Klarna, the buy now, pay later (BNPL) fintech leader, has cut over 1,000 jobs as part of a strategic shift towards artificial intelligence, with further reductions expected before a potential stock market float.

The Swedish fintech, which recorded losses of SwKr2.33 billion (£173 million) in bad loans in the first half of 2024, attributed the cuts to efficiency gains driven by AI adoption. Klarna noted: “Our proven scale efficiencies have been enhanced by our investment in AI, which has driven down operating expenses and improved gross profits.”

With offices in London and Manchester, Klarna operates globally across Europe, the Americas, Australia, and New Zealand. While the company declined to disclose its UK headcount, it confirmed that the job cuts would be evenly distributed across its sites.

AI is already playing a significant role in Klarna’s operations, particularly in customer service, where its chatbot technology has replaced the equivalent work of 700 employees. Klarna’s workforce has shrunk from 5,000 employees last year to 3,800, with a further reduction to around 2,000 expected in the coming years.

Founder and CEO Sebastian Siemiatkowski suggested that a stock market flotation could occur next year, though no firm commitment was made. London is a potential venue for the IPO, though New York remains a more likely option.

Klarna’s credit losses have risen 39% year-on-year, partially driven by a 16% increase in gross transaction value to SwKr523 billion (£39 billion). The closely monitored credit loss rate has climbed from 0.37% to 0.45%, though the company maintains that the trend is “stable” and linked to its rapid expansion in the US.

Despite rising credit losses, Klarna reported significant financial improvements, with pre-tax losses in the first half of 2024 shrinking by 86% to SwKr262 million (£19.4 million). The company highlighted its near break-even performance in Q2 as evidence of progress.

Once Europe’s highest-valued fintech, Klarna’s fortunes took a hit in 2022 when a funding round slashed its valuation to $6.7 billion from a previous peak of $45.6 billion.

Under BNPL arrangements, Klarna finances purchases on behalf of consumers, offering them up to 60 days of interest-free credit. The company bears the risk of borrower defaults, charging late fees to consumers who miss payments. Repeat delinquencies may result in credit agency reports, debt collection, or, in rare cases, the sale of debts.

With 575,000 merchants signed up in 45 countries and 31 million monthly users worldwide, Klarna remains a dominant force in the BNPL market, but its rapid transformation signals the growing influence of AI in reshaping the future of financial services.

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Klarna slashes 1,000 jobs as AI reshapes business ahead of IPO