As Klarna readies IPO, five charts mapping BNPL use

The anticipated New York listing of BNPL giant Klarna underscores the sector's rapid expansion, with U.S. online spending reaching $82.4 billion in 2024, a 9.9% increase year-over-year. While comprehensive delinquency data is limited due to non-reporting to credit agencies, industry groups report BNPL delinquency rates below 2% compared to over 7% for credit cards, though a slight decrease in on-time 'pay-in-four' payments was noted. This growth, driven by smaller average payments and strong adoption among younger demographics, signifies an evolving landscape in consumer credit and purchasing power.

Analysis

The impending New York listing of Klarna is intensifying investor focus on the Buy Now, Pay Later (BNPL) sector, which is exhibiting robust top-line growth but faces scrutiny over credit quality. The market's expansion is significant, with BNPL-driven online spending climbing 9.9% year-over-year to $82.4 billion in 2024 and continuing this momentum with an 8.1% increase in the first eight months of this year. Proponents highlight favorable delinquency metrics, with industry associations reporting rates below 2% compared to over 7% for credit cards, and strong repayment figures from individual firms like Klarna (99% repayment) and Block's Afterpay (96% on-time payments). However, these figures are tempered by the fact that comprehensive data is scarce due to non-reporting to credit agencies, a key risk factor. Furthermore, early signs of potential stress are emerging, evidenced by a one-percentage-point decrease in on-time payments for 'pay-in-four' products between late 2023 and late 2024, and a reported 2.3% delinquency rate at Affirm. The user base is heavily skewed towards younger demographics (Millennials and Gen Z) using the service for smaller ticket items, with 57% of users having average monthly payments of $100 or less, suggesting both a long growth runway and a concentration risk tied to the financial health of these cohorts.

Key Decisions for Investors

• Investors should weigh the sector's strong, quantified growth in transaction volume against the material risk of opaque credit performance due to limited reporting and the early indication of a slight decline in on-time payments.
• Closely monitor the delinquency and repayment metrics from public peers Affirm (AFRM) and Block's Afterpay (SQ) as they serve as critical bellwethers for underlying credit health across the sector.
• The valuation and subsequent market performance of the Klarna IPO will be a key catalyst, potentially triggering a re-rating of existing public BNPL players and signaling broader investor sentiment toward the industry's risk-reward profile.
• Given the concentration of users in younger demographics, positions in the BNPL space should be considered sensitive to shifts in discretionary consumer spending and the employment outlook for these specific cohorts.