Klarna, the buy now, pay later financial services provider, has announced a workforce reduction of over 1,000 employees, attributing part of this decision to advancements in artificial intelligence (AI). The company anticipates further job cuts, potentially nearly doubling this figure, as it prepares for a stock market listing.

Headquartered in Stockholm, the fintech firm disclosed a significant write-off of SwKr2.33 billion (£173 million) in bad loans during the first half of 2024, linked to an increase in defaults as more customers utilize its credit services. Klarna stated, “Our proven scale efficiencies have been enhanced by our investment in AI, which has driven down operating expenses and improved gross profits.”

The company operates two offices in the UK, located in London and Manchester, along with various additional sites across Europe, the Americas, Australia, and New Zealand. While Klarna did not specify the exact number of employees in the UK, it confirmed that the upcoming job cuts would be distributed evenly across its locations.

Klarna highlighted that its AI tools are already employed extensively in customer service, with its chatbot reportedly accomplishing work equivalent to that of 700 human employees.

Last year, Klarna’s workforce was approximately 5,000, but it has since reduced this number to 3,800. A company spokesperson indicated that this figure may decline to around 2,000 in the forthcoming years, although no specific timeline was provided.

CEO Sebastian Siemiatkowski mentioned that a stock market flotation is a possibility for next year, describing it as “reasonable,” though no definitive date for an initial public offering has been disclosed. London is under consideration as a potential listing location, although New York is viewed as a more likely option.

In its latest report, Klarna revealed a 39% increase in credit losses year-on-year, which correlates with a 16% rise in gross transaction value financed by the company, reaching SwKr523 billion (£39 billion).

The credit loss rate, a crucial metric that reflects losses as a percentage of total sales, has risen from 0.37% to 0.45%.

Klarna characterized this uptick in the credit loss rate as “stable,” attributing it mainly to the company’s growth outpacing competitors in the critical U.S. market. Additionally, it noted that the current rate remains lower than the 0.66% recorded in 2022.

The firm emphasized its “close to break-even” performance in the second quarter as evidence of progress, noting a substantial reduction in pre-tax losses, which fell by 86% to just SwKr262 million (£19.4 million) during the first half of the year.

Once hailed as Europe’s largest fintech company, Klarna faced challenges in 2022 when it secured funding at a valuation of only $6.7 billion, significantly lower than the $45.6 billion valuation from previous capital raises.

Klarna operates under the buy now, pay later model, where merchants pay fees to Klarna to facilitate credit for customers. Shoppers benefit from an interest-free credit period of 30 to 60 days. The company claims to have onboarded 575,000 merchants across 45 countries, with a reported 31 million monthly users globally.

The company bears the burden of defaults by borrowers. In the UK, if repayments are over seven days late, Klarna imposes a late fee of £5 for orders of £20 and above, or 25% of the purchase value for orders below £20. Additional late fees may follow.

Should customers default, their information could be reported to credit bureaus, and accounts may be passed to collection agencies. Although selling debts is a possibility, Klarna asserts that the involvement of bailiffs is “very, very unlikely.”