Buy now, pay later giant Klarna is scrambling to stem losses, suggesting that putting an emphasis on selling its banking services will ultimately help.
The London-based company is betting that consumers that tap its banking services will be more loyal to the company and use its products more often, CEO Sebastian Siemiatkowski said in an earnings webcast Thursday.
For now, though, the new loans are also contributing to losses the company reported for the fourth quarter. “The acceleration in lending growth is the primary driver of that outcome,” Siemiatkowski said during the webcast.
The company posted a $26 million loss for the quarter that ended Dec. 31, compared with a $40 million profit for the year-earlier quarter.
Getting more people to use financial services, such as the Klarna debit card and long-term loans that accrue interest, is a potential avenue for growth, Siemiatkowski said in the earnings webcast.
“Every additional billion in loans that we add in a single quarter will reduce our transaction margin dollars by something like $25 million that same quarter, but it will increase transaction margin dollars by $60 million in the upcoming quarters,” Siemiatkowski said. “So the more we grow in these books, the more profit we're generating for the future.”
The company aims to lure more customers who use short-term Klarna pay-in-four installment loans into those financial services, he said.
“We already know these customers, and they already trust us,” he said. “Once you have the everyday spending relationship — once the consumer is using our app 10, 15, 20 times a year at checkout — the step into a banking relationship is natural, low- friction and extraordinarily cost-effective.”
Klarna posted its second straight quarterly loss even as its overall revenue increased, according to an earnings report released Thursday. The company posted a $95 million loss in last year’s third quarter.
Klarna reported total revenue of $1.08 billion for the fourth quarter, a 38.5% increase from the $781 million it reported a year earlier.
The CEO attributed the losses in part to a spike in loan originations.
Klarna extended large amounts of money to loan recipients, and will eventually see a return on that spending when those recipients repay the loans with interest, Siemiatkowski assured analysts and investors Thursday.
For example, if Klarna loans $1 billion to consumers, “the lifetime profit of these loans is $100 million,” Siemiatkowski said.
He did not provide a dollar figure for loan originations during the quarter, and a company spokesperson declined to provide that figure, but stressed that Klarna’s active customer count reached 118 million in the quarter, a 28% year-over-year increase.
