Klarna Reportedly Eyes BNPL Loan Sale Ahead of IPO

Klarna is reportedly selling a portfolio of installment loans as it prepares to go public.

The planned sale involves a portfolio of U.S. “Pay in 4” loans from the company’s buy now, pay later (BNPL) offering, the Financial Times (FT) reported Tuesday (Jan. 14), citing sources familiar with the matter.

Banks such as Citigroup, RBC, Nordea, and Société Générale are taking part in the talks about the sale, three of the sources added.

The FT notes that this sale would help generate capital for loan growth to satisfy investors in Klarna’s long-awaited initial public offering (IPO), set to happen this year. Klarna last year sold its BNPL portfolio in Great Britain to investment fund Elliott Management.

As the name implies, the “Pay in 4” option lets consumers divide purchases from retailers into four interest-free payments, payable every two weeks. Klarna offers a similar model in the U.K. — “Pay in 3” — though one source told FT the company’s U.S. BNPL loans are less established, and thus could suffer higher defaults.

PYMNTS has contacted Klarna for comment but has not yet gotten a reply.

The company’s IPO plans come at a time when — as covered here earlier this month — pay-later plans are changing the way consumers manage their spending, and how merchants engage with their customers.

“For consumers, pay later plans offer flexibility and financial relief. More than 56% of consumers used installment payment options in the last year,” that report said.

“PYMNTS finds that consumers are happy with these plans, with 76% of buy now, pay later users reporting high levels of satisfaction. These plans help consumers pay for essentials and large purchases alike.”

And pay-later plans can serve as a financial lifeline for individuals living paycheck to paycheck and struggling to pay bills. These people are four times more likely to use card installment plans than non-paycheck-to-paycheck consumers. High-income consumers who live paycheck to paycheck are the most likely to use these installment options in the coming year.

At the same time, the BNPL sector has gotten the attention of U.S. regulators.

The Consumer Financial Protection Bureau (CFPB) called for more research into BNPL this week after finding that BNPL borrowers held higher balances on other credit lines.

A report from the consumer watchdog agency found that more than one-fifth of consumers with a credit report used BNPL loans in 2022. That research has found that more than 60% of BNPL users had simultaneous BNPL loans, nearly two-thirds of BNPL loans were granted to people with credit scores that were subprime or lower.