B (15:18)

Honey, I. I need to talk to you.

A (15:23)

Her husband takes a seat, his eyes never leaving her. Okay. Berman opens her mouth a few times to say the words, but nothing comes out. Hey, honey, you're. You're scaring me. Berman knocks back the rest of her martini and says the words as fast as possible.

B (15:41)

I'm. I'm $50,000 in debt.

A (15:46)

What? Wait, how?

B (15:49)

I don't know. I mean, I do know it's the clothes, the shoes, the handbags. I paid for them using a bunch of Buy Now, Pay later apps, and I just didn't realize how out of control it had gotten.

A (16:03)

The apps didn't tell you?

B (16:05)

Not really. The payments all come out of your account on different days and at different times. Like on Monday at 8am Klarna takes a $250 payment from the account. And then at noon, a firm takes a $40 payment. The next day, Klarna takes another 200. And it's not obvious how to view the full picture and find out the total amount each app is taking.

A (16:25)

Hey, that doesn't seem right.

B (16:28)

It's not. But I have a plan. I've looked into it, and I can use my 401k to pay back what I owe I. And then I can pay back my retirement funds with interest on a manageable schedule.

A (16:40)

Okay.

B (16:41)

I am so sorry.

A (16:45)

Hey, hey, hey. It's okay. It's okay. There's a reason for richer or for poorer is one of the vows right? Come on. I'm here for you. Berman wipes tears from her cheeks. She can't believe how compassionate he's being.

B (16:59)

I promise I am never going to use one of these apps again.

A (17:04)

Burman isn't the only one finding herself confused and vulnerable. After relying on Buy now pay later apps, it's becoming a widespread problem. So much so that the United States government starts paying attention. In May 2024, the US government cracks down on the Buy now, pay later industry. For years, Klarna and its competitors have operated in a legal gray area. Their core product, short term loans, paid off in four installments or less, has fallen through a regulatory loophole. Because of that, they weren't subject to the Truth In Lending Act. That law lays out strict rules that credit card companies have to follow. It requires clear disclosure about interest rates and fee schedules, and it gives consumers a formal process for resolving disputes. It's meant to prevent exactly the kind of confusion that Alicia Berman experienced around not knowing exactly how much she owed. But that law hasn't applied to Buy Now Pay later companies until now in May 2024, Rohit Chopra, the head of the Consumer Financial Protection Bureau, holds a press conference announcing a new interpretation of the Truth in Lending Act. He says that Buy Now Pay later customers are entitled to the same protections as credit card users, including clear disclosures about payment structures, fees and dispute resolution. Just because they don't issue a rectangular piece of plastic to their customers doesn't mean they're exempt from following the law. He also says the bureau will continue to monitor these services and take action if they feel it's necessary. Chopra then points to research the bureau conducted. It shows that most people who use Buy Now Pay later apps are already carrying debt, so these services are not necessarily replacing credit cards as promised, but instead are being used in addition to them. And because Buy Now Pay later debt usually doesn't show up on credit reports, lenders aren't getting the full picture when they run credit checks. Klarna quickly puts out its own press release in response. The company assures its customers that it already adheres to many of the guidelines issued by the CFPB and that it welcomes regulation in the Buy Now Pay later industry. But Klarna pushes back on one key point. The company argues that Buy Now Pay later is fundamentally different from credit cards, and that comparing the two is like comparing apples and oranges. In a weird way, the CFBP's new scrutiny on the Buy Now Pay later industry is an image win for Klarna. In its announcement, the CFPB acknowledges that Buy Now Pay later companies are now a major part of the United States credit market. Back in 2005, when Chemiatkovsky started his company, he vowed to disrupt the financial industry. And this is proof that he has. By June 2024, one study shows that 50% of Gen Z and 47% of millennials have used a BNPL service at least once. And in 2024, Klarna is profitable for the first time since 2019, bringing in $21 million in net profit. Then, in January 2025, Donald Trump is inaugurated for the second time, raising hopes that the regulatory pressure on Klarna and other Buy Now Pay later services might ease. Trump campaigned in part on abolishing the Consumer Financial Protection Bureau. So in March 2025, Klarna makes a major move and files to go public on the New York Stock Exchange. With an IPO planned for April, CEO Sebastian Chemiatkovsky takes a number of steps to ensure it's a success. First, he starts by going on a Press Blitz Since 2022, tech investors have placed increased importance on profitability over growth, and Chemiatkovsky leans into this message, emphasizing that Klarna is keeping costs as low as possible, ensuring long term profitability. His main talking point is that Klarna has reduced its workforce by 40%, in large part thanks to artificial intelligence. Now, in case you haven't picked up on it, this is investor theater ahead of an ipo. Companies don't just present results, they present a story to investors. Klarna isn't selling growth anymore, it's selling discipline. Cost cutting becomes evidence of a company's maturity, even when it's reactive. But the danger here is believing your own pitch and mistaking market optics for fundamentals. In interviews, Chemiatkovsky openly brags that the company is shrinking. In December 2022, Klarna employed over 5,000 people. Now it's down to about 3,500. He says AI chatbots are doing the work of approximately 700 customer service reps. They're currently handling roughly two thirds of customer service calls, and he claims the customer satisfaction scores are roughly the same between bots and humans. Chemyatkovsky tells interviewers he anticipates further gains from AI, saying 90% of Klarna's staff uses AI in some capacity every day. But it's not enough just to show low overhead. Klarna also has to show increased revenue, which means signing deals with more and bigger merchants. Shortly after the company announces it's filed for an ipo, Klarna announces a major coup. It will become the exclusive provider of Buy Now, Pay later loans for Walmart. Chemiatkovsky calls this win a game changer. Not only is Walmart the biggest retailer in the United States, but in the process Klarna has booted its biggest rival, Affirm, as Walmart's partner, Affirm, for its part, tries to downplay the loss. They point out that Klarna will be underwriting the loans, but customers will be interacting with Walmart's own Buy Now, Pay later service to shop. They say it's not an arrangement they would ever make. Furthermore, they argue that losing Walmart will have little effect on their bottom line, as the retailer represents less than 1% of their income. But a firm's stock price tumbles in response nonetheless. And Klarna isn't done signing partnerships either. In March, they announce a deal with the delivery service DoorDash. A DoorDash executive highlights that this move is meant to help customers use DoorDash to buy high ticket products like electronics. But Doordash is mostly known for delivering takeout and the response online is swift. But the insane thing we're talking about today? The new partnership between DoorDash and Klarna. Which means you can now go into debt for crunchwrap, Supreme Chipotle burritos and the Big Zach Snack Meal. Because when I heard about it I thought it was an April Fool's prank. But it's real. Yeah. You'll now be able to put your late night food run on a four payment installment plan.

