Klarna froze hiring because of AI. Now it says its chatbot does the work of 700 full-time staff

Buy-now, pay-later pioneer Klarna began 2023 facing steep losses. A year later, the Swedish group might have Sam Altman and OpenAI to thank as it approaches profitability and reportedly eyes a blockbuster IPO.

After teaming up with OpenAI last year, Klarna says its chatbot is now doing the equivalent work of 700 full-time workers handling inquiries for its 150 million customers, the group announced in a press release Tuesday.

The apparent success of Klarna’s adoption of AI now appears to have fundamentally altered the way the company hires, and unless you’re an engineer, it’s not great news for workers.

Klarna becomes OpenAI’s ‘favorite guinea pig’

Klarna’s ChatGPT-inspired bot is now handling two-thirds of Klarna’s customer service chats, and the company thinks it will drive a $40 million improvement in profit this year.

The chatbot apparently makes fewer errors than human equivalents, which has led to a 25% drop in repeat inquiries, while average conversations now last two minutes, compared with 11 minutes previously.

“This AI breakthrough in customer interaction means superior experiences for our customers at better prices, more interesting challenges for our employees, and better returns for our investors,” Klarna CEO Sebastian Siemiatkowski said in a statement.

The news will send a shudder down the spine of AI-phobic workers, and perhaps some of Klarna’s 4,200 employees. The company’s headcount fell by around 25% by the end of last year compared with the 2023 average, according to Klarna’s latest earnings.

A spokesperson for Klarna told Fortune the company’s adoption of AI did not directly explain the falling headcount last year, but it was now playing a part in its recruitment strategy, invoking Siemiatkowski’s words in an interview with The Telegraph last year as it announced a hiring freeze.

“We are in the fortunate position of being a growing company, so for Klarna, AI enables us to grow more quickly without adding headcount as quickly as we would have done previously,” the spokesperson said.

“We’re seeing across our whole business that things that previously took people a lot of time can be done much faster and much shorter with the help of ChatGPT, and we need fewer people to do the same thing.

“So, except for engineering, we’re taking the approach to say, ‘Let's not recruit now, let’s see how this plays out.’”

Indeed, Klarna has made a massive bet on AI in the past year in hopes it will spearhead growth.

Speaking to Fortune’s Term Sheet newsletter in February, CEO Siemiatkowski said a conversation with OpenAI boss Sam Altman inspired him to double down on AI-led operations, telling Altman he wanted Klarna to become OpenAI’s “favorite guinea pig.”

“We’ve had a very close relationship, and we’ve been able to try and test these technologies very early on,” he said. “It took us some time to get there, but now we’re seeing a very concrete impact.”

Klarna eyeing IPO

There might not be better timing for Klarna making itself more nimble with AI, as stocks producing and harnessing the technology enjoyed bumper increases in value in the past year.

Klarna now reportedly wants a piece of that action.

According to Bloomberg, the buy-now, pay-later group is in talks with several U.S. banks about the prospect of listing through an IPO as early as the third quarter of 2024. Klarna is seeking a valuation of $20 billion, according to Bloomberg.

Klarna’s spokesperson declined to comment on Bloomberg’s report.

Speaking to Term Sheet in February, Siemiatkowski said an IPO was probably a few years away.

“I’ve always dreamed Klarna would be a global company. And what that means is success in the U.S,” he said.

However, its plans might be accelerated by better-than-expected results for 2023.

Klarna, founded in 2005, began taking on losses in 2019 as it expanded into the U.S., and it looks like the bet might now be paying off.

The group shrunk losses by 76% last year to SKr2.5bn ($241 million). Revenues, meanwhile, rose 22% to SKr23.5 billion ($2.27 billion).

This story was originally featured on Fortune.com