If the speculation about Klarna’s potential bankruptcy were a fire, the company’s sudden shift to credit and debit cards is like pouring gasoline on it. Following a $99 million net loss in Q1 2025 and a wave of social media panic, Klarna has doubled by flooding the market with physical payment cards.
Is this a last-ditch survival effort or clever reinvention? Let’s look at the data, partnerships, and hidden fees.
From BNPL to banking: Klarna’s pivot to physical cards
Klarna’s new Visa-powered debit card, now testing in the U.S. before its European launch, combines traditional debit features with its signature “Pay in 4” and “Pay Later” options. Through partnerships with WebBank and Visa’s Flexible Credential technology, users can switch between immediate payment and instalments at over 150 million Visa merchants.
Key features driving adoption:
- FDIC-insured wallet: Users can store funds and make real-time transfers, mimicking neobank capabilities.
- 5 million waitlist sign-ups: Despite no credit checks for debit use, BNPL activation requires soft credit pulls, a friction point at checkout.
- AI integration: Klarna’s AI assistant curates discounts and optimises repayment schedules, reducing customer service costs by 30%.
For a company that suffered $136 million in credit losses last quarter, the card strategy aims to lock users into Klarna’s ecosystem. As Aaron McPherson of AFM Consulting notes, “This isn’t just about BNPL — it’s a land grab for deposits and transaction fees.”
Klarna’s card launch also counters growing competition from traditional banks and fintechs offering hybrid debit-credit solutions. By entering the physical card market, Klarna targets everyday spending like groceries, fuel, and utilities, where recurring transactions provide more stable revenue than occasional online purchases.
The fee controversy of Klarna: Profit or pitfall?
Though Klarna markets the card as “fee-free,” the fine print reveals BNPL catches: a $1–3 charge per “Pay in 4” transaction, unprecedented in the BNPL industry, where competitors like Afterpay and Affirm charge no upfront fees. The APR on extended payment plans runs from 14.99% to 33.99%, surpassing traditional credit cards’ 24.43% average.
Critics say these fees exploit vulnerable users — Klarna counters that the model promotes “responsible lending” and offsets rising defaults. The numbers are compelling: With 5 million users making two BNPL transactions monthly, even a $1 fee generates $120 million yearly, covering 88% of Q1’s $136 million credit loss.
Klarna’s fee structure reflects a broader industry shift: as regulators target hidden BNPL costs, providers adopt transparent, upfront pricing, despite potential customer pushback. Klarna’s bold move could set a precedent for BNPL monetisation in a regulated environment.
The IPO playbook: cards as a valuation lifeline
Klarna’s card push coincides with its paused IPO. Sources close to the company reveal the strategy:
- Diversify revenue: Shift reliance from BNPL (87% of 2024 revenue) to interchange fees and cashback partnerships.
- Boost engagement: Card users transact 3x more frequently than app-only customers, per internal data
- Seduce Wall Street: Position Klarna as a “neobank” (100 million users) rather than a BNPL niche player
Klarna’s leadership bets that a successful card rollout will stabilise its valuation before a potential 2026 IPO. By showing diverse revenue streams and higher engagement, Klarna aims to command a premium multiple and shed the “BNPL-only” label weighing down its peers.
The strategy echoes Affirm’s 2023 card launch, which boosted its stock 58% post-earnings. But Klarna faces more formidable challenges. The CFPB’s proposed BNPL rules could force underwriting changes and reduce margins. A recent LendingTree survey shows 41% of Gen Z users associate Klarna with “debt cycles.”
Klarna’s card strategy presents a high-risk, high-reward scenario. The optimistic outlook predicts a $40 million boost in AI-driven profits from lower operational costs, alongside a 15% increase in revenue from card-related interchange fees by 2026. Additionally, FDIC insurance and Visa’s network provide competitive advantages against rivals, instilling a sense of hope for the company’s future.
Conversely, the pessimistic view highlights that 62% of Buy Now, Pay Later (BNPL) users appreciate the “no fees” aspect, suggesting that Klarna’s fees may lead to a user departure. This could risk losing card users from the app, impacting its substantial 33% growth in U.S. revenue, prompting a sense of caution about the company’s future.
What’s next for Klarna?
Klarna is betting its future on becoming a hybrid of Chime and Affirm. While bankruptcy rumours persist, its $10.4 billion liquidity cushion and S&P’s BBB-rating suggest room to experiment. Yet time is short. With 83% of its loan portfolio turning over every 90 days, Klarna must prove its card ecosystem can control defaults before the next earnings call. The real test? Whether consumers swipe left on fees or right on Klarna’s vision of “smarter spending.”
If Klarna’s card ecosystem succeeds, it could set a new fintech resilience and adaptability standard. If not, the company risks becoming a cautionary tale of overextension in the face of regulatory and market headwinds.
