Klarna's pre-IPO moves: Expand Stripe alliance, dump loans

Chana R. Schoenberger

Swedish payment company Klarna has updated its partnership agreement with Stripe to make it easier for Stripe's merchants to offer Klarna's installment lending, one of several moves ahead of Klarna's public listing in New York.

The fintech collaboration enables more than 1 million businesses that use Stripe to power online storefronts to enable Klarna instantly. Stripe recently launched technology that simplifies how merchants test new payment methods without having to write code, making upgrades easier.

While Klarna is a full-service bank in Sweden, in the U.S. it is more known as a buy now/pay later lender. As the company prepares for an initial public offering in the U.S., Klarna is trying to expand its brand awareness in the crowded American market, where it faces competition from payment fintechs and potentially thousands of financial institutions. Klarna in the past year has focused on building scale to bring its installment lending and other digital payment options to more merchants.

Klarna sold its U.K. loan portfolio to Elliott Advisors in October. Klarna is also in talks to sell its U.S. loans, which would free up capital ahead of its IPO, according to the Financial Times. The company divested its Checkout product in 2024, enabling it to forge partnerships with other payment companies to quickly add merchants. Klarna added or enhanced existing partnerships with Stripe, Worldpay, Adyen and other payment processors.

This strategy has enabled Klarna to add more than 100,000 new retailers in 2024, according to the company, which has about 600,000 total merchants and 85 million consumers in its network. "Merchants are the harvest point," said Richard Crone, a payments consultant. "Investors are going to be evaluating the active consumer accounts and merchants that accept Klarna. The number of merchants they have added is attractive." 

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During the recent fintech slump, Klarna's valuation fell from $46 billion to about $7 billion between 2021 and 2022. The firm downsized and invested in new forms of artificial intelligence to streamline its business, setting a goal to provide all of its staff with generative artificial intelligence.

The firm's use of gen AI has enabled it to manage about 66% of its customer service queries. Klarna also plans to focus its future hiring on engineering roles as gen AI performs more of the firm's manual labor.

Klarna in 2024 introduced a new version of its Visa debit card that enables consumers to pay in installments with interest, replacing a $4.99-per-month debit card that supported Klarna's traditional installment lending.

The upgraded card gives consumers different payment options, including immediate payments, short-term interest-free financing and longer-term financing. About 30% of Klarna's payments are immediate, meaning most Klarna payments involve some form of financing.

"BNPL is no longer just a payment type but a starting point for broader financial ecosystems, positioning Klarna as a fintech bank," Crone said. Klarna's financials have since recovered, returning to profitability in late 2023 after being unprofitable since 2019. Its U.S. IPO could value the company at about $20 billion.

"There's been a dry spell for fintech IPOs over the past few years, and Klarna will be filling that dry spell," Crone said. Klarna's resurgence is not just a matter of financial metrics; it reflects a renewed optimism in the BNPL market, which has faced headwinds from rising interest rates and a slowdown in venture capital funding, according to a note from FinancialAnalyst.net. The updated Klarna Visa card is part of an effort to compete with other BNPL lenders that offer similar cards, such as Affirm and Afterpay.

The nonbank BNPL market is under pressure and is looking to expand revenue streams with more banks entering the market and regulators investigating BNPL fintechs over concerns about the financial health of borrowers.

"The more retailers we add, the more consumers we attract and vice versa," David Sykes, chief commercial officer at Klarna, said in a press release. "The ambition is to make Klarna payments available everywhere, for everything, all the time.

"Stripe is now a top choice for both Fortune 500 companies and the world's most ambitious startups, and we see them as a great distribution partner for us."