B (24:44)

I think this is a horrible idea. If you're in dire enough that you.

A (24:47)

Need to split up your Taco Bell.

B (24:49)

Order, just don't order it in the first place.

A (24:51)

Yeah, I agree. On the surface it's a punchline. But while the Internet laughs at the idea of financing a burrito, regulators, investors and competitors are watching closely. Just weeks before Klarna plans to launch an ipo, the timing. It couldn't be worse. And suddenly, a joke about tacos starts to look like a serious problem. In Stockholm, Chemytkowski huddles with his top executives to discuss how to address the bad press. He paces his office as the executives sit nearby, laptops open. One executive rubs his hand through his wavy blond hair. You know, we might be overthinking this. We're the outrage du jour tomorrow. You know how it goes. The Internet will be going on about something else. Shemytkovsky shakes his head. You know, ordinarily I might agree with you, but with the IPO approaching, we can't risk this backlash growing into a real problem. We gotta address it. Another executive with thick glasses turns from the window to address the room. You know what? We gotta start by stating the facts. These commentators keep talking about paying for a burrito in installments, but they didn't even bother to look into the terms. You can't pay in installments unless you're spending $35 or more. Yeah, I know. That's true. We can point out that these so called experts didn't even bother checking the details. I guess. The blonde executive nods. Yeah. We can also talk about how many Americans pay for takeout or groceries on credit cards. How's this any different? Shmyakovsky points his finger at the executive enthusiastically. Yeah, you're right. In fact, I'd say using Klarna is better than putting recurring expenses on a credit card. Of course it is. They charge interest immediately. We only charge interest on longer term loans or late fees. Shemytkovsky stops pacing and takes a seat. And this is just the kind of pushback you get when you're a disruptor, right? We're changing the way things have been done. People are reacting, he continues. I think we have a good set of talking points here. Let's get this over to comms and have them write a response. The other executives gather their belongings and return to their offices. Karna pushes through the bad press from the doordash partnership and defends the collaboration. The company's focus stays on the upcoming ipo. It's anticipating a strong debut. But less than two weeks later, everything changes, and Klarna is forced to rethink their entire strategy. Foreign. It's early April 2025 in Stockholm, Sweden. Karna CEO Sebastian Chemiatkovsky sits at his computer, watching CNN online. Earlier, President Donald Trump announced sweeping tariffs on almost all of the U.S. s trading partners, including the European Union, India and China. Although the president campaigned on instituting tariffs, what he's announced here is much broader and steeper than analysts expected. Trump is calling the day the tariffs go into effect Liberation Day. But investors don't seem to share this sentiment. Across the screen, CNN runs a chyron that reads stocks Tumble, Dollar Weakens as Recession Fears Grip Wall Street. The anchor Wolf Blitzer echoes this in his analysis. Now we begin with the breaking news from Wall Street. Trading has been underway now for just about 30 minutes, and nervous investors, very nervous investors are weighing in on President Trump's historic new global tariffs. The early assessment deep concerns. Shmytkowski mutes the video. He knows the responsible thing to do is to delay Klarna's ipo. It's not in the company's best interest to make a public debut in a turbulent stock market. And this exact scenario was flagged in Klarna's prospectus to potential investors. It specifically listed tariffs as a risk factor. Higher tariffs generally lead to higher prices, and higher prices mean consumers cut back, which is bad news for Klarna. Despite partnering with Walmart and DoorDash, Klarna is still used mostly for larger indulgences. But even though Chemiatkovsky knew tariffs could derail his plans, it still stings. He's approaching 20 years since founding the company, his main competitors affirm and afterpay have already gone public. He wants to join them, and he's so close. But as red arrows flash across his screen and the major stock indexes plunge, the conclusion is unavoidable. The timing isn't right. He's waited this long and worked too hard to fumble this opportunity by rushing. Shemyetkovsky picks up his phone to call his top executives. They're postponing the IPO. Delaying the IPO isn't the only setback Chemiatkovsky faces in spring 2025. For the past year, he's been touting the potential of AI in the workforce. He's speculated publicly that AI is capable of doing all