Compared with more aggressive mergers and acquisitions in Southeast Asia and Africa, Chinese Internet giants Alibaba and Tencent seem relatively prudent in their competing business expansion plans in Europe.
How to control the default rate and attract more users at the same time will be a problem for companies like Klarna. Image credit: Blake Wisz on Unsplash
Ant Financial, the fintech arm of Alibaba (BABA: NYSE), has made a new move in Europe. The company announced it’s taking a minority stake in Swedish payments platform Klarna, which is so far Europe’s largest fintech company valued at USD 5.5 billion as of August 2019.
According to Reuters, Ant Financial’s investment amounted to a stake of less than 1% and was made up of existing and new shares. Before this investment, the two parties had already been collaborating via Alibaba’s global e-commerce marketplace, AliExpress, which offers Klarna’s ‘buy now, pay later’ option in multiple markets.
Founded in 2005, Klarna is a Stockholm-based fintech company that provides online financial services such as payment solutions for online storefronts, direct payments, post-purchase payments and more. The most well-accepted service is the ‘buy now, pay later’ option, which allows customers to complete online shopping in a few simple clicks. For returning users, Klarna even provides up to two weeks to complete payment after the goods have arrived.
Klarna generates revenue mainly via two approaches – charging transaction fees from retailers and charging interest on customers via the installment plans it offers for their online purchases.
Currently, Klarna is cooperating with over 190,000 online retailers across 14 countries, processing an average of 1 million transactions per day. Its global sales volume rose 36% in 2018, according to Investopedia.
Prior to this deal, Ant Financial inked the roughly USD 700 million acquisition of WorldFirst, the UK payments company, in February 2019 – together these mark the biggest overseas deals of Ant Financial.
To facilitate the deal, WorldFirst shut down its subsidiary in the United States to avoid CFIUS scrutiny. Ant Financial seems to have stopped looking to make a capital investment in any American company after the governmental committee on foreign investments declined its investment in Moneygram, another payment service provider.
However, in an attempt to expand to western markets and boost its presence globally, the Chinese juggernaut has become more prudent. So has its competitor Tencent, who joined German online banking company N26’s Series C round of funding in 2018.
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