In brief: The danger faced by buy now, pay later companies is when customers don’t adhere to the “pay later” part. It’s a problem being faced by industry giant Klarna, which saw its net losses more than double in the first quarter as more customers struggled to pay back their loan installments.

Klarna’s net losses for the first quarter reached $99 million, almost double the $47 million it lost during the same period a year earlier.

The problem is that an increasing number of customers who have taken out the buy now, pay later loans are struggling to pay them back.

Klarna offers its BNPL services to a range of merchants, letting customers purchase a wide range of items in installments. The company makes its money by charging fees to the merchants and customers who fail to pay on time.

In its first quarter earnings report, Klarna revealed that consumer credit losses were up to $136 million, an increase of around 17% compared to a year earlier.

It seems there’s a growing trend of BNPL customers being unable to meet their contractual obligations. Credit platform LendingTree carried out a survey last month that found 41% of users of BNPL loans said they paid late on one of them in the past year, up from 34% compared to a year ago. High-income borrowers were among the most likely to pay late, along with men, young people, and parents of young kids.

The survey also showed that a quarter of BNPL users said they used the loans to buy groceries amid rising supermarket costs and marking a 14% increase compared to a year ago. It also revealed that nearly 1 in 4 BNPL users said they’ve had three or more active BNPL loans at one time.

The Federal Reserve Bank of New York last week reported that US consumer debt rose by $167 billion in the first quarter to reach a record $18.2 trillion.

Elsewhere in Klarna’s earnings, which was presented using an AI-generated avatar of its chief executive, the company said it has used artificial intelligence to help cut costs.

The company’s headcount is down 39% over the last two years, customer service costs were down 12% YoY in the first quarter. Klarna is estimated to have replaced 700 employees with AI.

The good news for humans is that Klarna has started hiring them again after its CEO recently admitted AI customer service chatbots offered a “lower quality” output.