Klarna's AI Revolution: efficiency gains, halving workforce & path to IPO ??; Apple to invest in OpenAI ??; PayPal & Fiserv expand partnership ??

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?? Hey, Linas here! Welcome to a ?? weekly free edition ?? of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.

If you’re not a subscriber, here’s what you missed last week:

1. The Startup Growth Toolkit: Top 5 Resources to Scale Your Business to New Heights ?? [unlock the secrets to startup success with these essential resources]
2. Top resources for building and scaling billion-dollar startups ?? [600+ pages of knowledge and advice to launch & scale your next unicorn in 2024]
3. Worldline's digital payments dominance faces crossroads ???? [a deeper dive unpacking their latest financials, what they mean, and whether Worldline is worth your time and money in 2024 + lots of bonus dives into FinTech stocks you cannot ignore right now]
4. Stripe aims to revolutionize cross-border commerce in Asia with AI ???? [what the USP here & what’s next + a bonus dive into Stripe et al.]
5. Nexi: underrated European payments powerhouse poised for growth ?????? [breaking down the most important numbers, uncovering what they mean & whether Nexi is worth your time and money in 2024 + a bonus deep dive into another European PayTech giant]
6. Affirm’s Q4 2024: strong growth and improving profitability signal a bright future for the undervalued BNPL giant ???? [breaking down the Q4 FY2024 numbers, what they mean, and what’s next & why Affirm is the FinTech giant you cannot ignore + some bonus reads inside]
7. Another one: Shift4 expands global reach with Givex M&A ???? [what it’s all about & why it makes sense + a bonus deep dive into Shift4, still one of the most underrated public FinTechs]
8. Vertical neobanks are still alive as Comun secures $21.5M ???? [why it matters & what can we expect next in the space]
9. Apple Cash tightens security with new ID verification ???? [what it’s all about, why it makes sense & what’s next for P2P payments + some bonus dives inside]
10. Is Telegram actually a crypto company? ???? [a brief look at their latest financials, what do they reveal & what’s next + a bonus read on Telegram]

and more! Don't miss out and join the community here????

Last week (26-30 August) was just an insane and super thrilling week in FinTech. We will look into Klarna which is now at the forefront of the AI revolution with efficiency gains, a halving workforce, and a path to going public (analyzing Klarna’s latest numbers and massive AI improvements, what they mean & what’s next + some bonus reads inside) ????; Apple and other tech giants who are in talks to invest in OpenAI (why it matters & what it has to do with FinTech + a bonus dive into Apple Intelligence & the future of payments) ????; PayPal that just partnered with Fiserv to further streamline digital payments (what it’s all about, why it makes sense & what’s next + bonus deep dives into PayPal, Adyen and Fiserv) ????, and other interesting news and developments.

Without further ado, let us dive into what happened in the financial technology sector last week. Let’s connect the dots.

Klarna's AI Revolution: efficiency gains, halving workforce and path to IPO ????

Earnings time ?? Swedish FinTech giant Klarna has shown some solid progress in its latest H1 2024 financial report, demonstrating a clear trajectory towards profitability and operational efficiency.

In short, BNPL behemoth’s latest financial results and strategic moves paint a picture of a company leveraging artificial intelligence (AI) to dramatically reshape its operations and financial profile.

This AI-driven transformation is therefore central to understanding Klarna 's current position and future prospects as it prepares for a potential IPO.

Let’s take a closer look at this.

More on this ?? The company's first-half 2024 results show significant improvement, demonstrating a clear trajectory towards profitability and operational efficiency. The company's revenue grew by an impressive 27% year-over-year to SEK 13.3 billion, outpacing its GMV growth of 16%. This indicates that Klarna is not just expanding its transaction volume but also improving its monetization strategies.

A key highlight is Klarna's transition from an adjusted operating loss of SEK 456 million in H1 2023 to a profit of SEK 673 million ($66 million) in H1 2024, marking a substantial SEK 1.1 billion improvement. This shift underscores the company's ability to scale efficiently and leverage its technology investments, particularly in AI, to drive down costs while boosting revenue.

Klarna's unit economics are also improving, with the revenue take-rate increasing from 2.33% to 2.54%. This, coupled with a 22% increase in gross profit to SEK 6.3 billion, suggests that the company is becoming more effective at extracting value from each transaction. Nice!

