BNPL giant Klarna returns to profitability after lenders tighten their IOU criteria
$200 jeans in 4 easy installments… girl/boy-maths out to $50. Buy now, pay later service Klarna just had its first profitable quarter in four years. But in the ecomm-obsessed US, Klarna’s been profitable for the past four quarters. Last quarter, US transactions through its service jumped 50% — versus a 22% bump overall. Klarna also shrank its total credit losses by 56% by being pickier about who it lends to. BNPL companies take on the risk of the loans they dole out, so when customers don’t pay up, they take a hit.
Up next: US rival Affirm reports today, which should give a broader picture of the BNPL market’s health.
Buy now, pay never?… BNPL services thrived during the pandemic as online shoppers snapped up air fryers and designer yoga pants. Klarna’s valuation ballooned to $46B in 2021, making it Europe’s most valuable startup. But with folks reining in spending, Klarna’s valuation plunged last year to $6.7B, and the company laid off 10% of its workforce. Meanwhile, regulators have said that half of those using BNPL services make purchases they can’t afford. A recent gov’t study found BNPL users had lower credit scores and higher rates of loan delinquency than the average shopper.
Being picky helps when things get sticky… Klarna’s made a point of being choosier about who it lends to, which helped shrink its credit losses. Banks are also tightening up their IOU criteria for everything from business loans to mortgages, as consumer debt balloons and savings dwindle (not to mention: high interest rates). Getting fewer but more reliable borrowers could help lenders curb losses during tight economic times.