Klarna Hits 100M Users as BNPL Defaults Fall to Record 0.88%

Buy now, pay later giant Klarna reduces loan defaults while expanding services to 100 million global users

Key Takeaways

• Delinquency rates drop to 0.88% for Klarna’s BNPL loans in Q2 2025, down from 1.03% the previous year, signaling improved credit quality despite rapid expansion
• Revenue exceeds $700 million quarterly driven by 33% U.S. growth and partnerships with Walmart, DoorDash, and eBay, though net losses doubled to $99 million
• UK regulatory approval secured as Financial Conduct Authority authorizes Klarna as Electronic Money Institution, enabling balance and cashback products for 11 million British consumers

Introduction

Klarna demonstrates that its buy now, pay later model strengthens as the company scales globally. The Swedish fintech giant reports delinquency rates on BNPL loans fell to 0.88% in Q2 2025, contradicting industry concerns about rising defaults in an uncertain economic climate.

This improvement occurs as Klarna reaches 100 million active users and generates over $700 million in quarterly revenue. The company’s credit performance validates its underwriting approach while positioning it for a potential U.S. IPO above $15 billion valuation.

Key Developments

Klarna’s global delinquency rate for BNPL loans dropped 15 basis points year-over-year, reaching 0.88% in Q2 2025. The company’s longer-term Fair Financing product maintained stable performance at 2.18%, down slightly from 2.20% in 2024.

The fintech expanded its merchant network to 724,000 partners by April 2025, representing 27% growth year-over-year. Major partnerships include Walmart’s OnePay integration, DoorDash payment processing, and eBay checkout solutions.

Klarna received Electronic Money Institution authorization from the UK’s Financial Conduct Authority. This regulatory approval enables the launch of Klarna balance and cashback services for British consumers, expanding beyond its current payment offerings.

The company implemented extensive AI automation, replacing approximately 40% of its workforce since 2022. Its generative AI engine “Kiki” supports 87% of staff in daily operations, reducing operational costs while maintaining service quality.

Market Impact

Klarna’s U.S. revenue surged 33% year-over-year, contributing significantly to the quarterly $700 million revenue milestone. The company captures a 26% share of the American BNPL market, establishing it as the sector’s dominant player.

Net losses widened to $99 million from the previous year, influenced by $59 million in increased stock-based compensation and IPO preparation costs. Credit losses reached $136 million in the first quarter, up 17% due to higher loan origination volumes rather than deteriorating credit quality.

Consumer user growth reached 18% year-over-year, bringing total active users to 100 million globally. This expansion occurs despite University of Michigan surveys showing U.S. consumer sentiment at decade lows.

Strategic Insights

Klarna’s declining delinquency rates during rapid expansion indicate effective risk management capabilities. The company’s fee-based revenue model from merchants rather than consumer interest charges differentiates it from traditional credit providers.

The UK regulatory approval positions Klarna to compete directly with traditional banks through balance management and rewards programs. This expansion into financial services beyond payments creates additional revenue streams and customer engagement opportunities.

AI integration drives operational efficiency while maintaining credit quality. The technology enables Klarna to process higher transaction volumes without proportional increases in staff costs, supporting profitability improvements.

Market volatility and U.S. tariff policy changes delay the planned IPO despite strong operational metrics. The company seeks to raise at least $1 billion while competitors like Chime and Etoro advance their public offerings.

Expert Opinions and Data

“More customers are paying us back on time or even early, with delinquency rates continuing to decline: proof that our model is working exactly as intended,” said Sebastian Siemiatkowski, Klarna CEO and co-founder. He emphasizes that fair and transparent credit products encourage responsible consumer behavior.

Industry analysts view the delinquency improvements as validation of Klarna’s underwriting standards. The performance counters concerns that BNPL platforms face rising default risks amid economic uncertainty and regulatory scrutiny.

Klarna maintains that 83% of its loans close within six months, demonstrating the short-term nature of most transactions. This rapid turnover reduces credit exposure while generating consistent fee income from merchant partners.

The company’s expansion into savings and rewards products reflects broader fintech trends toward comprehensive financial services. Analysts note this strategy increases customer lifetime value and reduces dependence on transaction-based revenue.

Conclusion

Klarna’s improved credit metrics validate its business model during a period of significant expansion and technological transformation. The company balances rapid growth with disciplined risk management, evidenced by declining delinquency rates across product lines.

Regulatory approvals and strategic partnerships position Klarna for continued market share gains in key regions. The combination of operational efficiency through AI and expanding financial services creates multiple paths to profitability despite current losses from growth investments.