Klarna’s Q1’ 2025 report on May 19 revealed the Buy Now, Pay Later (BNPL) firm’s consumer credit losses rose by 17% from the same period last year to $136m, raising larger questions around consumer affordability and their ability to pay instalments on time.
While the Swedish fintech’s revenue increased by 9% year-over-year to $701m, Klarna’s operating losses rose from $28m to $90m in Q1’ 2025, with consumer credit losses being the second highest category of operating expenses for the company.
Q1 outlook
Klarna demonstrated its growth as a leader in BNPL in Q1’ 2025 despite the rise in operating losses.
The BNPL firm announced 100 million active consumers in April, an 18% year-over-year (YoY) increase and the fastest growth for the company in two years. Klarna also confirmed it had grown its merchant base to over 720,000 partners by attracting 150,000 new merchants, a 27% increase YoY.
When it came to expanding its footprint, Klarna consolidated its position in Europe “through a combination of deepening engagement in mature markets”, such as Sweden and the UK..
The UK established itself as Klarna’s third largest market,doubling its merchant base to 60,000. Meanwhile in Sweden, purchase frequency grew by 10% driven by a 44% increase in usage of the Klarna Card.
Speaking on the Q1’ 2025 performance, Sebastian Siemiatkowski, CEO and Co-Founder of Klarna, said: “The momentum is undeniable—and this is just Q1!
“Klarna has reached 100 million consumers and secured exclusive partnerships with major retailers like Walmart through OnePay, teamed up with DoorDash, and expanded our partnership with eBay to the US after multiple successful European launches.
“Our AI-first strategy is driving exceptional returns, we’re outpacing competitors, our merchant network is scaling rapidly, and our next-gen products are reshaping money management for millions.”
Fresh concerns over BNPL affordability
Klarna’s losses from unpaid instalment payments indicate a slight decrease in consumers’ ability to pay for their BNPL purchases on time.
BNPL has become one of the fastest-growing payment methods in the payment sector over the last five years, offering customers flexibility on how and when they make payments.
Born out of consumers’ desire to spread costs across three, six or even nine months, BNPL services have enabled shoppers to manage expenses amid fluctuating inflation and, in the UK, a cost-of-living crisis.
Consumer protection concerns regarding BNPL services have long troubled global policymakers, who fear customers are committing to installment-based purchases they cannot afford.
While BNPL services often come with 0% fees and interest, Klarna introduced a new late payment fine system in March 2023. For late payments of £20 or more, the charge is £5. For orders under £20, the charge is capped at 25% of the overall price.
The Q1 credit consumer losses suggest that despite these measures, Klarna continues to lose money on late payments, reinforcing concerns some consumers can not afford their purchases over the length of the instalment plan.
This issue has been at the forefront of debates within the UK for several years. On May 19, the UK’s Financial Conduct Authority (FCA) announced new plans to regulate its BNPL sector to “protect shoppers from debt traps”.
The FCA revealed new rules centred around affordability checks to “stop people racking up unaffordable debt, and faster access to refunds to protect working people”.
UK Economic Secretary to the Treasury, Emma Reynolds, described the new BNPL regulations as a means to enable growth of the sector while ensuring consumers are protected from “debt traps”.
She said: “Buy-Now, Pay-Later has transformed shopping for millions, but for too long has operated as a wild west – leaving consumers exposed.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change.”
With the UK being Klarna’s third largest market, the new BNPL rules may be welcomed by the company, as CEO Siemiatkowski has been advocating for regulatory oversight for several years.
Future Outlook
The introduction of new BNPL rules in the UK by 2026 may help sway Klarna from listing its planned IPO in the country as opposed to its initial listing plans for the US.
Klarna halted its plans to list on the New York Stock Exchange earlier this year due to volatile market conditions in the wake of US President Donald Trump’s tariff battle with the likes of Europe and China.
While the US remains a market of extreme importance to the Swedish company, the UK and Europe are two of Klarna’s longest-standing and strongest markets, where the company has consolidated its growth over the last several years.
The US has made progress in its efforts to regulate the BNPL sector by removing a proposal to treat BNPL services the same as credit cards. However, if the UK can provide a stable, transparent regulatory framework that supports growth, Klarna may opt to list in the UK sooner than expected.
