Klarna’s dream—to replace credit cards—is facing a series of existential threats.
started reporting to UK credit agencies in June—is not the only company that will be affected by the regulation. But there is a sense the company is a bellwether for BNPL. “All eyes are on BNPL poster child Klarna,” says Dan Ives, equity analyst at investment firm Wedbush. The sector was born in an era where interest rates were low, meaning it was cheap to borrow money to bridge the gap between paying retailers and getting paid by consumers.
“After tremendous growth in 2020 and 2021, there is a general consensus that the BNPL sector is facing [its] day of reckoning,” says Zhong. “The substantial growth in market value in 2020–2021 was fueled by investor optimism in the tech bubble and increased investor participation in the share markets around the world. Gradually, as profitability of this sector is revealed, some investors are moving away from the sector.” As a result, smaller players are being swallowed by competitors.
Other companies are trying to differentiate themselves from the rest of the market by taking swipes at their competitors. Ten-year-old Affirm, which competes with Klarna in the US, says what makes it different is the way it focuses on long-term relationships with customers. Klarna is “so invested in this purchasing of customers that they're going to reduce their workforce in order to maintain their level of marketing spend,” says Michalek, the Affirm CTO.