Klarna will sell off $26 billion in buy now, pay later loans to Nelnet, a U.S.-based financial services firm primarily focused on servicing student loans, as it continues preparing for its much-delayed initial public offering.
The agreement allows Klarna to offload newly originated, short-term, interest-free pay-in-four receivables to Nelnet over multiple years. For Klarna, the transaction provides a cleaner balance sheet ahead of the IPO, converting outstanding loans into investable cash. The funds will also help support upcoming initiatives, including the launch of a Klarna-branded debit card later this year, as well as a credit card.
Uncertainty Delays the IPO
The Klarna IPO was expected earlier this year but was delayed as the Trump administration rolled out new trade tariffs. In its prospectus, Klarna noted that an economic downturn—driven by factors such as trade agreements or changes to immigration policies—could reduce consumer spending and negatively impact the financial health of its merchants. Last week, Klarna filed an amended agreement with the SEC, signaling that it is once again moving forward with its IPO plans.
Tough economic times disproportionately affect lower-income earners, who make up Klarna’s primary user base. These consumers tend to cut back on discretionary spending and focus on essentials, while wealthier shoppers continue to spend on higher-priced items.
“Klarna’s IPO plans are on hold due to uncertainty in the U.S. over the tariff plans and economic situation,” said Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research. “If the economy sours, people are going to stop paying on their pay-in-four loans, particularly if the activity is not getting reported to the credit bureaus.”
Klarna’s rival Affirm recently began reporting BNPL payment activity to the credit bureaus, but Klarna has pushed back on the idea, arguing that the bureaus aren’t receiving accurate data on BNPL loans, which could unfairly impact consumers’ creditworthiness. At the same time, Klarna may also be banking on the notion that consumers will appreciate not having their BNPL activity affect their credit scores.
Worries About Stability
The BNPL business remains in relatively good shape for now. Klarna’s delinquency rate on BNPL loans fell below 1% for the first time in Q2 2025. However, ongoing tariff wars may weigh on the long-term value of these loans. By offloading a portion of the portfolio, Klarna was able to add some stability to its bottom line.
In addition, while BNPL and similar payment methods have grown in popularity, they have yet to deliver meaningful profits for Klarna. In its most recent quarterly earnings report, the company said revenues rose to $823 million this year, an 21% increase. Still, it posted a $53 million loss for the three months ending in June.
Seeking Profits in BNPL
Klarna and other BNPL providers have struggled to keep these loans profitable on a sustained basis. Klarna’s Form F-1 registration statement from earlier this year admitted that the fintech has “a recent history of incurring losses and may not be successful in effectively balancing growth and profitability in the future.” That document reported nearly half a billion dollars in consumer credit losses in 2024.
The primary benefit of these loans, from the retailer’s standpoint, is to increase sales rather than profit from lending activities. Data from the Journal of Financial Economics found that BNPL increases sales by 20%, driven by low-creditworthiness customers. The study concluded that the benefits of offering BNPL significantly outweigh the costs for merchants.
“Increasing average order value is the selling point from the BNPL company to the merchant,” Danner said. “With expanded access to credit, a consumer might have the credit to now buy that upgraded TV instead of just the standard TV. The revenue model is based around merchant fees for the transaction, as well as delinquency and late fees.”
That’s why BNPL providers have been introducing new products, like Klarna’s debit and credit cards. The BNPL model, while impressive from a sales standpoint, may not be enough on its own to drive significant profits.
“Given the challenges with profitability for these large fintech firms, I’m not surprised to see the expansion into traditional banking products and services like physical cards and savings accounts,” Danner said.
