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How Does Klarna Make Money?

Klarna Bank AB, which is more popularly referred to just as Klarna, is a Swedish financial technology company providing online financial services. Klarna functions on the “buy now, pay later” model which allows customers to make purchases without having to pay at that time.

Klarna was founded in 2005 by Sebastian Siemiatkowski and Niklas Adalberth and has established a global presence in the years since. Klarna is marketed as a safe and easy to use payment solution in the global market and is popular for its instalment plans and one-click purchase experience provisions.

 Klarna allows a shopper to split a purchase into four interest-free instalments, allowing them to make purchases both, in-store and online. Moreover, Klarna promises no impact on the purchaser’s credit score.

The Klarna website facilitates many discounts and deals in partnership with various brands including H&M, Macy’s, Etsy, and Nike.

Shopping for fashion, electronics, beauty products, home furniture and décor, etc. is easy with Klarna, especially because of its instalments system. Klarna also has a rewards program, a referral bonus, and a strong buyer protection policy that purchasers can avail of when they use the platform to shop in a hassle free and smooth one-click experience. 

How Does Klarna Make Money?

A Short History of Klarna

The idea for Klarna was born at the Stockhold School of Economics at a pitch competition before the King of Sweden, H&M’s chairman, and other businesspeople of fame, but the “buy now, pay later” model was not very popular among the board and the founders of Klarna stood last in the competition.

They were, however, encouraged by a single stranger to follow through with their idea when he said that the banks would never risk doing something like this. 

The company was established with the help of an angel investor and was named “Kreditor Europe AB” to make them sound serious, trustworthy, and larger than they actually were.
The company was renamed “Klarna” in 2009 after an employee poll in which the majority chose the name over the other alternative- “Movondo” and Klarna’s early revenue increased by 80% the next year with expansions further in new European countries. Klarna has since grown to be recognised globally. 

Klarna came to be listed among the top 100 most promising young fintech companies in Europe by The Telegraph and 2010 and this was followed by a $155 million investment into the company by General Atlantic into Klarna the next year after which Klarna acquired an Israeli Company called Analyzd which specialised in risk management and online payments in markets across Europe and North America.

This was the beginning of Klarna’s long standing strategy of acquiring companies that held its competition in geographical regions it wanted to pervade with its own influence.

Shortly thereafter, Klarna entered Austria and Germany with its services after also merging with German company SOFORT and forming the Klarna Group. Klarna launched its operations in the United States in 2015, making it a playground for future growth and further investments in the accompany and the accolades they came with were much in line with this vision.
A notable such investment came as recently as in 2020 from Chinese giant Alibaba and the SoftBank Group’s grand investment in 2021. 


What Makes Klarna’s Business Model so Unique

Klarna’s business model is unique because it offers a pay later model that no one was offering at the time of its establishment. Further, Klarna does not charge its customers for the model they use, the interest, fees, or late charges, but instead charges retail stores for facilitation.

Retail stores opt for Klarna because it promises an increase of 44% in the number of orders placed with the store and an appreciation of 68% in order volume. Klarna also transfers the money for the transaction immediately, regardless of when and how the customer ends up paying Klarna back in line with their payment models. 

There are 4 ways to pay for the purchased product using Klarna. 

  • The first is Pay in 4 which allows the shopper to split the payment in 4 interest free instalments paid automatically every 2 weeks. 
  • Another is to pay instantly with a debit or credit card. 
  • A popular plan is paying for the product flexibly and without interest within 30 days of purchase 
  • the last plan allows one to pay over 6-24 months with an interest.

Klarna facilitates business insight tools and on-site messaging which businesses can use to their advantage and it is with these provisions that they have entered partnerships for payment facilitations with over 400,000 brands and merchants.

Klarna is well positioned to fulfil the sustained rapid demand both online and in-store, with global retail sales estimated to reach $27 trillion by 2022. With over 12 million monthly active users worldwide, the Klarna app, which allows customers to shop at any online business, provides a best-in-class experience.

