Klarna Gets Its Wrist Slapped Again: BNPL Brings Volume, but Not Credit Quality or Profits

Klarna, which specializes in buy now, pay later (BNPL), faced European regulators in court and lost a second big case that will likely impact the globe. The challenge boils down to whether its BNPL can operate as a reliable, regulated financial services entity and adhere to rigorous rules—including standards for credit quality, liquidity, sound lending, and transparency—that financial institutions play by in every market. 

New account volume continues to grow, but rising loan losses outpace it, and the Klarna business model is stressed as it shortcuts lending standards to gain scale. The existential issue is whether the pay-in-four model can survive without the rigors of bank lending. And if Klarna fails to meet its obligations to control credit losses and fraud, will it ever be a reliable source of consumer credit? 

Klarna’s challenges go well beyond facing off with regulators. In the U.S., BNPL credit bureau reporting is spotty and inaccurate, as bureaus struggle to fit short-term loans into a system designed for installment and revolving lending. In markets such as the UK, where regulators expect to announce a comprehensive set of business requirements in July 2026, BNPL lenders and supporting merchants will face a range of strict operating requirements.

Companies Mentioned: 

Affirm, Afterpay, American Express, Block, Chase, Fiserv, Klarna, Mastercard, PayPal, U.S. Bank, Visa