(Bloomberg) — Even by Sebastian Siemiatkowski’s standards, it’s been a wild month.
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The chief executive officer of buy now, pay later giant Klarna Group Plc started March on a high when he formally filed to list his 20-year-old company.
Days later, he edged out longtime rival Affirm Holdings Inc. when he landed a deal with a fintech backed by the biggest retailer on the planet, Walmart Inc. What should have been good news, though, soon turned to bad: The announcement put pressure on Affirm’s shares, which are considered a key benchmark for Klarna’s own offering. Within a week, Klarna was also the subject of widespread scorn online after touting a new tie-up with food-delivery service DoorDash Inc.
Siemiatkowski will have to shrug that off as he hits the road in the coming days to court legions of new investors to buy up shares in the company’s listing, which is due in April and is expected to be one of the year’s biggest IPOs. He’ll be going up against a precarious dealmaking environment: already this week the cloud-computing provider CoreWeave Inc. was forced to downsize its own offering as stock market volatility hurt demand for the highly-anticipated listing.
“What we’re seeing with Klarna is, this is the talisman,” said Nigel Morris, a Capital One Financial Corp. co-founder-turned-fintech investor. His firm, QED Investors, was an early backer of the Swedish buy now, pay later app. “This is going to be the reference point for this next cohort of fintechs going public.”
Walmart Deal
For Siemiatkowski, clinching the Walmart deal was his latest chance to put his brand in front of more US consumers.
When the 43-year-old founder first flung open Klarna’s US doors in 2015, he’d filled his calendar with sales meetings with potential merchants his firm was wooing to overtake competitors Afterpay and Affirm. Siemiatkowski would personally fly to meetings with retailers and did whatever it would take to get their business. His firm brought on Snoop Dogg and Lady Gaga as brand ambassadors, and crucially, had the backing of Silicon Valley king-maker and Sequoia juggernaut Michael Moritz.
Klarna’s main sell to retailers was that using buy now, pay later would increase basket sizes because customers would be more inclined to buy more items when they spread out the cost as well as boost repeat purchases. The upstart would also offer joint marketing campaigns, or provide a discount to retailers to allow clients to access the interest-free loans.
In Europe, whenever Klarna was pitching for the most prized retail opportunities, the firm would offer the crown jewel of options: shares in the privately-held company. When it was pursuing Hennes & Mauritz AB, for instance, it gave the Swedish fast-fashion giant a stake in exchange for making Klarna an option at checkout.
“Sebastian was smart in coming up with deals and so all parties felt they were winning,” said former Klarna UK CEO Alex Marsh, who had spent time criss-crossing the UK with Siemiatkowski to pitch the largest British companies.
He used that similar playbook with Walmart. As part of the deal announced this month, Klarna entered into an arrangement that would allow OnePay, which is backed by the retailer, to buy 15.3 million shares in the Swedish company. In exchange, Klarna will be the exclusive fast credit provider on the OnePay app.
That’s a big deal for Klarna. Currently, Walmart customers still can’t check-out with Apple Inc.’s popular Apple Pay service in their stores — they can, however, check-out with the OnePay wallet. Walmart also plans to abandon its partnership with Affirm entirely in favor of OnePay’s Klarna-powered offering, according to people familiar with the matter. It’s a “credibility stamp” from the retailer, just before Klarna’s long-awaited IPO, said Georgetown University finance professor Reena Aggarwal.
Industry Rivalry
The deal put the long-simmering tensions between Siemiatkowski and Max Levchin, the founder and CEO of Affirm, on public display. The two were first introduced in Klarna’s earlier days. Levchin, one of the founders of PayPal Holdings Inc., had spun out a few companies since leaving the payments firm, including social network Slide and data analytics startup Hard, Valuable, Fun, but nothing that had quite taken off. Siemiatkowski was excited to meet the payments veteran. He laid out his business model and tried to recruit Levchin to the board, he claimed in a 2022 Bloomberg Television interview. Affirm later said that wasn’t true.
Levchin founded Affirm in San Francisco in 2012, which would go on to offer US customers a similar proposition to Klarna’s payment plans across installments — but without the fees, a premise the company proudly advertises.
Siemiatkowski’s competition with Levchin bubbled and was brought up in board meetings. The Klarna founder pored over charts that benchmarked his firm’s performance against its rival, according to people familiar with the matter, who didn’t want to be named discussing private company affairs.
While Klarna continued gaining market share in Europe, Affirm carved out its niche in the US of partnering with merchants rather than going direct to consumers, scooping up deals with Shopify Inc., Amazon.com Inc. and Target Corp. Affirm’s revenue exploded during the pandemic-era e-commerce boom, and the company listed in 2021 with a $12 billion valuation. Meanwhile, Jack Dorsey’s Block Inc. acquired Afterpay Ltd., an Australian BNPL provider prevalent in America, for $29 billion.
In those earlier years, Siemiatkowski privately fumed that he hadn’t made the leap to the US earlier, one of the people familiar with the matter said. He even publicly responded in a post on Twitter, now X, implying Levchin had stolen his business idea. “Sebastian has made past claims to intellectual ownership of the idea of point of sale lending,” said Matt Gross, an Affirm spokesperson. “At Affirm, we think the Sumerian Civilization (c. 3000 BC) has first dibs on the idea.”
Siemiatkowski is no stranger to controversy. The year leading up to Klarna filing for its IPO was marked by a clash of the firm’s co-founders, boardroom mudslinging involving the fintech’s most hallowed investor, a plunge into AI that allowed the company to shed hundreds of jobs and a series of arcane deals designed to bolster capital and get the company IPO ready.
Shortly after Klarna announced it had beat out Affirm for the OnePay business — sending Affirm’s shares down nearly 16% — Affirm countered in a filing saying that the Walmart deal’s contribution to its bottom line was minimal. In the last six months of 2024, Affirm said, Walmart purchases made up 5% of its gross merchandise volume and only 2% of its adjusted operating income — figures the company achieved after six years, over a period of consistent US consumer spending.
“Leaving aside Klarna’s apparently dubious logic of highlighting an economically questionable contract that pressures its closest comparable’s valuation in advance of an IPO, we think investors worry that a price war has been launched, imperiling BNPL industry value,” William Blair fintech analyst Andrew Jeffrey said in a note to investors. “We do not hold this view,” he said, citing the “one-off” nature of the deal that’ll boost Klarna’s US brand and help Walmart advance its consumer fintech ambitions.
Growth at All Costs
A hyper-fixation for both firms, but particularly for Klarna, has been gross merchandise volume, a metric tracking the total dollar amount of transactions processed through each platform. Globally, Klarna is ahead with $105 billion moving through its business last year through December, compared to Affirm’s $27 billion for the year through June. It’s a fact Siemiatkowski historically hasn’t been afraid to flaunt. In a 2022 X post, he boasted that Klarna’s volume was five times that of Affirm’s, and that they were “outpacing them for growth in their home market” in the US.
Klarna’s focus on volume driven through its platform likely spurred it to aggressively pursue its deals with OnePay and DoorDash. To be sure, these partnerships may get IPO investors excited and boost brand awareness among consumers, but if the merchant terms are too favorable then their potential to bring in significant revenue for Klarna would be in doubt. Another risk is that the volume flees to another platform if Klarna decides that they want to raise the merchant fees, according to Logan Allin, founder of fintech investment firm Fin Capital.
That growth-at-all-costs mindset won’t come without criticism. Klarna’s partnership with delivery app DoorDash was widely ridiculed online as people joked about defaulting on burrito loans. For social media users who witnessed the 2008 financial crisis, it had all the uncomfortable markings of a “recession indicator.”
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