Over 50% of jobs planned to be replaced
Klarna, the Stockholm-based fintech giant, has been in the news regularly over the last few months. Borrowers who use the buy now pay later (BNPL) service it offers have discovered that yes, this new tech borrowing can, in fact, show up on a mortgage lender’s credit checks when looking for a home, leading to a flurry of questions to mortgage intermediaries from clients. And as the company moves towards a public listing, it is in the news again as it has been making significant workforce reductions, largely due to the integration of artificial intelligence into its operations.
Turning the TUC’s fears into reality, the company has cut its staff by nearly a quarter - from around 5,000 to 3,800, with plans to possibly reduce this number to about 2,000 in the near future. This downsizing is driven by the increased efficiency AI has brought, particularly in customer service, where a chatbot now performs tasks equivalent to the work of 700 human employees.
Klarna’s CEO, Sebastian Siemiatkowski, emphasized that AI allows the company to “do much more with less,” and while no specific timeline has been set, the reduction in workforce is expected to continue.
The company has also imposed a hiring freeze, except for engineers, and is relying on natural attrition rather than outright layoffs to manage its shrinking headcount. Despite these cuts, Klarna has seen a resulting significant improvement in its financial results, such as increasing its average annual revenue per employee from $400,000 to $700,000. AI’s role in reducing operational costs and enhancing gross margins is likely to be a key selling point in the company’s anticipated initial public offering (IPO), which could take place as early as the first half of next year.
Klarna’s financial performance has shown signs of recovery after a challenging period. The company reported that its credit losses increased by 22% in the second quarter of 2024 compared to the previous year, yet revenues rose by 25%, reaching SKr6.9 billion. This growth, alongside a significant reduction in pre-tax losses by 86% in the first half of the year, reflects the company’s efforts to stabilize after a steep decline in valuation in 2022. At that time, Klarna’s valuation plummeted from $46 billion to just $6.7 billion due to rising interest rates and declining stock prices. However, investors now believe that Klarna could achieve a valuation of between $15 billion and $20 billion when it goes public.
Klarna’s aggressive leveraging of AI, has not only stabilised the company but also shows just how much mortgage lenders and other financial services companies may be able to cut costs and improve performance over the coming months.
As the company prepares for its IPO, it continues to expand its global footprint, with a presence in 45 countries and over 575,000 merchants signed up for its services. Despite the challenges, Klarna remains a dominant player in the “buy now, pay later” market, with 31 million monthly users worldwide.
