Klarna is now betting on the very payment cards it aims to disrupt

The bumpy economy is creating headwinds for the largest buy now/pay later fintechs, and the fallout in recent weeks has been particularly brutal for Klarna.

Negative publicity swirled around the abrupt way Klarna CEO Sebastian Siemiatkowski used a pre-recorded video to announce a 10% reduction in its global workforce last month, citing rising inflation and the choppy stock market.

Outrage flared again this week when Siemiatkowski shared the list of dismissed employees on LinkedIn. He defended his action in a Wednesday Twitter post, explaining that departing Klarna employees created the list to raise their visibility to recruiters.

While Klarna cuts hundreds of its estimated 5,000 workers across dozens of markets, the company’s U.S. arm is trying to expand its interest-free point-of-sale loans to brick-and-mortar stores by adding a physical card to the mix, to augment an app that already supports in-store Klarna purchases.

This week Klarna began rolling out the Klarna Card, a plastic Visa debit card enabling customers to shop at any store or website using the “Pay in 4” interest-free installment loan model popularized by the top BNPL fintechs that also include Affirm, Afterpay, PayPal and others.

Klarna has also launched a marketing blitz at malls operated by Macerich through a partnership inked last year that includes ubiquitous signage at locations like Scottsdale, Arizona’s Kierland Commons and the nearby Fashion Square, where Klarna sponsors a glittering selfie photo booth for shoppers.

Kate Fitzgerald

The move comes amid intensifying competition in the BNPL market, as the sales momentum, stock prices and valuations of top players ranging from Klarna to Affirm and Afterpay sag.

Klarna's losses doubled last year to $487 million due to rising costs and higher loan write-offs, and even as revenue rose 32% during the same period and investors are raising questions about the company's overall health.

“Klarna’s recent difficulties underscore our concerns with respect to the buy now/pay later business model, among them merchant partner concentration, weaker asset quality, wholesale funding constructs, competitive pressure in fees and regulatory uncertainty,” said Michael Taiano, senior director of Fitch Ratings, in a recent report on the BNPL industry.

The Consumer Financial Protection Bureau is currently conducting an inquiry into specific BNPL providers’ practices, including Klarna’s.

Some see the BNPL fintechs’ recent challenges as growing pains in an emerging industry that’s reinventing consumer finance.

GlobalData recently said BNPL made up 2.3% of the global e-commerce market last year, reaching a total of $120 billion, and the BNPL industry is on track to reach $576 billion by 2026.

According to Oakland-based Marqeta, which has provided virtual card support to Klarna since 2018 and will issue the plastic card, Klarna’s move to physical cards is the next logical step in the maturation of the BNPL industry. Marqeta provides virtual card-issuing services to several BNPL fintechs, including Klarna rivals Affirm, Afterpay and others.

“There’s a new generation coming of age that’s looking for different types of credit products, and historically they’ve felt like they weren’t getting the services they wanted from traditional banks and credit cards,” Salman Syed, senior vice president told attendees at American Banker's Payments Forum last month in Arizona.

BNPL loans aimed to revolutionize online sales by using technology and data to extend instant loans to consumers on a per-purchase basis, and merchants are willing to pay a fee to BNPL players for that service, according to Syed.

“It’s still early days for BNPL overall, and it may take longer for BNPL to evolve in stores, as we see what the checkout flow will look like [with cards],” Syed said, noting that consumers already have the option to make purchases in many stores using BNPL apps.

“But looking at the Klarna Card that’s coming out, or the Affirm Debit+ card, these folks are continuing to be pioneers on different types of credit solutions — or hybrid combo solutions that we see in other markets that aren’t even in the U.S. yet, and may become something consumer really want to use,” Syed said.