Klarna's funding strategy appears robust, with deposits from the public increasing by 33% to SEK 106.3 billion. This provides a stable and relatively low-cost funding base, which is critical for a FinTech company operating in the lending space (more on this - below).

The company's CET1 ratio of 14.9% indicates a solid capital position, although it's worth noting that this is lower than some traditional banks. As Klarna expands and potentially faces increased regulatory scrutiny, maintaining adequate capital buffers will be crucial.

However, investors should note some potential concerns. Credit losses have increased by 37% year-over-year to SEK 2.4 billion, outpacing GMV growth. While still low at 0.46% of GMV, this uptick warrants monitoring, especially given the current economic uncertainties.

Klarna + AI ?? Perhaps the most striking aspect of Klarna's AI strategy is its impact on workforce management.

CEO Sebastian Siemiatkowski revealed that the company's AI assistant now performs the work of 700 employees, reducing average customer issue resolution time from 11 minutes to just 2 minutes. This efficiency gain has allowed Klarna to reduce its workforce from 5,000 to 3,800 over the past year through natural attrition, with plans to potentially shrink further to around 2,000 employees in the coming years ??

Not only can we do more with less, but we can do much more with less. Internally, we speak directionally about 2,000 [employees]. We don’t want to put a specific deadline on that - Sebastian Siemiatkowski

The financial impact of these AI-driven efficiencies is substantial. Klarna reports that average revenue per employee has surged by 73% over the past 12 months, from SEK 4 million to SEK 7 million. This dramatic increase in productivity is a key factor in the company's improved profitability and positions Klarna favorably in terms of operational efficiency compared to its peers.

Zoom out ?? Klarna's success in the U.S. market remains a crucial growth driver, with the company now working with a quarter of the top 100 U.S. merchants. This expansion has led to a 93% year-on-year rise in gross profit in the country, underscoring the potential for continued growth in this key market.

The company is also diversifying its product offerings, moving into traditional banking territory with the introduction of an "account" where customers can store money and earn cashback rewards.

This strategic move thus aims to embed Klarna more deeply in customers' everyday financial lives, potentially increasing customer loyalty and lifetime value.

ICYMI: Klarna expands into banking ???? [what it’s all about & what it has to do with their upcoming IPO + a bonus read on Klarna]

?? THE TAKEAWAY

What’s next? ?? All in all, Klarna's AI-centric strategy positions it as a leader in applying new technologies to the FinTech sector. This approach could provide a significant competitive advantage, allowing the company to operate more efficiently than traditional financial institutions and many fintech peers. However, the dramatic workforce reductions planned by Klarna also raise questions about the broader societal implications of AI adoption and could potentially lead to public relations challenges or regulatory attention (especially in Europe). Looking ahead, as Klarna prepares for a potential IPO, likely targeting a valuation between $15 billion and $20 billion, investors will need to weigh the company's improved financial performance and use of AI against the risks associated with rapid technological change and potential regulatory headwinds in the evolving FinTech landscape. Zooming out, Klarna's IPO and its long-term performance as a public company will likely hinge on its ability to balance innovation, efficiency, and responsible growth in an increasingly AI-driven financial world.

ICYMI: Klarna’s strategic M&A to reshape the BNPL landscape in New Zealand ?????? [what it’s all about & why it makes sense + a bonus dive into Klarna]

Affirm’s Q4 2024: strong growth and improving profitability signal a bright future for the undervalued BNPL giant ???? [breaking down the Q4 FY2024 numbers, what they mean, and what’s next & why Affirm is the FinTech giant you cannot ignore + some bonus reads inside]

Apple and other tech giants are in talks to invest in OpenAI ????

The news ??? Tech behemoths Apple and Nvidia are reportedly in talks to invest in OpenAI, the company behind the wildly popular AI chatbot ChatGPT.

This potential investment is part of a new fundraising round that could value OpenAI at over $100 billion making it one of the most valuable startups globally, according to multiple sources familiar with the matter.

Let’s take a quick look at this and see why it matters.

More on this ?? The funding round, led by venture capital firm Thrive Capital, is expected to raise several billion dollars. Microsoft, already a major investor in OpenAI, is also anticipated to participate.

While the exact investment amounts are undisclosed, this move signals a deepening of relationships between OpenAI and key players in the tech industry.

Zoom out ?? Apple's interest in OpenAI is particularly noteworthy, as the company typically shies away from startup investments. This potential move aligns well with Apple's recent announcement of integrating ChatGPT into its upcoming iOS 18, iPadOS 18, and macOS Sequoia operating systems.

