In the past few days, Klarna returned to profitability after years in the red, while fighting a labor battle that will likely result in parts of the company forming a union. Both events derive from stresses facing almost all payment companies.
On Monday, Klarna reported about $12 million in profits for the quarter ending September 30. That's better than the $182 million loss the company reported in the prior year's third quarter. It was the first quarterly profit for Klarna since the second quarter of 2019.
The results were a potential sign of a turnaround for fintechs, particularly those that offer buy now/pay later lending, which has been
"Klarna demonstrated there's an enormous market for low-friction, short-term, often fee-free consumer credit," said Eric Grover, principal at Intrepid Ventures. "That's not enough. Generating profits is necessary just to justify even its reduced valuation. Unionization, if only in [home market] Sweden, can only put a damper on Klarna's efforts to generate sustainable growth in profits and increase its enterprise value."
Klarna looks to AI for a recovery
Klarna also said gross merchandise volume was about $22.9 billion, an increase of 22% from about $18.7 billion the prior year.
As the company prepares for the holiday season and 2024, it is leaning on new forms of artificial intelligence, such as generative AI. Klarna is adding a version of
In a statement from Klarna's public relations office, CEO Sebastian Siemiatkowski said Klarna has "achieved exactly what we set out to do. This fantastic success sets us up for the busiest shopping period where our AI-powered products will help consumers make their money go further, find the best deals, and get inspired. Our growth has accelerated in Q3 and we will build on this momentum in Q4 with further investments to drive value to our consumers and merchants alike."
In 2022, Klarna had projected it would
"There needs to be more evidence beyond Klarna's earnings before there's confidence in a turnaround for BNPL firms, according to Aaron McPherson, principal at AFM Consulting. "Klarna is the largest company in the BNPL space, and in hard times, we often see consolidation around market leaders."
There was a 14% annualized growth rate in revolving credit, according to
"I still see a lot of pressures in the space, from a higher cost of funds to growing revolving credit, which raises the question of whether consumers are getting overextended," McPherson said.
Labor pains
Klarna also faced a potential strike, primarily focused on its home country of Sweden. Engineers of Sweden and Unionen — both unions that represent Swedish workers — negotiated a collective bargaining agreement with Klarna's management. The unions had threatened an "industrial action," or strike, which they called off after reaching an agreement over the weekend.
Under the agreement, staff has to be informed about certain decisions, over a certain threshold, such as reorganizations the affect a certain number of employees. Staff also have the right to an annual salary discussion, and the right to know the basis for their salaries. There is also a right to bargain for policies for pension, sick pay and parental leave.
The union did not comment on how many staff would be part of a Klarna union, or if there would be organizing of staff outside of Sweden. Klarna has about 5,000 employees, with less than half in Sweden, according to Klarna.
About 90% of workers in Sweden belong to a union, according to
The dispute grew partly out of Klarna's downsizing, according to Rozenkranz.
Klarna did not provide comment on the negotiations. Regarding the settlement, Siemiatkowski issued a statement saying he was pleased with the agreement, adding: "Our focus in the negotiations has been to secure operational freedom, to continue being able to make quick decisions and to cultivate our unique and successful culture, which thousands of employees have expressed their appreciation for this week. I am confident that we will benefit from this agreement."
Fintech unionization is not widespread, but it does happen, according to Leonie Guguen, senior communications manager at UNI Global Union, a Switzerland-based federation with unions in more than 150 countries covering 20 million workers in the skilled and service workers sector.
For example, digital financial institution
Both of these agreements include unions under UNI's umbrella.
In most cases, fintech workers consider themselves to be working in the banking industry, not the technology industry, according to Guguen.
"It is not such a black-and-white distinction," Guguen said. "As so many banking worker roles are being outsourced to services companies, this is also another gray area of workers. In some cases union conditions and terms of the existing collective agreement are carried over, but not always."
While U.S. fintechs have many of the same pressures as Klarna, including downsizing and lower revenue, workers at U.S. fintechs may have a more difficult time organizing. Most of the payments industry isn't unionized, according to Grover, who argued that a trend toward collective bargaining could add to economic pressures to companies such as Block, Worldline, Nexi, PayPal, Adyen, Nuvei, Paysafe and dLocal, which have all seen their stock prices decline more than 70% during the technology downturn.
Since 90% of workers in Sweden have collective bargaining agreements, that suggests Klarna faces pressure that other fintechs do not, McPherson said, adding that it's harder to organize in the U.S.
"Even the unionization efforts at Amazon have been limited to warehouse workers, not the more highly educated employees that tend to populate fintechs," McPherson said.
