Klarna, Europe’s $5.5 billion fintech, sees losses rise sevenfold in the first half

Klarna CEO Sebastian Siemiatkowski attends the launch of the online payment start-up’s pop-up store in London.

Dave Benett | Getty Images for Klarna

Swedish online payments firm Klarna reported a ballooning net loss in the first half of 2020, as the company invested in an international expansion drive and set aside reserves to deal with credit losses amid the coronavirus pandemic.

The Stockholm-based company’s interim first-half report showed a net loss of 522 million Swedish krona ($59.8 million) between January and June, a sevenfold increase from the net loss of 73 million krona it posted in the same period last year.

Klarna, backed by investors including Snoop Dogg and Jack Ma’s Ant Group, is one of Europe’s most valuable privately-held technology companies, with a so-called “unicorn” valuation of $5.5 billion. It’s tied with British banking app Revolut and payments software maker as the region’s top fintech unicorn.

A regulated bank, Klarna is mostly known for its “buy now, pay later” scheme that offers shoppers interest-free financing on retail purchases over a period of installments. Klarna pays a merchant once a customer buys something using its platform, while that user is then invoiced over installments.

Credit losses — incurred when a customer doesn’t pay back a loan — almost doubled to around 1.2 billion krona, a figure the group said was adjusted for “macroeconomic uncertainty.” However, Klarna insisted the firm’s balance sheet was “strong” and overall losses accounted for only 0.6% of entire sales volume.

The company has been expanding aggressively overseas, particularly in the U.S. market where it claims to have added another 1 million customers in the last three months. Klarna says that new customers affect its net credit losses.

Total net operating income came in at 4.6 billion krona, which represented a rise of 37% from 3.3 billion krona in the first half of 2019. The company said its gross merchandise volume — the total sales made through its platform — was 215 billion krona in the January-June period, up 44% year-on-year.

“In the context of Covid-19 and the uncertainties it has unfortunately created for so many, a somewhat precautionary approach was necessary at times, including adjusting our credit policies globally,” Klarna co-founder and CEO Sebastian Siemiatkowski said in a letter to shareholders. “Despite this, we have seen accelerated growth and rapidly increasing demand for our services.”

It comes after the firm earlier this year reported its first-ever annual loss since operations began in 2005.

Klarna gets its revenues from fees charged to merchants as well as late payment fees. The company’s business model has been the source of criticism due to concerns that it could lead younger shoppers into a debt trap. However, Klarna argues it has safeguards in place to prevent overspending.

The company competes with the likes of U.S.-based Affirm, which is led by PayPal co-founder Max Levchin, and Australia’s Afterpay. Earlier this week, Afterpay said it had agreed to buy Spanish firm Pagantis in a deal that allows it to expand into Europe, effectively challenging Klarna.

Speculation over an initial public offering has circled Klarna for some time, and Siemiatkowski recently suggested that this could happen within the next two years. A series of software companies including Palantir, Unity and Snowflake filed to go public this week.

Meanwhile, Ant Group, an affiliate of China’s Alibaba, recently filed for a dual listing in Hong Kong and Shanghai that is expected to value the company north of $200 billion. The company’s blockbuster stock market float is likely to be the biggest public offering of the year.

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