The news: Klarna instituted a hiring freeze outside of engineers as the buy now, pay later (BNPL) provider plans to lean more on artificial intelligence (AI) to replace labor, Klarna CEO Sebastian Siemiatkowski told The Telegraph.

• The company does not have immediate layoff plans, but the hiring freeze will lead to a natural “shrinking of the company” as people leave and are not replaced, according to Siemiatkowski.
• Klarna already laid off 10% of its staff in May 2022.

How we got here: Profitability has long eluded BNPL fintechs like Klarna, but the company pledged in 2022 to get back in the black.

• Klarna has since tightened lending standards and slashed costs.
• It also diversified into non-BNPL features to push growth. It added new features to its shopping super app, for example, including an AI-powered search tool.
• And it pushed its affiliate marketing strategy to bolster revenues.

Why it matters: Klarna’s profitability efforts are paying off.

• In Q3, Klarna achieved its first quarterly profit since 2019, bringing in SEK 130 million ($11.89 million).
• Q3 was also the fourth consecutive quarter of gross profit in the US.

If Klarna can replace labor with AI, its hiring freeze will help Klarna slash costs and keep up this profitability. It could also set up the company for a successful IPO, which could happen early next year.