If you’ve shopped online in the past few years, chances are you’ve seen the option to “Buy Now, Pay Later” (BNPL).
This flexible payment method has exploded in popularity, reshaping how millions of consumers pay for everything from sneakers to furniture.
At the center of this trend is Klarna, a Swedish fintech company that pioneered the BNPL model back in 2005.
Now, Klarna is preparing to go public in the United States with an expected valuation of around $14 billion.
The big question for investors is whether Klarna represents the next financial giant or if it’s a risky bet in an industry built on lending money to shoppers who might not always pay it back.
Let’s break down the story, the numbers, and what U.S. investors should consider before jumping in.
From a Swedish Idea to a Global Giant
BNPL may feel like a new innovation, but its roots go back almost 20 years. In Sweden, consumers were accustomed to a “try before you buy” culture, paying for goods via invoice after delivery.
While shoppers loved the flexibility, merchants faced major risks when customers failed to pay.
Enter Sebastian Siemiatkowski and his co-founders, who saw an opportunity to solve this problem by guaranteeing payments to merchants while allowing consumers to split purchases into interest-free installments.
With the backing of an early investor, Klarna launched as a checkout solution in 2005 and quickly gained traction.
Fast forward to today: Klarna has 111 million active users across 26 countries, processes over $100 billion in purchases annually, and partners with more than 800,000 merchants, including household names like Walmart.
How Klarna Makes Money
Unlike traditional lenders, Klarna’s revenue model is fairly straightforward:
- Merchant Fees: When you buy a $100 product, Klarna might pay the retailer $97 and keep the $3 fee. Merchants are happy to accept this cut because BNPL often boosts sales.
- Late Fees & Interest: While many purchases are interest-free, late payments and extended financing options carry fees, sometimes with interest rates as high as 35.99%.
- Advertising Revenue: With millions of users and detailed purchase data, Klarna is building a digital advertising business. Its ad revenue jumped from $13 million in 2020 to $180 million in 2024, and this segment could become a high-margin growth driver.
One unique advantage Klarna has over rivals: it operates as a licensed bank in Sweden. That means it can use customer deposits – currently around $14 billion to fund loans, rather than relying on expensive external debt.
This gives it a significant edge in keeping financing costs lower.
The Numbers: Growth vs. Profitability
On the surface, Klarna’s growth story looks strong:
- 2024 revenue reached $2.8 billion, up 24% year-over-year.
- Gross merchandise volume (GMV) hit $105 billion.
- The company even reported a modest profit of $21 million in 2023 after years of heavy losses.
But the picture isn’t entirely rosy. That profit was largely due to one-time gains, and if you strip those out, losses would have been closer to $400 million.
Credit losses – money lost when customers don’t repay their BNPL loans remain a huge challenge. In 2023 alone, Klarna wrote off nearly $500 million, equal to 18% of its revenue.
This is the central risk of BNPL: to grow, companies must lend more, which increases the chances of defaults.
Even though Klarna has cut costs and leaned on automation to improve efficiency, the balance between growth and risk remains fragile.
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How Klarna Stacks Up Against Rivals
Klarna isn’t alone in the BNPL race. U.S. investors may already be familiar with Affirm, which went public in 2021 and now trades at nearly twice Klarna’s expected valuation.
While Affirm charges higher interest rates and focuses more on long-term installment loans, both companies face similar default rates.
The bigger threat may come from outside fintech: Apple, PayPal, Block, and even credit card giants like American Express are all entering the BNPL space.
With such heavyweight competition, sustaining growth while achieving profitability could prove challenging for Klarna.
Opportunities Ahead
Despite risks, Klarna has ambitious plans that could reshape its future:
- Becoming a “Super App”: Beyond BNPL, Klarna is building a platform that combines shopping, banking, debit cards, and advertising – similar to how WeChat evolved in China.
- Advertising at Scale: If Klarna can generate even $10 per user annually in ad revenue (a fraction of what Snap or Pinterest earn), it could add over $1 billion in high-margin income.
- U.S. Growth: With American credit card debt hitting an all-time high of $1.3 trillion, BNPL’s appeal as a lower-cost alternative could fuel rapid adoption in the U.S.
Risks Investors Must Weigh
For U.S. investors considering Klarna’s IPO, the risks are significant:
- Credit Losses – Defaults remain stubbornly high and could worsen if the U.S. economy slows.
- Regulation – Starting this year, FICO will include BNPL loans in credit scores, potentially reducing consumer demand.
- Competition – With Apple Pay and PayPal aggressively expanding, Klarna may face margin pressure.
- Corporate Governance Concerns – Related-party transactions and insider stock sales raise questions about leadership transparency.
Final Take
BNPL isn’t going away. In fact, the global market could reach $1 trillion by 2030, and Klarna is well-positioned as a leader.
But leadership doesn’t always guarantee profitability.
The company’s push into advertising and super-app functionality may hold long-term promise, yet the near-term risks around defaults and competition are real.
For U.S. investors, Klarna’s IPO may be appealing if you believe in the continued growth of BNPL and the company’s ability to monetize its massive user base.
But if you prefer stable earnings and low exposure to consumer credit risk, this might not be the safest bet in your portfolio.
In the end, investing in Klarna comes down to a choice: do you see BNPL as the future of consumer finance or just another debt trap dressed in modern fintech clothing?
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