‘Buy now, pay later’ pioneer Klarna hit by customer debt

KLARNA has reported a 3.1bn Swedish kroner (£255m) loss months after the “buy now, pay later” pioneer became Europe’s most valuable privately held financial technology company.

The lender – which is worth an estimated $46bn (£36bn) – reported that losses over the first nine months of the year had increased nearly fourfold on the back of growing bad debts from customers.

Credit losses also rose to 3bn kroner in the year to September, up from 1.6bn kroner for the previous 12 months.

Klarna allows shoppers to split purchases into three chunks, cutting the upfront fee they pay for goods such as fast fashion or gadgets.

Buy now, pay later has been billed as an alternative to credit cards, avoiding some of the high fees that come with missed payments on plastic. However, regulators have warned that it risks encouraging people to spend more than they can afford and the Financial Conduct Authority is planning to bring in rules to govern the market.

Citizens Advice said one in ten shoppers using the product have been chased by debt collectors, while Credit Karma estimates that Britons have racked up over £4bn in debt on the apps. Stella Creasy, the Labour MP, warned this week that the apps could lead to people overspending on Black Friday and at Christmas.

Klarna, which was founded in 2005, launched in the UK in 2016 and has rapidly grown to have more than 15m users.

The company said it is also continuing swift expansion in the US, where it has 21m users. Dozens of new rivals have launched their own buy now offerings.

Klarna, and rivals such as Afterpay and Affirm, make most of their money from the referral fees paid to them by retailers, rather than through penalties for late payments. The industry insists that it acts responsibly and is far less risky than payday lending.