Klarna, the Swedish “buy now, pay later” (BNPL) service, announced that it was laying off 10% of its global workforce in a pre-recorded video message, according to reports from Protocol and TechCrunch. The company currently has around 7,000 employees, and a 10% reduction brings the number of affected workers to around 700.
BNPL services like Klarna, Affirm and Afterpay allow users to buy a product for nothing or a small fraction of its total price. Customers can then make incremental payments over a set period of time, but will generally be charged an interest-free fee for any late payments. BNPL businesses boomed at the height of the pandemic when many people ran out of money and had nothing to do but shop online.
Klarna CEO Sebastian Siemiatkowski broke the news to employees in a pre-recorded video message, citing “the course of the war in Ukraine, a change in consumer sentiment, a sharp rise in inflation, a very volatile stock market and a likely recession” as the reasons behind the layoffs. Siemiatkowski explained that workers in Europe will receive “associated compensation,” but added that the dismissal process for employees in the United States “will be different” depending on location.
Last week, The Wall Street Journal reported that Klarna was seeking to raise a new funding round that would value the company at $30 billion, about a third lower than the $46 billion it was valued at nearly a year ago. BNPL’s rival service Affirm has also seen a similar decline, with its share price falling 75% this year.
Although the use of BNPL increased towards the end of last year, the unreliability of its customers in such a volatile economy is likely part of the reason BNPL’s services are struggling. A recent report from Sfgate reveals that about 73% of its customers are considered Gen Z (people born between 1997 and 2012), and about 43% of them say they’ve missed at least one payment. Meanwhile, a report from fox business says around 30 percent of BNPL clients overall are struggling to repay what they owe, and the current state of inflation is not helping. BNPL’s services cannot make money if they are not reimbursed, and that could make it a risky business to run.
Despite the falling valuation and layoffs, Siemiatkowski told employees that “Klarna continues to have a strong position in the market” and still says he is “relentlessly optimistic about the future of Klarnas.” Other tech companies including Meta, Apple and Snapchat are slowing hiring, while Netflix has already laid off more than 150 workers.