Going public in the US at a valuation of 15 billion US dollars, will Klarna set off a wave of IPOs in the fintech industry?

The initial public offering (IPO) in the planned initial public offering (IPO) of Klarna Bank AB, a Swedish fintech company known for its “buy now, pay later” business, has fueled hope in the market — the long period of stagnation in fintech listings may be coming to an end, indicating a wave of IPOs in the industry in the next few years.

According to reports, the Swedish payments giant plans to go public in New York in the first half of next year. Bankers, venture capitalists, and analysts say a successful listing — combined with rising stock prices and the expected relaxation of regulations during Trump's re-election period — may eventually prompt some of Klarna's peers to follow suit.

Other fintech companies are also preparing to advance their IPO plans. Zilch Technology Ltd. and Chime Financial Inc. are considering issuing shares for the first time in 2025, and executives of Plaid Inc., Revolut Ltd., and Zopa Bank Ltd. also said they are considering listing. The parent company of Trustly Group AB is reportedly exploring options to split the fintech sector, including a sale or initial public offering. Brex Inc. and Ramp Business Corp. are also considering finalizing an IPO. The speed with which these companies go public and where they go public may be affected by Klarna's performance.

A Zopa Bank spokesperson said “an IPO is not a priority,” but the bank will continue to work hard, preferably to go public in the UK when the timing is right. A Ramp spokesperson said, “We have ambitions to become a public company, but we don't have any active plans right now.”

Mark Palmer, senior fintech and digital asset research analyst at The Benchmark Company, said, “Klarna's highly anticipated listing application may indicate an increase in fintech companies' public offerings after a relatively slow period. The recent rise in fintech stock prices and valuations heralds new public offerings in this field, as do investors' expectations for a more fintech-friendly regulatory system during Trump's new administration.”

Klarna said in a statement last week that the company has secretly filed an IPO application with the US Securities and Exchange Commission (SEC). Although the company did not provide financial details, analysts last month believed that Klarna's implied valuation was around US$14.6 billion after shareholder Chrysalis Investments Ltd. increased its holdings in Klarna. This would mark an improvement in the $6.7 billion valuation received by the company in the last round of funding in 2022, but still far below Klarna's $46 billion valuation in 2021.

Is the fintech industry ushered in a recovery in valuation?

Fintech stock valuations plummeted during a broader tech crash in 2022 triggered by rising interest rates and geopolitical instability. Klarna's share price will provide clues to other promising IPOs: will they be allocated to overvalued tech stocks, or more realistic financial company prices?

Sydney Thomas, founding general partner of Symphony Capital, said, “The industry needs liquidity, and valuations need to return to normal levels. I hope Klarna's IPO will give the other founders the courage to quit, even if it means quitting at a lower valuation.” She believes the decline in Klarna's private valuation is “reasonable” and that its current estimated valuation is “still very high” considering everything the industry has experienced.

Fintech supporting venture capital firms are optimistic that rapidly growing companies have once again appeared in the stock market, especially those that have made or are about to make profits.

Nigel Morris, managing partner of QED Investors, said: “Fintech companies (whether listed or private) that are solving real problems and have a strong basic unit economy will continue to perform well.”

The two profitable companies in QED's portfolio are San Francisco-based SoFi Technologies Inc. (SOFI.US) and Brazilian competitor Nu Holdings Ltd. (NU.US). Since this year, SoFi's stock price has risen by about 47%, while NuBank's share price has risen 62%.

But the reality of investing in IPOs has changed since these companies went public in 2021, and these companies are some of the growth-focused listed companies that emerged during the COVID-19 pandemic. When the era of cheap borrowing came to an abrupt end, many of these stocks were hit hard, leaving investors shocked. Trouble has also spread to private markets, where companies like Klarna are scrambling for cash while trying to maintain high valuations.

In addition to AI companies, IPO investors have recently favored predictable, more profitable companies rather than promises of future growth. They are also asking for significant valuation discounts to take into account the risk of betting on untested stocks.

There are signs that this trend may begin to reverse. For example, the stock price of American insurance technology company Lemonade Inc. rose nearly 189% this year, back above the IPO price, although it still fell sharply from its peak in early 2021. Other fintech stocks are also rising. The Bank of America Fintech Index, a subsidiary of Bank of America, has risen by about 36% this year, and the Ark Fintech Innovation ETF has risen by about 38%. Both companies outperformed the S&P 500 index.

Valuation differences

Investors are also less inclined to label the entire fintech industry broadly; they prefer certain segments. Some venture capital firms say the digital lending model has fallen out of favor, while payment companies are becoming more and more attractive.

Many loan companies, including LendingClub Corp., are first-generation fintech companies that went public about 10 years ago. But as capital costs rise, some banks struggle to compete, while banks are able to keep financing costs low, including through deposit financing.

Tom Glocer, an angel investor and executive director of startup Capitolis Inc., said the loan company's valuation “fell to the bottom” due to these competitive trends. On the other hand, “everyone likes the payment business because they want to get multiples like Adyen NV.”

Since listing on Euronext Amsterdam in 2018, Adyen NV's shares have surged 406%, although the company plummeted last year due to weak earnings. According to the data, the price-earnings ratio of the stock's expected earnings in 2025 is 34 times, and the price-earnings ratio of expected revenue, including debt, is about 12 times.

Klarna provides short-term credit to global shoppers, and to get an ideal valuation, it must convince investors that it is not a traditional loan business. The company has been expanding beyond its core BNPL products, including more retail banking products, and using artificial intelligence to improve its services.

Domestic market

Despite Adyen's strong performance, many European fintech companies are still attracted by the prospects for higher valuations and greater liquidity in the US. This has put pressure on their home countries to keep these publicly traded companies. For example, Revolut, the UK's largest fintech company, will be closely watched when deciding when, where, and whether to go public. Staying in London would be a big win for the UK tech industry and its exchange, which has been plagued by a lack of IPOs since 2021. However, America's market advantage, and potential regulatory advantage under Trump, may be difficult to resist.

Some companies may simply remain private while seeking additional financing and equity sales. This will give them time to raise their valuations while providing liquidity for early investors and employees. Brennin Kroog, managing director of Lazard, said in an interview: “For some companies, there is a lot of ongoing dialogue and desire to reconfigure their current capital structure to make it more suitable for publicly traded companies.”

In August of this year, Revolut completed a shareholder sale transaction of 500 million US dollars, and the company's valuation reached 45 billion US dollars. Soon after, its British counterpart, Monzo Bank Ltd., also announced the sale of employee shares, putting its valuation at $5.9 billion.

Rob Moffat, partner at Revolut investor Balderton Capital, said Klarna's application doesn't necessarily mean everyone else will follow suit. He said, “This is good news, but don't do wishful thinking until the IPO is successfully completed. Klarna was founded in 2005, and it's always been one of the first companies to quit.”