The integration aims to enhance Siri's capabilities and introduce new AI-powered features across Apple's ecosystem.

ICYMI: Apple Intelligence and the future of P2P payments ???? [a holistic view of the most important AI improvements, why they matter & what’s next + a bonus dive into AI-driven Finance & how Apple can dominate here]

Nvidia, a dominant force in AI chip manufacturing, has been a long-standing partner of OpenAI, supplying the hardware that powers ChatGPT and other AI models. Their potential investment is the least surprising one and would only further solidify this crucial relationship.

OpenAI's growth has been remarkable, with ChatGPT reportedly doubling its weekly active users to over 200 million in the past year. However, the company's revenue, estimated at $3.4 billion annually as of May 2024, still lags behind some expectations given its high valuation.

?? THE TAKEAWAY

What’s next? ?? This is a brilliant deal for everyone: (1)Apple gains access to industry-leading AI technology and can quickly access advanced AI features thus enhancing the capabilities of Siri and other Apple Intelligence offerings; (2) OpenAI benefits from massive exposure to Apple's user base and can quickly distribute its LLMs across billions of devices; (3) Microsoft would please regulators regarding the ongoing fight against anti-competitive practices in the field of AI. Zooming out, the collaboration between tech giants and AI leaders like OpenAI could lead to more sophisticated financial tools and services being launched soon. We might sooner see AI-powered personal financial assistants, advanced fraud detection systems, and more accurate predictive models for investment and risk assessment. However, this move also raises questions about market concentration and data privacy. As tech giants increasingly invest in and partner with AI companies, there may be concerns about the consolidation of AI capabilities among a few powerful entities. So watch this space!

ICYMI: AI Agents in FinTech: from customer service to autonomous spending ???? [why it matters & what’s next]

Another one: PayPal and Fiserv expand partnership to streamline digital payments ????

The news ??? Finance behemoths PayPal and Fiserv have just announced an expansion of their global strategic partnership, aiming to simplify and enhance digital payment experiences for merchants and consumers.

Let’s take a quick look at this.

More on this ?? This collaboration builds on a decade-long relationship between the two financial technology giants and introduces essentially three key developments:

• Simplified Integration: Fiserv's merchant clients will now have easier access to PayPal , Venmo , and related services, streamlining the process of enabling these payment options for their customers.
• Fastlane by PayPal: a centerpiece of this expanded partnership is the integration of Fastlane, PayPal's one-click checkout solution. Fiserv clients will have a simple connection point to implement Fastlane, which promises to significantly accelerate guest checkout flows in the U.S.
• Broader Accessibility: further to the above, this partnership extends PayPal's products and solutions to a wider audience, reinforcing the company's commitment to enhancing checkout convenience across various e-commerce platforms and payment service providers.

We can remember that a similar deal was done with Adyen last week.

ICYMI: PayPal and Adyen join forces for the first time to change the game in payments ???? [what it’s all about & why it’s huge + bonus deep dives both into Adyen & PayPal and an extra one into Shopify]

?? THE TAKEAWAY

What’s next? ?? At the core, this partnership, like PayPal's deal with Adyen, exemplifies a growing trend of strategic alliances between major players in the payment industry. We're likely to see more collaborations between apparent competitors, as companies recognize the value of leveraging each other's strengths rather than competing across all fronts. That said, for PayPal, partnering with Fiserv represents another move to expand its ecosystem and reach. By integrating with Fiserv's extensive merchant network, PayPal gains broader distribution, similar to how it's leveraging Adyen's merchant base. This strategy allows PayPal to grow its footprint without the high costs of direct acquisition. On the other hand, just as Adyen's distribution moat is widening through its PayPal partnership, Fiserv may experience a similar benefit. By offering easier access to PayPal and Venmo, Fiserv enhances its value proposition to merchants, potentially strengthening its market position. Looking at the big picture, with PayPal pushing Fastlane through multiple partnerships (Adyen, Fiserv, and soon maybe even Stripe? ??), we're likely to see intensified competition in the accelerated checkout space. Other players may respond with their own innovations or by forming similar alliances, ultimately benefiting consumers with faster, more convenient payment options. On top of that, these partnerships may lead to a more interconnected payment ecosystem, where the lines between competitors and collaborators blur. This could result in a market structure where a few large, interconnected networks dominate, potentially raising antitrust concerns. All in all, the PayPal-Fiserv partnership signals a shift towards a more collaborative, interconnected payment ecosystem. While this trend promises enhanced services and broader reach for consumers and merchants alike, it also sets the stage for a more complex competitive landscape.

