BNPL Meets Expensive Money: The cost of growth at all costs

Derin Koçer Derin Koçer
24 July 2025

For over a decade, Buy Now, Pay Later (BNPL) rode the wave of cheap capital. Providers like Klarna expanded at breakneck speed, fuelled by a world where money cost next to nothing. That era is over — and the shift has exposed just how fragile the “growth at all costs” playbook can be when interest rates spike. The numbers tell a stark story.

The Macro Shock: Funding Costs Skyrocket

BNPL economics hinge on one thing: the cost of money. Providers pay merchants upfront while letting customers settle in instalments, often at zero interest. That means they must finance the gap — typically through deposits and debt securities — and in a rising rate environment, that funding gets expensive fast.

Between 2021 and 2023, central banks across Klarna’s core markets raised rates at historic speed:

  • US Federal Reserve: 0.25% → 4.50% in 2022

  • Bank of England: 0.10% → 3.50%

  • European Central Bank: -0.50% → 2.00%

For Klarna, interest expenses jumped from SEK 666m in 2021 to SEK 1,050m in 2022 — a 58% increase in a single year. By 2023, the full-year effect of higher rates saw funding costs swell to SEK 2,860m, up 172% year-on-year.

BNPL’s structural vulnerability is clear: liabilities reprice immediately with rate hikes, but the yield on core short-term, interest-free loans stays fixed at zero. The result is instant margin compression — far sharper than for traditional banks with longer-term, variable-rate loan books.

The Internal Choice: Hyper-Growth in a Tightening Cycle

External pressure was compounded by internal strategy. Through 2021 and well into 2022, Klarna pursued aggressive global expansion, adding new markets, retailers, and millions of new customers.

The problem? Operating costs ballooned at the same time funding costs spiked:

  • Operating expenses (pre-credit loss) grew 35% in 2022 to SEK 21.5bn, outpacing revenue growth.

  • Sales & marketing spend hit SEK 4.9bn in 2022 — essential for acquisition, but increasingly hard to justify when capital is expensive.

  • Headcount jumped from 4,789 to 6,011 in a single year.

BNPL inherently carries credit risk. In good times, new customer onboarding drives volume without destabilising loss rates. But in 2022, rising inflation and higher living costs meant new cohorts were entering under financial strain.

Klarna’s credit loss rate stayed flat (~0.68% of GMV), but the absolute losses jumped 24% to SEK 5.7bn. Stable percentages hid the real problem: a bigger, riskier loan book meant bigger total losses, directly hitting the bottom line.

This was the double bind: every new transaction cost more to finance, and every new market entry required a heavier operating spend. In 2022, that equation produced record losses of SEK 10.4bn, the company’s private market valuation followed the freefall.

The Pivot: Proof in 2023

When Klarna pivoted mid-2022 from growth to profitability, the results were immediate:

  • Operating expenses fell in 2023, driven by a 31% cut in marketing spend.

  • Credit losses dropped 29% to SEK 4.0bn.

  • Net loss shrank by 76%, with the company posting its first profitable quarter in four years.

This wasn’t luck — it was a direct reversal of the levers that drove the 2022 collapse.

Lessons for BNPL and Beyond

The Klarna case offers three clear takeaways for BNPL operators and high-growth fintechs:

  1. Macroeconomic sensitivity is existential: If your cost of goods is the cost of money, rate risk isn’t a side note — it’s your primary business risk. Funding structure resilience should be a strategic priority.

  2. Growth must be sequenced, not unconditional: Hyper-growth financed in a zero-rate world can collapse under a rate shock. Expansion must be matched to the macro environment.

  3. Portfolio size can mask credit stress: Stable loss rates mean little if absolute losses balloon. Scale amplifies exposure, especially when onboarding untested customers in a downturn.

The BNPL boom was built in a cheap-money decade. The busts will happen in the expensive-money one — unless operators recalibrate, fast. Growth isn’t dead. But the era of growing without counting the cost is, at least for some time.

 

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