Stripe, Klarna attract investment in sign of payment sector's recovery

Stripe and Klarna are attrating attention from investors, suggesting renewed investor confidence in two of the payment fintech industry's most influential companies. 

Sequoia Capital has offered to buy $861 million in Stripe shares; while Klarna is reportedly mulling Goldman Sachs, Morgan Stanley or JPMorgan to lead an IPO in early 2025. The Stripe investment would increase the company's valuation to $70 billion, up from $50 billion and following about two years of declines from a high of $95 billion. Klarna was rumored to be set for an IPO in 2021 before its valuation fell from $46 billion to $7 billion in about a year. Klarna is seeking a valuation of $20 billion in its IPO, according to the Financial Times. Klarna and Stripe would not comment on these reports. 

Stripe and Klarna's valuation dips were part of a broader slump in payments technology that followed a sharp rise during the pandemic. Years of fintech layoffs and changes in strategy across the industry followed, and the news of higher valuations for Stripe and Klarna is sparking optimism about a turnaround.     

"I take these stories as a hopeful sign that fintech is beginning to emerge from the doldrums, as investors devote more capital to the sector," said Aaron McPherson, a principal at AFM Consulting. "Sequoia has been a long-term investor in Stripe, so this can be seen as an expression of confidence in its future growth, as well as providing a liquidity opportunity to other investors. The valuation is still down from the peak, but going in the right direction."

Klarna's recent moves to expand its core products of payment processing and buy now/pay later lending include a new version of its Visa card that enables consumers to pay over time with interest. The card is available to borrowers who previously used Klarna to finance a purchase and paid on time, helping Klarna improve its credit risk profile. Klarna also returned to profitability in the fall of 2023 after a four-year slump.

"Klarna's IPO is also an expression of confidence in its future," McPherson said. "Both firms are unquestionably leaders in their space, and if there is a turnaround in fintech, this is where you would expect to find it: starting with the largest and most commercially successful companies."

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Like Klarna, Stripe also diversified and added products. Stripe this week agreed to acquire Lemon Squeezy, a payments startup that sells mostly to software clients. Lemon Squeezy provides merchant of record services, such as calculating and paying sales taxes and managing legal processing and fees. Terms of the deal were not disclosed. Stripe also offers a revenue and finance automation suite that helps businesses accelerate their revenue growth and run complex business models by handling things like billing, tax, reporting, revenue recovery and other functions.

Enabling international payments is also a large part of Stripe's strategy. As Stripe approaches the Sequoia deal, it recently issued a series of new products in Japan in an effort to gain share in a country where public policy is focusing on catalyzing business startups while established firms build international profiles. 

The payment company reported that its transaction volume in Japan increased 55% in 2023, and it has gained the ability to act as a payment facilitator in the region by adding an application programming interface that enables companies to work with multiple payment processors. Stripe also plans to add an installment option to enable buy now/pay later lending, and has introduced improvised verification through its Stripe Identity security feature. 

"Global expansion is critical to growing a merchant payments business, especially as digital commerce becomes more and more global," said Aaron Press, research director for worldwide payment strategies at IDC. "Merchants are seeking payment partners that can provide them with greater coverage of markets, currencies and methods of payments, as well as helping navigate regulatory nuances in different markets."

Stripe first expanded to Japan in 2016, and its clients include Toyota, Nikkei, ANA Group, Tokyu, Morisawa and companies that are expanding in Japan such as X, Shopify and Uber. By selling a suite of products, Stripe hopes to consolidate its platform to own as much of its clients business as possible as rival banks and payment companies 

"If you're expanding outside of Japan, you can work with Stripe in a number of countries rather than having different providers," said Eileen O'Mara, chief revenue officer at Stripe. 

These payment methods are part of Stripe's Optimized Checkout Suite (OCS), which uses machine learning to surface the most relevant payment methods to buyers. OCS supports more than 100 payment methods and Link, Stripe's one-click checkout. 

"A lot of our user companies like Uber and Spotify are looking to expand their reach across borders and Japan is a big market for that," O'Mara said. 

Japan has struggled with a relatively slow economy for most of the past three decades, and the government and private sector are looking to spur the creation of new companies as a catalyst. Japan's Ministry of Economy, Trade and Industry has expanded its startup development program, setting a goal of reaching 1,000 investors in the U.S. over the next five years to add capital, technology or other services, according to the Center for Strategic and International Studies.

"Japan is a priority market for us," O'Mara said. "The market for technology companies has a lot of room to grow, and a quarter of the companies that we are targeting already do business across borders."