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Buy now, pay later firm Klarna cuts losses in first half but fails to show profit

Swedish “buy now, pay later” company Klarna made significant strides toward profitability in the first half of 2023, reducing its losses by approximately 67% through cost-cutting measures. While the firm reported a net loss of 2.1 billion Swedish krona ($843.5 million), it recorded one profitable month in the first half, surpassing its goal to achieve monthly profitability in the second half. Klarna’s founder and CEO, Sebastian Siemiatkowski, celebrated this milestone and defended the company’s business model, emphasizing its agility and sustainability. He pointed out that Klarna successfully weathered the challenging macroeconomic environment, including high interest rates, due to its resilient business model. One key factor contributing to Klarna’s improved financial performance was a 39% reduction in credit losses, which measure provisions for customer defaults. Klarna’s core business model involves offering zero-interest loans to shoppers while charging merchants fees on transactions. As interest rates rose, this business model faced challenges.

To achieve profitability, Klarna implemented an aggressive cost-cutting strategy in 2022, including a 10% reduction in its workforce. The company’s cost optimization efforts played a crucial role in achieving monthly profits during the first half of the year. Klarna also invested in artificial intelligence (AI), with recent AI-driven customer service features saving thousands of work hours. Klarna has been making strategic moves in the fintech industry by integrating AI into its offerings, enhancing its app with personalized shopping features, and aiming to provide products to users before they realize they want them, similar to TikTok’s content discovery feed. In the previous year, Klarna experienced a significant decline in its market value, along with other fintech companies like PayPal, Affirm, and Block, due to deteriorating macroeconomic conditions, including rising inflation, interest rates, and shifting consumer sentiment. Despite these challenges, Klarna’s reduction in losses and progress toward profitability demonstrate its resilience and adaptability in the evolving financial landscape.

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