human jobs. And he boasted about Klarna's cost savings after ChatBot started answering 75% of customer service calls at the end of 2024. He even used an AI generated avatar of himself to deliver the quarterly financial results. Then, in May 2025, Klarna makes a surprising announcement. It's hiring humans as customer service agents once again. Even though chatbots saved money, Shemiatkovsky now admits that customer satisfaction scores plummeted after the transition, a reversal from what he previously claimed. Social media is filled with people complaining that Klarna's chatbots don't actually resolve problems, they just route them to humans. And most people, it turns out, still want to talk to another person. Chemiatkovsky says the company over prioritized cost savings and didn't focus enough on customer satisfaction. So he's bringing back humans. I don't know about you, but for some of us who've suffered through useless chatbot driven customer service sessions, this day of reckoning hasn't been nearly as widespread as it should be, and likely will be. You know, the problem isn't automation. The problem is automation almost always looks great on paper. Fewer employees, faster responses, lower expenses. And maybe that'd be fine if customers only wanted speed. But we all want something more, like a serious resolution to our issue, not a text link to a webpage. A little human empathy would be nice too, for businesses. What's the bottom line when it comes to technology and customer service? Remove friction for customers, but don't replace that human relationship entirely. Nonetheless, plenty of businesses are still learning this by trial and error, even now. And I'm looking right at you, AI. Chemiatkovsky insists that Klarna is not walking back from using AI as a whole. In fact, they're currently developing a financial digital assistant for customers. His hope is that eventually the AI assistant will negotiate loan terms and insurance rates for customers. But there's no mistaking this. This is anything but a backtrack and an abrupt change in policy for the company. As the summer progresses, Shemyetkovsky begins maneuvering Klarna toward an IPO again. He decides the key to a successful debut is to make sure people see Klarna as more than a Pandemic era one hit wonder. He needs to go back to his original dream of Klarna, not just as a lending company money, but as a bank. On July 4, 2025, Karna launches a debit card in the US accepted anywhere that Visa is accepted, the card allows users to either pay in full from their bank account or use it to make for interest free payments. Karna also announces plans to roll out premium tiers that offer rewards like airport lounge access and cash back, similar to high end credit cards for a monthly fee. The card is an instant hit, with approximately 13,000Americans signing up each day for the first two months. And with that momentum behind it, Klarna finally goes public on September 10, 2025. Shemy Yatkovsky stands on the balcony overlooking the trading floor of the New York Stock Exchange. He's wearing a Karna pink jacket over a white T shirt. The wall behind him is bubblegum pink, Klarna's signature color, and it's emblazoned with a company logo. And then he rings that famous bell. Trading is open. Last night, Klarna's stock was priced at $40 a share. And now he's about to find out if the market will drive it up or if the IPO will flop. The first round of investors spikes the stock up 30% to $52 a share. And as Chemy Yatkovsky makes the media rounds, he keeps returning to the same message. In the US there's been a demand for an alternative to credit cards. People are tired of getting in debt, tired of the highest interest rates that they charge, and they want a better product. Varna's IPO is a success, though a moderate one. The company raises $1.37 billion on its first day of trading, and its stock price closes up 15%, giving Klarna a valuation of $14 billion. That's well above its 2022 slump, but far below its peak in 2021. Some analysts say that Klarna's big innovation was removing friction. Consumers no longer need to go through the process of applying for credit and running a credit check with Buy Now Pay Later. That whole process happens with just a click. It makes spending feel almost insignificant. And breaking down payments into four installments feels less like going into debt and more like budgeting. But it is debt. And now over half of Buy Now Pay later users say they've used the service to pay for an item they otherwise couldn't afford. Among Gen Z Buy Now Pay later consumers, this figure is 60%. That's a sharp turn For a generation that grew up seeing their parents drown in credit card debt during the 2008 financial crisis and vowed never to repeat it. Oh boy. This may be Klarna's most powerful innovation and its most corrosive when it comes to