BNPL: Fitch Worries About Klarna as CEO Announces Layoffs

Klarna, a global online lender in the hot buy now – pay later sector (BNPL) that only recently announced topping 150 million consumers, has issued a stark warning about the current economic environment. Sebastian Siemiatkowski, Klarna’s CEO and co-founder, has shared “bad news” with its employees regarding looming layoffs.

In a blog post, Siemiatkowski alluded to 10% of employees may face the loss of their job at the Fintech. He explained that while it is important to remain “calm in stormy weather” the combination of war in Ukraine, rapidly rising inflation and corresponding interest rates are simply too much to ignore. The global economy is sinking and Klarna is not immune to the dire environment:

“What we are seeing now in the world is not temporary or short-lived, and hence we need to act. More than ever, we need to be laser-focused on what really will make us successful going forward. Based on this, the senior leaders of Klarna have made some really tough decisions. Some of the hardest ones we have ever had to make. Together we have re-evaluated our organizational setup to make sure we can continue to deliver on our ambitious targets,” said Siemiatkowski.

European employees that are being let go will receive “an associated compensation” while other jurisdictions will be treated as needed. Impacted employees may expect to receive a “Meeting regarding your role at Klarna” email…

Michael Taiano, Senior Director at Fitch Ratings, distributed a statement on the news that may be a canary in the coal mine for BNPL platforms:

“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 on fees, and regulatory uncertainty.”

Last October, Taiano published a report noting that the BNPL financial model is a solid but it is offset by other risks such as credit underwiring that is “yet to be fully tested” and an evolving regulatory environment. The report also stated that “despite a benign credit environment, a recent study by Credit Karma indicated 34% of consumers using BNPL have been delinquent on one or more payments, and more than 50% of millennial and Gen Z users of BNPL missed at least one payment.”

The cratering economic landscape may compel other Fintechs to curtail or adjust their lending as well as it is hard to tell how long it will take for the global economy to regain its footing.



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