In a Shocking Turn of Events, Klarna (The App That Allows People to Finance Their Burritos Over Four Interest-Free Payments) is Hemorrhaging Money
SOPA Images. Getty Images.NBC News – Klarna’s customers are having a harder time paying back the installment loans they take out with the popular "buy now, pay later" service.
The Swedish company’s net losses doubled in the first quarter even as its user base and revenue grew, Klarna reported Monday, weeks after pausing its plans to go public over concerns about tariffs and economic uncertainty. Klarna’s consumer credit losses swelled 17% in the first quarter from the same period a year earlier, hitting $136 million.
Industrywide, BNPL borrowers are increasingly falling behind on their loan payments. In a survey conducted by the credit platform LendingTree last month, 41% of users said they paid late within the last year, up from 34% the previous year. At least a quarter of BNPL users took out loans to pay for groceries, the survey found, up from 14%.
Who could have seen this coming? Back in March when Klarna, the buy now pay later app, announced they were partnering with Door Dash, I thought they were poised for big things. What better group of people to depend on for the financial health of your company than those ordering $40 of delivery hibachi that they don't have the money for up front. Who'd have thought that a person with a total net worth of $14.73, who would rather go into the red than walk to the grocery store and purchase a $1.50 box of spaghetti, would not be reliable debtors for your business.
Maybe this is all part of Klarna's plan. Their differed payments, if payed on time, are famously interest-free. So the company is primarily making money from merchant fees, and late fees from customers who fail to pay for their lunches on time. When you think about it, that $136 million in consumer credit losses is actually a good thing for Klarna. That's $136 million dollars in payments they'll be collecting interest on. That's how that works, right? I'm sure they'll get around to paying eventually. Any day now, once their customers finally get that big paycheck they've been waiting on, that money will surely be going straight to Klarna, and not less important things like rent, utilities, gas, drugs, etc.
As famous dead rich guy who had his son kidnapped that one time, Jean Paul Getty once said, "If you owe the bank 10 Chipotle burritos, that's your problem. If you owe the bank 100 million Chipotle burritos, that's the bank's problem."
I'm afraid Klarna is reaching "we have a problem" territory. Klarna reportedly has over 100 million users
According to a survey conducted by LendingTree, 41% of them (for the mathematically challenged that's 41 million customers) haven't been able to pay on time. It was a bold move to start a company based on the idea of, "What if we do what payday loan companies do, except we don't charge interest, we run even softer credit checks, and instead of giving them a lump sum based on their financial history, we just start a tab they can add to as they see fit."
But rest assured, Klarna says they have no plans of shutting down. They remain, "well-positioned to adapt swiftly if required". And if you needed further reassurance, you'll be happy to hear that they've found some money by cutting 40% of their staff and replacing them with AI.
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The Tab – The company told the Financial Times they are “closely monitoring changes in the macroeconomic environment” and “remains well-positioned to adapt swiftly if required”.
It’s not all doom and gloom, because Klarna’s revenues in the first quarter still rose 13% from last year, to $701 million. They have also reduced their workforce by 40%, largely due to AI, so that’s saving money.
Even their remaining human employees are splitting their work with computers. Klarna's Q1 results were announced by an AI-version of their CEO.
Which is how you know the human version of their CEO is hard at work to bring Klarna back from the brink of death. If I'm Klarna, my next move is hiring a fleet of AI robots to go door-to-door and collect on delinquent payments face-to-robot. If past-due emails and hits to their credit scores aren't enough to make their customers pay up, maybe robot enforcers with laser beams for eyes will be more convincing.