In tech, rapid growth is a good thing. In banking, it can be the opposite. JPMorgan chief Jamie Dimon warned on Monday at an investor event of lenders “doing dumb things” in the hunt for interest income. One company trying to find that tricky balance is Sweden’s Klarna. When it reported rapid growth in its new lending product last week, its shares tanked 27 per cent.
For companies selling software or digital services, adding new customers brings little in the way of new risk. Think of Microsoft, say, piling on customers for its 365 product or Netflix signing up new viewers for its streaming platform. Each new addition creates revenue with almost no incremental expense or strain to the seller.
Klarna’s original buy-now-pay-later business works similarly. The company gives short-term interest-free loans to online shoppers and takes a fee from the retailer. It takes a small accounting “provision” that comes out of its profit in case the customers don’t repay. But generally they do, and quickly, so the cycle can be repeated at increasing volumes.