Klarna has entered into a significant new distribution partnership with fellow fintech unicorn Stripe to broaden its reach and attract more merchants ahead of its upcoming listing in the U.S.
The Swedish company’s buy now, pay later (BNPL) service will now be offered as a payment option for merchants utilizing Stripe’s payment tools in 26 countries, as announced by the two companies to CNBC on Tuesday.
This collaboration is not the first between Klarna and Stripe, which has dual headquarters in San Francisco. In 2021, during the peak of the Covid-19 pandemic-driven fintech boom, Stripe revealed that Klarna would provide its BNPL services to the company’s merchants, albeit on a more limited scale.
The new agreement brings enhanced functionality for Stripe merchants, such as the capability to A/B test Klarna and track real-time conversion rates. This development follows Klarna’s decision last year to sell its online checkout business, Klarna Checkout, to a group of investors.
BNPL services are installment loans that enable consumers to make purchases online or in-store and then repay the debt at a later date or through equal monthly installments. BNPL arrangements have gained popularity as a means for individuals to manage the cost of everyday purchases.
The partnership with Stripe provides Klarna with a significant boost as it prepares for its highly anticipated initial public offering. Klarna confidentially filed for an IPO in the U.S. in November, with reports suggesting a potential valuation of up to $20 billion.
Klarna generates revenue from the fees paid by retailers for each transaction processed through its platform. In exchange for featuring Klarna as a payment option in its checkout tools, Stripe will receive a portion of the revenue generated by Klarna from each transaction.
Klarna did not disclose the financial terms of its agreement with Stripe.
David Sykes, Klarna’s chief commercial officer, described the partnership as a major milestone for Klarna, noting that the company has already doubled the number of new merchants since implementing the integration with Stripe in October.
Analysts recently estimated Klarna’s value to be around $15 billion. During the peak of the pandemic-induced surge in fintech stocks, the company reached a valuation of $46 billion in a funding round led by SoftBank’s Vision Fund 2 in 2021.
In 2022, Klarna experienced an 85% decrease in valuation in a new funding round, valuing the company at $6.7 billion.
The partnership also holds the potential to drive additional revenue growth for Stripe. Advocates of BNPL services highlight them as a way to boost transaction volumes, as customers can make more purchases within a shorter timeframe and spread out payments over a longer period.
A study conducted by Stripe last year revealed that businesses offering BNPL as a payment option saw up to a 14% increase in revenue due to higher conversion rates and average order values.
Jeanne Grosser, chief business officer of Stripe, mentioned that BNPL volume on Stripe surged by 172% last year, outpacing growth in other mainstream payment methods. She emphasized that the collaboration with Klarna would benefit both companies.
While Stripe has been rumored to be a potential IPO candidate in the near future, the company has indicated that it is not in a hurry to go public. Following a decline in fintech valuations, Stripe reduced its valuation from $95 billion in 2021 to $50 billion in 2023. However, reports suggest that the company’s valuation rebounded to $70 billion through a secondary share sale.
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