Klarna gets a full banking license, gears up to go beyond financing payments

After Anders Holch Povlsen and his firm Brightfolk bought up a stake of at least $225 million in Klarna earlier this month, today the profitable Swedish payments startup, now valued at over $2.25 billion, is stepping up its game. Klarna has announced that it has picked up a full banking license from Finansinspektionen, the Swedish Financial Supervisory Authority.

The license will give Klarna — which up to now has powered payments for 60 million customers and works with 70,000 merchants — the ability to turn on a range of new banking products and services for its customers across Europe. These could include issuing payment cards; and moving into products to become an all-in-one digital wallet.

Currently, Klarna’s business is focused on providing payments on e-commerce sites, and offering users different financing options to complete purchases on online stores, so it’s logical for it to consider ways of extending those one-off relationships.

As part of the deal, we have confirmed that — as expected — Klarna is legally changing its name to Klarna Bank, although it will continue to operate in the market simply as “Klarna.”

A spokesperson for the company declined to say which services Klarna might be adding first, or when. One option, for example, could be to add on more financial services building on its current business model: for example working with retailers to launch own-brand credit cards to use both in-store as well as online. Remember that the company’s newest investor, Povlsen, also owns several fashion retail brands.

The move is another part of a bigger shift that we are seeing in financial services. Traditionally, there were run by large banks, and while they may still dominate by owning the majority of transactions and financial products, there has been a gradual emergence of startups — built with new technology and smaller and more focused remits — that are muscling in and offering better rates and more flexible options to consumers and businesses.

“As the entire banking value chain is being challenged, the payments sector has seen the most profound transformation,” noted Sebastian Siemiatkowski, Klarna’s co-founder and CEO, in a statement.

Klarna has played a role in disrupting payments services for the better and now as a consumer-oriented, product driven and technology intensive bank, we have the tools to drive change in retail banking. We will do this by providing solutions that ensure a smooth customer experience, help people streamline their financial lives and continue to support businesses by solving the complexity in handling payments. The opportunities are tremendous, it is a thrilling prospect.”

Others that have also emerged as leaders in this area of banking disruption include the likes of TransferWise for money transfers; WorldRemit and others like Remitly for remittances particularly from developed to emerging markets; CurrencyCloud to provide APIs to build money moving services; banks like Atom and N26; and more.

From what we understand, aside from the massive secondary stake taken by Brightfolk this month. Klarna is not actively looking to raise a new equity round at the moment: the company has had “consistently solid profitability” for years now, and appears to be expanding off its balance sheet.

According to an investor deck from 2016 that TechCrunch was passed by a source last month — which incidentally confirms the company’s $2.25 billion valuation and $80 million fundraise — Klarna had at that point processed transactions from 45 million users from 65,000 merchants in 18 countries, equivalent to 400,000 transactions per day.

That worked out to 2,776 million Swedish kronor in revenues ($318 million) in 2015 and SEK170 million ($19 million) in EBT margin (6.1 percent).

As of today, those numbers have grown. In February it acquired from Wonga a PayPal competitor in Germany called BillPay for $75 million. Klarna said it also has seen transactions grow 50 percent year-on-year in 2016, with 37 percent growth in Q1 of 2017. Volume growth was up 44 percent in 2016, with 39 percent growth in Q1 of 2017. In the last quarter it also added 17,000 new merchants.

Alongside the large secondary round from Povlsen, the has been focused on a stream of extra financing at smaller sums and secondary investments. These include a $5.2 million investment from Creandum at its previous valuation in March; and reportedly an additional $57 million, partly to finance the acquisition it made of BillPay earlier this year.

To date, Klarna has raised just under $377 million, according to CrunchBase. Other investors include Sequoia, DST, Atomico, IVP and more.