As noted above, Klarna has a unique strategy of dealing with competition in markets it wishes to penetrate soon. Klarna has a tendency to acquire its biggest competitors in the markets it wishes to enter, hence neutralizing any threats from them by taking them under its own wing.

This has been a contributing strategy which makes Klarna’s business model very unique indeed.


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Macy’s and Klarna Partnership

Klarna became Macy’s exclusive partner in a five year partnership for the Pay in 4 services in 2021 for 750 stores in the US and for their online retail platform.

 Macy’s also became an investor in Klarna when it signed the partnership deal and aims to transform into a digital-led omnichannel fashion retailer with its partnership. Klarna Pay in 4 services are hence applicable to Macy’s, Bloomingdale’s, and Bluemercury outlets across the US and online as a result of this partnership agreement.

 Another fashion brand that Klarna has partnered up with to provide smoother and hassle-free checkout is fellow Swedish brand H&M in 2019.

Klarna’s Profit and Revenue

Klarna made-

  •  $1 billion in revenue in 2020
  • $ 1.42 billion in 2021 

showing a 32% year on year increment in its revenue generation model, generating $ 80 billion in gross merchandise volume in the latter year with aid from its 147 million users, a third of which hail from the US alone. 

Since 2015, Klarna has been losing money, going into the red in 2019 and quadrupling in 2021 to $730 million. Klarna's gross merchandise volume has climbed year after year. In 2020, it grew by 50%, creating $80 billion in gross merchandise volume.

 In 2021, about 150 million users used Klarna, up 70% from the previous year. Klarna's mobile apps are used by almost 40 million people. 

Klarna’s Funding and Valuation

Klarna is accepted by almost a quarter of a million businesses, including H&M, Nike, and Wayfair. The value of Klarna has risen dramatically in the last few years, as BNPL has become a popular alternative to credit for many consumers. Every day, Klarna processes over two million transactions. 

Klarna’s valuation appreciated from $5.5 billion in August 2019 to $45.6 billion in July 2021, having made a jump from $10.6 billion to $31 billion between 2020 and 2021. After its most recent investment round, which completed around June 2021, Klarna had raised $3.7 billion as of December 2021. Klarna is valued at $46 billion which makes it Europe’s most valuable fintech unicorn. 

Klarna made $37.4 million in profits in 2017. Its profits decreased in 2018 but began rising eventually until it made $730 million in profits in 2021.

How does Klarna Make Money?

Klarna makes money through merchant commissions, interchange fees, collecting interest on cash and late fees, payment fees, and subscription to the Klarna Card. 

Payment Fees

Klarna earns a percentage of the total sales price and the transaction fees accrued from the retailers. For the pay in 4 plan, Klarna receives $0.30 USD + 5.99% per transaction, for pay in 30 days it receives $ 0.30 USD + 5.99% per transaction and for the pay at ease plan it receives $0.30 USD + 3.29% per transaction. 

According to the corporation, its payment solutions may boost retailers' average order value by 41% and their conversion rate by 30%. That is why you see Klarna being paid by shops. The increase in sales compensates for the amount lost in increased commission.

Another significant benefit for the merchant is that regardless of whether the customer pays, Klarna has already transferred the funds for the transaction. By leveraging its AI technology and promoting content that sells, Klarna's marketing solutions transform high-intent buyers into loyal customers.

Offering Klarna to pure-play internet shops, many of whom have never had a physical presence, allows customers to sample before they purchase.

Interchange Fees

Klarna also generates interest on customer accounts that pay with credit. Klarna is one of the market leaders in its field, with a 10% market share in Northern Europe and over 1 million daily transactions. They now have over 200,000 retail establishments worldwide and an additional 60,000 with an "in-store" point of sale (POS) system, partnering with a new merchant every 8 minutes.

Klarna is a safe, secure, and interest-free solution to spread the cost of an investment buy over 30 or 60 days for a generation of shoppers who have shied away from traditional forms of borrowing like high-priced credit cards.

