AI-driven workforce reductions at Klarna raising questions about their impact on the broader payments sector
In the rapidly evolving world of payments, Klarna, a Swedish buy now, pay later (BNPL) major, is making waves with its extensive use of Artificial Intelligence (AI). The company has reported significant operational and financial gains from its AI-led initiatives in the first half of 2024, returning to breakeven after several years of climbing losses.
Klarna's AI-driven initiatives have been instrumental in automating customer service, enhancing fraud detection, optimising marketing, and improving internal workflows. The company has seen impressive results, such as reducing human customer support loads by replacing around 700 full-time agents with AI chatbots, leading to a projected $40 million profit improvement in 2024. AI has also helped cut sales and marketing costs by approximately $10 million annually.
Moreover, AI use has driven a 73% increase in revenue per employee and enabled Klarna to stop recruiting, focusing on investing more per employee while aiming to shrink headcount by about 20% per year, all while growing profitability. By mid-2024, about 90% of Klarna's employees were using AI daily, with over 100 AI-driven projects enhancing productivity and innovation.
However, Klarna's experience also offers a notable lesson: the limits of AI in customer support for financial services. Despite initial enthusiasm, Klarna realised that many customers facing financial concerns need human empathy and personalised assistance. The AI chat function often acted only as a gateway to human help rather than a complete solution, leading to customer frustration. In response, Klarna resumed hiring humans to ensure a quality customer experience, highlighting that while AI can drive cost reduction and automation, human support remains essential for emotionally sensitive service areas.
Klarna's AI journey underscores both the transformative potential and the nuanced limits of AI in the payments industry. The company's experience provides key lessons for other payments companies looking to adopt AI:
- AI can substantially reduce costs and improve efficiency across customer support, fraud detection, marketing, and internal operations, driving profitability and employee productivity.
- Widespread AI adoption requires cultural and organisational change, with significant employee AI integration and in-house AI workflow development replacing legacy systems for maximal benefit.
- Balancing AI automation with human empathy in customer service is critical—particularly in finance where trust and understanding around money issues are paramount. AI should augment, not completely replace, human agents.
- Data-centric, digitally mature companies with agile leadership (like Klarna) are better positioned to implement AI broadly and reap greater financial returns and operational improvements.
- Close collaboration with AI technology leaders (e.g., Klarna’s partnership with OpenAI) can enhance product offerings and customer engagement in innovative ways.
As Klarna gears up for its public market debut, it is intensively embracing AI more than any other payments industry player. The company's workforce has been reduced by 24%, from 5,000 to 3,800 employees, through various company-wide initiatives enabled by its partnership with OpenAI. Klarna aims to raise funds through an Initial Public Offering (IPO), which may occur as early as next year.
The full extent of the impact of Klarna's AI initiatives across the payments industry remains to be seen. However, Klarna's AI journey provides a model for how to gain operational and financial success while maintaining customer trust.
- Klarna's transformation reflects the potential of AI in various business aspects like customer service, fraud detection, marketing, and internal operations, demonstrating significant cost reduction and improved efficiency in the finance industry.
- The successful integration of AI in Klarna's operations has led to a shift in focus towards technological advancements, revealing a strategic direction for the company as it prepares for its public market debut and underlines the importance of AI adoption for businesses in the payment industry.
