Klarna, the buy now, pay later (BNPL) giant, has reported a sharp increase in losses as more customers struggle to repay loans. The company’s first quarter net loss surged to $99 million—double last year’s $47 million loss—driven by a 17 percent spike in consumer credit defaults, which hit $136 million. Klarna’s BNPL model allows shoppers to split payments into installments, but it profits from fees charged to merchants and customers who miss payments.
A troubling trend is emerging across the BNPL sector. According to a LendingTree survey, 41 percent of BNPL users admitted to making at least one late payment in the past year, up from 34 percent a year ago. High-income borrowers, men, young adults, and parents of young children are among the most likely to fall behind. The survey also revealed that 25 percent of BNPL users rely on these loans to buy groceries, a 14 percent increase from last year, while nearly one in four users juggle three or more active BNPL loans at the same time.
Klarna has been cutting costs aggressively, replacing 700 employees with AI tools, including using an AI-generated avatar of its CEO for earnings presentations. The company’s workforce has shrunk by 39 percent over two years, and customer service costs are down 12 percent. But the shift hasn’t been smooth—Klarna recently started rehiring humans after the CEO admitted AI chatbots delivered “lower quality” service.
Klarna’s growing losses and the rising default rates across the BNPL sector raise serious concerns about the sustainability of the business model. As more customers struggle to keep up with payments, companies like Klarna could face further financial challenges, threatening the future of the BNPL industry itself.
