Since Russian president, Vladimir Putin declared war on Ukraine, a major turbulence has struck several sectors, including agriculture, manufacturing and exporting automobiles, and the trade of raw materials. Currently, the head of the International Monetary Fund (IMF), states the global economy will be next to suffer, with emphasis on the stock market.
Klarna, The Swedish Buy Now Pay Later (BNPL) pioneer, is one of the businesses presently being affected, it was announced that 10% of the firm’s staff will be let go, as a result of the ongoing war between Russia and Ukraine. The notice was posted on Monday, on Klarna’s website by CEO Sebastian Siemiatkowski, targeted toward staff.
Mr Siemiatkowski blamed this decision on inflation and reduced consumer spending, which ultimately predicted a recession in the stock market. The chief supported this by stating this was unplanned compared to last year; a time when the BNPL firm thrived in user sales during lockdown restrictions, seeing revenue of $46 billion.
Although approximately 7,000 ‘Klarnauts’ will be cut from the workforce, the Swedish CEO promises that staff will leave ‘with an associated compensation.’
Mr Siemiatkowski commented that this year has been very ‘tumultuous.’
Similarly, the social media platform Snapchat will also be reducing hiring rates following a sudden decline in social media shares, falling by 40%. The parent company shared a statement saying the economy has ‘deteriorated further and faster than anticipated’.
Two days after Klarna’s announcement, its founder told the Financial Times about a new business strategy, in an attempt to reduce losses and save the company’s image. This consists in focusing on ‘short term profitability’, and deriving from growth and investments.
This loaning strategy has been watched closely by competitors, and now, companies such as Mastercard and Apple are introducing their own variations. In addition, since PayPal launched a new update featuring the ability to pay in instalments, its volumes surged, accelerating as a fearful opponent.
Nevertheless, Revolut also revealed the embarkment of this trend. CEO Nik Storonsky announced that owners of the Revolut card will be able to spread costs into instalments, two weeks apart from each other.
Although becoming a competitive environment, buy now pay later platforms have only recently begun saturating the markets, since the strike of COVID-19, the number of consumers shopping from the comfort of their beds spiked, and these statistics remained stagnant until the beginning of 2022. BNPL has been frowned upon and still brings uncertainty due to its deep-rooted practice of capitalising on people’s debts and losses. These allow consumers to make purchases and be offered to choose between paying within 30 days, depending on the platform, or paying in instalments.
However, these also come with a catch, a large proportion of revenue has been achieved from customers’ failing to repay loans in time. The need for regulation is evident, chief executive of Citizens Advice, Dame Clare Moriarty supported this in a recent statement: ‘As living costs spiral, we fear more people in desperate situations will see this unregulated form of credit as the answer’.
‘The fact that people are turning to BNPL for their groceries really hammers home the urgent need for industry regulation.’
Now, the tide is changing, Klarna informed users that they will start reporting UK customer debts to credit agencies commencing 1 June, after being pressured to increase transparency with customers, and prevent people from immersing themselves in debts. This also sheds light on how important it is to not be fooled by the convenience of these platforms, or take them for granted.
Considering this is a challenging time for many households, inflation has impacted all aspects, from food prices skyrocketing, families avoiding driving to save fuel, and paying bills becoming unmanageable. The head of the IMF, Kristalina Georgieva, highlighted that the main regions to face such challenges and be affected the most are weaker countries, which are still in recovery from the pandemic, and depend on imports from Russia and Ukraine.
Jane Fraser, chief executive of Citigroup, followed up on the matter by sharing her thoughts on Europe looking vulnerable at the moment. ‘Europe is right in the middle of the storm from supply chains, from the energy crisis, and obviously just the proximity to some of the atrocities that are occurring in Ukraine.
About the author: Andreea Bejan is a contributing features writer and aspiring journalist, with a passion for entertainment and lifestyle writing, and an interest in technological advancements and international affairs.