Klarna's losses double as more buy now, pay later customers struggle with loans

[midian182]

In brief: The danger faced by buy now, pay later companies is when customers don't adhere to the "pay later" part. It's a problem being faced by industry giant Klarna, which saw its net losses more than double in the first quarter as more customers struggled to pay back their loan installments.

Klarna's net losses for the first quarter reached $99 million, almost double the $47 million it lost during the same period a year earlier.

The problem is that an increasing number of customers who have taken out the buy now, pay later loans are struggling to pay them back.

Klarna offers its BNPL services to a range of merchants, letting customers purchase a wide range of items in installments. The company makes its money by charging fees to the merchants and customers who fail to pay on time.

In its first quarter earnings report, Klarna revealed that consumer credit losses were up to $136 million, an increase of around 17% compared to a year earlier.

It seems there's a growing trend of BNPL customers being unable to meet their contractual obligations. Credit platform LendingTree carried out a survey last month that found 41% of users of BNPL loans said they paid late on one of them in the past year, up from 34% compared to a year ago. High-income borrowers were among the most likely to pay late, along with men, young people, and parents of young kids.

The survey also showed that a quarter of BNPL users said they used the loans to buy groceries amid rising supermarket costs and marking a 14% increase compared to a year ago. It also revealed that nearly 1 in 4 BNPL users said they've had three or more active BNPL loans at one time.

The Federal Reserve Bank of New York last week reported that US consumer debt rose by $167 billion in the first quarter to reach a record $18.2 trillion.

Elsewhere in Klarna's earnings, which was presented using an AI-generated avatar of its chief executive, the company said it has used artificial intelligence to help cut costs.

The company's headcount is down 39% over the last two years, customer service costs were down 12% YoY in the first quarter. Klarna is estimated to have replaced 700 employees with AI.

The good news for humans is that Klarna has started hiring them again after its CEO recently admitted AI customer service chatbots offered a "lower quality" output.

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Klarna's losses double as more buy now, pay later customers struggle with loans

 

[ScottSoapbox]

Shocking that people needing a loan for groceries might be a credit risk.

Inconceivable that a time of rising costs and economic uncertainty could further squeeze such people.

 

[Lowhangingfruit]

These things should be banned. They're pushing people to make bad financial decisions and spend beyond their means.

> Credit platform LendingTree carried out a survey last month that found 41% of users of BNPL loans said they paid late on one of them in the past year

That's the best outcome for these companies because it means they can charge late fees. Pure profit.

 

[Ashford]

These companies prey on the down and the desperate but before you write them off as evil you should probably consider that if people are buying groceries, at that point what choice do they have?

 

[Baldrickalpha1]

Shocking that people needing a loan for groceries might be a credit risk.

Inconceivable that a time of rising costs and economic uncertainty could further squeeze such people.

Bear in mind the article says high earners are the worst offenders, sounds like greed and a lack of care about consequences as much as what you said on the other end of the spectrum.

 

[Trapped Nowhere]

What would really be nice is the ability to do house repairs with bypl. I could use a nice HVAC system

 

[GodisanAtheist]

Who would think an unsecured loan for a pizza would be a risk of default?

The whole business model is literally "I'll gladly pay you Wednesday for a burger on Tuesday".

 

[Xelions]

I use bnpl services but have never defaulted cause I budget within my means. Easy as really. The services allow me to manage my money in any 8 week interval anytime for anything, interest free. I'm not giving a f*#king cent more to these psi cops!

 

[Puiu]

Shocking that people needing a loan for groceries might be a credit risk.

Inconceivable that a time of rising costs and economic uncertainty could further squeeze such people.

You might be surprised to find that many just don't know what credit is and that they risk a lot by not paying them back in time or at all. Zero finance education and "free" money lead people into overspending by A LOT.

I have friends who simply just bought too much just because the credit card allowed them to.

I know I also have a loose purse (lots of Uber rides, vacation traveling, etc), but I always stay within reason.

 

[wiak]

The good news for humans is that Klarna has started hiring them again after its CEO recently admitted AI customer service chatbots offered a "lower quality" output. <- NO ****, they were completely useless, I know I had to talk to one

 

[VaRmeNsI]

These things should be banned. They're pushing people to make bad financial decisions and spend beyond their means.

> Credit platform LendingTree carried out a survey last month that found 41% of users of BNPL loans said they paid late on one of them in the past year

That's the best outcome for these companies because it means they can charge late fees. Pure profit.

No they shouldn't be banned, a fool and their money should always be parted.

 

[Baldrickalpha1]

What would really be nice is the ability to do house repairs with bypl. I could use a nice HVAC system

In Scotland we have government 0% loans for Energy efficiency home improvements, which is nice

 

[DrSuess]

With buy now pay later loans, most people think about now not realizing later will be arrive soon after.