MW Klarna goes public as more people say buy-now-pay-later is the only way they can afford to buy things

By Genna Contino

The IPO comes at a time when customers are increasingly relying on BNPL for essentials

Klarna CEO and co-founder Sebastian Siemiatkowski rang the opening bell at the New York Stock Exchange on Wednesday in celebration of his buy-now-pay-later firm's initial public offering.

Fintech company Klarna Group PLC made its New York Stock Exchange debut Wednesday, at a time when experts say buy-now-pay-later consumers are in their most vulnerable state since the payment method became mainstream.

While the majority of BNPL users say they use the payment option to spread out payments or for convenience, more than half - 58% - said they also opted for it because it was the only way they could afford their purchase, the Federal Reserve's 2024 Economic Well-Being of U.S. Households survey found. That figure was up from 55% the year prior.

At the same time, household debt has reached a record high, unemployment claims surged to their highest levels in four years and inflation ticked up in August, further squeezing consumers whose incomes have largely stagnated.

Klarna $(KLAR)$ and other BNPL companies say they are expanding lending access to people who can't always get traditional credit by offering flexible options for interest-free purchases over time. The bulk of Klarna's business is composed of "pay-in-four"-type loans, which can charge late fees if a payment is missed, but do not charge traditional interest. Critics say the products can lead to worrisome debt accumulation, particularly for customers who can't access credit in other ways and may be tempted to spend beyond their means.

"BNPL can be a good option if you really need something, like new tires for your car or a new refrigerator because yours died," said Teresa Murray, consumer watchdog director at the Public Interest Research Group. "But the problems are that many people buy things they want and don't actually need - and then can't keep track of the payments every two weeks, especially if they buy more than one thing on BNPL."

Despite rising household debt and worsening economic conditions, Klarna says it has never seen a healthier consumer and says its customers report using the lender as a "flexible, fairer alternative to high-cost credit." The company lends first-time customers around $100 and can extend that amount if they repay early or on time, Klarna global press office lead John Craske said.

"We look at credit scores as one part of our lending decision, but we prefer to look at our own data," Craske said. "This allows us to build our own credit profile of customers, on how they actually use our products - this is more valuable to us than traditional credit-file data."

Read more: Klarna's stock rockets in its first trades after IPO - but it's losing some steam

Klarna reported its customers' delinquency rates dropping below 1% in the second quarter of 2025, on par with the trend of BNPL products having a lower share of delinquencies than mortgages, student loans, auto loans and credit card loans. However, the Federal Reserve Bank of Richmond points out that BNPL delinquencies tend to be a "lower-bound measure of its credit risks," meaning the statistic alone might not capture the full financial risk."One risk associated with BNPL is not about borrowers who do not repay BNPL loans but rather about borrowers who do: The use of BNPL may induce some consumers to overborrow and threaten their ability to meet non-BNPL debt obligations," Zhu Wang, the Richmond Fed's vice president for research in financial and payments systems, said in an economic brief.

Klarna saw its stock close 15% above its initial-public-offering price in its first day of trading Wednesday, though it's pulled back in Thursday's session.

BNPL reliance signals weakening U.S. consumer

The ability to retain users was a big part of Klarna's IPO pitch. As of June 30, Klarna had 111 million active users, according to the company's IPO filing.

"We expect to continue to focus on acquiring new consumers and increasing our engagement with our existing consumers, with the goal of becoming their everyday spending and saving partner," the document says.

The majority of BNPL consumers use it to buy apparel (41%), technology devices (39%) and home decor (33%), according to a LendingTree survey, but a growing number of users are relying on it for essentials.

In the past year, a quarter of users bought groceries with BNPL loans, up from 14% the previous year. An Urban Institute report also found that people experiencing food insecurity are more likely to turn to BNPL loans for essential expenses. Data from a survey by Protect Borrowers, Groundwork Collaborative and Data for Progress show 36% have used it for medical or dental care.

Read more: Klarna leads busiest week for big IPOs in four years. Will newly public stocks stay hot?

These trends signal "that low-income consumers are having trouble bridging the gap between their incomes and savings and the high price of basic necessities like groceries and healthcare," said Alec Rhodes, a sociology professor at Purdue University whose research focuses on economic inequality and financial insecurity.

