Klarna, Sweden’s “buy now, pay later” (BNPL) service, announced it is laying off 10 percent of its global workforce in a pre-recorded video message, according to reports from protocol and UGG† The company currently has about 7,000 employees and a 10 percent cut will bring the number of affected employees to about 700.
BNPL services such as Klarna, Affirm, and Afterpay allow users to purchase a product for nothing or for a small fraction of the full price. Customers can then make incremental payments over a period of time, but will typically receive interest-free compensation for any late payments. BNPL companies boomed at the height of the pandemic when many people were strapped for cash and had nothing better to do than shop online.
Klarna CEO Sebastian Siemiatkowski broke the news to employees in a pre-recorded video message, citing “the war in Ukraine, a shift in consumer confidence, a surge in inflation, a highly volatile stock market and a likely recession as the reasons behind the layoffs. Siemiatkowski explained that workers in Europe will receive “corresponding compensation”, but added that the layoff process for employees in the US “will look different” depending on location.
Last week, The Wall Street Journal reported that Klarna is seeking a new round of financing that would value the company at $30 billion, about a third less than the $46 billion it was estimated to be nearly a year ago. Rival BNPL service Affirm has also seen a similar dip, with its share price falling 75 percent this year.
While BNPL usage increased towards the end of last year, the unreliability of its customers in such a volatile economy is likely part of why BNPL services are struggling. A recent report from sfgate reveals that about 73 percent of its customers are considered part of Gen Z (people born between 1997 and 2012), and about 43 percent of them report missing at least one payment. Meanwhile, a report from Fox Business indicates that about 30 percent of BNPL customers as a whole struggle to pay back what they owe, and the current state of inflation isn’t helping. BNPL services cannot make money if they are not repaid, and that can make it a risky business to run.
Despite the downturn in valuation and layoffs, Siemiatkowski told employees that “Klarna continues to maintain a strong position in the market” and says he continues to be “relentlessly optimistic about Klarna’s future”. Other tech companies, including Meta, Apple and Snapchat, are slowing down hiring, while Netflix has already laid off more than 150 employees.