As the holiday season approaches, US shoppers are projected to spend a record $18.5 billion on buy now, pay later (BNPL) services, marking an 11.4% increase compared to last year. This surge in spending reflects the growing reliance on BNPL options as consumers navigate financial pressures and increasing debt levels. Overall holiday spending is forecasted to reach $240.8 billion from November 1 to December 31, indicating a robust shopping season despite economic uncertainties [e0990ca8].
In a significant development, Klarna has filed for a US initial public offering (IPO) amid this holiday spending surge. The company, which was previously valued at $45.6 billion in 2021, is now aiming for a valuation of up to $20 billion, a stark decline that highlights the volatility in the fintech sector and Europe's challenges in capital markets [ee22c13e]. Klarna reported a profit of $66 million in the first half of 2024, a notable turnaround from a $45 million loss the previous year. BNPL services accounted for $75 billion in online spending in 2023, which represents a 14% increase from 2022 [53f6a96e].
The popularity of BNPL services, which allow consumers to make purchases in installments—typically four payments—has become a significant trend. However, this method of payment comes with risks, particularly as credit card usage for BNPL purchases can lead to mounting debt. Recent data shows that net charge-off rates for credit cards rose to 4.82% in the second quarter of 2024, the highest level since 2011. Additionally, 13.6% of consumers anticipate becoming delinquent on loans within the next three months, raising concerns about the sustainability of this spending behavior [e0990ca8].
The National Retail Federation (NRF) previously reported that Black Friday sales had reached a record $9.8 billion, with consumers increasingly turning to BNPL options during this shopping period. The NRF's predictions for the holiday season indicated that over 182 million consumers would shop during Thanksgiving weekend, with hot items including Lego, Hot Wheels, and Barbie [0cc95b51]. Despite the strong sales figures, experts warned that many shoppers were holding out for deeper discounts, which could lead to a more subdued overall shopping season [c0bc98fe].
As consumers continue to spend heavily, the reliance on BNPL services raises questions about financial health. Major BNPL providers like Affirm, Afterpay, and Klarna are seeing increased usage, but Affirm notably does not accept credit payments on most loans, which may help mitigate some risks associated with credit card debt [e0990ca8]. The Consumer Financial Protection Bureau (CFPB) has also implemented new requirements for BNPL lenders as of May 2024, aiming to enhance consumer protections in this rapidly growing sector [e0990ca8].
Klarna's upcoming IPO reflects not only its business strategy but also broader issues within European capital markets. CEO Sebastian Siemiatkowski's leadership is under scrutiny as concerns about Klarna's business model and governance arise. The fact that only 5 of the 30 leading companies in Stockholm were founded since 1970, compared to about half of the S&P 500, underscores the challenges faced by European firms seeking growth in the US market [ee22c13e]. In summary, while holiday spending is expected to hit record levels, the increasing reliance on buy now, pay later services amid rising debt concerns presents a complex picture for consumers and retailers alike. The interplay between consumer spending habits and financial health will be crucial to monitor as the holiday season unfolds [f46d665c].