Klarna 1st Quarter Losses Surge as More Consumers Fail to Repay BNPL Loans

Swedish payments startup Klarna said its net losses doubled in the first quarter.

The announcement comes as data shows more consumers struggling to keep up with their buy now, pay later (BNPL) loans.

Klarna provides users with interest-free consumer loans to make retail purchases. The firm generates revenue by charging merchants for offering its product to their customers and charging fees to consumers who do not repay their loans on time.

Concerns surrounding consumers’ financial health could be bleeding into credit markets.

In its earnings report, released on May 19, Klarna reported a net loss of $99 million, up from $47 million in the previous year. The company stated that its customer credit losses also rose 17 percent year over year to $136 million.

The online financial services platform remains popular, with 100 million active customers. This helped bolster revenues by 13 percent year over year in the first three months of 2025, exceeding $700 million.

Klarna noted that the short duration of its loans enables the organization “to respond rapidly to evolving market conditions.” Eighty-three percent of its loan portfolio is refreshed within three months.

Over the last year, Klarna has aggressively expanded its reach in the U.S. market.

In March, Klarna announced a partnership with Walmart, exclusively offering BNPL loans to the major retailer’s shoppers at the checkout.

It also established a relationship with DoorDash, allowing customers to pay for food orders over $35 in four interest-free payments or defer their payments to a time “that aligns with their paycheck schedules.” The new option is scheduled to go into effect on June 1.

Other companies have hopped on the BNPL bandwagon.

Costco has rolled out BNPL installment plans, permitting members to pay for large online purchases through the new Affirm online payment option.

Despite Klarna’s growth, market watchers have questioned whether the company is vulnerable to slowing economic conditions, particularly as consumer sentiment deteriorates.

The company believes it can navigate potential turbulence in the U.S. economy.

“We are closely monitoring changes in the macroeconomic environment, and while we continue to see broad-based adoption of our commerce network, Klarna remains well-positioned to adapt swiftly if required,” the company said in its earnings statement.

More BNPL Users Falling Behind

A recent survey found that more consumers are falling behind on their BNPL loans.

According to an April LendingTree report, 41 percent of BNPL users said they paid late on one of their loans, up from 34 percent a year ago. The survey found this was common among high-income borrowers, young users, and parents of young children.

The report also highlighted several trends in the BNPL marketplace. A quarter of BNPL users say they have purchased groceries with BNPL options, and 23 percent said they have three or more active BNPL loans at once.

While the numbers vary, many U.S. households live paycheck to paycheck. As a result, the LendingTree survey found that a growing number of consumers view BNPL financing options as a bridge to their next paycheck.

In recent years, buy now, pay later has become a popular alternative credit product for consumers. Now that the new consumer payment method is more ubiquitous, economists have studied its effects.

A December 2024 Federal Reserve paper, titled “‘The Only Way I Could Afford it’: Who Uses BNPL and Why,” found that BNPL may leave consumers “vulnerable.”

“While BNPL provides credit to financially vulnerable consumers, these same consumers may be overextending themselves,” the Fed economists wrote.

“This concern is consistent with previous research that has shown consumers spend more when BNPL is offered when checking out and that BNPL use leads to an increase in overdraft fees and credit card interest payments and fees.”

Zhu Wang, the Richmond Federal Reserve’s vice president for research in financial and payments systems, says the future of BNPL is worth considering.

“Because of its lower lending standards and non-reporting status, BNPL loans can become an entry point of risks that affect other consumer credit products, and it may cause overconsuming and debt accumulation for certain consumer groups,” he said in a January 2025 paper.

On the regulatory front, the U.S. government previously treated BNPL firms like credit card lenders. Earlier this month, the Consumer Financial Protection Bureau rolled back enforcement of the rule and will instead concentrate resources on “pressing threats to consumers.”

The UK government announced new rules on May 19, telling BNPL companies they would start facing formal regulation next year.

British Economic Secretary to the Treasury Emma Reynolds said the BNPL landscape “has operated as a wild west” for years and has left “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,” Reynolds said in a statement.

State of the Consumer

According to New York Fed data, U.S. household debt has rocketed over the past decade, reaching an all-time high of $18.2 trillion in the first quarter.

The figures highlighted a rise in delinquency rates across the board. The regional central bank reported that aggregate delinquency rates increased to 4.3 percent from the previous quarter, fueled mainly by a surge in student loan delinquencies.

Research has revealed that high inflation and rising interest rates—the average credit card interest rate in the United States is about 24 percent—have significantly contributed to consumers’ swelling debt levels over the last few years.

Economists are not panicking, mainly because household balance sheets are in good condition.

Ksenia Bushmeneva, an economist at TD Economics, says households have put together a “wealth cushion” that could support them in an uncertain economic climate. This has been driven mainly by the strength of the stock market and significant real estate wealth accumulation, Bushmeneva notes.

“U.S. households entered 2025 with strong balance sheets, which could help buffer them from the economic turbulence caused by policy uncertainty under the new administration,” Bushmeneva said in a March research note.

“Given the unusually large policy uncertainty and the selloff in equities, households may choose to tread carefully until the future looks more certain.”

One challenge is that a large share of individuals’ wealth is inaccessible for spending.

A recent Bank of America Institute study found that consumers could be scaling back their spending.

“The gradual easing in consumer spending momentum is not just due to lower inflation – the growth in the number of transactions has also cooled,” the report stated. “Consumers appear to be pulling back particularly on bigger ticket discretionary services like airline tickets and lodging.”

In April, retail sales rose by 0.1 percent, slightly better than expected, from the upwardly adjusted 1.7 percent increase in March, according to the U.S. Census Bureau.