3 Fintech News Stories
#1: $KLAR
What happened?
Exciting times for Klarna!
The company has filed the paperwork to go public:
Klarna, a provider of buy now, pay later loans filed its IPO prospectus on Friday, and plans to go public on the New York Stock Exchange under ticker symbol KLAR.
Klarna, headquartered in Sweden, hasn’t yet disclosed the number of shares to be offered or the expected price range.
And it announced that it has signed Walmart as a customer:
Swedish fintech firm Klarna will be the exclusive provider of buy now, pay later loans for Walmart, taking a coveted partnership away from rival Affirm
Klarna, which just disclosed its intention to go public in the U.S., will provide loans to Walmart customers in stores and online through the retailer’s majority-owned fintech startup OnePay, according to people with knowledge of the situation who declined to be identified speaking about the partnership.
So what?
Let’s work backward, starting with the Walmart news.
This is a big get for Klarna and a blow for Affirm, which has always touted its ability to land and keep big merchant customers as a strategic advantage.
Here are the two details from Klarna’s press release and CNBC’s reporting that are the most interesting to me:
- Klarna is the back-end infrastructure provider, not the front-end user interface. From what I can tell, Klarna is handling the underwriting, compliance, and (I assume) capital for the loans, but all of the customer interactions (including for loan servicing) will be handled by OnePay (Walmart’s recently rebranded fintech company, which it co-owns with Ribbit Capital) and the product will be branded OnePay. This is not how BNPL merchant partnerships normally work. Typically, the BNPL provider will maintain their brand (embedded within the merchant’s checkout page and/or POS) and take responsibility for loan servicing, collections, and customer service. One benefit of this model is that the BNPL provider is essentially being paid to take new customers (negative CAC), which they can then monetize by selling them back to merchants (in the form of advertising). Walmart clearly has no interest in facilitating this model for Klarna, which makes sense and may be an early indicator of how other big merchants approach BNPL moving forward.
- These are installment loans that will carry interest. According to CNBC, the loans will range from three months to 36 months in length and will carry annual interest rates from 10% to 36%. This is less familiar ground for Klarna, which has historically focused on shorter-term “pay-in-4” style loans (which have a total term of 6 weeks), mostly at 0% interest (In 2024, 99% of Klarna transactions were interest-free). It’s notable that Walmart was comfortable choosing Klarna to support longer-term, interest-carrying loans, and I’ll be curious to see if Walmart chooses to enable shorter, interest-free loans as well (and, if so, through who) or if it sees pay-in-4 as being too competitive with its planned OnePay credit card.
Now, let’s very quickly hit the S-1.
The topline numbers are impressive. $105B in gross merchandise volume. $2.8B in annual revenue and $21M in net profit (last year was Klarna’s first profitable year). 93M active consumers and 675K merchants across 45 countries.
I have absolutely no idea how public market investors will react to Klarna or how competitive its share price will be with Affirm’s once the dust settles from the IPO. I’m guessing it won’t come close to its ZIRP-era private valuation of $46B (SoftBank!!!!!!!), but the combination of global reach, a robust two-sided network, and an obsessive focus (and talk track) on AI-fueled operational efficiency should be reasonably attractive.
My big question is how will Klarna navigate the inherent tension between operating a commerce-enablement network (which is what Klarna is) and watching out for consumers’ overall financial health?
In the S-1, CEO Sebastian Siemiatkowski counterpositions Klarna against the greed and misaligned business models of banks:
Banking is about trust. At its core, trust is rooted in the profound yet daring belief that someone else will place your needs above their own. It’s a distinctly human trait, the glue of relationships, and the bedrock of progress.
Yet, somewhere along the way, traditional banks traded this principle for profit, losing sight of what truly matters. Instead came financial engineering, raking in profits through late fees, overdraft penalties, revolving debt traps, and countless other tricks designed to exploit their customers. Trust in banks has never been lower.
Those are all fair (if overly broad) critiques of banks, but (as I have written about previously) I’m not sure BNPL is inherently that much better for consumers. It’s up to each BNPL provider to ensure that they stay on the right side of that line and maintain trust with their customers.
#2: Another Blow-Up on BaaS Island
What happened?
Mercury announced that they were transitioning off of Evolve Bank & Trust. BaaS Island embedded reporter Jason Mikula reports:
Mercury, arguably Evolve’s most important customer, abruptly announced Wednesday that it is terminating its relationship with the bank — without informing Evolve in advance.
So what?
