Is Klarna Going Out of Business?

In mid-2021, Klarna stood as a shining beacon of European fintech innovation, boasting a peak valuation of over $45 billion. Fast forward to 2025, and Klarna is facing intense scrutiny over its financial stability, strategic direction, and long-term viability.

Headlines about massive layoffs, swelling losses, and a delayed IPO have triggered widespread speculation: Is Klarna going out of business, or is it undergoing a calculated transformation to survive in an evolving fintech landscape?

To understand Klarna’s situation, it’s important to analyse its business model, recent financial performance, market challenges, and future strategy, particularly in the UK, where it remains a dominant player in the “Buy Now, Pay Later” (BNPL) space.

What is Klarna and How Does Its Business Model Work?

Klarna, founded in Sweden in 2005, quickly became a fintech disruptor by offering interest-free, short-term financing to consumers at the point of sale.

Its core proposition lies in removing friction from online payments while giving users the ability to defer or split payments without the need for traditional credit cards.

Klarna’s revenue streams are built primarily around three pillars: merchant transaction fees, consumer late fees, and interest from longer-term credit arrangements. Its popularity surged during the e-commerce boom of the COVID-19 era, particularly among younger consumers.

Klarna’s UK operations are a critical part of its global network. With a market saturated by digital-first consumers, the UK provides fertile ground for the BNPL model. Klarna is integrated into the checkouts of major online retailers, from fashion giants like ASOS and H&M to electronics and fitness brands.

The company’s suite of services includes:

• Pay in 30 days: Delay full payment for 30 days with no interest.
• Pay in 3 instalments: Split the cost into three equal payments.
• Klarna Financing: Monthly payment plans for higher-value purchases.

This model allows merchants to benefit from increased conversion rates and average order values, while consumers are drawn to the flexibility and minimal upfront cost.

What Financial Challenges Has Klarna Faced Recently?

Klarna’s journey has not been without turbulence. In 2025, the company’s financial health came under renewed scrutiny after it reported significantly higher losses and paused its much-anticipated IPO in the United States.

For the first quarter of 2025, Klarna reported a net loss of $99 million, a sharp rise from the $47 million loss recorded during the same period in 2024. This doubling of losses was attributed to various one-off expenses, including:

• Depreciation of assets
• Share-based compensation
• Costs related to company restructuring

Additionally, Klarna noted an increase in consumer credit losses, which rose 17% year-over-year to $136 million. This reflected broader challenges within the BNPL sector, as more consumers struggle to repay short-term loans amid inflation and rising household debt.

Klarna Q1 2025 Financial Snapshot

Metric	Q1 2024	Q1 2025	Change
Net Loss	$47 million	$99 million	+110.6%
Revenue	$620 million	$701 million	+13%
Consumer Credit Losses	$116 million	$136 million	+17%
Active Global Users	90 million	100 million	+11.1%
Global Merchant Partners	650,000	724,000	+11.3%

Despite the losses, revenue grew steadily due to Klarna’s expanded merchant base and increased transaction volumes. However, the company has paused its plans to go public in the U.S., citing market instability, regulatory uncertainty, and geopolitical concerns, including newly imposed tariffs.

Klarna’s IPO was once expected to value the company at over $15 billion, backed by major investors including SoftBank and Sequoia Capital. That valuation is now in question as Klarna focuses on stabilising operations and rebuilding investor confidence.

How is Klarna Performing in the UK market?

The UK continues to be one of Klarna’s most important and competitive markets. Despite financial setbacks, Klarna retains a strong presence in British e-commerce, with widespread merchant adoption and high brand recognition among consumers.

The company has made strategic partnerships with leading UK retailers across fashion, beauty, and tech. Klarna’s “Pay in 3” feature is especially popular among millennial and Gen Z shoppers.

However, Klarna has not escaped regulatory scrutiny in the UK. The Financial Conduct Authority (FCA) has increased oversight of BNPL providers, pushing for greater transparency in marketing, more rigorous affordability checks, and stricter rules around customer communications.

In addition to increased compliance pressure, Klarna faces growing competition from other BNPL providers such as Clearpay, Zilch, and PayPal.

Klarna’s Position in the UK BNPL Market (2025)

Provider	UK Market Share	Credit Checks	Late Fees	Max Term
Klarna	12%	Soft	Yes	36 months
Clearpay	9%	None	Yes	6 weeks
Zilch	6%	Hard	No	6 months
PayPal Pay Later	7%	Soft	Yes	12 months

While Klarna remains the market leader in terms of usage and merchant reach, its dominance is being tested. Consumers are becoming more cautious, and many are trimming discretionary spending due to rising costs.

What Role Does Customer Trust Play in Klarna’s Future?

Customer trust is foundational to Klarna’s business, especially as a financial service provider operating under lighter regulation than traditional credit cards.

However, Klarna has faced criticism over its approach to transparency, particularly regarding late payment terms and the lack of upfront credit checks.

In response, Klarna has taken several steps to rebuild trust:

• Introducing clearer payment terms at checkout
• Adding in-app budgeting tools and a “credit coach”
• Implementing open banking features for better financial visibility

The firm also now reports missed payments to credit bureaus, adding an element of accountability that was previously missing from BNPL services.

