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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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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.