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Klarna enters into a payment agreement with Uber ahead of the expected IPO




Klarna enters into a payment agreement with Uber ahead of the expected IPO

The Swedish “buy now, pay later” pioneer said on Tuesday that the new design would help users find the items they want by using more advanced AI recommendation algorithms, while allowing sellers to target customers more effectively.

Rafael Henrique | SOPA images | LightRocket via Getty Images

Klarna announced on Wednesday a global partnership with Uber to enable payments for the taxi giant’s Uber and Uber Eats apps.

The partnership will see the Swedish financial technology company added as a payment option in the US, Germany and Sweden, Klarna said in a statement.

In those countries, Klarna will roll out the ‘Pay Now’ option in the two apps, which allows customers to pay for an order immediately with one click. Users can track all their Uber purchases in the Klarna app.

The company will also offer an additional payment option for Uber users in Sweden and Germany, allowing users to bundle their purchases into a single, interest-free payment that will be deducted from their monthly salary.

Interestingly, the company is not rolling out installment-based “buy now, pay later” plans, perhaps Uber’s most popular service offering, on its platforms.

Sebastian Siemiatkowski, CEO and co-founder of Klarna, said in a statement on Wednesday that the deal marked an “important milestone” for the company.

Klarna's new credit card is a 'healthier alternative' to others, says CEO Sebastian Siemiatkowski

“Consumers can now quickly and securely pay in full, which already accounts for more than a third of Klarna’s global volumes, and more easily manage their finances in one place,” said Siemiatkowski.

Klarna declined to disclose the financial terms of the deal with Uber. a

Big profit before the IPO

The Uber deal marks one of the most significant commercial wins for Klarna to date and comes at a time when the European fintech giant is reportedly gearing up for a blockbuster IPO that could value the company at just over $20 billion.

Klarna began holding detailed talks with investment banks to work on an initial public offering that could happen as early as the third quarter, Bloomberg News reported in February, citing unnamed sources familiar with the matter.

CNBC could not independently verify the accuracy of the report. Klarna has said it does not comment on market speculation

Such an IPO would mark a turnaround for a company that saw $38.9 billion wiped from its valuation in 2022, as deteriorating macroeconomic conditions fueled by Russia’s invasion of Ukraine caused a reset of sky-high technology valuations.

Klarna raised an eye-watering $45.6 billion in a 2021 funding round led by SoftBank, before seeing its market value fall to $6.7 billion in a so-called “down round” the following year.

The company recently launched a monthly subscription plan in the US to retain ‘power users’ ahead of its expected IPO

The product is called Klarna Plus and costs $7.99 per month. With Klarna Plus, users can get service fees waived, earn double rewards points, and access curated discounts from partners like Nike and Instacart.

Last year, Klarna reported its first quarterly profit in four years after cutting its credit losses by 56%.

The company posted an operating profit of 130 million Swedish krona (approximately US$11.7 million) in the third quarter of 2023, rising to a profit against a loss of 2 billion Swedish kronor (approximately US$183.6 million) in the same period a years earlier.

Buy now, pay later boom

Klarna is one of several ‘buy now, pay later’ services that allow users to pay off their purchases in monthly installments. a

The payment method has become increasingly popular among consumers making online and in-person purchases. It can also be an alternative to credit cards that charge interest and high fees

However, it has also fueled concerns about the affordability of such services, and whether it actually encourages some consumers – especially young people – to spend more than they can afford.

In Britain, the government has proposed bills to regulate the ‘buy now, pay later’ industry

The U.S. Consumer Financial Protection Bureau has previously said it plans to subject “buy now, pay later” lenders to the same scrutiny as credit card companies.

Meanwhile, the European Union last year adopted a revised version of the Consumer Credit Directive, which brings ‘buy now, pay later’ services within the scope of the rules.

Klarna, for its part, has defended the ‘buy now, pay later’ model, arguing that it offers customers a cheaper way to access credit compared to traditional credit cards and consumer loans.

The company also said it welcomes the regulation of ‘buy now, pay later’ products.