How the Fintech Company Klarna Has Reinvented Itself

After the boom years, Klarna was plunged into a serious crisis. Now the German fintech company is back, with new figures and a new stock market story. How the turnaround was achieved.

There was this moment in Klarna’s company history when everything threatened to collapse. When the story of the unique fintech company with huge profits faded and the question arose: How is Klarna going to fix it? That moment was almost exactly two years ago. Back then, in September 2022, Klarna had just presented its half-year figures and they were miserable. Instead of great growth figures and high profits, shareholders found a huge loss of millions.

The start-up was forced to lay off hundreds of employees and then there was this financing round from July 2022: a debacle. Because for the first time in its history, the start-up was worth less, not more. Much less. Although Klarna raised 800 million euros, Klarna’s value fell from more than 40 billion US dollars to less than seven billion US dollars. The remaining 33 billion US dollars? Destroyed with just a snap of the fingers.

Klarna 2022: How it became a “problem child”

The reasons for this were complex: Firstly, Klarna had focused heavily on expansion and hired many more employees than necessary. Secondly, the Swedish fintech had unnecessarily focused on strong expansion due to the cheap money on the market and burned through a lot of money. And thirdly, there were external factors.

Disrupted supply chains, the Corona crisis, interest rate reversals and inflation: all of these issues made investors uncertain. The fact that Klarna needed new money at this very time: a bit of bad luck, a bit of miscalculation. But that’s how it happened that in 2022 Klarna suddenly went from being a Swedish beacon of hope to a problem child. A start-up that crashed.

The reinvention of Klarna

It was probably during this time that boss and founder Sebastian Siemiatkowski came up with the plan to turn everything upside down. And with success. Because two years and numerous announcements later, Klarna is back in the black. The 2024 half-year report revealed sales growth of 27 percent and, for the first time in years, a profit – adjusted, at least – of almost 62 million euros.

The figures could even improve by the end of the year, giving Klarna an optimal basis for the planned IPO. Although no precise plan has been made public so far, observers expect a listing in 2025. A valuation of 15 to 20 billion US dollars seems realistic. And all of this because in autumn 2022 Siemiatkowski came up with the plan to put everything on one card: artificial intelligence.

Klarna employees had to leave – in droves

According to various points in the half-year report, it is supposed to be the big breakthrough for the start-up. Thanks to AI, it is possible to save a lot of personnel costs, become more efficient per capita and then, thanks to higher salaries, attract better employees, who in turn would generate higher profits. It is the opposite of a vicious circle that Klarna is currently imagining and which is likely to cost many employees their jobs in the coming months.

The start-up has reduced its workforce from 5,000 to 3,800 employees. In the medium term, almost half of the remaining jobs are to be eliminated, boss Siemiatkowski told the Reuters news agency. Just 2,000 employees would remain by the time of the IPO, and Klarna wants to have replaced the rest by then with the help of artificial intelligence.

The fact that this is a realistic plan can be illustrated by Klarna’s previous successes. The Swedish unicorn caused a stir at the beginning of the year when it announced that it had replaced 700 service employees with an AI chatbot. Experts viewed the statement quite critically at the time: Can a chatbot like this really solve people’s concerns when it comes to sometimes complicated issues such as installment loans? Six months later, it is clear: It can, at least on paper.

Because, as Klarna reports in its half-year report, the average processing time for inquiries has been reduced from an average of eleven to two minutes, and customer satisfaction with the answers has increased. The average sales per capita have also increased thanks to AI, Klarna says.

The IPO: Klarna could soon be worth $20 billion

Inspired by these success stories, the start-up around founder Siemiatkowski is likely to continue down the AI ​​path in the coming months and could thus lead the fintech to its former glory. After all, Klarna’s history has long been a very successful one: founded in 2005, quickly found investors from the USA, and always grown strongly.

Klarna quickly established itself in the German market, took over SOFORT and thus secured a permanent place in the online checkout of German retailers. But other services were also added. In addition to pure payment processing, Klarna now also offers the infamous BNPL loans, as well as a bank account, credit cards and what Klarna itself has labeled a “super app”.

For a long time, the start-up managed the seemingly impossible balancing act thanks to its technological advances: strong growth while still being profitable. Then came the crash, the setback, the down round and finally the turnaround, which will soon make the founders and early employees infinitely rich.

After all, the clever algorithms are not only improving the numbers in Klarna’s balance sheets. In the midst of the AI ​​hype surrounding ChatGPT, Aleph Alpha and other AI companies, they also make an excellent stock market story: Look, we are the AI ​​fintech that is profitable. This is exactly the story that could excite shareholders all over the world and make Klarna’s cash registers ring. It could happen in 2025.

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(Featured image by Adeolu Eletu via Unsplash)

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