ICYMI: FinTech giant PayPal's Q2: profitability push pays off, yet all eyes are on growth challenges ???? [breaking down the key numbers, what they mean & whether PayPal stock is worth your time and money in 2024 + more bonus dives into PayPal and Shopify]

Fiserv’s Q2 2024: a FinTech fortress still poised for sustained growth ???? [analyzing their latest numbers, what they mean & why the FinTech giant is still poised for sustained growth]

Extra Reads & Quick Bites for Curious Minds ??

• Adyen Appoints Cash App's Tom Adams as New CTO ?? Payments processor Adyen has hired Tom Adams, head of engineering at Cash App, as its new chief technology officer. Adams replaces Alexander Matthey and will oversee the strategic and technological vision of Adyen's single platform, which includes payments, data, and financial products. Pieter van der Does, CEO of Adyen, praised Adams' experience in building and leading global engineering organizations and driving product innovation. Adams expressed enthusiasm for joining Adyen and contributing to its growth ambitions and customer-led innovations. ICYMI: PayPal and Adyen join forces for the first time to change the game in payments ???? [what it’s all about & why it’s huge + bonus deep dives both into Adyen & PayPal and an extra one into Shopify]
• Mercado Libre Files Complaint Against MODO for Monopoly ?? Mercado Libre, a leading e-commerce company in Latin America, has filed a complaint with Argentine regulators against MODO, a digital wallet supported by local banks. MercadoLibre alleges that MODO is engaging in anti-competitive behavior and creating a market monopoly. The complaint highlights concerns about market concentration and coordinated practices among banks backing MODO, including Banco Nacion, Santander, BBVA, and HSBC. MercadoLibre aims to ensure a competitive environment that fosters fintech innovation. Previously, MODO had accused Mercado Pago, MercadoLibre's financial technology division, of unfair practices to gain market dominance. ICYMI: Latin America's e-commerce giant MercadoLibre is uniquely poised for continued dominance ???? [breaking down their key numbers, understanding what they mean so you can see why you just can’t ignore this FinTech giant in 2024]
• Stripe CTO David Singleton Steps Down ?? Stripe's chief technology officer, David Singleton, is stepping down after nearly seven years with the payments giant. He will be replaced by his deputy, Rahul Patil. Singleton announced his departure on LinkedIn, revealing plans to start his own company. He joined Stripe in 2017 after initially seeking advice for a startup idea. Singleton will stay at Stripe until October to support the transition to Patil, who has been with the company for four years and has experience at Oracle, AWS, and Microsoft. Singleton praised Patil's business sense and technical expertise. Details of Singleton's future venture remain undisclosed. ICYMI: Stripe aims to revolutionize cross-border commerce in Asia with AI ???? [what the USP here & what’s next + a bonus dive into Stripe et al.]

Money Moves ??

• Visa is in talks with Featurespace about a ￡700M acquisition of the British financial fraud fighting outfit, according to Sky News.
• Gameplay Galaxy, a web3 game development studio founded by the creators of the Trial Xtreme series — a popular bike racing game franchise with over 300 million downloads — has raised $11.17M in a seed extension round.
• London-based?Tilt, an online shopping platform designed like a social media app, raised?$18M?in funding.?Balderton Capital?led the round and was joined by investors including?TQ Ventures,?Earlybird,?and?Seedcamp.

Continue reading by subscribing to Linas's Newsletter. You will receive fresh news about FinTech with hot takeaways every day.

P.S. You might enjoy my earlier pieces as well:

?? Top Resources for Startup Founders, CEOs, Investors & VCs ??

?? The Future of Finance: 10 FinTech & FinServ M&A predictions for 2024 ??

?? 10 FinTech and Finance stocks to include in your portfolio for 2024 ?? | Part I

?? The Future of Finance: 10 FinTech & FinServ M&A predictions for 2024 ??

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About: I am a business developer, sales professional, and FinTech strategist, as well as a Cryptocurrency and Blockchain enthusiast. I'm highly passionate about Financial Technology and Digital Innovation and strongly believe that it will change the world for the better. Apart from my daily job at the world’s leading digital asset infrastructure startup where I’m responsible for revenue operations, I'm an active member of the FinTech community and a TechFin evangelist.

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