Klarna’s valuation has suffered a dramatic fall in one year, from $46bn to $6.5bn, an 85% decrease as the BNPL sector begins to warn off investors. 

Klarna will aim to begin a new capital fund of a valuation of $6.5bn. Sequoia Capital and Mubadala will fund the BNPL firm in a deal worth up north of $600m, according to the Wall Street Journal. 

The sharp decline of one of BNPL’s pioneers highlights an increasingly wary sentiment from investors, suggesting the BNPL market boomed – with Klarna’s peak worth of $46bn in July 2021 – during the continuing impact of the pandemic, when short term credit options were popular with customers. 

The news of Klarna’s dip in valuation comes after the fintech firm layed off 700 of its staff (10%) in May. During an interview with TechCrunch, Klarna CEO Sebastian Siemiatkowski explained the reasoning behind staff cuts came down to differing macro and geopolitical factors. 

He stated: “When we set our business plans for 2022 in the Autumn of last year, it was a very different world than the one we are in today.

“Since then, we have seen a tragic and unnecessary war in Ukraine unfold, a shift in consumer sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession.”

With Klarna’s ‘Pay in 3’ payment option helping it become one of the, if not the most prominent BNPL firms, its ‘Pay Now’ option has seen a 40% increase in transactions, suggesting consumers prefer to pay instantly rather than accepting payments spread across a monthly bill. 

During its first-quarter results, Klarna reported net losses of $254m which quadrupled from the same period last year. But the Swedish fintech is not the only BNPL company to have suffered this year. Pay later providers Affirm and Zip have also drastically fallen in worth, dropping 90% and 95% respectively. 

The UK has tightened affordability checks on BNPL transactions last month to ensure customers are not spending above their means, with an eye on the ‘cost of living crisis’ playing a factor behind the regulation. 

Economic Secretary to the Treasury, John Glen detailed: “Buy Now Pay Later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”