This article is more than 1 year old

This article is more than 1 year old

Klarna, the Swedish payments company with a “shop now, pay later” model, has become the largest private fintech firm in Europe after a fresh round of investor funding increased its value to $5.5bn (£4.5bn).

The blockbuster valuation comes after the startup raised $460m (£378m) from investors led by Silicon Valley-based Dragoneer, alongside others including BlackRock and Commonwealth Bank of Australia.

It makes Klarna, which counts the rapper Snoop Dogg among its shareholders, the largest private fintech in Europe and the sixth largest in the world.

Klarna: 'buy now, pay later' system that is seducing millennials Read more

The firm has become a notable disruptor in the payments sector, marketed as an alternative to credit cards and allowing users to shop now and pay later, either in a lump sum or in instalments and without interest on most items, as long as they pay on time.

It is offered alongside credit, debit or PayPal options when shoppers reach the online checkout at more than 130,000 retailers including JD Sports, Topshop and Asos.

Since its launch in 2005, Klarna has gained popularity among cash-strapped millennials and Generation Z – those born from the mid-1990s – who want to shop before payday but either do not have, or would like to avoid, a formal line of credit.

It now has 60 million users worldwide, and with 1 million transactions processed per day online and in store, Klarna says it is on track to make $1bn in annual revenue. The company charges fees to merchants, and customers who fail to pay on time.

Klarna, which is headquartered in Stockholm, said it would use the fresh funding to further expand in the US, where it is partnered with more than 3,000 companies including Toms, Sonos and Superdry. Its US user base is growing at an annual rate of 6 million per year.

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On Tuesday it also announced an exclusive partnership with Commonwealth Bank of Australia that will help it break into the Australian and New Zealand markets. Klarna secured its own banking licence in Europe in 2017.

The company says flexible payments are helping to bolster sales for its retail partners. Those accepting payments through four instalments have recorded a 68% increase in the size of their average orders, while consumers end up shopping more frequently.

Retailers already on board include H&M, Ikea, Nike, AliExpress, Sephora, Zara and Agent Provocateur, and Klarna said a further 1,000 were in the pipeline.