The popularity of buy-now, pay-later (BNPL) apps like Klarna skyrocketed amid COVID-19 lockdowns as people resorted to online retail therapy, helping the Swedish company reach a valuation of $45.6 billion in 2021.
Just a year later, however, that value had dropped by 85% amid tough market conditions in the tech world.
But now, Klarna is seeing a boom in growth in severalgeographies—and it plans to ride the wave.
During the second quarter of 2023, the fintech company saw 26% growth in gross merchandise value—a measure of how many sales are made through its platform—in the U.K. alone. The same figure rose 14% across all of Europe from the same period a year earlier, it said on Wednesday.
The boost from Klarna’s European markets comes not only as the company grapples with a steep drop in its valuation, but while consumers pull away from spending thanks to rising interest rates and persistent inflation around the world.
“It’s fantastic to see this sustained, phenomenal growth across Europe,” Sebastian Siemiatkowski, CEO of Klarna, said in a statement. “While other, smaller players dial back their commitment or leave the region altogether, we’re doubling down, further strengthening our position in Europe, as well as the U.S.”
Klarna told Fortune that some of the factors boosting its growth included greater awareness on how to access credit via BNPL, the withdrawal of rivals like ClearPay from the European market, and new partnerships with luxury London store Liberty and theme park Paulton’s Park, home of Peppa Pig World.
The average age of Klarna’s U.K. users is 36, the company told Fortune, slightly lower than the global average of 40 years.
Klarna raised $800 million last year to bolster its footprint in the U.S., its largest market by revenue as of the end of 2022, where it has about 34 million users. That’s nearly double the size of its U.K. market, which consists of 18 million users.
The buy-now, pay-later phenomenon
Klarna has been a hit with the younger, social-media-savvy demographic, becoming a hot topic among Gen Z shoppers on TikTok.
The appeal of interest-free payments made in installments has appealed to many—and in Britain, BNPL has proven popular among those squeezed by the country’s worst cost-of-living crisis in decades.
A July survey from the U.K.’s Financial Conduct Authority found that 8.8 million British adults had used some form of deferred payment credit or BNPL service over the previous 12 months.
The popularity of Klarna-like platforms is only set to explode further in the coming years, some experts say. International BNPL transactions could rise from about $309 billion in 2023 to $566 billion in 2026, intelligence firm GlobalData has predicted.
However, the rise of BNPL hasn’t been without controversy.
Services like Klarna have sparked concerns over how BNPL glamorizes credit, prompts overspending, and has the potential to land young people in an insurmountable pool of debt.
But it isn’t just younger generations who are vulnerable to those downsides—BNPL is also gaining traction among older age groups, with Klarna telling Fortune on Thursday that the 57-plus category is its fastest-growing user base.
Tighter regulation
As it continues to grow in the U.K., Klarna finds itself facing another hurdle: tougher regulation.
Legislation proposed by the U.K. Treasury would give the country’s financial regulator, the Financial Conduct Authority, greater power to regulate firms like Klarna. Under the proposed regulations, BNPL lenders would be required to carry out affordability checks, ensure loans are affordable for consumers, and make sure BNPL commercials are fair, clear, and not misleading.
The proposed new system could slow down the process for consumers and make it less seamless for them to use, Klarna said in April.
“We have raised concerns over some of the proposals, but these concerns are not in our view reason to delay regulation,” a Klarna spokesperson said at the time.
No regulation to govern BNPL has been formalized in the U.K. yet.
In June 2022, Klarna announced that it would begin reporting data on missed BNPL payments to credit bureaus—meaning use of the service may start impacting British users’ credit scores.
Editor’s note: This article has been updated to clarify when Klarna’s valuation went down.