Lunar raises €40m Series C round as it plans to take a slice of the market dominated by Klarna

Danish challenger bank Lunar has raised a €40m Series C round and is planning to go into the buy now, pay later market.

Nordic neobanking is having a bit of a moment. After having seen the UK steam ahead with the launch of challenger banks like Revolut and Starling Bank, Germany see the rise of N26 and the Netherlands nurture the growth of bunq, European countries in the north have lately joined the new sector. Iceland has indó, Sweden has Northmill and Denmark has Lunar, which has just raised €40m in a Series C round.

Lunar’s latest cash injection comes just months after Lunar extended its Series B round by another €20m. The FinTech originally raised €26m in its Series B round in August 2019. Last year also saw it getting a European banking licence from the Danish Financial Supervisory Authority, cementing its pivot from being a financial management app to joining the ranks of digital banks. Lunar had previously raised €4.2m in 2016.

The Danish neobank has been busy since the April raise, having inked a deal with Subaio to improve its customers’ subscription management in May and opening business accounts for SMEs in August.

Fuelled by the latest capital raise, the Danish lender now has its mind set on a new vector: the buy now, pay later market, potentially putting it at loggerheads with Klarna, the Swedish instalments giant that recently achieved a $10.65bn valuation.

Lunar founder and CEO Ken Villum Klausen has said that the company’s new strategy will enable it make a dent in the Nordic market. “It’s the most profitable banking landscape in the world, but also the most defensive, with least competition from the outside,” he told TechCrunch. “This means that the traditional banking customer is buying all their financial products from their bank.”

The instalments offering would reportedly work in a similar way like UK-based company Curve’s planned credit offering Curve Credit. Essentially, when you’d buy something, the app would ask the user if they’d like to split the purchase into instalments. Villum Klausen said the solution would not require merchant agreements and would work across both the retail and e-commerce space.

“We do not view Klarna as a direct competitor as they are not in the Nordic clearing system,” he added. “Hence, you cannot pay your bills, get your salary and use it for daily banking. Klarna is enormous in Sweden, but relatively small in Denmark, Norway and Finland.”

Nevertheless, Lunar is stepping into the same market that Klarna is one of the biggest players in at a time when the buy now, pay later space is heating up.

Over the past two months, PayPal has launched an instalments solution in the US and in the UK, which has been seen as a way for the FinTech powerhouse to position itself against ventures like Klarna and Australian AfterPay.

Over the summer, buy now, pay later companies Split and Tabby both raised funding rounds and just this week, Curve announced that it had teamed up with Thought Machine to have it power its aforementioned instalments startup Curve Credit.

Looking at funding in the Nordics, we can see another trend. In 2015, the region’s FinTech ventures raised $214.3m across 49 rounds, according to FinTech Global’s data. By 2019, that number had skyrocketed to $947.8m across 80 deals.

The sector was seemingly on track for another record year in the first quarter of 2020, with the sector raising $321.6m across 17 deals. Like everything else in the industry, the future of the sector has been put in doubt due to the coronavirus.

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