Klarna, the buy now, pay later (BNPL) finance giant, is setting up a new British holding company as it clears the path to a stock market flotation that could value it at more than $15bn (£12.1bn).
Sky News has learnt that the Stockholm-based consumer credit provider has informed investors it has kicked off preparatory work ahead of a listing expected to be launched as soon as the first half of next year.
City sources said this weekend that Klarna, which employs about 5,000 people and boasts 150 million customers globally, would be ready to float within months if market conditions were accommodating.
Its founder and chief executive Sebastian Siemiatkowski said in August that three key conditions – becoming established in the US, having a sustainable business model and significant growth potential – for an initial public offering (IPO) had been met.
Third-quarter results to be released on Monday are expected to show continued progress towards annual profitability, according to insiders.
The administrative decision has been taken to reflect the UK’s standing from a legal, regulatory and capital markets perspective, they added.
The incorporation of the new holding company does not, however, mean that Klarna will necessarily decide to float in London.
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Many bankers and investors expect it to choose New York to list instead, in what would be perceived as another blow to the City’s prestige following the US listing of ARM Holdings, the chip designer.
In a statement issued to Sky News this weekend, a Klarna spokesman said: “We have initiated a process for a legal entity restructuring to set up a UK holding company as an important early step on a journey towards an eventual IPO.
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“This is an administrative change that has been in the works for over 12 months and does not affect anyone’s roles, nor Klarna’s Swedish operations.
“Klarna Holding will continue to be the regulated financial holding company under the direct supervision of the SFSA [Swedish financial regulator] and we will continue to hold a Swedish banking licence.
“This entity would be registered in the UK.”
Image: Klarna boasts 150 million customers globally
Klarna was forced to slash its valuation to $6.7bn (£5.4bn) in a funding round last year, having once been valued at $46bn (£37.2bn) and drawn backing from investors such as SoftBank’s Vision Fund, Sequoia Capital and Mubadala, the Abu Dhabi sovereign wealth fund.
Bankers believe that based on a comparison with New York-listed peer Affirm Holdings, Klarna should attract an IPO valuation of between $15bn and $20bn (£16.1bn).
Consumer campaign groups responded with fury to the decision, which has yet to be announced by the government.
One industry source said they understood that ministers were preparing to hold talks with BNPL providers about agreeing a series of voluntary measures prior to any legislative changes being introduced.
This week, the Financial Conduct Authority said it had secured contract changes for BNPL customers after an explosion in the use of such products.
Research published by the City watchdog showed that 27% of adults – roughly 14m people – had used BNPL at least once in the second half of 2023.
‘Proportionate’ regulation
Klarna has previously declared itself in favour of “proportionate” regulation of the sector.
Earlier this year, it said it was “concerned with the suggestion to copy and paste Consumer Credit Act rules on credit agreements, which are outdated and don’t protect or inform consumers”.
“Quite the opposite, they leave consumers confused and, ironically, push them towards expensive and higher-risk forms of credit.
“With BNPL regulation the government has a golden opportunity to be bold and create new rules to give consumers the right information at the right time so they can make informed decisions.”
In May, Klarna launched what it described as Britain’s first “credit opt-out” product to give consumers greater control of their finances.
It said the idea had been suggested by Andrew Griffith, the City minister, during a meeting with Mr Siemiatkowski.
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
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Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Is Britain going bankrupt?
Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.
However, the picture emerging a year since the election of the Labour government is not hugely comforting.
This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.
Output shrank in May by 0.1%. That followed a 0.3% drop in April.
However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.
In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.
Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.
Signs of recovery
Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.
“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.
Meanwhile, the services sector eked out growth of 0.1%.
A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.
Struggles ahead
It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.
The economy remains fragile, and there are risks and traps lurking around the corner.
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Is Britain going bankrupt?
Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.
Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.
The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.
It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.
Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.
The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.
The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.
Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”
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He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”
The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.
Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.
The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.
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Minister reveals how AI could improve public services
Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.
The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.
He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.
My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.
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Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.
“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”
Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”