Klarna: a strategic reflection on the BNPL

In recent years, Klarna has become one of the most recognisable fintech companies worldwide, thanks to its Buy Now Pay Later (BNPL) model. The service allows consumers to split payments into interest-free instalments.

Founded in Sweden in 2005, Klarna allows consumers to split purchases into interest-free instalments, both online and in physical stores. This system has helped facilitate immediate access to goods and increased consumption. However, the company recently announced that its credit losses rose 17% year-on-year, reaching $136 million. As a result, Klarna suspended plans for a U.S. stock market listing.

BNPL Market

How BNPL Works

Klarna’s business model is straightforward: when a consumer buys a product worth $200, for example, they can choose to pay only $50 upfront and split the remaining $150 into three interest-free monthly instalments. Klarna advances the full amount to the merchant and collects the instalments from the customer, earning primarily from merchant fees and penalties applied to late payments.

This mechanism has quickly won over millions of users. Klarna now claims 100 million active users globally, working with 724,000 commercial partners—from major fashion brands to online supermarkets.

Industry Growth

The BNPL sector has grown rapidly, with an average annual growth rate of 55% since 2021. Global transaction volume rose from $97 billion to a projected $560 billion by 2025.

But growth has a downside. Many users attracted to BNPL have low credit scores. According to the Consumer Financial Protection Bureau (CFPB), two-thirds of BNPL loans in the U.S. were granted to high-risk users, raising the likelihood of defaults.

Fragile financial realities in the U.S.

What initially seemed like a win-win system is becoming increasingly problematic, as repayment difficulties are no longer a marginal issue. Data from LendingTree shows that 41% of American users made late payments at least once in the past year, up from 34% in 2024.

Even more concerning is the shift in usage: BNPL has moved from enabling luxury purchases to becoming a survival tool. In the U.S., the use of BNPL for grocery shopping increased by 14% compared to the previous year.

Klarna’s credit losses rose 17%, despite attempts to downplay the situation. The core issue lies in the ease of credit access—BNPL requests are often approved in real time, with minimal checks on customer solvency, enabling multiple loans without proper evaluation.

Economic slowdown = Rising risk

In Q1 2025, the U.S. GDP contracted by 0.2%. As households face mounting financial pressure, reliance on alternative credit models like BNPL may increase—exposing providers like Klarna to even more risk.

Klarna’s Strategic Challenges

An unsustainable long-term business model

BNPL attracted millions through easy credit access. However, the lack of proper credit checks led to a 17% increase in defaults, eroding margins and investor confidence—just as Klarna was preparing for its IPO.

Overexposure in the U.S. market

The U.S. is a key growth market but also poses high regulatory and political risk (e.g. new Trump tariffs, CFPB reversals). The use of BNPL for essential expenses like food signals a high-risk user base relying on credit for survival—not convenience.

Over-automation and drastic cuts

A 40% reduction in workforce improved revenue per employee but may have weakened innovation and customer support—both crucial for trust in fintech services. Excessive focus on AI risks becoming an IPO slogan rather than a genuine differentiator.

Premature IPO and misleading communication

Planning an IPO during a business model transition, amidst high credit risk, was premature. Branding Klarna as an “AI-first fintech” appeared more like marketing than substance.

United States: spending and credit-oriented consumption

High spending propensity
Americans tend to spend more of their disposable income than Europeans. In Q2 2024, the U.S. personal savings rate was 5.2%, below the 2010–2019 average of 6.1%.

Widespread credit use
Credit usage is deeply rooted in American financial culture. Credit cards are used even for everyday purchases to earn rewards and build credit scores. The scoring system incentivises credit use, embedding it in everyday life.

Mortgage flexibility
Long-term fixed-rate mortgages (15 or 30 years) are common in the U.S., allowing for payment stability even in volatile interest-rate environments.

Klarna has gained traction in the U.S., but also faced significant losses due to repayment defaults, putting pressure on its financials.

Klarna’s workforce cuts

In 2022 and 2024, Klarna announced layoffs to “reorganise and optimise” costs. This is common among scale-ups transitioning from hypergrowth to financial discipline. While it improved some metrics, former managers admitted it also reduced innovation and slowed product development.

Job cuts alone can’t save you!
They bring short-term relief but don’t solve core business issues. They risk harming innovation, brand trust, and time-to-market capabilities.

Klarna’s long-term strategy: what must change?

Klarna’s priority markets

Core Markets

• USA: huge potential, but needs strategic revision:
  • More selective customer models
  • Stronger merchant and financial partnerships
  • Advanced risk monitoring, ideally AI-powered
    
• UK: similar credit culture to the U.S.
• Australia/New Zealand: fintech-friendly environments
  

Emerging markets (educational focus required)

• Brazil, Mexico: high smartphone use, existing credit culture
• SE Asia : young, mobile-first populations; rising e-commerce
  

Challenging markets (localised strategy needed)

• Germany, France, Italy: large markets with conservative credit habits
  • Emphasise responsible, green, or premium BNPL positioning
  • Partner with trusted local retailers
    

Europe: financial prudence and savings

• Higher savings rates
  Eurozone savings rate reached 15.7% in Q2 2024 (vs. 12.3% pre-pandemic)
• Conservative credit use
  Europeans favour debit over credit. Credit cards are used mainly for emergencies.
• Variable-rate mortgages
  More common than in the U.S., increasing uncertainty and reinforcing saving habits.
  

Klarna’s Strategic Alternatives

If layoffs aren’t enough, here are smarter strategic paths:

Clear Positioning: “Safe Credit + Smart Banking”

• Responsible BNPL 2.0
  • AI-driven credit scoring
  • Customised spending limits
  • User education campaigns
    

Redefine target audience + hybrid model

• From “any online shopper” to:
  • Young professionals
  • Repeat users
  • Transparent credit profiles
    
• Europe: conservative models (60-day pay, micro-savings, cashback)
• U.S.: BNPL with insurance/banking partnerships for risk mitigation
  

Revenue diversification

• Expand into financial services (already started):
  • Accounts, loyalty programmes, budgeting tools, marketplaces
    
• B2B Services:
  • Open Banking APIs
  • Credit scoring-as-a-service
    

Reduce U.S. dependency

• Grow in Europe—slower but more stable
• Partner with regulators to define sustainable BNPL standards
• Focus on Nordic countries, Germany, Netherlands, Benelux
  

Ecosystem building

• Klarna Bank
• Klarna Ads
• Loyalty programmes
• Marketplaces
• These deepen user engagement and reduce dependency on BNPL revenue.

Strategic acquisitions

• AI for credit scoring
• Personal finance management startups
  → Reduce default risk and guide smarter spending.
  

Transparent, Educational Communication

• Launch financial literacy campaigns
• Shift the narrative: BNPL as a smart financial tool, not a risky indulgence
  

Final thoughts: fewer users, more value

Klarna has proven it can scale. Now it must evolve.

The next strategic leap is about quality over quantity: users who repay, return, and stay within the ecosystem.

The future of BNPL will be shaped by risk assessment, cultural adaptation, and long-term stakeholder value..