Investors led by San Francisco-based Dragoneer Investment Group put new money into the Swedish company, giving it a valuation of $5.5 billion and additional financial firepower to expand in the United States.
Klarna, founded in 2005 by chief executive Sebastian Siemiatkowski and partners, enables consumers to buy online without having to provide payment details to the merchant they are buying from.
Instead, Klarna pays for the order, which is then dispatched. It invoices the buyer, who typically gets 14 or 30 days to settle. Its core products are interest-free in the U.S. and UK markets, with merchants paying for its services.
Joining other European fintechs like Berlin-based smartphone bank N26, Klarna said it would invest proceeds to expand in the United States, where it was adding new customers at an annual rate of 6 million.
Klarna said it wanted to offer U.S. consumers a simpler alternative to credit cards, while building up partnerships with merchants including rue21, ASOS, Lulus, Toms, Superdry, Sonos and Acne Studios.
"Finally, transparency, technology and creativity will serve the consumer," Siemiatkowski said in a statement.
U.S. millennials, influenced by the fallout of the financial crisis of a decade ago, are more averse to credit cards than their elders.
Only a third of 18-29 year olds has one, compared to 62% of 50-64 year olds, according to research by Bankrate https://www.bankrate.com/finance/consumer-index/money-pulse-0616.aspx, with many preferring debit cards.
Klarna's biggest existing shareholders, including Sequoia and Bestseller, invested more than $100 million earlier this year, setting the stage for this external round.
It had raised a total of $775 million prior to the latest funding round, according to Crunchbase.
This round was joined by Commonwealth Bank of Australia, HMI Capital LLC, Merian Chrysalis Investment Company Limited, Första AP-Fonden (AP1), IPGL, IVP and funds and accounts managed by BlackRock.
The company, which holds a banking licence, has 60 million end customers, serving 130,000 merchants and processing an estimated 1 million transactions per day.
One merchant partner, fashion retailer H&M, bought a stake in Klarna last year when the fintech was valued at $2 billion.
In January, U.S. rapper Snoop Dogg also backed Klarna and took on a role as its marketing "face".
The company, which employs 2,500 people, says it has a 10% share of the e-commerce market in northern Europe. It operates in 14 countries.
Klarna reported operating income last year of 161 million Swedish crowns ($17 million). Revenues grew by a third in the first quarter, but after years of profitability Klarna lost 96 million crowns in the period as management prioritised growth.
Siemiatkowski told Reuters in April that Klarna was approaching a situation where it would consider a stock market listing but no formal decision has yet been taken.
A spokesman said that view remained unchanged, with a float one of a number of options open to the company.
Numis acted as financial adviser and placement agent to Klarna.
(Reporting by Douglas Busvine; Editing by Thomas Seythal, Jane Merriman and Jan Harvey)
By Douglas Busvine