The Rise and Fall of Buy Now Pay Later
Buy Now Pay Later (BNPL) has become an extremely popular trend, predominantly among Generation Z and millennial customers who trust it even more than credit cards. However, over just 3-4 years, one of the most prominent financial technology startups in history has crashed and burned under the weight of its broken economic model—a perpetual spiral of debt that’s completely unsustainable.
Meet Klarna, a Swedish company widely regarded in 2021-2022 as one of the most valuable startups in the entire world. At its peak, the company was valued at over $45 billion, seemingly on track to go public in the United States. But before that could happen, Klarna suffered a stunning level of managerial and business model failure that was entirely predictable for anyone paying attention.
Understanding BNPL: Not Actually New
BNPL as a concept isn’t new—it’s just the latest buzzword in a long history of financing options including credit cards, car loans, and mortgages. Financing purchases isn’t inherently bad when used strategically:
- A car enabling a 35-minute commute to a higher-paying job can justify a $400 monthly payment if it increases income by $900
- Real estate provides both shelter and equity building through mortgage payments
- Necessary purchases with clear value propositions make financial sense
However, things become less clear with credit cards, which operate similarly to BNPL but with key differences:
- Fixed interest rates prevent unexpected payments
- Higher barriers to entry with credit checks and limits
- More regulation and oversight
- Visible to other lenders through credit reporting
Klarna’s Predatory Model
Klarna takes the credit card concept and amplifies it dangerously. Unlike traditional credit companies that operate around central ranking systems, Klarna offers the ability to finance small purchases directly at checkout with minimal checks.
Evidence of their aggressive expansion includes:
- Becoming Walmart’s exclusive BNPL provider
- Partnering with DoorDash to finance individual fast food meals
- Running soft credit checks instead of hard checks
- Targeting smaller purchases with softer verification
Functionally, BNPL companies facilitate debt spirals while deliberately targeting vulnerable demographics with less money and lower financial literacy. The closest comparison is payday loans—small, short-term agreements with insane interest costs widely considered horrifically predatory.
The Spectacular Collapse
The business model’s failure has been dramatic:
Valuation Plummet:
- 2021: Raised $600 million at $45.6 billion valuation
- 2022: Attempted fundraising at only $6 billion valuation
- 85% decline in value in just one year
Mounting Losses:
- Q1 2024: Lost $47 million
- Q1 2025: Lost nearly $100 million
- Doubled quarterly losses year-over-year
When you mass lend money to people who can’t or won’t pay you back, the business suffers predictably.
The AI Disaster
Klarna isn’t just predatory—they’re also trend chasers. In 2024, during the Silicon Valley AI craze, Klarna replaced customer support with AI agents, described as a “cost-cutting” initiative allegedly worth tens of millions in revenue.
CEO Sebastian Siemiatkowski doubled down, claiming AI would replace all jobs and increase efficiency. But by May 2025, he completely reversed course, stating: “From a brand perspective, I just think it’s so critical that you are clear to your customer that there will always be a human if you want… Really investing in the quality of human support is the way of the future for us.”
This stunning about-face came after cutting their workforce by 40% based on AI promises that failed to materialize.
The Doomed Economics
Despite claims of 27% revenue growth and plans to be available at “every retail checkout,” Klarna’s fundamental problem remains: increasing availability of a faulty business model doesn’t increase profit—it increases losses.
User Statistics Reveal the Problem:
- 23% of users have three or more active BNPL loans simultaneously
- Two-thirds would consider using BNPL for food delivery
- Over 60% incorrectly believe on-time payments help credit scores
- Only 13% correctly understand they have all downside credit risk with no upside benefits
The Broader Context
As BNPL services primarily target Gen Z and millennials, consider that student loan delinquency rates are surging 8-fold as federal reporting pauses end. This demographic is already struggling with debt, and BNPL adds another layer of financial burden.
In April 2025, just one month after filing with the SEC for an IPO, Klarna delayed plans citing “market turbulence” from Trump tariffs. But this coincided with the company publicly losing twice as much money as the previous year despite a massively expanded customer base.
Buy Now, Pay Never
While the Trump administration voided rules that would hold BNPL companies to credit card regulations, giving them more runway for predatory practices, this runway will end. A faulty business model built on high-risk lending with nothing to repossess when customers can’t pay doesn’t miraculously fix itself.
Klarna represents the doomed economics of lending obscene amounts of money to people who likely will never pay back, so they can buy DoorDash, AirPods, and cheap electronics. It’s not a sustainable revenue generation model.
The “Buy Now, Pay Never” lifestyle that Klarna enables was always destined to fail. As stated at the beginning: anyone with a brain should have been able to see this coming. The only question now is how many consumers will be caught in the debt spiral when the BNPL bubble finally bursts completely.
