Klarna cuts workforce by 10%

By MixDex Article may include affiliate links

Buy now, pay later” company Klarna is cutting 10% of its workforce as once-hot fintech and ecommerce stocks begin to cool.

Klarna, which is based in Sweden, says it has 5,000 employees on its website, meaning a 10% cut would represent approximately 500 positions lost, though the company did not immediately confirm that count.

The news of layoffs was reportedly sent to affected employees via a pre-recorded video call Monday, May 23, 2022. Severance is being offered to affected employees, though it will vary based on where the staffer lives.

The BNPL market — which allows consumers to buy an item and then pay for it over time — typically in equal installments over a set time, is crowded with competitors that all essentially do the same thing. BNPL options are common on ecommerce sites, particularly ones offering higher-priced items, but are also sometimes accepted at retail stores.

There is typically no fee to the consumer — the merchant pays Klarna or whatever BNPL provider it uses a percentage of the total sale price, the theory being that it’s worth losing a little on a sale that might not have been made by a customer unable to afford the price upfront.

Some retailers require a minimum spend in order to use BNPL and select consumers can use the service without a credit check.

Like many ecommerce services, BNPL saw a boom during the pandemic as consumer behavior shifted online. However, with inflation soaring and rumblings of a possible recession, it appears that even the ability to pay for a purchase over time isn’t quite as appealing of an offer as it once was.

In addition, federal regulators have taken notice of the popularity of BNPL and have started taking a look into the industry, with concerns that it could encourage irresponsible spending and putting consumers into debt.

Most BNPL services require consumers to register a credit card, which the installments are ultimately charged to — and those credit cards often come with high interest rates, so if a consumer is already short on money, splitting up the payments on a pricey product can been seen as just another way to encourage spending that racks up credit card debt.

Klarna also typically assumes all of the debt which is essentially in the form of an unsecured loan and can be left losing money if the consumer stops paying.

The Wall Street Journal had reported that Klarna was looking to raise another $1 billion from investors, an infusion that would put the company valuation at about $30 billion — down from $46 billion when it peaked in 2021.

Other companies in the space include Affirm, QuadPay, Afterpay and more. Ecommerce giant Shopify also offers its own BNPL though a partnership with Affirm.