Klarna Launches Stablecoin: Not Innovation, It's Survival

Why Klarna's valuation crashed 85% overnight

In July 2022, Klarna's valuation collapsed from $45.6 billion to $6.7 billion—an 85% freefall.

The culprit? Rising interest rates demolished the buy-now-pay-later (BNPL) business model that made Klarna a fintech darling.

Think of it like this: Klarna's entire business was lending money interest-free to millions of shoppers, then charging merchants 3-5% per transaction. Sweet deal, right?

Here's the thing though: Klarna doesn't have that money sitting around. They borrow it from banks and investors.

Between 2015 and 2021, borrowing cost nearly zero. Klarna pocketed a comfortable margin: cheap financing, 4-5% merchant fees.

Then the Federal Reserve hiked rates aggressively. Suddenly Klarna's borrowing costs exploded, but they still charged merchants only 4% (raise fees and merchants bolt to PayPal or Stripe).

The math stopped working.

Investors ran the numbers: Klarna was bleeding money on every transaction. That's why $39 billion in market value evaporated in 12 months.

Cross-border payments cost an additional 2-3% due to legacy banking rails that take 3-5 days to settle. According to World Bank data, these payments drain $120 billion annually in fees, averaging 6.4% per transaction.

If Klarna could eliminate that cost through blockchain, they'd claw back precious margin on international transactions.

That's the real story behind KlarnaUSD.

KlarnaUSD: Survival play disguised as innovation

On February 12, 2025, Klarna launched KlarnaUSD on Tempo, Stripe's blockchain. It's a stablecoin pegged 1:1 to the U.S. dollar, designed specifically for instant merchant settlements.

The mechanics: instead of waiting 3-5 days for money to hit a merchant's account in Thailand or Brazil, settlement happens in under one second using KlarnaUSD. No intermediary banks. No currency conversion fees. No SWIFT network costs.

Let me break this down: with 114 million active users across 45 countries, cutting 2-3 percentage points of cost on cross-border transactions could save Klarna hundreds of millions annually.

I tested Tempo's integration with a test e-commerce setup last week. The technical documentation is solid, but the learning curve for developers without blockchain experience is steep. If Klarna doesn't invest heavily in merchant education, adoption will crawl.

Real advantages:

• Instant settlement (under 1 second vs 3-5 days traditional banking)
• 2-3% cost reduction on international transactions
• 114 million users = massive distribution network from day one
• Partnership with Stripe brings money transmitter licenses in 50+ jurisdictions
• On-chain transparency: merchants can track payments in real time

But here's what nobody's saying:

• KlarnaUSD has zero FDIC insurance (unlike Klarna's traditional bank deposits)
• Regulatory landmine: if they add yield/rewards, the SEC could classify it as a security under the Howey test
• Tempo blockchain is untested at scale: technical failures would hit 114 million users instantly
• Merchants must adopt new settlement rails (integration costs, training, smart contract risk)
• PayPal already has PYUSD with 400 million users, JPMorgan has JPM Coin processing $1 billion daily
• If Klarna goes under (and given their current financials, it's not impossible), your KlarnaUSD could be worthless while traditional bank deposits are insured up to $250,000
• U.S. regulators have been hostile to stablecoins outside the traditional banking system—Klarna's banking license gives them an edge, but one regulatory shift could torpedo the entire strategy

The blockchain bet that could backfire spectacularly

Tempo is brand-new infrastructure built by Stripe. Zero track record at scale.

If there's a critical bug or exploit in Tempo's smart contracts, Klarna's entire merchant settlement system could freeze. We're talking about 114 million users and billions in transaction volume.

Real talk: Klarna is betting their survival on unproven technology built by a company that also competes with them for merchant payment processing.

Your partner is your competitor.

Then there's the SEC problem. If Klarna adds staking rewards or interest on KlarnaUSD holdings (a logical next step to drive adoption), the SEC could argue it's an unregistered security under the Howey test. Coinbase and Binance have already been hit with enforcement actions for similar products.

Klarna would face delisting from exchanges, regulatory fines, and potential criminal charges for executives.

Pro tip: Watch how Klarna structures incentives for KlarnaUSD holders. If they avoid yield entirely, it signals they're terrified of the SEC. If they offer yield, they're either confident in their legal strategy or desperate enough to roll the dice.

On the privacy front, Tempo is a transparent blockchain—anyone can view transactions. Klarna hasn't clarified whether user transaction data will be anonymized or publicly visible on-chain. For a payment network handling 114 million users, that's a massive unanswered question.

On r/Klarna (the Reddit community), the top comment on the announcement says: "So my refund is now in crypto? Can I lose money?"

Klarna hasn't responded.

What this means if you're one of 114M users

Does this change anything for you as a Klarna user?

Probably not in the short term. Right now, KlarnaUSD is focused on B2B merchant settlements, not consumer payments. You'll keep paying for purchases in installments as always, using your card or traditional bank account.

Heads up: If Klarna starts offering refunds in KlarnaUSD instead of returning money to your bank account, read the fine print on insurance coverage.

Stablecoins don't have FDIC protection. If Klarna collapses, your KlarnaUSD could be worthless. Traditional Klarna bank deposits in the U.S. are insured up to $250,000, but stablecoins aren't.

There's also zero official clarity on what happens to on-chain transaction data. Tempo blockchain is transparent—anyone can view transactions. Will Klarna anonymize user data or will it be publicly visible? This question remains unanswered.

My recommendation: If Klarna offers you the option to receive payments or refunds in KlarnaUSD in the future, understand the insurance gap before accepting.

The fintech war: Klarna vs PayPal vs the banks

Klarna isn't alone in this race. PayPal launched PYUSD in August 2023, JPMorgan has had JPM Coin since 2019, and Circle dominates the market with USDC ($50 billion market cap).

Klarna's edge is product integration: buy-now-pay-later. If you can buy a couch in installments AND the merchant receives instant settlement in KlarnaUSD, that's a complete ecosystem.

But PayPal has 400 million users (nearly 4x more) and Stripe (Klarna's partner) also processes payments for merchants directly.

The question is whether Klarna can execute this strategy before their financial situation deteriorates further. They haven't raised capital since July 2022. If they need more money to scale Tempo infrastructure, they'll have to approach investors who now value them 85% lower.

The next signal to watch: How many merchants adopt KlarnaUSD in the next 6 months? If by August 2025 we don't see at least 10,000 active merchants using the stablecoin, this strategy has failed.

Meanwhile, Stripe will likely offer Tempo to other clients (Shopify, Amazon), diluting Klarna's competitive advantage.

Klarna is betting their future on cutting costs faster than their margins erode. Blockchain is their last card. If it works, they survive. If not, we'll be reading about their acquisition by PayPal or their bankruptcy in 2026.

This isn't an innovation announcement. It's a company in crisis playing their final hand.