[Asia Economy Reporter Jeong Hyunjin] As the e-commerce market expanded due to COVID-19, the buy now, pay later (BNPL) market, which also experienced a boom, is now facing a crisis due to the obstacle of an economic recession. Investor interest in the BNPL industry has cooled, causing the corporate value of Klarna, a leading Swedish BNPL company, to plummet by 85% in just one year.
According to CNBC and other media on the 11th (local time), Klarna announced that it secured $800 million in funding with a corporate valuation of $6.7 billion (approximately 8.8 trillion KRW). Just a year ago, when it received funding from Japan's SoftBank, the company's valuation was assessed at $45.6 billion. Foreign media reported that Klarna's corporate value is at its lowest level since it was valued at $5.5 billion in August 2019.
Founded in 2005, the company was regarded as a promising player in the BNPL industry and attracted market attention. During the COVID-19 pandemic, as the e-commerce market became active, it gained over 30 million users in the United States. However, this year, soaring inflation and successive interest rate hikes by central banks worldwide sharply reduced consumers' purchasing power, and BNPL companies' profits also significantly declined due to high interest rates.
Following this overall market trend, Klarna also faced difficulties and laid off about 10% of its employees in May as a cost-cutting measure. Foreign media reported that Klarna attempted several times to raise funds in the market this year but encountered obstacles due to waning investor interest. CEO Sebastian Siemiatkowski described this year as "the most turbulent year."
The BNPL industry is becoming increasingly competitive. In particular, last month, big tech company Apple launched Apple Pay Later, its simple payment service equipped with BNPL functionality, putting the industry on edge. There is a growing sense of crisis among companies that Apple could attract all BNPL customers based on the iPhone device. Additionally, last month, the UK government strengthened regulations related to lending institutions, further exacerbating regulatory challenges for the BNPL industry, according to foreign media.
Philip Belamant, founder of UK BNPL provider Zilch, told market research firm PitchBook, "Many companies are racing to zero. They are signing contracts with retailers by lowering margins, and some of them are in a situation where they can never make a profit," adding, "This is unsustainable, and I think this is exactly the point where the market is cooling down."
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