Klarna Continues Interest-Free Installments Despite Rising Central Bank Rates

Klarna Continues Interest-Free Installments Despite Rising Central Bank Rates

Swedish fintech company Klarna is experiencing rapid growth in Europe as consumers turn to Buy Now, Pay Later (BNPL) products amidst concerns about inflation and high interest rates.

In the second quarter of this year, the firm reported a 26% increase in gross merchandise value in the UK and a 14% increase across Europe.

Klarna’s platform has attracted over 100 million European consumers and established partnerships with more than 470,000 merchants.

However, Klarna has not provided information regarding whether the heightened demand will translate into profits or if it will contribute to the company’s losses.

Despite the fact that central bank interest rates have tripled over the past year, Klarna continues to offer interest-free installment options for products purchased using credit.

In the previous year, the company incurred a loss of $1 billion.

Klarna’s CEO, Sebastian Siemiatkowski, emphasized the company’s commitment to Europe and the US, even as other smaller players reconsider their involvement or exit the region.

He stated, “While other, smaller players dial back their commitment or leave the region altogether, we’re doubling down, further strengthening our position in Europe, as well as the US.”

The fintech firm experienced an 85% decrease in its valuation from its peak in 2021 after a recent funding round, indicating the impact of rising interest rates on short-term lenders.

Klarna acknowledged the challenging circumstances under which the investment took place, including high inflation, increasing interest rates, recession concerns, the aftermath of a global pandemic, supply chain disruptions, rising gas prices, and geopolitical conflicts like the war in Ukraine, all of which have affected stock markets.

The firm clarified, “The company’s peers are down 80-90% vs peak valuations and consequently the adjustment in Klarna’s valuation is on par with its public peers from its $45.6bn valuation in June 2021.”

In an effort to streamline operations and reduce costs, Klarna underwent a round of layoffs the previous year and recently eliminated 250 additional positions in Germany and Sweden.

This move involved outsourcing workers and aiming for cost savings, according to the news website Sifted.

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