Buy Now, Pay Later Meets Harsh Reality: Klarna’s Struggles Reflect a Fintech Correction

“As cost unfortunately seems to have been a too predominant evaluation factor... what you end up having is lower quality.”— Sebastian Siemiatkowski, CEO of Klarna

At its peak, Klarna was poised to redefine consumer finance. It expanded rapidly, leaned into artificial intelligence, and pushed toward a highly anticipated IPO. But recent events paint a different picture—one that suggests the BNPL boom may have been buoyed by unsustainable optimism.

In the first quarter of 2025, Klarna reported $136 million in customer credit losses, a 17% increase year-over-year, while its net losses doubled to $99 million. These losses stem from two converging pressures: rising consumer defaults and the costs of restructuring its operations around AI. Klarna’s shift to automation was one of the most aggressive in fintech, eliminating about 40% of its workforce and replacing many roles with generative AI systems, particularly in customer service and marketing.

Though the company claims these changes brought cost savings—$10 million in marketing reductions, for example—CEO Sebastian Siemiatkowski has publicly acknowledged the drawbacks. Reflecting on the restructuring, he noted that financial considerations overshadowed service quality, leading to a compromised customer experience. Klarna now plans to reintroduce human support via a flexible, gig-style workforce, a pivot that underscores the complexity of automating consumer-facing operations without eroding brand trust.

Economic Stress and the Changing Consumer Landscape

According to the Federal Reserve Bank of New York, U.S. consumer debt has reached a record $18.2 trillion. Student loan delinquencies are rising, and younger consumers—the key demographic for BNPL usage—are grappling with inflation, stagnant wages, and mounting financial obligations.

BNPL services, often marketed as low-risk and interest-free, are beginning to reveal their underlying risks. When payments are missed, customers face late fees, potential credit score damage, and the possibility of having their debt sent to collections.

At the same time, recent moves by the Trump administration have reversed key protections that once applied to BNPL providers. The Consumer Financial Protection Bureau no longer enforces BNPL as credit card lenders, removing important disclosure and dispute resolution standards.

Growth Numbers vs. Growing Pains

Klarna’s outward expansion continues. The company now serves 100 million active users, with a 27% growth in its merchant network and strategic tie-ups with eBay, Walmart, and DoorDash. Yet behind the scenes, its IPO plans are on hold, reportedly due to both internal restructuring and external market jitters. Recent tariff policies from the Trump administration have contributed to this uncertainty, stalling IPOs across tech, including Klarna’s.

Other BNPL players like Affirm, which powers Costco’s new BNPL service, and Afterpay, now under Block Inc., are encountering similar headwinds. As consumer behavior shifts, the risk profile of BNPL is evolving quickly.

From Fintech Fanfare to Strategic Reassessment

The last few years witnessed a surge of enthusiasm for BNPL platforms, often celebrated as democratizing forces in consumer finance. Klarna, perhaps more than any other, embodied the ambition and velocity of that movement. Yet its current position suggests that scaling rapidly, without adequately accounting for user risk or operational resilience, comes at a steep cost.

This isn’t a collapse of BNPL as a model, but it may represent the end of its most idealistic phase. The next chapter for Klarna—and its competitors—will depend on recalibrating expectations and delivering products that can weather more cautious, cash-strapped consumer behavior.