What's going on?

Klarna reported a mixed earnings update on Monday, so maybe the Swedish buy-now-pay-later startup should�ve been more specific about the �later� part�

What does this mean?

With its most recent valuation putting it at $46 billion, Klarna holds the title of Europe�s most valuable startup. And it�s easy to see why: cash-strapped shopaholics can�t get enough of its interest-free loans, with the company adding 70% more active users last year to bring its total to 147 million. That helped push the total value of transactions on its platform up by 42% compared to the year before, and the firm�s revenue up by 38%. But it turns out shoppers like putting off their payments a bit too much: Klarna�s credit losses ��those it sustains when users don�t pay back their loans � almost doubled to $487 million. Throw in rising admin costs, and the firm�s net loss was quadruple what it was the year before�

Why should I care?

The bigger picture: This is a crowded market.
Buy-now-pay-later (BNPL) really kicked off during the pandemic, and it�s showing no signs of slowing down: Worldpay estimates that the sector accounted for 2.1% of the total value of global ecommerce transactions in 2019, and that�s expected to hit 4.2% by 2024. But with huge growth comes huge competition, and Klarna has plenty of that: it�s not just up against dedicated BNPL firms Affirm, Paidy, and Afterpay, but banks like Monzo, Revolut, and Barclays too.

Zooming in: Klarna was built for a different world.
Klarna�s credit losses are worrying enough for investors, but there are arguably even bigger problems ahead. Klarna partly funds the short-term loans it offers by its own short-term borrowing, which works in a world where interest rates are low. But with most major central banks expected to raise rates and keep raising them for the foreseeable future, cheap money � and big profits � are going to become a lot harder to come by