Klarna, the Swedish fintech, is set to reduce its workforce by 1,000 employees as artificial intelligence (AI) drives efficiency gains and reshapes its operations ahead of a potential initial public offering (IPO).
The company, which faced losses of SwKr2.33 billion (£173 million) in bad loans during the first half of 2024, explained that the job cuts are a direct result of enhanced efficiencies brought about by AI. Klarna stated, “Our proven scale efficiencies have been enhanced by our investment in AI, which has driven down operating expenses and improved gross profits.”
Klarna operates globally with offices in London and Manchester, but the company did not disclose the specific number of employees in the United Kingdom. However, it confirmed that the reductions would be evenly spread across all locations. The integration of AI is particularly substantial in customer service, where chatbot technology now performs tasks that previously required 700 employees.
The workforce reduction is not a new trend for Klarna. From last year’s 5,000 employees, the number has already dropped to 3,800, with expectations to further decline to around 2,000 in the coming years. Despite these cuts, CEO Sebastian Siemiatkowski hinted at a possible stock market flotation next year. While London is considered a venue for the IPO, New York remains a more probable choice.
Klarna’s credit losses have increased by 39% year-on-year, partly due to a 16% rise in gross transaction value to SwKr523 billion (£39 billion). The credit loss rate has gone up from 0.37% to 0.45%, but the company insists that this trend is stable and tied to its rapid expansion in the United States. Despite the rising credit losses, Klarna has shown substantial financial improvement, with pre-tax losses shrinking by 86% to SwKr262 million (£19.4 million) in the first half of 2024. The near break-even performance in the second quarter was highlighted as a sign of progress.
Once the highest-valued fintech in Europe, Klarna saw its valuation plummet to $6.7 billion in 2022 from a peak of $45.6 billion during a previous funding round. The company operates under a buy-now-pay-later (BNPL) arrangement, financing purchases on behalf of consumers for up to 60 days interest-free. Klarna shoulders the risk of defaults, charging late fees to consumers who miss payments. Repeat delinquencies can lead to credit agency reports, debt collection, or in rare instances, the sale of debts.
Klarna’s broad reach includes 575,000 merchants across 45 countries and 31 million monthly users worldwide, signifying its dominance in the BNPL market. Despite the workforce reductions and rising credit losses, the company’s rapid transformation underscores the growing impact of AI in revolutionising financial services.
Klarna’s decision to slash 1,000 jobs demonstrates the transformative power of AI in driving business efficiency. As the fintech prepares for a potential IPO, its focus on AI and subsequent operational changes signal a forward-thinking approach to navigating the challenges and opportunities in the financial industry.