I assume you’ve all read the entirety of Jason’s piece yesterday (if not, rectify that immediately). So, I’ll just point out a few things that were specifically interesting to me:
- I personally wasn’t surprised by this news at all. Mercury had stopped onboarding new customers on Evolve a while ago, and they had publicly announced that they had added Column as a bank partner back in October, so I don’t understand how Evolve could have been surprised by this decision, yet reportedly they were. Are they just that delusional? Or did they have some valid reason to believe that Mercury would stick around despite the obvious signals to the contrary?
- Telling one of your bank partners that you’re leaving on the same day you tell your shared customers the news is a bizarre choice. Program migrations take a lot of time and planning, and generally, it’s in everyone’s interest to make that process as smooth and surprise-free as possible. Indeed, Evolve’s consent order requires it to “conduct and provide [its] Supervisors with an impact analysis on the Bank’s liquidity” before exiting a relationship with a fintech partner. It seems unlikely that such an analysis was done before this news was shared with customers, which can’t have made the Federal Reserve and the Arkansas Department of Banking (which are currently in the middle of an exam with Evolve) happy.
- Earlier this month, the FDIC withdrew its proposed rule on brokered deposits, which the agency under Martin Gruenberg had approved (over the strenuous objections of FDIC board members Travis Hill and Jonathan Mckernan). This decision was widely celebrated by the industry and was, in my opinion, a good move. The proposed rule was overly broad and seemingly uninterested in important nuances of new deposit-gathering strategies, including BaaS. However, this Evolve/Mercury news has made me slightly rethink my stance. I never bought the argument that BaaS deposits should be seen as just as stable as core relationship deposits, but I did assume that these deposits were at least predictable in a contractual sense (kinda like CDs). Mercury and Evolve’s sudden and bizarre breakup makes me question that assumption. I wonder if the FDIC, now led by Travis Hill, feels the same way.
#3: Why Are We Gutting CDFIs?
What happened?
President Trump issued an executive order to scale back a number of federal government programs, including the Community Development Financial Institutions (CDFI) Fund:
President Donald Trump issued an executive order Friday night scaling back the Community Development Financial Institutions Fund, a Treasury Department program that supports underserved areas and that has enjoyed bipartisan support in Congress.
Trump directed various federal agencies to eliminate a number of economic development, cultural, and social service programs — including the CDFI Fund — to the extent allowed by law, deeming them “unnecessary.”
So what?
I know it’s becoming a bit repetitive of me to respond to some new decision by this administration by asking why they’re doing what they’re doing, but seriously, WHY?!?!?!?
A little background — the CDFI fund was established by Congress in 1994. There are roughly 1,400 banks and credit unions that have been designated as CDFIs, which requires that they be focused on serving (and accountable to) their communities and that at least 60% of their financing activities be targeted to one or more low- and moderate-income (LMI) populations.
CDFIs rely on a mix of public and private funding, which includes tax breaks for investors and CRA credits for other banks that invest in or loan money to CDFIs. This model is highly effective and efficient, as the co-chairs of the Senate Community Development Finance Caucus pointed out after this EO was signed:
Since 1994, the CDFI sector has grown to over 1400 institutions, located in every state and territory in the nation — and leveraging at least $8 in private sector investment for every $1 in public funding received.
The program is managed out of the Treasury Department, and Scott Bessent, President Trump’s Treasury Secretary, was asked about the CDFI fund during his confirmation hearings. Here’s what he said:
The early part of my career was as a financial services analyst, I believe that the breadth of the U.S. financial services industry is what differentiates the U.S. economy from the rest of the world. The addition of these CDFIs into these underserved communities is very important.
Yes! It is indeed very important! Supporting banks and credit unions that focus on underserved communities is good public policy.
It’s also good politics, which is one of the things I find so confusing about this EO. There are approximately 1,400 CDFIs spread across the country. If you map that distribution out across states, you’ll find they are predominantly located in rural areas (which makes intuitive sense). And if you look at the 10 states with the highest ratio of CDFIs per capita, 8 of them went for President Trump in the 2024 election.
Those are your voters, man! They need low-cost loans and financial counseling. They don’t need memecoins. What are you doing?!?
2 Fintech Content Recommendations
#1: Trump Plans to End CFPB Despite Reviving Work, Official Says (by Evan Weinberger, Bloomberg Law) 📚
Evan continues to do great work covering the Trump Administration’s plans for the CFPB.
#2: Embedded lending: the next big opportunity or a niche play? (by Jevgenijs Kazanins, Popular Fintech) 📚
Lots and lots of goodness coming out of Popular Fintech these days, but I wanted to highlight this one in particular because A.) it’s excellent, and B.) Jev recently launched a subscription tier for some of his content (including this piece), and I am here to encourage you to subscribe to it!
1 Question to Ponder
Will generative AI lead to more explainable credit decisions or less explainable credit decisions?
If you have any thoughts on this question, hit me up on Twitter or LinkedIn.
