As more Americans drown in high-interest debt, one fintech lender is looking to cash in on their addiction with a potential multi-billion-dollar public market debut.

Klarna, a Swedish buy-now, pay-later (BNPL) platform, is eyeing an IPO in the U.S. market as consumers look for alternative financing options to their credit cards.

So far, Klarna has offered borrowers three options: divide the cost of a purchase into four payments, pay the balance in one month, or choose a monthly financing plan that comes with an interest rate as high as 33.99% attached.

Now the fintech company wants to take BPLN one step further and turn it into a monthly subscription plan for $7.99—removing service fees and offering name-brand discounts to lure in its most loyal customers.

CNBC cited David Sandstrom, Klarna’s head of marketing, stating, “The thing we need to prove to ourselves and the market is that we can add a new kind of revenue stream to Klarna. That’s something that a lot of companies have struggled to do.”

Easy access to BPLN has disrupted the traditional credit markets. Klarna alone has over 150 million consumers globally. However, as Creditnews reported, this "phantom financing" has also given Americans more ways to rack up debt.

In other words, Klarna appears willing to double down on America’s credit addiction, even as government agencies warn of predatory BNPL programs.

The problem with BNPL loans

A recent report by the Consumer Financial Protection Bureau (CFPB) found that the majority of BNPL borrowers share traits that are commonly associated with higher-risk borrowers.

They’re likely to be highly indebted, rely extensively on revolving credit, have higher credit card balances, and use risky financial services like payday loans.

Additionally, most BNPL borrowers fall into the lower income category, earning less than $50,000 per year, the report states.

They are drawn to the zero-interest model, where purchases are more affordable than paying for the entire item in one lump sum. This looks good on the surface, but there are hidden issues that can come back to bite them later.

The Office of the Comptroller of the Currency has identified risks associated with BNPL, not least being consumers getting in over their heads by stacking up loans or failing to fully comprehend their end of the bargain.

Borrowers might also create a debt cycle where they rely on online installment plans to afford basic items like groceries, or worse they get hit with penalties and fees for missed payments.

These issues become magnified when we consider the current state of consumers. According to a Lending Club report, nearly two-thirds of Americans continue to live paycheck to paycheck—despite inflation moderating from its peak.

And it’s not just low-income households who are in this boat. Among the households living paycheck to paycheck, 50% earn at least $100,000 per year.

So, where is all their money going? A large chunk goes toward other credit payments.

America’s consumer debt problem

According to the New York Fed, U.S. household debt eclipsed $17 trillion in the third quarter of 2023, a new all-time high. Credit card debt amounted to $1.06 trillion and auto loans were valued at around $1.6 trillion.

Delinquency rates are climbing higher, too.

A separate report by the New York Fed found that low-income Americans are struggling to pay their bills on time, leading to fears of an imminent delinquency spike.

BNPL is still a drop in the bucket compared to credit cards and lines of credit, but it’s on the rise, too. Adobe data revealed a 14% jump in the use of online installment plans such as BNPL during the 2023 holiday season, to $16.6 billion.

Tim Quinlan, senior economist at Wells Fargo, refers to it as “phantom debt” considering “no central repository exists for monitoring it.” As a result, he suggests that BNPL debt tallies could be even higher than they appear.

With so much of their money going toward debt, Americans are putting very little toward savings.

According to a Bankrate poll, only 44% of American adults could afford an emergency $1,000 expense. More than one-third of those surveyed would turn to debt for a sudden expense, whether by credit card, personal loan, or borrowing from family.