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STOCKHOLM, Dec 18 (Reuters) - Swedish online payments firm Klarna is buying German peer SOFORT, giving it a 10 percent share of the e-commerce payments market in the 14 European countries in which the two firms operate and building up its challenge to larger rival PayPal.
Klarna's services have been hugely popular in the Nordic region. It allows consumers to buy goods online but pay for them after delivery, taking a cut from merchants and charging interest on instalment payments.
Klarna said on Wednesday it was buying SOFORT, which focuses on online direct banking and is a leading player in Germany and Austria, from majority shareholder Reimann Investors for an undisclosed sum.
Combined, the two will have 25 million users and cover more than 50 percent of all German online merchants.
A Klarna spokesman said revenues for the combined company would be 200 million euros ($275 million) this year and would grow "considerably" in 2014.
The deal, which news site TechCrunch quoted sources as saying was worth $150 million, means the company will be present in 14 European markets where consumers are expected to make transactions online this year worth $100 billion, Klarna said.
The company has also said it is keen to tackle new markets in Britain and North America, where payment pioneer PayPal dominates.
So far, no company has managed to take significant market share from PayPal, which was bought by EBay in 2002 for $1.5 billion and is now its crown jewel, making up well over a third of total revenue.
Klarna, which had a near $1 billion valuation based on its latest financing round, was founded in 2005 and turned profitable in only its second year of business.
It is backed by the likes of General Atlantic and Russian investor DST, one of Facebook's biggest shareholders. Michael Moritz, a partner at Sequoia Capital whose investments have included PayPal and Google, is on its board of directors.
The deal for SOFORT is subject to approval by Sweden's financial regulator.