45.6 billion dollars was Klarna’s valuation in 2021.

For those who don’t know Klarna, a quick background.

Founded in 2005 in Sweden.
Was highest valued private tech company in Europe in 2021.
Focus is on post payments for e-commerce, where Klarna allows people to pay for things in pieces, versus using a credit card with interest.

Klarna was valued at 45.6 billion dollars a year ago, but with a new fundraise of 800 million dollars, the valuation is now at 6.7 billion, for a 85% decline.

What happened?

Klarna is part of the ”buy now, pay later” trend, but despite many companies trying to offer this, it really comes into the question of how this isn’t just a credit card?

Looking at Klarna’s terms, nearly every purchase is individual and unlike credit cards, it doesn’t allow people to get heavily into debt using cards often.

The other obvious change is Klarna doesn’t build up interest payments against people, where they offer a ten day grace period for not paying on time and after that, the fee is $7 for being late.

This is different over credit cards, where the average American has $6,194 worth of credit card debt, with an average interest rate of 18.97% for new users and 14.56% for established users.

This sounds great, but the problem is why wouldn’t people take advantage of Klarna?

33.7% of Americans are reported to pay all credit card bills monthly.
44% will end the year with no credit card debt.

Higher income people don’t really need Klarna or other pay later services, because they have credit cards which they pay early enough, they don’t get hit with interest payments on. Those credit cards also offer more flexibility.

The people who use Klarna are more likely to be the people that’d abuse credit card debt, which without bigger penalties, will abuse Klarna.

Why Klarna has a strange business model, where it functions more as a debit card, charging vendors who use it.

Which the reported financials haven’t been very good for the company.

4.5 billion dollars raised
1.4 billion in revenue for 2021, which likely didn’t make a profit.

A 45.6 billion dollar valuation from investors, which put it at over 10% the valuation Visa currently has at 427 billion.

Which just to compare that, Visa made 24.1 billion in revenue with 12.4 billion in profit for 2021, showing how Klarna was extremely overvalued.

So why did this all happen?

Klarna is likely a business which just shouldn’t actually exist.

Buy now, pay later is extremely risky and doesn’t cater the consumers who won’t take advantage of it.

The company raised billions to run a loss, likely where the goal was to be bought out later on by a Visa or Mastercard.

I don’t see this happening and the likely reason this entire business happened was Sweden has some fairly sketchy banking practices compared to the US and most of the world.