Klarna Reportedly Selling UK BNPL Loans to Hedge Fund Elliott

Klarna is reportedly selling most of its British buy now, pay later (BNPL) loans.

The deal with American hedge fund Elliott will free up as much as $39 billion for new loans, the Financial Times reported Wednesday (Oct. 16), citing sources familiar with the matter. It comes as Klarna is preparing to go public in the U.S., where BNPL continues to flourish as a payment option.

According to the report, Klarna will continue to underwrite the loans and offer customer service to borrowers. The Swedish company is focusing its growth efforts on the U.S., forging partnerships there with companies such as Uber Eats and Apple.

Klarna Chief Financial Officer Niclas Neglen told the FT that the deal would help bolster the company’s global growth.

“By efficiently managing our assets, we can deploy shareholder equity more effectively,” he said.

The report notes that Klarna’s “pay in three” and “pay in 30” installment payment loans account for the bulk of the company’s U.K. lending.

The company is targeting next year for its initial public offering (IPO) and has reportedly held talks with investors about a share sale before going public, seeking a valuation in the neighborhood of $20 billion.

Klarna is going public in a country where BNPL is gaining traction as a preferred method of payment. Research by PYMNTS Intelligence finds that 16% of American consumers are abandoning traditional payment methods in favor of BNPL.

“This trend is particularly pronounced among millennials, with 39% reporting they used BNPL in the past year,” PYMNTS wrote. “The surge in popularity is underscored by a 28% year-over-year increase in gross merchandise volume for BNPL purchases through a single service, indicating its effectiveness in driving sales.”

Research from another PYMNTS Intelligence report, “Divided, Not Conquered: Acquirer and Merchant Confusion Clouds Split-Payments Landscape,” showed that 6 out of 10 consumers used installment plans in the year prior to being surveyed.

There are also signs that debit-card-based BNPL offerings would gain in popularity with bank customers. The PYMNTS Intelligence report “Debit Cards in Digital Wallets Gaining Ground Across Sectors” found that consumers who paid with digital wallets used stored debit cards in 55% of grocery transactions, along with 52% of retail transactions, 62% of restaurant transactions and 46% of travel transactions.

“Some banks are now offering customers the option to have their debit purchases become buy now, pay later (BNPL) installments — spread out over as many as four separate and equal payments,” PYMNTS wrote last month.

“In this way, traditional financial institutions are competing with companies like Affirm and Klarna. Budgeting is still top-of-mind for consumers, even as interest rates start to back off multi-decade highs.”