Independent consumer review platforms reflect a mixed perception of Klarna. On Trustpilot, the company maintains a 3.8-star rating, with praise for its convenience offset by complaints about its customer service and clarity of terms.

Has Klarna Secured Enough Funding to Stay Afloat?

Klarna has raised billions over the past decade, but recent funding rounds have been marked by lower valuations and more cautious investor sentiment.

The company’s last major round in 2022 saw its valuation slashed by more than 85%, signalling a shift in market appetite for unprofitable fintech ventures.

The postponed IPO is another blow. Once hailed as a milestone that would open the door for other fintech listings, Klarna’s pulled debut underscores how market volatility, regulatory headwinds, and rising rates are forcing firms to rethink their growth strategies.

Despite the IPO freeze, Klarna has continued securing partnerships and investing in AI to streamline operations.

AI has allowed Klarna to reduce operational costs and headcount 40% of its workforce has been cut since 2022. Impressively, Klarna claims that 96% of its employees use AI tools daily, and revenue per employee has risen by 152% over the last year.

While funding remains tight, Klarna appears to have adequate liquidity to continue operations through 2025, though it may need to seek fresh capital or explore strategic partnerships if losses persist.

Who Are Klarna’s Main Competitors in the UK?

The BNPL sector has become increasingly saturated, and Klarna is no longer the only serious player in the space. Direct competitors like Clearpay and Zilch offer similar services, while tech giants such as PayPal and even traditional banks are rolling out short-term payment solutions.

In recent months, Klarna has ramped up its efforts to differentiate itself through global partnerships. It recently became Walmart’s exclusive BNPL partner in the U.S., surpassing rival Affirm, and has expanded its reach through collaboration with DoorDash and eBay.

This competitive expansion is vital to maintaining relevance as consumer preference shifts and fintech providers adapt to a more cautious economic climate.

What is the Future Outlook for Klarna and the BNPL Sector?

While Klarna has experienced significant growing pains, it is not alone. The entire BNPL sector is being reshaped by rising default rates, stricter regulations, and a consumer shift toward responsible spending.

Research by LendingTree shows that 41% of BNPL users in the U.S. missed a payment in the last 12 months up from 34% a year earlier. Many users are now relying on BNPL to finance essentials such as groceries, rather than luxury or non-urgent purchases.

Klarna is actively responding to these challenges by:

• Emphasising financial education
• Investing in product transparency
• Doubling down on AI-led efficiency

The company’s roadmap includes next-gen budgeting tools, improved user personalisation, and possibly revisiting its IPO when market conditions improve.

Is Klarna Going Out of Business or Undergoing Transformation?

The short answer: Klarna is not going out of business. The company is undergoing a strategic transformation, forced by both external market forces and internal inefficiencies.

While the doubling of losses and IPO delay paint a challenging picture, Klarna’s core business remains active and growing in both merchant partnerships and user engagement.

With renewed focus on compliance, AI integration, and selective expansion, Klarna aims to emerge from this period as a leaner and more adaptable company.

What Can UK Consumers and Businesses Expect From Klarna?

For consumers, Klarna is likely to continue offering flexible payment options, now with added transparency and regulatory backing. New features may include:

• Real-time credit assessments
• Spending trackers
• Educational resources on budgeting

For retailers, Klarna remains a valuable partner, driving conversion and cart size although reputational and compliance risks must be carefully weighed.

What Lessons Does Klarna’s Story Offer UK Startups?

Klarna’s experience is a powerful case study for any startup navigating rapid growth and market uncertainty.

Key takeaways:

• Sustainable growth trumps hyper-scaling
• Compliance is no longer optional regulators catch up fast
• AI can cut costs but must enhance, not replace, customer support

Conclusion

Despite troubling financial figures, Klarna is not on the verge of collapse. It is adjusting its model, investing in AI, realigning workforce strategies, and responding to changing consumer and regulatory landscapes.

Whether it can return to profitability and regain investor enthusiasm will depend on its ability to deliver innovation while managing risk and trust.

FAQs

Why did Klarna delay its IPO in 2025?

Klarna postponed its U.S. IPO due to market instability and increased tariffs, which affected investor appetite and fintech valuations.

Are Klarna’s losses sustainable?

The company’s losses have grown, but Klarna continues to generate revenue and secure partnerships, indicating it has not reached insolvency.

How is Klarna using AI in its operations?

AI is helping Klarna automate customer service, improve fraud detection, and boost productivity, leading to a 152% increase in revenue per employee.

What are Klarna’s biggest regulatory challenges in the UK?

Klarna must now comply with stricter FCA rules on affordability checks, transparent communication, and reporting of missed payments.

Is Klarna still safe to use in the UK?

Yes, Klarna is FCA-registered and continues to operate with regulatory oversight, making it a legitimate BNPL provider.

Has Klarna lost market share?

Not significantly, but its lead is narrowing due to increasing competition from PayPal, Zilch, and traditional banking options.

What industries benefit most from Klarna’s BNPL services?

Retail, fashion, electronics, and food delivery sectors see the most benefit due to high average order values and conversion rates.