Klarna is attempting to shift the perception of itself as more than just a buy now, pay later (BNPL) provider as it decides whether to move forward with its long-anticipated initial public offering, COO David Sykes told this news service.

The Stockholm-based financial technology company’s partnership with Uber, announced last week, is an example of the payment options it offers beyond BNPL.

Uber’s app will allow users around the world to instantly pay for their rides in full through Klarna’s Pay Now feature. The instant payment method makes up more than one-third of Klarna’s global volume, according to a statement from the Swedish fintech.

While the Uber deal doesn’t include Klarna’s usual BNPL options, users in Sweden and Germany will have the ability to consolidate their purchases and pay for them all at once directly from their salary.

In an interview in San Francisco last week, Sykes said he does not believe BNPL peers such as Affirm [NASDAQ:AFRM] and Sezzle [NASDAQ:SEZL] are the best comparable public companies to Klarna.

“We are trying to break out of that lineup,” the executive said. “That’s our big fear is people will just put us in that buy now, pay later box. We really do think we offer much more than that.”

Shopify [NYSE:SHOP] is a more fitting public comp, said Sykes. Klarna, like the Canadian ecommerce company, solves multiple use cases for merchants and shoppers, he contended, since it offers an array of flexible payment options for consumers along with a suite of marketing solutions to merchants.

Investor doubts

But a Silicon Valley-based fund manager said comparing Klarna to Shopify sounds like “a stretch.”

Shopify provides software for merchants to set up and host their websites, run payments, and facilitate order management through a back-end logistics solution that ships customer orders, he explained.

“From the outside, it seems wishful thinking that Klarna is anything beyond a BNPL firm. It seems like an obvious attempt to comp themselves to something with a higher multiple than BNPL players,” he said.

In a recent analysis, this news service used Affirm, Sezzle, PayPal [NASDAQ:PYPL] and Block [NYSE:SQ] as comps to conclude Klarna could be valued between USD 3.2bn and USD 11bn, while noting it may be able to command a premium due to its industry-high gross merchandise volume of USD 9.46bn in 2023.

In 2021, at a time Sykes conceded tech firms were raising “immense amounts of capital at very inflated valuations,” Klarna was valued at USD 45.6bn in a funding round led by SoftBank. A year later, its value fell to USD 6.7bn, an 85% drop, when it raised more funding from Sequoia, Silver Lake and others.

Now, Klarna is talking with investment bankers about an IPO and is reportedly hoping to be valued at approximately USD 20bn. It could list on a US stock exchange as early as next quarter, according to a February report from Bloomberg.

Advisors and investors, however, have told Mergermarket that Klarna’s valuation expectations may be overly optimistic.

For one, they questioned whether Klarna can drive meaningful revenue through artificial intelligence, which helped fuel investor interest in successful technology listings this year from companies such as Astera Labs [NASDAQ:ALABS], Ibotta [NYSE:IBTA] and Reddit [NYSE:RDDT].

Klarna’s AI pitch

In a presentation at an ecommerce conference hosted by Stripe last week, Sykes played up Klarna’s AI credentials. Its AI assistant, which went live earlier this year, powered by OpenAI, completed 2.3m conversations in its first month, which is the equivalent output of 700 fulltime human agents, he said.

The AI assistant cut down the time to complete customer errands to two minutes from 11 minutes, he said. Klarna estimates its AI assistant could drive USD 40m in profit improvement in 2024. While Klarna is not changing direction, Sykes said AI is accelerating its ability to expand its offerings.

“There has always been a lot of things we wanted to do. For the first time, it feels possible to do some of them,” the COO said, mentioning that Klarna intends to provide digital assistants that use AI to connect consumers to personalized shopping experiences while also providing AI assistants to guide payments.

Even though BNPL is just one feature offered by Klarna, Sykes said splitting payments into four interest-free installment plans paid every two weeks is “incredibly popular, especially with younger consumers” who see it as a less expensive way to access capital compared to credit cards and consumer loans.

Its offerings feel more intuitive and more engaging to Generation Z, he added.

Klarna’s goal is to build a brand that has “an emotional connection to customers, like American Express did, just with a different demographic. … We want to save money and time. We would also like to spark some joy,” the COO said.