If you’ve scrolled through TikTok or LinkedIn lately, you might think Klarna, the Swedish buy now, pay later (BNPL) giant, is on the verge of collapse. Viral videos and posts with millions of views speculate about Klarna’s supposed bankruptcy, with some creators even encouraging users to default on their debts.
The narrative is compelling: a fintech unicorn weakened by unpaid loans and a delayed IPO is finally crumbling under its own business model. But what does the data actually tell us?
The Q1 report: Losses, defaults, and the real story behind Klarna
The source of this madness was Klarna’s Q1 2025 earnings report, released in mid-May and presented via AI avatar. The report revealed a net loss of $99 million, more than double its $47 million loss from the same period last year. Customer defaults rose 17% year-over-year to $136 million.
These numbers are concerning for a lending business, and it’s understandable why they’ve caught public attention. However, as Klarna’s spokespeople and financial analysts emphasise, there’s more to the story.
Let’s start with the losses. Klarna’s headline net loss isn’t just from customer defaults. A substantial portion comes from one-time costs: share-based compensation for the paused IPO, restructuring expenses, and depreciation. Remove these exceptional items, and Klarna actually posted an adjusted operating profit of $3 million for the quarter — a fact largely overlooked in viral discussions.
Despite increased loan volume, the default rate has remained remarkably stable, rising only from 0.51% to 0.54% over the past year. Klarna’s explanation is simple: more customers and more loans naturally lead to more absolute defaults, while the underlying risk profile stays consistent.
Most tellingly, S&P Global reaffirmed Klarna’s BBB rating in April 2025, a strong counterpoint to bankruptcy rumours. With a stable outlook, this investment-grade rating reflects Klarna’s solid liquidity ($10.4 billion in cash reserves) and S&P’s confidence in its future profitability despite economic challenges. For perspective, this rating matches established banks like Spain’s Banco Sabadell, hardly suggesting imminent failure.
Growth amid turbulence: Is IPO still happening?
The IPO situation has intensified speculation. Klarna filed for a U.S. IPO in March, seeking a valuation above $15 billion, but paused these plans in April when new U.S. tariffs sparked market volatility. This pause and Q1 losses have raised questions about potential underlying issues.
Yet insiders say the delay is purely strategic — Klarna’s leadership is simply waiting for better market conditions and stronger investor interest before going public. They maintain that the company’s core business remains healthy.
The numbers support this view. Klarna reported 13–15% year-over-year revenue growth to $701 million, with 100 million active users, up 18% from last year. Its U.S. operation is thriving, showing 33% revenue growth and securing partnerships with major retailers like Walmart, DoorDash, and eBay. The merchant network has expanded 27% to over 720,000 partners.
Rather than retreat, Klarna’s paused IPO represents strategic adaptation. By enabling early investors to sell shares pre-IPO through secondary markets, Klarna stabilises its valuation while gauging market interest, similar to Airbnb’s successful 2019 strategy before its 2020 IPO. CEO Sebastian Siemiatkowski bets that AI-driven improvements and recovering tech valuations will attract investors when market conditions improve.
AI, layoffs, and Klarna’s transformation
Klarna’s recent evolution centres on artificial intelligence. Since 2022, the company has reduced its workforce by 40%, with AI handling much of customer service and operations. This has nearly doubled revenue per employee to $1 million, up from $575,000.
CEO Sebastian Siemiatkowski champions this “AI-first” approach as essential for efficient scaling and market competitiveness. However, Klarna acknowledges AI’s limitations and maintains human staff for complex customer interactions.
The company’s agility is remarkable: 83% of its loan portfolio turns over within 90 days, enabling quick risk model adjustments. Half its portfolio reflects new underwriting policies within two months, far more responsive than traditional banks, whose mortgage portfolios take years to update. Despite growing loan volume, default rates remain steady at 0.54%, well below the 2.5–3.5% typical of credit cards. Klarna executives argue that short-term, small-value loans pose less systemic risk than long-term secured debt.
Yet challenges persist. Rising credit losses have renewed questions about BNPL sustainability, especially as U.S. and UK consumers face increasing debt and economic uncertainty. The UK government plans stricter BNPL regulation, including FCA oversight and mandatory affordability checks. While Klarna’s existing FCA authorisation gives it an advantage, regulatory scrutiny is intensifying.
Klarna’s FCA approval provides a head start as mandatory affordability checks arrive in 2026. The company has also strategically sold Klarna Checkout for $520 million to focus on embedded finance, partnering with major retailers rather than managing checkout infrastructure.
So, is Klarna going bankrupt?
The evidence suggests not. While Klarna faces genuine challenges, rising credit losses, regulatory pressure, and a delayed IPO, it continues to grow and innovate with substantial financial reserves. Its $10.4 billion cash position and stable BBB-rating provide ample runway through difficult periods. Success depends on risk management, regulatory adaptation, and rebuilding market confidence.
The social media controversy reflects broader concerns about BNPL services. As Klarna finances everything from electronics to groceries, critics worry the model encourages excessive spending and obscures debt costs. Despite Klarna’s financial education initiatives and transparency efforts, reputational risks loom. If enough users lose confidence, the negative narrative could become self-fulfilling.
Social media impact extends beyond perception to financial results. TikTok videos encouraging defaults have garnered over 5 million views, with creators portraying non-payment as a protest against “predatory BNPL.” Credit losses have spiked notably among Gen Z users. Klarna now balances AI cost-cutting with human customer service to manage these sensitive issues.
While Q1 results raise concerns, they don’t tell the complete story. Klarna stands at a pivotal moment, juggling growth, regulation, and social media influence. The real question is whether Klarna can become an AI-powered financial platform before market patience runs out.
