Rapper Snoop Dogg in an advertisement for Klarna – Klarna

Swedish online payments business Klarna has become the most valuable financial technology start-up in Europe after its valuation rose to more than $10bn (£7.7bn) in a new funding round.

The company, which lets customers pay in increments for their purchases, has raised around $650m in funding from backers, bringing its valuation to $10.65bn.

The investment was raised from Silver Lake, Singapore’s sovereign wealth fund GIC, BlackRock and HMI Capital have helped Klarna beat British rivals such as Revolut and Checkout.com whose valuations remain at $5.5bn.

Klarna plans to use the fresh injection of funding to continue its global expansion, including in the US where it now has more than 9 million customers.

The business is also planning to float in the US within two years. “Over time, with the amount of shareholders we have, it’s probably going to be the natural evolution,” chief executive Sebastian Siemiatkowski told Bloomberg.

The start-up said on Monday that it now has 12 million monthly active users around the world and has seen a surge in demand during the coronavirus pandemic which has led to 35,000 new retailers signing up to its service.

Klarna’s interest-free installments model involves the business paying the retailer immediately and then collecting regular payments from customers until the balance is paid off.

The sector has attracted controversy and has been criticised by debt charities for encouraging spending.

However, Klarna’s UK head Luke Griffiths told the Telegraph earlier this year that the business does not require increased regulation.

“We operate all our services to the same standard, whether they are regulated or unregulated,” he said. “We want to be a responsible lender.”

Mr Siemiatkowski said on Monday that the world is now at a “true inflection point in both retail and finance.”

“The shift to online retail is now truly supercharged and there is a very tangible change in the behaviour of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and an overall superior shopping experience,” he added.