The increasing popularity of BNPL is not solely explained by consumers' worsening financial situations, Murray from the Public Interest Research Group said. It's also true that BNPL is widely offered as an option for online shoppers, and marketed as a simple, interest-free way to splurge. While some use the product responsibly as a way to spread out payments and pay off their loans on time, Murray said others just "fall into the trap because they don't know the potential land mines," she said.

"Many consumers have gotten lulled into the mindset of Popeye's cartoon friend Wimpy, who was known for saying: 'I will gladly pay you Tuesday for a hamburger today,'" Murray said. "But as a recession seems to be more of a possibility every month, we're concerned more people may see BNPL accounts as a way to stay afloat and continue to buy the things they need, or want."

When asked about the state of the consumer on CNBC Wednesday morning, Klarna CEO Sebastian Siemiatkowski said he's been "positively surprised by consumer sentiment in the U.S." and that he's noticed people are spending the same amount but just getting fewer products for it because of inflation. Siemiatkowski also said Klarna's business model could give it a leg up if there were to be a recession.

Klarna disclosed in its prospectus an average loan duration of 40 days for its last fiscal year, which it said is far below the average for a typical personal loan. The company said this short duration allows it to quickly make changes to its underwriting process in response to evolving economic conditions.

"We have a fantastic opportunity to adapt to a recession in a fashion that regular banks cannot," Siemiatkowski said.

Shift toward longer-term lending

Klarna's business is shifting to include different types of lending. Between April and June of this year, 80% of Klarna's gross merchandise value was generated by "pay later" loans, the majority of which allow you to pay off a purchase in interest-free installments over 30 days, according to its IPO filing. Twelve percent came from its "pay in full" service, which allows customers to make a one-time payment to cover the entire purchase, and the remaining 8% were "fair financing" loans, which range in duration from three to 48 months.

While the majority of Klarna's products are no-interest, its longer-term "fair financing" loans can have interest rates as high as 35.99%. Of all its transactions over the past year, Klarna reported that 98% were interest free.

The 8% of value generated from "fair financing" loans is up from 5% in the same time frame last year. Klarna expects to offer more of these longer-term loans in the future, particularly at Walmart, where the company will become the big-box store's exclusive buy-now-pay-later provider.

See more: 5 mental tricks to reset your relationship with credit cards as Americans pile on debt

The delinquency rate on Klarna's longer-term loans was 2.18% in the second quarter of 2025, a bit higher than delinquency rates on its more traditional BNPL loans.

"They are increasingly looking like more and more of their business is high-cost, subprime installment lending, which is a very different value proposition than, 'We're going to work with merchants to smooth out your payments so that you can be able to buy more goods and manage your money,'" Protect Borrowers executive director Mike Pierce said. Protect Borrowers, formerly called the Student Borrower Protection Center, is an advocacy group that sues lenders it views as predatory and works to overhaul financial systems that it says "trap" borrowers.

Klarna competitor Affirm (AFRM) started out by offering these bigger-ticket, longer-duration financing options. The company continues to conduct the majority of its business in this area despite expanding into the "pay-in-four" space in 2021, the year it went public. Affirm declined to comment on Klarna's IPO, but said that 71% of its consumer base is near prime, prime or superprime and that the majority of its customers pay off their loans on time and in full.

Moneyist: A warning for all Americans - this is not a good time to put things on credit

Earlier this year, the data-analytics company FICO $(FICO)$ completed a study with Affirm that analyzed the impact of including BNPL loans in a consumer's FICO score. The study "developed a proprietary treatment to harness the benefits offered by incorporation of BNPL data into consumers' FICO Score calculation," according to a FICO news release.

Klarna does not and will not report BNPL transactions to credit bureaus, Craske said, but he would not comment on what regulators would choose to require in the future.

MW Klarna goes public as more people say buy-now-pay-later is the only way they can afford to buy things

By Genna Contino

The IPO comes at a time when customers are increasingly relying on BNPL for essentials

Klarna CEO and co-founder Sebastian Siemiatkowski rang the opening bell at the New York Stock Exchange on Wednesday in celebration of his buy-now-pay-later firm's initial public offering.

Fintech company Klarna Group PLC made its New York Stock Exchange debut Wednesday, at a time when experts say buy-now-pay-later consumers are in their most vulnerable state since the payment method became mainstream.

