Klarna Can Put Off Payments, But Not Losses

Image source: Amy Shamblen - Unsplash

What's going on?

Klarna reported on Wednesday that its losses ballooned in the first half of the year.

What does this mean?

Klarna got into the buy-now-pay-later (BNPL) game early, and went on to become Europe’s most valuable startup for a time. But now Klarna’s just one of many, which – along with investors’ mounting skepticism about high-growth tech firms – has squashed its valuation to $7 billion, down 85% from last year.

Still, the Swedish payments provider has managed to expand into markets like the Czech Republic, Canada, and Greece, all while attracting some 30 million users in the US too. That helped it swell its revenue by 24% in the first half of this year versus the one before, but that’s nothing compared to the 54% uptick in credit losses that came as increasingly cash-strapped customers failed to pay back their loans. Mix in rising borrowing costs and all the expenses that come with expanding, and Klarna’s losses more than tripled in the first half of the year.

Why should I care?

The bigger picture: Pay now, profit later.
Klarna’s competitors don’t just include tech companies like Apple, but also traditional banks like HSBC and Barclays. They’ve recently launched new services that spread the cost of purchases, which should help them hold onto younger customers who prefer pay-later services to traditional credit cards. That could be a lucrative move: GlobalData predicts BNPL transactions will make up 7.1% of all global commerce by 2026, up from 2.7% last year (tweet this).

Zooming out: Tighten your purse strings.
It’s no wonder shoppers want to spread out costs: data out on Wednesday showed that inflation in the eurozone hit another record high of 9.1% this August versus last year. And since some economists think that could encourage the ECB to go ahead with a jumbo 0.75% rate hike when it meets next week, folk might find their budgets are squeezed even tighter soon.

Originally posted as part of the Finimize daily email.

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