SYDNEY, AUSTRALIA – JANUARY 30: Matt Comyn, Commonwealth Bank CEO (left) and Sebastian Siemiatkowski, CEO of Klarna Group (right) on January 30, 2020 in Sydney, Australia. Commonwealth Bank customers will be able to benefit immediately from using one of the world’s largest and most innovative buy now pay later online shopping services following today’s launch of Klarna Australia. (Photo by James D. Morgan/Getty Images for CBA)
Getty Images for CBA
Klarna, a buy now, pay later service provider, hopes to be valued at $14 billion after its initial public offering next week, according to the Wall Street Journal.
Klarna’s valuation peaked in June 2021 at $45.6 billion, making the IPO targete valuation 69% below the company’s peak, according to Fortune, but still well above the 2022 nadir of $6.7 billion.
Moreover, Klarna has since cut costs and focused its strategy. Yet a rise in inflation resulting from tariffs could squeeze economic growth and boost BNPL demand, noted Fortune. However, if those borrowers lose their jobs in a recession, I expect such a demand surge to yield more loan charge-offs.
Does the 69% value drop make Klarna’s IPO shares a great bargain? Despite a recently announced exclusive BNPL deal with Walmart and a Visa debit card launch, I see no compelling reason to buy shares in the IPO. Here are three reasons:
Modest growth and lack of profitability.
Fierce competition.
Customer service woes due to overuse of AI.
Klarna sees itself as a hero – leaping high hurdles to win over 100 million unhappy bank customers. “For decades under the shield of misguided regulation, stifled competition and insurmountable barriers to entry,” Klarna CEO Sebastian Siemiatkowski wrote in the company’s IPO prospectus, Klarna “has broken through the barriers!”
Klarna also says it’s a trustworthy alternative for consumers. “Investing in trust, investing in your customers, is the quintessential strategy that has delivered the most outstanding returns to shareholders,” Siemiatkowski added.
Yet, Klarna’s use of AI for customer service has undermined customer satisfaction. Given the likely post-IPO pop, I see no rush to buy $KLAR – at least until the company proves it can beat investor expectations.
Klarna’s Business Model
Unlike banks that charge credit card fees, merchants pay Klarna for the higher conversion rates and larger order values flowing from providing customers with more payment flexibility.
Klarna earns advertising revenue and offers much quicker repayment terms than banks do, reported MarketWatch. Klarna also provides savings accounts and unlike traditional banks offers “instant refunds, cash-back services and real-time debit payouts,” MarketWatch wrote.
Klarna’s Modest Growth and Surging Net Loss
Klarna’s recent results reflect modest growth and net losses. For the six months ending June 2025, the company’s revenue increased 15% to $1.52 billion while it posted a net loss of $152 million – a 390% increase from the year before, according to the IPO prospectus.
Klarna’s funding costs and provision for credit losses also increased. For instance, funding costs added 19% to $277 million while its credit loss provision jumped 33% to $310 million, noted the prospectus.
Klarna’s Competitive Disadvantages
Klarna faces many competitors – including Affirm, AfterPay, Block and PayPal, according to the IPO prospectus. Klarna’s 21% rise in quarterly revenue lagged Affirm’s – which rose 33% to $876.4 million. Affirm’s net profit was $69 million in the June-ending quarter, noted CNBC.
Affirm offers debit cards or ApplePay for use at checkouts. The company earns a fee for paying the merchant upfront. Consumers can choose among payment options “with no hidden or late fees,” reported Barron’s.
Affirm’s business model is inherently more profitable. Whereas Klarna lets people make purchases in a specific number of installments — think “pay in 4” – most of Affirm’s revenue comes from more profitable interest-bearing loans, Mizuho analyst Dan Dolev wrote in a note to clients featured by MarketWatch.
Repeat customers are essential to Affirm’s business. In the most recent quarter, 95% of transactions came from returning users – highlighting the company’s “brand stickiness and more predictable revenue streams,” according to Yahoo! Finance.
Klarna – which earlier this year replaced Affirm as Walmart’s exclusive BNPL partner, noted Barron’s — does not report its share of revenue coming from repeat customers.
Klarna’s AI Chatbot Caused Customer Service Woes
In 2024, Klarna proudly proclaimed a new artificial intelligence chatbot would do the customer service work of 700 people, according to CX Today. This month, Klarna backtracked on that claim – just as the company was preparing for its IPO.
In February, Klarna bragged it had saved $10 million annually by using AI to generate images for advertising and by reducing from an hour to 10 minutes the time in-house lawyers spend generating contracts, reported The New York Times.
Klarna was unusually optimistic about AI’s capabilities. “I am of the opinion that A.I. can already do all of the jobs that we, as humans, do,” Siemiatkowski told Bloomberg News. He further claimed the company’s AI chatbot could reduce the average time to resolve a case from 11 minutes to two, noted the Times.
In 2025, some companies replaced their customer service operations with AI chatbots only to reverse course within days because the change sent customer complaints soaring.
For example, last month the Commonwealth Bank of Australia realized empathy cannot be automated. That was due to the flood of unresolved customer issues after the bank replaced 45 call-center roles with an AI chatbot, CX Today wrote.
Taco Bell had a similar AI reversal. The fast food provider recently rolled out voice‑AI at more than 500 drive‑through locations – which “frustrated customers who were “dealing with glitches, delays, and prank orders,” wrote CX Today.
Klarna’s decision to reverse course is not a big surprise.
Contradicting his 2024 proclamation, Siemiatkowski admitted in May 2025 that the human touch was a fundamental part of customer service. “From a brand perspective, I just think it’s so critical that you are clear to your customer that there will be always a human if you want,” he told Bloomberg News.
In September, Klarna told staff from its marketing, engineering, and legal teams their roles were “no longer a priority.” The company moved these workers to a pool – many of whose members were assigned to handle customer service instead, noted Business Insider.
Affirm receives higher customer satisfaction score than Klarna. In areas such as “customer service, the customer portal, payment processing, and e-commerce integration,” Klarna gets better ratings, according to G2 user reviews.
There is no hurry to buy stock in Klarna when the company goes public – especially since a first-day pop is expected because the offering is oversubscribed, according to Investing.com. Make a decision after insiders sell their shares and the company demonstrates whether it can beat expectations.
