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Klarna IPO, Narrow Losses Hint at Brighter BNPL Industry Outlook

The booming popularity of buy now, pay later (BNPL) is being reinforced by news Tuesday (Feb. 27) that Klarna — a buy now, pay later powerhouse once regarded as a leading European FinTech — may go public via a possible $20 billion initial public offering (IPO) later this year. 

Although Klarna has had its setbacks — most notably its 2022 drop in valuation from $45.6 billion in 2021 to $6.7 billion in 2022, which analysts blamed on spiking interest rates — the company boasts a customer base of more than 150 million consumers in 45 countries. 

In other words, Klarna, like the BNPL business model it leverages, remains popular among consumers. The biggest challenge for BNPL providers remains: how to be profitable. But, as PYMNTS Intelligence found, increasing profits and strategic partnerships may help lead the way to profitability.

According to “Tracking the Digital Payments Takeover: What BNPL Needs to Win Wider Adoption,” a report issued last year by PYMNTS Intelligence, 53% of consumers increased their use of deferred payment installment plans thanks to their satisfaction with BNPL. That same report found three-quarters of all BNPL users were very or extremely satisfied with their BNPL options — regardless of which BNPL provider users said they preferred. 

Meanwhile, a separate PYMNTS Intelligence piece — “PYMNTS’ FinTech Tracker® Series Report: BNPL Defies the Economic Odds Through Innovation and Partnerships — also confirmed high levels of consumer satisfaction among BNPL shoppers, but the Tracker also showed how resilient the purchase option is despite economic uncertainty. 

As the latter report showed, despite climbing high interest rates (like those that led to Klarna’s devaluation in 2022), BNPL providers demonstrated an ability to weather the shifting market conditions that played out in 2023. In fact, the report found, several leading BNPL providers flourished during a time when other interest rate-sensitive organizations, including traditional lenders, were unable to connect with consumers. 

Why were these BNPL providers able to show more success while other businesses stalled? 

PYMNTS Intelligence looked at several leaders in the BNPL space — including Klarna, Sezzle, Affirm and others — and determined they were resilient amidst unsteady market conditions because of three consistent factors.

BNPL providers, earnings

For starters, those successful BNPL companies leaned into their core technologies, which enabled them to not simply tread water, but actually increase profitability.

And, despite rising interest rates and lingering signs of inflation, successful BNPL businesses elected to enhance and diversify the goods and services they offered their customers last year, a strategy PYMNTS Intelligence determined helped them “reduce consumer financial pain and drive profitability.”

Klarna, for example, chose to leverage AI in its product development in 2023. Doing so, PYMNTS Intelligence concluded, helped the company achieve a 30% year-over-year revenue increase. Similarly, Affirm, a U.S.-based BNPL business, also invested in new technology last year, helping the company grow its YOY revenue 7% to $381 million.

Strategic partnerships were another key contributor to BNPL success in 2023. Several BNPL providers leveraged new collaborative partnerships to expand their services, enabling them to minimize economic fallout for the year. 

For instance, BNPL business Sezzle partnered with SaaS provider JustiFi in 2023, enabling both organizations to bring BNPL to SaaS platforms. The move opened up Sezzle’s ability to reach new consumer segments and improve their customers’ purchase journey.

These are just a few examples illustrating BNPL’s potential to remain flexible, innovative and fiscally sound, suggesting that BNPL providers have the opportunity to grow despite economic challenges.