Klarna signs big payout deal with Uber ahead of highly anticipated IPO

The Swedish “buy now, pay later” pioneer said Tuesday that its new design will help users find the items they want using more advanced artificial intelligence recommendation algorithms, while merchants will be able to target customers more effectively.

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Klarna made the announcement on Wednesday Uber Provides payment support for the ride-hailing giant’s Uber and Uber Eats apps.

The partnership will make the Swedish fintech a payment option in the US, Germany and Sweden, Klarna said in a statement.

In the US, Germany and Sweden, Klarna will launch a Pay Now option that allows customers to pay for their orders instantly with one click in the Uber and Uber Eats apps. Users will be able to track all their Uber purchases within the Klarna app.

The company will also offer additional payment options for Uber users in Sweden and Germany, allowing users to bundle purchases into one interest-free payment and have it deducted from their monthly salary.

Interestingly, the company has not introduced the “Buy Now, Pay Later” plan on the Uber platform, which is arguably the most popular service offering on the platform, but only instant and monthly payments.

Klarna CEO and co-founder Sebastian Siemietkowski said in a statement Wednesday that the deal is a “significant milestone” for the company.

“Consumers can now quickly and securely make full payments, which already account for more than a third of Klarna’s global transaction volume, and more easily manage their money in one place,” said Siemiatkowski.

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

The Uber deal marks one of Klarna’s most significant recent business wins and comes amid rumors that the European fintech giant is preparing for a massive initial public offering that could value the company at more than $20 billion.

Klarna has begun detailed discussions with investment banks about an initial public offering, possibly as early as the third quarter, Bloomberg reported in February, citing unnamed people familiar with the matter.

CNBC could not independently verify the accuracy of this report. Klarna said it would not comment on market estimates.

Such a listing would mark something of a turnaround for a company that had a $38.9 billion valuation locked down in 2022, when worsening macroeconomic conditions stemming from Russia’s invasion of Ukraine led to a reevaluation of sky-high tech valuations.

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

The company recently launched a monthly subscription plan locking in ‘premium users’ ahead of the US IPO.

The product, called Klarna Plus, sells for $7.99 per month and allows users to waive service fees, earn double rewards points, and get discounts from partners like Nike and Instacart.

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

The company achieved an operating profit of SEK 130 million in the third quarter of 2023, compared to a profit of SEK 2 billion in the same period last year.

Klarna is one of the “buy now, pay later” services that allows users to pay in monthly installments.

As an alternative to credit cards that charge interest and high fees, this payment method is increasingly popular with consumers for both online and in-person purchases.

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

In the UK, the government has proposed draft legislation to regulate the “buy now, pay later” industry.

The Consumer Financial Protection Bureau has previously said it plans to now regulate purchases, pay subsequent lenders, on the same terms as credit card companies.

At the same time, the European Union passed a revised version of the Consumer Credit Directive last year, bringing “buy now, pay later” services within the scope of the rules.

As part of this, Klarna’s buy now, later payment model offers consumers a cheaper way to get credit than traditional credit cards and consumer loans.

The company also said it welcomes the buy-now, pay-later rule.