While the majority of BNPL users say they use the payment option to spread out payments or for convenience, more than half - 58% - said they also opted for it because it was the only way they could afford their purchase, the Federal Reserve's 2024 Economic Well-Being of U.S. Households survey found. That figure was up from 55% the year prior.

At the same time, household debt has reached a record high, unemployment claims surged to their highest levels in four years and inflation ticked up in August, further squeezing consumers whose incomes have largely stagnated.

Klarna (KLAR) and other BNPL companies say they are expanding lending access to people who can't always get traditional credit by offering flexible options for interest-free purchases over time. The bulk of Klarna's business is composed of "pay-in-four"-type loans, which can charge late fees if a payment is missed, but do not charge traditional interest. Critics say the products can lead to worrisome debt accumulation, particularly for customers who can't access credit in other ways and may be tempted to spend beyond their means.

"BNPL can be a good option if you really need something, like new tires for your car or a new refrigerator because yours died," said Teresa Murray, consumer watchdog director at the Public Interest Research Group. "But the problems are that many people buy things they want and don't actually need - and then can't keep track of the payments every two weeks, especially if they buy more than one thing on BNPL."

Despite rising household debt and worsening economic conditions, Klarna says it has never seen a healthier consumer and says its customers report using the lender as a "flexible, fairer alternative to high-cost credit." The company lends first-time customers around $100 and can extend that amount if they repay early or on time, Klarna global press office lead John Craske said.

"We look at credit scores as one part of our lending decision, but we prefer to look at our own data," Craske said. "This allows us to build our own credit profile of customers, on how they actually use our products - this is more valuable to us than traditional credit-file data."

Read more: Klarna's stock rockets in its first trades after IPO - but it's losing some steam

Klarna reported its customers' delinquency rates dropping below 1% in the second quarter of 2025, on par with the trend of BNPL products having a lower share of delinquencies than mortgages, student loans, auto loans and credit card loans. However, the Federal Reserve Bank of Richmond points out that BNPL delinquencies tend to be a "lower-bound measure of its credit risks," meaning the statistic alone might not capture the full financial risk."One risk associated with BNPL is not about borrowers who do not repay BNPL loans but rather about borrowers who do: The use of BNPL may induce some consumers to overborrow and threaten their ability to meet non-BNPL debt obligations," Zhu Wang, the Richmond Fed's vice president for research in financial and payments systems, said in an economic brief.

Klarna saw its stock close 15% above its initial-public-offering price in its first day of trading Wednesday, though it's pulled back in Thursday's session.

BNPL reliance signals weakening U.S. consumer

The ability to retain users was a big part of Klarna's IPO pitch. As of June 30, Klarna had 111 million active users, according to the company's IPO filing.

"We expect to continue to focus on acquiring new consumers and increasing our engagement with our existing consumers, with the goal of becoming their everyday spending and saving partner," the document says.

The majority of BNPL consumers use it to buy apparel (41%), technology devices (39%) and home decor (33%), according to a LendingTree survey, but a growing number of users are relying on it for essentials.

In the past year, a quarter of users bought groceries with BNPL loans, up from 14% the previous year. An Urban Institute report also found that people experiencing food insecurity are more likely to turn to BNPL loans for essential expenses. Data from a survey by Protect Borrowers, Groundwork Collaborative and Data for Progress show 36% have used it for medical or dental care.

Read more: Klarna leads busiest week for big IPOs in four years. Will newly public stocks stay hot?

These trends signal "that low-income consumers are having trouble bridging the gap between their incomes and savings and the high price of basic necessities like groceries and healthcare," said Alec Rhodes, a sociology professor at Purdue University whose research focuses on economic inequality and financial insecurity.

The increasing popularity of BNPL is not solely explained by consumers' worsening financial situations, Murray from the Public Interest Research Group said. It's also true that BNPL is widely offered as an option for online shoppers, and marketed as a simple, interest-free way to splurge. While some use the product responsibly as a way to spread out payments and pay off their loans on time, Murray said others just "fall into the trap because they don't know the potential land mines," she said.

"Many consumers have gotten lulled into the mindset of Popeye's cartoon friend Wimpy, who was known for saying: 'I will gladly pay you Tuesday for a hamburger today,'" Murray said. "But as a recession seems to be more of a possibility every month, we're concerned more people may see BNPL accounts as a way to stay afloat and continue to buy the things they need, or want."

