Confirming recent reports, financial technology startup Klarna Bank AB today announced that it has raised $639 million from a group of investors led by SoftBank Group Corp.’s Vision Fund 2.

The round boosts the startup’s valuation from $31 billion in March to $45.6 billion. Including the new funding, Klarna has raised more than $2 billion in the past 12 months alone.

Sweden-based Klarna is one of the largest players in the buy-now-pay-later segment of the fintech market. Buy-now-pay-later services enable consumers to pay for online purchases in multiple installments. In the case of Klarna, the startup also offers other features to users such as the ability to defer payment for 30 days.

Klarna has grown into a $45.6 billion company because more than a quarter-million retailers worldwide use its service to offer buy-now-pay-later options to their customers. That installed base continues to expand at a steady pace. Klarna disclosed today on occasion of the funding news that it now counts 24 of the top 100 retailers in the U.S. as clients, while the number of U.S. consumers using its service has grown from 10 million last September to 18 million today.

The increased consumer adoption lifted the combined value of the transactions processed by Klarna in the first quarter to $18.9 billion, a more than 100% increase year-over-year. It’s also well above the first quarter transaction volume of the startup’s top rivals in the buy-now-pay-later segment. Affirm Holdings Inc., which went public in January, processed $2.3 billion worth of transactions in the three months ended March 31 while Afterpay Ltd. reported about $4 billion.

One of Klarna’s main differentiators is that it not only provides payment services to retailers, but also operates a popular mobile shopping app. The app has over 18 million monthly active users. It helps make Klarna’s value proposition to retailers more compelling because companies that sign up to its payment service gain the ability to display their products to its 18 million active monthly users. 

“Consumers continue to reject interest- and fee-laden revolving credit and are moving toward debit,” stated Klarna founder and Chief Executive Officer Sebastian Siemiatkowski (pictured). “Klarna’s more transparent and convenient alternatives align with evolving global consumer preferences and drive worldwide growth.”

That growth translated into revenues of more than $1 billion for the startup last year. Klarna generates revenue by taking a commission from every purchase. The startup was reportedly profitable for all but the last two of its 16 years in business, with the recent change being the result of expanded investments in driving sales growth. Siemiatkowski told TechCrunch today that Klarna plans to return to profitability soon.

A key reason Klarna and rival buy-now-pay-later services such as Affirm have proven so popular is that they promise to help retailers generate more revenue. In its IPO filing, Affirm cited internal studies from 2018 and 2019 that found merchants using its service reported more than 85% higher average order values compared with other payment methods.

The buy-now-pay-later segment has also benefited from the continued growth of e-commerce and subsequent increase in demand for products that make it easier to make purchases online.

There are yet more growth opportunities ahead. Klarna’s large existing user base of retailers and consumers represent a large market that the company could target in the future with new products. Additional products, in turn, mean additional revenue sources. Rival Affirm specifically highlighted this dynamic in its IPO filing, telling investors that it sees “significant opportunity to develop new products” and that its large user base “lends itself to a natural expansion strategy.”

The buy-now-pay-later business model also makes it possible to boost profits over time through economies of scale by increasing the number of repeat purchases made by each consumer. The opportunity for improved profitability in the future may be one of the reasons investors have valued Klarna at a steep $45.6 billion. With repeat purchases, “the contribution profit on repeat consumers is improved due to the lower cost of underwriting, servicing, and increased likelihood of repayment,” Affirm explained in its filing. 

Klarna has raised over $3.6. billion in funding to date including the latest round announced today. The startup used the capital to make more than a half-dozen acquisitions along the way, a number that could increase further now that it has an additional $639 million to invest in growth.

Photo: Klarna