Over the past few years, the option to “buy now, pay later” (BNPL) has been offered to millions of people all over the world. It even recently went viral as a way to pay for ordering takeout food. (Klarna) While that is an option, companies, investors, and consumers alike all see the long-term value in this financial service.
Recently, Swedish fintech company Klarna priced its offering at $40 per share, raising about $1.37 billion and achieving a valuation near $15 billion. Then shares surged almost 30% on opening day to $52. (Reuters; AP News)
What is Buy Now, Pay Later
The idea of “buy now, pay later,” isn’t a new one. It’s effectively just purchasing something and then paying it off over a specific amount of time. Just like a credit card. Since the introduction of companies like Klarna and Affirm, they’ve become synonymous with the phrase “buy now, pay later.”
BNPL services let consumers split purchases into smaller, often interest-free installments. The model has surged in popularity among Millennials and Gen Z, who are skeptical of traditional credit cards, as well as people who are just starting to build credit. (The Economist podcast).
Why the Klarna IPO Matters Culturally
Max Levchin, co-founder and CEO of Affirm recently appeared on The Economist’s “Money Talks” podcast about his difficulties getting credit when he first came to the U.S. He explained that this is a problem many immigrants face, so he wanted to create a system that would help them. (The Economist podcast) BNPL companies like Klarna and Affirm fill this gap, offering point-of-sale financing with clearer terms. This allows them to meet the consumer where they’re at: the checkout screen.
However, there’s also a less helpful side, which allows those who have maxed out their credit to potentially have access to more. However, as Levchin noted, they have found that’s not the case with Affirm. If people are not able to handle their current debt, they are not given more. (The Economist podcast)
Why the Klarna IPO Matters Financially
Globally, BNPL accounted for $342 billion in consumer spending last year, up from just $2 billion a decade ago (The Economist podcast). Since this debt is paid back 90% of the time according to Levchin, private companies like KKR have been buying this debt as part of their private credit holdings.(The Economist podcast)
BNPL providers report significantly lower delinquency rates than traditional credit cards. The Financial Technology Association notes less than 2% of its members (including five BNPL companies) are delinquent compared to more than 7% for credit cards. Specifically in the case of Klarna, it achieves a 99% global repayment rate.
This is in part because BNPL debt features:
- Short durations — often paid off in weeks or months.
- Diversification — repayment streams are spread across thousands of small transactions.
- Predictability — steady repayment rates create reliable cash flows.
The Future of BNPL
As with any financial instrument, there’s risk, but companies adjust for that. Affirm, for example, began reporting installment loans to Experian earlier this year (Axios). As the industry matures, greater transparency and regulatory integration will be key to maintaining credibility.
Klarna’s IPO isn’t just about one company’s performance. It’s a test case for how far BNPL financing has come and where it’s headed. On the consumer side, BNPL is lowering barriers and expanding access to credit for millions. On the investor side, the model is creating a new, structured form of short-term debt that’s attracting major capital.
If managed responsibly, BNPL could evolve into a cornerstone of modern finance, balancing inclusivity for borrowers with opportunity for investors. Klarna and Affirm may be in the spotlight today, but the broader BNPL story is one of financial innovation.
How Can You Replicate BNPL’s Success?
At the heart of what makes BNPL programs so successful is the problem they solve. They allow qualified borrowers to have access to credit when they may not otherwise have had the opportunity.
Ready to get the word out about how your business helps clients? Email info@tpalmeragency.com.
