The End of Klarna’s Easy Money Is Bad News for BNPL

Sebastian Siemiatkowski, el co-founder and CEO of Klarna, seems a little worn out by the barrel of his webcam as he explains to Google Meet why everything is fine on fintech despite the increasingly frantic warnings of an impending recession.

Klarna is a European heavyweight, currently the most valuable private technology company on the block. Since its launch in 2005, the Swedish unicorn has become synonymous with “buy now, pay later” (BNPL), a popular type of debt among Generation Z that allows buyers to divide the cost of their purchases into line for several months. The company claims to have 147 million active users in 45 countries.

But Klarna’s dream of replacing credit cards, which Siemiatkowski describes as “the worst form of credit,” faces a number of existential threats. The company’s workforce is still recovering from layoffs that affected 10 per cent of its staff and new regulation that will impose stricter rules on BNPL suppliers in the UK, one of its key markets. At the same time, BNPL executives told WIRED that investors are losing faith in the sector in the face of a possible recession. “BNPL is relatively new. They want to understand how we are able to weather this storm,” says Libor Michalek, chief technology officer of another BNPL provider, Affirm. On June 16, The Wall Street Journal reported that Klarna was trying to raise money based on a $ 15 billion valuation, which would mean he believes the business is worth $ 30 billion less than last year. Klarna declined to comment on what she called “speculation.”

Siemiatkowski credits investor sentiment change with turbulence and a new strategy that will curb their growth plans. “Six or nine months ago, investors said, ‘Growth is the only thing that matters, just focus on that,'” Siemiatkowski said, adding that this was the reason for the layoffs. six months, that has changed. Investors now want to see profitability. They want to understand how we will get to profitability from now on. “

Focusing on short-term profitability will be a diversion from the strategy for Klarna. The company’s net losses reached SEK 2.5 billion ($ 254 million) in the first quarter, four times more than in the same period last year, as it expanded aggressively in the US. “Klarna has been profitable for the first 14 years, but in recent years we’ve invested heavily in new products and services, and in new markets like the U.S., we’ve been dependent on people investing more money in the business.” he says.

Increased competition is also weighing on the company. Siemiatkowski describes Apple’s decision to offer its own BNPL product as a validation of the Klarna concept. But a Klarna employee, who worked in trade associations until they were fired as part of the layoffs, described the concern within the company as the market was getting tighter and tighter. “We always tried to increase our competitors or at least avoid them, because if our competitors also have a presence in our traders, we know we will lose market share,” they say.

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