Following President Trump’s tariff-loaded “Liberation Day” in early April, the market upheaval delayed the initial public offering (IPO) process for Klarna Group plc. The Swedish fintech firm was targeting an IPO valuation target just above $15 billion, which is a drastic downgrade from the first IPO exploration in 2021 at $45.6 billion.
As of August, IPOs are nearly equal in number to the entire last year, at 222 vs 225 IPOs respectively. Now that the markets are more stable, Klarna’s IPO is back. Starting next month, the buy-now-pay-later (BNPL) business model is aiming for a valuation between $13 billion and $14 billion.
The expected Klarna stock range is $34 – $36 per share under the ticker symbol “KLAR”. Let’s revisit the viability of this relatively novel financial service.
Klarna’s Evolution of Debt
Of all resources in the universe, time is the most precious one. Time cannot be borrowed, generated, or counterfeited, making it the ultimate denominator of value. After all, Bitcoin reflects the nature of time through hard-coded scarcity, so that units of value cannot be inflated away as with fiat currencies.
As a claim on future time, debt is essentially a monetization of tomorrow. Klarna’s buy-now-pay-later (BNPL) business model pushes this concept to a more granular daily level. Without charging interest, Klarna allows customers to buy products without paying the full upfront cost, within four installments over 30 days.
In this interest-free period, Klarna generates revenue by charging merchants a flat fee plus 2.7% of the total sale value. Merchants are incentivized to do this because the personal savings rate, as a percentage of disposable income, halved from the post-WWII period up to the 1990s.
Moreover, not only does inflation eat away earnings, acting as an informal tax, but the earnings themselves are suppressed because mass immigration expands the labor supply. Combined, these are ripe conditions for the BNPL business model.
It is no coincidence that Canada, with its unprecedented level of immigration, has become Klarna’s top expansion target. In late August, the company enabled payment flexibility across 400 Walmart stores, becoming Klarna’s largest omni retailer in Canada.
Beyond commission fees for merchants, Klarna charges late fees and interest rates, although the latter are a small portion of Klarna’s total revenue. If that debt is not paid, Klarna recovers a portion of the money from debt collection agencies.
Klarna’s Financial Performance
As of Q2 2025, Klarna generated $823 million in revenue, which is up 20% from the year-ago quarter. Out of that total, $219 million came from interest income and $604 million came from transaction and service revenue.
For the U.S., Klarna’s gross merchandise volume (GMV) grew by an impressive 37% year-over-year. Following the partnership with Stripe payment processor, the company increased its merchant network by 202,000 to 790,000. In early June, Klarna also launched its debit card in the U.S., following the launch of last year’s credit card.
The Klarna Card ran 42% more YoY transactions, once again reflecting society’s relentless demand to borrow against future time.
Across American Walmarts, Klarna is rolling out OnePay Later as the exclusive flexibility payments option. Reminder, as the largest retail employer, Walmart services 255 million customers weekly.
Overall, Klarna increased its customer base by 31% year-over-year to 111 million. More importantly, Klarna’s net revenue per transaction, after subtracting direct costs related to processing, increased by 19% YoY to $489 million.
The company attributes AI integration to significant labor saving costs, as the average revenue per employee rose from $0.7 million to $1 million YoY. Although the company reported a greater net loss of $53 million, compared to $18 million net loss in Q2 ‘24, this is to be expected in a rapid expansion phase to corner the BNPL market.
Lastly, Klarna accumulated $16.67 billion in total liabilities against its equity value of $2.5 billion.
The Bottom Line
As other financial institutions, BNPL companies rely on debt financing to fund lending activities. For Klarna, Santander provides this role, as evidenced by a €1.4 billion financing extension this month. Now that Fed Chair Jerome Powell signalled interest rate cuts, Klarna is likely to access cheaper capital in the U.S.
Moreover, cheaper borrowing spurs consumer spending, as the primary purpose of rate cuts is to stimulate economic activity. In that scenario of higher transaction volume, Klarna’s bottom line increases with merchant fees.
And even though Klarna competes against the credit/debit card market in that macro environment, people prefer simplicity, one that is materialized in Klarna’s 4-installment, interest-free payment option.
As rates fall and debt becomes cheaper, the demand for ‘buy now, pay later’ will likely accelerate because what people are truly buying is time.
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