Klarna CEO Sebastian Siemiatkowski follows the launch of the online payment start-up pop-up store in London.
Dave Benett | Getty Images for Klarna
Swedish online payment company Klarna reported a balloon loss net loss in the first half of 2020, as the company invested in an international expansion company and reserved reserves to deal with credit losses amid the coronavirus pandemic.
The Stockholm company’s interim report in the first half showed a net loss of SEK 522 million ($ 59.8 million) between January and June, a sevenfold increase in the net loss of SEK 73 million that it had in the same period last year.
Klarna, supported by investors included Ant Group of Snoop Dogg and Jack Ma, is one of the most valuable private technology companies in Europe, with a so-called “unicorn” valuation of $ 5.5 billion. It is tied to British banking app Revolut and payment software maker Checkout.com as the region’s top fintech unicorn.
A regulated bank, Klarna, is best known for its “buy now, pay later” scheme that offers retailers interest-free financing on retail purchases over a period of time. Klarna pays a buyer once if a customer buys something with his platform, while that user is then paid over installments.
Credit Loss – Occurs when a customer does not repay a loan – nearly doubled to about $ 1.2 billion, a figure the group said was adjusted for “macroeconomic uncertainty.” However, Klarna maintains that the firm’s balance sheet was “strong” and overall losses were only 0.6% of total sales volume.
The company has aggressively expanded abroad, particularly in the US market where it claims to have added another 1 million customers in the last three months. Klarna says new customers are affecting their net credit loss.
The total net business income came to 4.6 billion kroner, which represented a 37% increase of 3.3 billion kroner in the first half of 2019. The company said that its gross trading volume – the total sales made through its platform – 215 billion was in the period January-June, with 44% on an annual basis.
“In the context of Covid-19 and the uncertainties it has unfortunately created for so many, sometimes a precautionary approach was needed, including adjusting our credit policies worldwide,” said Klarna co-founder and CEO Sebastian Siemiatkowski in a letter to shareholders, “Despite this, we have seen accelerated growth and rapidly increasing demand for our services.”
It comes after the company reported its first annual loss earlier this year since operations began in 2005.
Klarna was ranked No. 5 on this year’s CNBC Disruptor 50 list.
Klarna gets its income from fees charged to merchants, as well as fees for late payment. The company’s business model has been the source of criticism due to concerns that it could lead younger customers into a debt trap. Klarna states, however, that it has protections in place to prevent excessive spending.
The company competes with likes of the US-based Affirm, which is led by PayPal co-founder Max Levchin, and Afterpay of Australia. Earlier this week, Afterpay said it had agreed to buy Spanish firm Pagantis in a deal that could expand it to Europe, effectively challenging Klarna.
Speculation about an initial public offering has been circulating in Klarna for some time, and Siemiatkowski recently suggested that this could happen within the next two years. A series of software companies, including Palantir, Unity and Snowflake, have submitted this week to go public.
Meanwhile, Ant Group, a subsidiary of Alibaba of China, recently applied for a double listing in Hong Kong and Shanghai which is expected to value the company north of $ 200 billion. The company’s blockbuster stock market fleet is probably the largest public offering of the year.
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