The buy now, pay later wave that’s been sweeping over retail is finally washing up on Wall Street with the initial public offering of Stockholm-based Klarna. 

While the company is officially a bank, it’s best known for letting shoppers pay for goods in four interest-free installments. A total of 34.3 million shares were sold for $40 each to investors, who in turn will sell the stock on the open market. 

The offering primarily benefits investors who are cashing out some of their holdings and is intended to make a liquid market for the stock. But the company will also sell 5 million shares, raising proceeds of $200 million for general corporate purposes. 

For Klarna, which turns 20 this year, the offering is a milestone and the next step in the payment revolution that so far has helped the company ramp up to 111 million active customers shopping 790,000 merchants and facilitating $112 billion in retail sales annually. 

“We’ve moved from gold to cash, from cash to credit cards, and now we’re moving from credit cards to Klarna or alternative payment methods or new payment methods,” said David Sandström, chief marketing officer, in an interview. 

“That has been a big shift, and especially in the U.S. that is historically a very credit card heavy market,” he said. “We’re seeing that shift amongst a younger generation that is fed up with paying too high APRs, predatory fees and are really starting to adopt these new kind of payment methods.”

Where credit card companies make money if consumers carry big balances, Sandström pointed out that Klarna is free for shoppers and, while merchants are charged a fee, the buy now, pay later approach helps stores stimulate growth. 

Retailers have certainly been quick to adopt the service.

Klarna just entered the U.S. market in 2019 and quickly achieved scale, recently signing on retail giant Walmart. 

The payment firm covers the price spectrum up to Prada and all points in between. 

“We worked with a lot of high-end fashion retailers,” Sandström said. “Their main objective is obviously to tap into new customer segments by giving consumers smarter affordability. Not saying, ‘Hey, take on crazy credit loans,’ but actually approach affordability in a smarter way. We unlock completely new target audiences for them.”

David Sykes, chief commercial officer, said in a separate interview that it’s not uncommon for the company to handle $1 out of every $3 in online sales for its U.S. merchant partners. In more established markets like Germany, it could be closer to $2 out of every $3.

Buy now, pay later firms like Klarna have been criticized for encouraging overspending or being dangerous to consumers, but Sykes pushed back against that claim. 

The service, he said, needs to be seen in context and compared with the alternative — credit cards, which collected $254 billion in interest and fees from Americans last year, according to WalletHub data cited by Klarna. 

“Everybody buckets us and our peers into the buy now, pay later Financial,” Sykes said. “And everybody asks, ‘How are you guys competing?’ The big opportunity for me is not taking a small bite out of the market share of one of my ‘competitors. It’s taking a very big bite out of the credit card industry because that’s the behemoth.

“That’s the big opportunity, how can we provide a very consumer-centric alternative to what used to be a three horse race [between] debit, credit, PayPal,” he said. “And what we’re increasingly doing as an industry is providing more nuance, more personalization, more choice.”