When asked about the state of the consumer on CNBC Wednesday morning, Klarna CEO Sebastian Siemiatkowski said he's been "positively surprised by consumer sentiment in the U.S." and that he's noticed people are spending the same amount but just getting fewer products for it because of inflation. Siemiatkowski also said Klarna's business model could give it a leg up if there were to be a recession.

Klarna disclosed in its prospectus an average loan duration of 40 days for its last fiscal year, which it said is far below the average for a typical personal loan. The company said this short duration allows it to quickly make changes to its underwriting process in response to evolving economic conditions.

"We have a fantastic opportunity to adapt to a recession in a fashion that regular banks cannot," Siemiatkowski said.

Shift toward longer-term lending

Klarna's business is shifting to include different types of lending. Between April and June of this year, 80% of Klarna's gross merchandise value was generated by "pay later" loans, the majority of which allow you to pay off a purchase in interest-free installments over 30 days, according to its IPO filing. Twelve percent came from its "pay in full" service, which allows customers to make a one-time payment to cover the entire purchase, and the remaining 8% were "fair financing" loans, which range in duration from three to 48 months.

While the majority of Klarna's products are no-interest, its longer-term "fair financing" loans can have interest rates as high as 35.99%. Of all its transactions over the past year, Klarna reported that 98% were interest free.

The 8% of value generated from "fair financing" loans is up from 5% in the same time frame last year. Klarna expects to offer more of these longer-term loans in the future, particularly at Walmart, where the company will become the big-box store's exclusive buy-now-pay-later provider.

See more: 5 mental tricks to reset your relationship with credit cards as Americans pile on debt

The delinquency rate on Klarna's longer-term loans was 2.18% in the second quarter of 2025, a bit higher than delinquency rates on its more traditional BNPL loans.

"They are increasingly looking like more and more of their business is high-cost, subprime installment lending, which is a very different value proposition than, 'We're going to work with merchants to smooth out your payments so that you can be able to buy more goods and manage your money,'" Protect Borrowers executive director Mike Pierce said. Protect Borrowers, formerly called the Student Borrower Protection Center, is an advocacy group that sues lenders it views as predatory and works to overhaul financial systems that it says "trap" borrowers.

Klarna competitor Affirm (AFRM) started out by offering these bigger-ticket, longer-duration financing options. The company continues to conduct the majority of its business in this area despite expanding into the "pay-in-four" space in 2021, the year it went public. Affirm declined to comment on Klarna's IPO, but said that 71% of its consumer base is near prime, prime or superprime and that the majority of its customers pay off their loans on time and in full.

Moneyist: A warning for all Americans - this is not a good time to put things on credit

Earlier this year, the data-analytics company FICO (FICO) completed a study with Affirm that analyzed the impact of including BNPL loans in a consumer's FICO score. The study "developed a proprietary treatment to harness the benefits offered by incorporation of BNPL data into consumers' FICO Score calculation," according to a FICO news release.

Klarna does not and will not report BNPL transactions to credit bureaus, Craske said, but he would not comment on what regulators would choose to require in the future.

(MORE TO FOLLOW) Dow Jones Newswires

September 11, 2025 17:26 ET (21:26 GMT)

MW Klarna goes public as more people say -2-

If BNPL is considered in people's credit reports, households already under financial strain could see their credit score decline, said Rebecca Carter, a provider attorney at the legal services company LegalShield whose expertise includes consumer rights, especially if they have multiple outstanding BNPL obligations.

"What once was relatively 'invisible' to credit reporting will now be factored into scores," said Carter, a principal at Friedman, Framme, & Thrush P.A.

Pierce from Protect Borrowers said the change could "radically" change families' financial positions in the eyes of creditors.

"It will become harder to get a mortgage. It will become harder to get approved to rent. It'll be harder to take out a car loan. The cost of a credit card will go up," he said. "All of these cascading financial effects will happen when people are using these financial products the same way that they're using them right now."

Have questions about the real-estate market? Post them here and MarketWatch's real-estate reporter, Aarthi Swaminathan, may answer them during a live Q&A on Friday, Sept. 12, from 1 p.m. to 2 p.m. Eastern time.

-Genna Contino

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September 11, 2025 17:26 ET (21:26 GMT)

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