Founded in 2005, Klarna provides consumer financing for purchases at third-party merchants. Rather than requiring consumers to pay in full via credit card at the time of sale, Klarna acts as a middleman to front the payment for a purchase, with merchants receiving the full amount upfront while the consumer repays Klarna over time.
The Swedish company is perhaps most recognizable for its partnership and investment relationship with Calvin Broadus, better known as Snoop Dogg. Broadus is front-and-center in Klarna's recent marketing campaign, known as "Smoooth Dogg." Such marketing efforts could prove beneficial as Klarna plans to use its new windfall to significantly expand in the US, Broadus' home country and where his career grew rapidly in the 1990s.
Among the most valuable fintech startups in North America and Europe, two themes seem to emerge. These are the elimination of traditional banking fees, such as Credit Karma's free credit report offerings and Robinhood's fee-free stock trading, as well as the elimination of geographical limitations and cumbersome processes found in traditional credit and money services, as seen in Opendoor's instant home buying service and the global portability of cryptocurrency.
Here's the list of the most valuable VC-backed fintech companies across North America and Europe, per PitchBook data:
Klarna would fall into the latter theme as it seeks to eliminate traditional limitations on a consumer's purchasing power, such as a lack of available cash in the bank—a legitimate barrier for consumers in cash-heavy Europe, Klarna's primary market. However, it is not the only contender in offering easy, on-the-fly loans for purchases. Its competitors include PayPal Credit and Affirm, which recently scored a $300 million Series F with a $2.9 billion valuation led by Thrive Capital in April.
However, unlike Klarna, Affirm charges interest on most of its loans with no universally interest-free option. Klarna only charges interest for longer-term repayment plans. Both services charge merchants a processing fee.
Still, enabling consumer spending and reducing the effort needed to secure credit may be appealing enough to consumers despite any interest charges. Likewise, relief from chargebacks and credit flight risks are a boon for small and large businesses alike.
Featured image courtesy of Klarna