personal finance. Breaking payments into pieces turns debt into something that feels manageable and even responsible. Hey, look, I've done this too. Made the same rationalization. So don't get me wrong, this isn't a scold, but this is the same trick we've all seen before with subscription renewals or minimum payments. Hey, how many streaming channels do you subscribe to? Are you sure you watch them all? Or did you just want to see the Office or Seinfelder the big Game so badly that night that you clicked the seven day free trial, right? And by the way, those minimum payments, you know, you faithfully pay the minimum each month on time, you're following the rules, and yet that debt never goes away. At some point, we all feel the pain. It's not a question of if, but when. But there's an underlying issue here. Who should pay for that pain? The user or the enabler? Now look, however you come down, there's no getting around this much. Reasonable people can and do disagree. I mean, on the one hand, the borrower signed up for it, case closed, right? On the other hand, consider the marketing, the use of big data, analytics, automation, the science of knowing exactly who's most likely to say yes and whether anyone truly reads the fine print. Because the alternative is, well, it's like walking away from something that feels too good to pass up. And that's the power of Buy Now Pay later regulation continues to move slowly. In May 2025, the Consumer Financial Protection Bureau, now staffed with appointees made by President Trump, announced they would no longer enforce the Truth in Lending act rules on Buy Now Pay later apps. This is a reversal from the Biden era approach. But that same month, New York passes a law requiring Buy Now Pay later companies to obtain a state license, cap fees and provide disclosures. And attorneys general in several other states, including North Carolina and Connecticut, begin investigating whether Buy Now Pay later companies have violated any of their consumer protection laws. Over the months following Klarna's stock market debut, its share price drops down to $30 a share, well below its IPO price. Then, in December 2025, a class action lawsuit is brought against Klarna by investors who claim the company failed to disclose that many of its customers were experiencing financial hardship and that missed payments translate directly into losses that Klarna has to absorb, cutting into its profits. The plaintiffs argue that by downplaying these risks, Klarna overstated its financial health. Still, demand for Klarna and its new kind of debt shows no sign of stopping. On Black Friday, consumers made over $1 billion worth of purchases using Buy Now, Pay later apps. It's the first time these apps have crossed that threshold in a single day. It's more evidence that Buy Now, Pay later is firmly ingrained in the American packaging payment ecosystem. But whether that's progress or a warning remains to be seen. A big part of what we've been talking about today is how easy it is to get trapped in cycles of debt, whether it's Buy Now, Pay later or paying off your student loans. Rachel Rogers knows this firsthand. When she graduated from law school, she owed close to $360,000 and felt like her future was over before it began. But seven years later, she was a millionaire. In the Audible Original your Debt Plan, Rogers shares her framework. Confront your debt without shame, negotiate with creditors, build side hustles to increase income, and learn how wealthy people actually use debt as a tool instead of a trap. Her message? You don't have to live your cheapest life to get out of debt. You need to live your most strategic one. Make sure to check out Rachel Rogers new Audible Original Debt Plan. Reclaim your life and get paid. Just go to audible.com yourdebtplan to listen free with a 30 day trial. From wondering. This is episode two of the Buy Now, Pay later takeover for Business wars. A quick note about recreations you've been hearing in most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on research and if you'd like to check out more, we recommend they got to Live the Life of luxury. Then came the fine print by Amy X. Wang, published in the New York Times Magazine. Also Making Sense of klarna by Steve O', here, published in TechCrunch and the interview with Sebastian Chemiatkovsky conducted by Ben Gilbert and David Rosenthal on the acquired podcast. I'm your host David Brown. Austin Rachlis wrote our story. Sound design by Josh Morales. Kyle Randall is our lead sound designer. Voice acting by Chloe Elmore. Fact checking by Alyssa Jung Perry. Our producer is Tristan Donovan of Yellow and our managing producer is Desi Blalock. Our senior producers are Jenny Bloom and Emily Frost. Karen Lowe is our producer emeritus. Our executive producers are Jenny Lauer Beckman and Marshall Louie. For wondering.