After a tumultuous two-year period for initial public offerings (IPOs), signs point to a potential turnaround for the market. On March 21, Reddit made its public debut, and it is a big test to see how markets respond to new issuers.
One company discussing plans for a 2024 IPO is Klarna, the European buy now, pay later company. Klarna aims to be the "artificial intelligence (AI) bank" and eyes a $20 billion valuation when it goes public.
Here are some facts to know about Klarna.
Founded in 2005, Klarna is a Swedish bank that has risen in popularity thanks to its flexible payment plans, known as buy now, pay later (BNPL). Klarna's reach is huge, processing 2.5 million transactions daily across its 150 million customers worldwide.
The company partners with 250,000 merchants in 25 countries, but its goal isn't to be a simple checkout option on every website. Instead, the company aspires to be at the center of payments, shopping, and banking.
More recently, it has focused its efforts on the U.S. market, which has become its largest revenue producer for the first time since entering the market in 2015. Last year, the fintech generated a gross profit for the first time in the U.S. and it has done an excellent job of streamlining its operations. But it has been a rough ride over the past two years.
How the fintech used AI to drastically reduce costs
Economic stresses during the past few years have pressured the BNPL industry. Notably, high inflation accompanied by rising interest rates have had a significant impact on young upstart companies. In 2022, as interest rates started picking up, Klarna's borrowing costs increased to highest level ever.
Not only did borrowing costs rise, but companies in the BNPL niche also saw valuations slashed dramatically. During 2023, Klarna's indicated valuation got cut from $45.6 billion to just $6.7 billion, as rising costs and uncertainty about the economy weighed on all companies, big and small.
One area Klarna struggled with was rising costs. Last year, the fintech bank aimed to improve its efficiency and credit quality. One way it did this was by leveraging generative AI. Klarna quickly adopted AI last year and leveraged ChatGPT to build tools that automate some of the more repetitive, time-consuming tasks for employees.
The fintech bank also used AI to evolve its comprehensive financial digital assistant, which it sees as critical to its long-term success. Klarna's embrace of AI has been a positive for the company, resulting in lower costs and more efficient operations.
https://lnkd.in/exYY6jvt
