering the youth money app and card market. The funding environment is expected to remain challenging, leading to more consolidation, and stricter regulations may drive adoption among retailers.

Financial Services (1H 2023): Complementary services and diversification a common trend across the sector

<div>
 <ul>
 <li>
 
 Financial Services companies comprise a small but mighty chunk of SoftBank Vision Fund's portfolio.
 
 </li>
 <li>
 
 SBVF is focused on capital as-a-service, financial super-apps, and insurance tech.
 
 </li>
 <li>
 
 SBVF is now a major part of SoftBank's financial strategy.
 
 </li>
 </ul>
 
 
</div>

EDGE Insights