Fintech: Klarna's potential $20 billion IPO, improved earnings, and continued adoption of AI.
Klarna's ability to cut costs and embrace AI has helped transform Klarna from a simple BNPL company to a unique, AI-based payments and shopping platform.
Hi Fintech Futurists —
Today’s agenda below.
BNPL: Klarna - Earnings, AI, and a Potential IPO.
LONG TAKE: Bitcoin is Back (link here)
PODCAST CONVERSATION: Building on Bitcoin Lightning Network and Lessons from Libra, with Lightspark Chief Strategy Officer Christian Catalini (link here)
CURATED UPDATES: Paytech, Neobanks, Lending, Digital Investing
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Digital Investment & Banking Short Takes
BNPL: Klarna's potential $20 billion IPO, improved earnings, and continued adoption of AI
Klarna, a Stockholm-based global payments and shopping technology provider, culminated a busy month (marked by new product launches, strategic developments, and some boardroom intrigue) by reporting its 2023 full-year financial results. While increased corporate spending in Q4 prevented a repeat of the surprise profit experienced in the previous quarter (the company's first in four years), the financial results were still encouraging, with total revenue coming in at $2.27B, a year-over-year increase of approximately 22%.
Additional key financial indicators also impressed. Total net loss for the year decreased by 76%, from $1.01 billion to $0.24 billion, a result aided by 16% YoY decline in operating expenses.
To understand Klarna’s impressive transition during 2023, it's essential to understand the economic context of 2022. The year was marked by a global initiative among central banks to increase interest rates in an effort to curb inflation. This policy shift significantly affected financial and fintech companies, particularly those in the Buy-Now-Pay-Later (BNPL) sector like Klarna. The rise in interest rates led to increased capital costs for BNPL companies, which depend on institutional capital to finance their lending operations. Consequently, this increased their financing expenses, compressed profit margins, and resulted in higher prices for consumers. Additionally, the environment necessitated a stronger focus on credit risk management due to increased defaults and late payments. Finally, the higher interest rates dampened consumer spending, impacting Klarna's growth, which relies on consumer purchases.
Klarna responded proactively, adjusting its credit model to aid in achieving a 32% YoY decrease in consumer credit losses. The company also streamlined operations, cutting general and administrative expenses by 10%, sales & marketing costs by 31%, technology and product development cost by 11%, and customer service and operations costs by 14%.
A noteworthy development was Klarna's adoption of AI to advance these initiatives. Unlike many firms merely discussing AI, Klarna has shown tangible outcomes from its AI endeavors. This success is partly due to its close collaboration with OpenAI, with Klarna becoming one of the first to develop a ChatGPT plugin, and the inaugural bank to launch with ChatGPT Enterprise. Klarna's CEO has even gone so far as to openly express his desire for Klarna to be OpenAI's "favorite guinea pig."
Klarna's incorporation of AI can be seen across the company. According to their annual report, more than half of Klarna's employees now use in-house AI tools to improve their efficiency. Furthermore, Klarna recently unveiled a new Customer Service Chatbot handling the work of 700 full-time employees, managing two-thirds of all customer service chats, and reducing conversation time from 11 minutes to 2 minutes. This all comes on the back of multiple AI-based product updates, including:
"Sign in with Klarna": A service aimed at enhancing the online shopping experience by streamlining purchases, and offering AI-driven shopping personalization.
"Shopping Lens": An in-app feature that employs AI to enable users to take photos of items and styles around them, and instantly find purchasing options and the best deals.
“Discovery Shopping Feed": An in-app feed that uses AI to dynamically adapt in real-time, presenting customers with various products and deals based on their changing tastes.
Overall, we are impressed by the company’s ability to execute a three-front war: growth, efficiency and innovation. The company’s recent performance has refueled speculation of an upcoming $20B IPO which would be a significant increase over its most recent valuation of $6.7B but still a far cry from its June 2021 peak of $45.6B. Klarna's ability to innovate, cut costs, and continue to embrace AI has helped transform Klarna from a simple BNPL company to a unique, AI-based payments and shopping platform.
👑 Related Coverage 👑
Blueprint Deep Dive
Long Take: Bitcoin is Back (link here)
Finally. 2024 has been a watershed moment for digital assets, particularly Bitcoin. This week, we focus on the behind-the-scenes actors powering the network — Bitcoin miners.
It is hard to believe, but we are on the other side of the bear market. Let’s appreciate that, despite being only two months into the year, 2024 has already earned its place in finance history. Led by BlackRock and Fidelity, the industry rolled out *11* spot Bitcoin ETFs, which officially knights crypto as an alternative asset class within the asset allocation supply chain of the finance industry.
🎙️ Podcast Conversation: Building on Bitcoin Lightning Network and Lessons from Libra, with Lightspark Chief Strategy Officer Christian Catalini (link here)
In this conversation, we chat with Christian Catalini - Co-Founder and Chief Strategy Officer of Lightspark. Christian is also the founder of the MIT Cryptoeconomics Lab, and a Research Scientist at MIT.
Previously, Christian was a co-creator of Diem (formerly Libra), Chief Economist of the Diem Association, and Head Economist of Meta FinTech. While a Professor at MIT, he designed the MIT Digital Currency Research Study. In 2018, Christian was appointed as a Faculty Research Fellow in the Productivity, Innovation and Entrepreneurship Program at the National Bureau of Economic Research.
Curated Updates
Here are the rest of the updates hitting our radar.
Paytech
Quaint Oak Bank Selects Finzly to Modernize Payments and Enable its Embedded Banking Practice - Fintech Finance News
Treasury management fintech Embat raises €14.7 million - Finextra
Exclusive-Fiserv, Amadeus vie to acquire Shift4 Payments, sources say - Yahoo Finance
Neobanks
⭐ Brazil’s Nubank reports record net income, over 90M clients in Latam - Fintech Nexus
Lending
Fed's preferred inflation gauge logs lowest annual rise since March 2021 - Yahoo Finance
TrueNorth and Brim Partner to Deliver Credit-Card-as-a-Service Platform - PYMNTS
Digital Investing
⭐ Stripe Valued at $65 Billion After Share Sale Deal - PYMNTS
Online Brokerage Webull Shed Crypto Exposure Ahead of SPAC Deal - Yahoo Finance
Canadian paytech Helcim completes $20m Series B funding round - Fintech Futures
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Great Overview over gentlemen! 👏🏾