Buy Now, Pay Later

Written by Jennifer Clark
Posted June 16, 2021

The “buy now, pay later” market has grown significantly in the past year. "Buy now, pay later" (BNPL) solutions give consumers a way to pay that allows them not to have the burden of paying a lump sum immediately. Instead, it allows them to pay in interest-free installments. 

This trend has been exacerbated by the COVID-19 pandemic. People were stuck inside their homes and wanted to shop, but in a way that was manageable and not too overwhelming. BNPL was a way to buy something without racking up a high credit card balance and having to pay interest. BNPL solutions have become extremely popular with consumers and have modernized the layaway process. 

A report from IBISWorld expects that the industry will grow at 9.8% annually over the next five years — putting the industry to eventually exceed $1 billion. A ResearchAndMarkets report indicates that the U.S. BNPL payment within the country is expected to grow by 41.7% on annual basis to reach $126.071 billion in 2021. 

The data from those reports lead us to believe that there’s a lot of potential growth in this market right now and in the future. This past year led to many more consumers becoming familiar with BNPL options and discovering that they are extremely convenient and helpful — that’s why this industry is set to skyrocket in the next few years.

There are many competitors on the market for BNPL. One of the companies that focuses most of its business on BNPL solutions for consumers is Klarna. And I want to take a closer look at Klarna in this article. 

Klarna is a Swedish financial technology company that was founded in 2005 as Klarna Bank AB. It provides online financial services like payments for online storefronts, direct payments, and post-purchase payments. It is headquartered in Stockholm, Sweden, and has more than 3,000 employees who work out of its headquarters.

Recently, it announced that a new funding round led by SoftBank valued Klarna at $45.6 billion. Klarna has become one of the largest providers of BNPL services and has become one of Europe’s top fintech unicorn companies and the second-biggest fintech startup by valuation, after payments company Stripe. 

Some of its investors already include Adit Ventures, Honeycomb Asset Management, and WestCap Group. It also includes backers like Chinese fintech company Ant Group and U.S. rappers Snoop Dogg and ASAP Rocky. In a recent statement, Klarna’s co-founder and CEO, Sebastian Siemiatkowski, had this to say:

Consumers continue to reject interest-and-fee-laden revolving credit and are moving toward debit while simultaneously seeking retail experiences that better meet their needs.

He added:

More transparent and convenient alternatives align with evolving global consumer preferences and drive worldwide growth.

Klarna has reported annual revenue of $1.2 billion in 2020, with losses increasing 50% to about $109.2 million — mostly due to costs associated with the company’s international expansion. The company earns its money by taking a fee from merchants each time a customer makes a transaction. 

The company recently launched its new comparison shopping service in 21 European markets. This will give a wider customer reach and drive traffic for Klarna’s partner retailers. Klarna’s chief marketing officer, David Sandstrom, said:

With this new product, we enable retailers to list their Google product listings ads more efficiently. This means that we offer retailers a more effective and cheaper way to increase their customer reach and convert highly relevant traffic from consumers who are searching for products.

Klarna is reaping the benefits from this past year of industry growth and more people exploring payment options, and it's beginning to expand its business into other areas to become a stronger company. 

With that being said, the company has experienced some scrutiny in the U.K. because the government believes companies like Klarna need new rules and regulations to adjust to the oversight with the BNPL sector. There is a fear that the consumers who are using BNPL solutions could get themselves into more debt if they take on too many payments, become overwhelmed, and are unable to make monthly payments.

These new rules and regulations from the U.K. could affect Klarna’s business, but it’s too early to tell what will come into law. Overall, the BNPL market is heating up and is expected to exceed $1 billion in the next few years.

Until next time,

Jennifer Clark

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