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EconomicsELI5 How do companies like Klarna and Afterpay make money without charging interest?(self.explainlikeimfive)
I see these companies offering installment payment options for online purchases but they don't charg...
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Restore AllHide UnarchivedKlarna just admitted that 18% of loans are in default, and that they lost 100 million in the first three months of the year, then they cancelled their ipo.
In other words Klarna is in a very bad spot business wise.
Brilliant idea giving credit to anyone who signs up. Nobody could have seen this coming...
If my someone ever asked to borrow $50 to get McDonald’s delivered, and agreed to pay it back over 90 days, I would be an absolute moron to think that money was coming back.
Exactly. I hope this doesn’t come off the wrong way but someone who needs to pay for a $40 item in installments probably isn’t going to make good on the whole “I’ll pay it back later!”
(Yes I’m aware you can buy much more expensive things and orders of multiple items with these services but I’ve literally seen $30-40 items with an option to use klarna/afterpay)
Not if it gets reported to the credit bureau
People financing a burger don't have good credit
Give it 15 years, burger king will take a form of payment called burgerpay. It'll be the same thing but worse
unlike klarna who is making profit over such business
https://www.klarna.com/international/press/klarna-accelerates-global-momentum-in-q1-2025-and-unlocks-large-gains-from/
That is a hell of a press release. It makes it seem like they are making money.
If you read their audited financial reports, they operated on a loss of $100m dollars in Q1. They are not "making profit over such business", nothing even close. They are losing money at a rate of over a million a day.
They cancelled their IPO too. Never a good sign.
They alse say they reduced headcount by 40%, which is a hell of a way to say you laid off nearly half the company.
So the actual facts are that they have more than doubled their losses from the same period last year, they cancelled their IPO, and they laid off a huge number of staff.
It would be bold for anyone that doesn't work for Klarna's PR department to claim that business is going well.
https://s205.q4cdn.com/644747736/files/doc_financials/2025/q1/Q1-25-Klarna-Earnings-Release.pdf
you link to a financial statement not really understanding the numbers it provides or the meaning of it. look at the fundamentals they ARE profitable:
Why you have a "net loss":
so they are profitable and on a good path.
if they could just eliminate their $103 million dollars in totally "one time" expenses like employee compensation, taxes, "other income (expenses)" they would indeed have made money.
But they didn't, and those expenses are right there. THEY ARE STILL LOSING MONEY.
What kind of backwards, MBA worshipping, corporate shill can look at a financial statement of a company that has been negative its entire existence, has a portfolio of loans with a default rate 6x higher than unsecured credit card debt, that cancelled its IPO, that has reduced headcount by double digit percentages (and now has to hire back because their terrible customer service is costing them), that is getting torn up in the media, with a business model of making unsecured loans on unnecessary consumer goods to people who have been denied access to other forms of credit, and think... Hmmm, these guys are running a tight ship?
If only there were national regulations/standards around credit issuing and reporting. Maybe even some sort of overall number to indicate somebody’s likelihood to pay it back on time.
Oh wait.
Kkarna also tried to replace all their employees with AI and predictably back tracked within a year. Maybe they're just bad at business.
https://www.customerexperiencedive.com/news/klarna-reinvests-human-talent-customer-service-AI-chatbot/747586/
that is contrary to Klarnas own announcement that AI was the right move
https://www.klarna.com/international/press/klarna-accelerates-global-momentum-in-q1-2025-and-unlocks-large-gains-from/
That entire page is written by AI. It's AI explaining why their tremendous error wasn't actually bad at all, despite having to literally undo it entirely.
except they arent...
sounds well for the reddit circlejerk but no they are not. they are very well making profit:
https://www.klarna.com/international/press/klarna-accelerates-global-momentum-in-q1-2025-and-unlocks-large-gains-from/
Here's there audited financial report that those numbers were cherry picked from.
Go to page two, and notice that the actual numbers show a $99 million dollar operating loss in Q1. In this case, no reddit circle jerk, just you posting a misleading press release from their PR department.
https://s205.q4cdn.com/644747736/files/doc_financials/2025/q1/Q1-25-Klarna-Earnings-Release.pdf
you link to a financial statement not really understanding the numbers it provides or the meaning of it. look at the fundamentals they ARE profitable:
Why you have a "net loss":
so they are profitable and on a good path..
Are you a shill for Klarna?
They got their accountants to say they actually "made" $3m dollars if you just ignore inconvenient things like... checks notes: compensating their employees as legally required.
They grew their users 10%, while growing their default rate on bad loans to 6 times the default rate of credit cards, Their revenue is up 13% while their quarterly losses are doubled.
Their customer service costs dropped because they fired 40% of their staff hoping AI could make up the difference, and are now having to rehire and retrain people, because the AI couldn't handle it. They have significant spending that will increase next q.
If I spend $100 million dollars more than I make every three months, I am not profitable. I don't know how you can say they are profitable while they have set a record for quarterly losses, and have NEVER ONCE had more revenue than expenses. They are the definition of not profitable.
We can argue about whether this is a good path, but I would argue that losing more money than ever, at a faster rate, while their portfolio of loans continues to default at an astonishing and increasing rate is not a path you want to be on.
It reminds me of the old SV startup joke: They're losing money on every customer, but they can make up for it with volume.
There is a reason that the financial press has spent a month absolutely dunking on them.
Wow, that’s a lot of heat, did Klarna repossess your Afterpay hoodie or something?
Let’s get real. No, Klarna isn’t profitable on a GAAP basis - no one said they were. But calling adjusted operating profit “fraud” because it excludes non-cash stock comp is disingenuous.
Every tech company reports adjusted figures - welcome to public markets. If you’re going to rage at Klarna, go knock on the door of every S&P 500 CFO too.
As for “6x credit card default rates” - that’s just plain wrong. I suggest to not use made up numbers to back your made up claims, specially since its just a google search to dismantle your source-less claims. Klarna’s credit loss rate is 0.54%. Average U.S. credit card default rates hover around 2–3% up to 5% for 90-day delinquencies, where klarna is: Klarna's lending is mostly short-term and small-ticket - totally different risk profile. If you're going to trash their underwriting, at least use the right numbers.
Yes, they cut service staff. Yes, they leaned too hard on AI. Then they reversed course and are rehiring - that’s called correcting a mistake, not a doomsday spiral. You don’t get to paint a cost cut as evil and its reversal as a failure. Pick one.
And about that “losing money on every customer” line - yeah, they’re burning cash. But they also just flipped their core operations to a profit, which is how you get out of that hole. You can’t meme your way around the fact that Klarna went from -$2M to +$3M in operating terms. It’s not everything, but it’s a real signal. Thats where profit is literally defined, not on one-time effects.
So no, I’m not shilling for Klarna - I’m just not here to pretend that growth, improving margins, and operating discipline are irrelevant because you’re angry.
Financial press is dunking because drama sells. But under the headlines, Klarna is starting to act like a real business.
Source?
https://www.klarna.com/international/press/klarna-accelerates-global-momentum-in-q1-2025-and-unlocks-large-gains-from/
Stop misleading people and show us actual audited financial statements, they are not profitable
https://s205.q4cdn.com/644747736/files/doc_financials/2025/q1/Q1-25-Klarna-Earnings-Release.pdf
you link to a financial statement not really understanding the numbers it provides or the meaning of it. look at the fundamentals they ARE profitable:
Why you have a "net loss":
so they are profitable and on a good path..