Klarna gets money from its users through financing. Financing is used when you need longer-term financing to spread the expense over a period of 6 to 36 months for larger items such as furniture and technology. Consumer financing includes a mix of store fees and (sometimes) a minor interest rate (up to 18.9 percent APR).

Interest On cash and Late Fees

Klarna makes 0%-29.99% interest on its last plan which allows the customer to pay at ease over 30 months since the purchase. It charges $ 7 late fees per missed payment and upto $ 35 late fees per missed month of payments as well. 

Consumers, on the other hand, prefer interest-free Pay in 30 Days and Pay in 3 Installment goods to financing choices. As a result, even though the company's net operating income climbed by 40% in 2020, interest income only increased by 17%.

Many websites related to the Klarna scheme and speaking in favour of the company will refrain from any mention of late fees, or go as far as to claim that Klarna does not charge any late fees from customers, which is not true.

 Late fees is merely a sustainable approach to a business model such as that of Klarna’s but it is essential to note that Klarna does, prima facie, seem to be extremely magnanimous with the late fees it charges and also with the other steps it takes against customers who do not make repayments to Klarna. 

Klarna Card

Klarna also makes money on the Klarna Card which makes the shopping experience smoother for the purchaser on the Klarna app. The Klarna Card is a virtual single-use card. It can be used at any store that accommodates the use of prepaid cards for shopping in their premises.

Klarna allows consumers and customers to register and apply for such a card, and upon such application and prepayment of the required fees, Klarna issues a card containing a unique sixteen digit card number that can be used at the concerned store’s checkout in place of any other card that may be routinely used.

Merchant commissions

Merchant commissions ($0.30 flat fee and 3.29 percent variable rate), along with interchange fees, account for the majority of Klarna's revenue. 

On the consumer side, Klarna now has over 90 million users in 17 countries, with 12 million of them being monthly active users and 55,000 daily app downloads of the Klarna app. In the United States, there are more than 11 million clients and 2 million monthly active app users. 

It might be dangerous, both financially and legally, to give customers short-term loans in the form of financing or instalment plans as a merchant or the owner of a relatively small business. So, partnering with an established BNPL partner like Klarna to provide customers with financing choices while keeping your own risk low would be the prudent choice.

What does the Future hold for Klarna?

Klarna, Europe's most valuable fintech, is allegedly working on a new investment round that may push its valuation to $60 billion. According to Bloomberg, the buy now, pay later behemoth is recruiting "sovereign wealth and pension funds as new investors," with preliminary estimates putting the price at $50-60 billion.

 Klarna raised $639 million in June from investors including SoftBank's Vision Fund at a $45.6 billion valuation, just four months after raising $1 billion at a $31 billion value. A further increase would be good news for Chrysalis Investments, a publicly traded fintech investor fund whose portfolio is on fire thanks to its early bets on Klarna and Starling bank.

 It would also advance the cause, but spokespersons on behalf of Klarna have called these claims mere speculation.



  1. How does Klarna get their money?

Klarna makes money through payment fees, interest charged on cash borrowed, merchant commissions, interchange fees, and the Klarna card. 

  1. What is the downside of Klarna?

The downsides of Klarna are that it charges late fees, it may report missed payments to credit bureaus hence affecting your credit score, it requires a soft credit check, and it has been used in the past to commit fraud and identity theft with many data breaches to its name.

  1. What percentage does Klarna take?

For the pay in 4 plan, Klarna takes $0.30 USD + 5.99% per transaction, for pay in 30 days it takes $ 0.30 USD + 5.99% per transaction and for the pay at ease plan it takes $0.30 USD + 3.29% per transaction.

  1. How does Klarna Afterpay make money?

Klarna earns money from both businesses and customers that utilize the company's payment services. Merchant fees, late payment costs, interest on consumer loans, interchange fees, and interest on cash are all ways that Klarna makes money.











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