Uncovering Klarna’s Business Model: How They Generate Revenue

Surprising stat: this Swedish fintech serves over 150 million active consumers and processes more than two million transactions every day.

I write this to show why the core payment experience can feel free to shoppers while the business earns elsewhere. I introduce the main payment options: Pay in 4, Pay in 30, and financing up to 36 months.

From merchant commissions to interest, late fees, interchange, and app advertising, the company mixes revenue streams to stay afloat. I will walk through the practical mechanics: who pays, where fees appear, and why retailers adopt these solutions.

• I will explain the klarna business model step by step.
• Consumers see fast checkout, but merchants and financing carry most costs.
• Revenue comes from commissions, interest-bearing loans, and in-app ads.
• The company scaled quickly: global reach and billions in funding.
• Examples from U.S. retailers will make this practical for readers.

I’ll explain the commercial model behind a popular checkout option that retailers pay for to lift sales.

Why this matters now: BNPL is embedded across U.S. ecommerce and in‑store checkout. It touches mainstream customers and a wide set of retailers, changing conversion dynamics and shopper choice.

I want to give practical information founders and marketers can use. You’ll see concrete numbers and clear flows: who gets paid up front, where fees appear, and why merchants accept the cost.

Retail partners get paid immediately while the provider collects from shoppers over time. Merchants often accept the fee because results can be dramatic—orders can rise by about 44% and average order value by roughly 68%, per cited merchant outcomes.

My goal is to separate signal from noise. I’ll highlight the core revenue lines and the role of technology in eligibility checks, instant decisions, and smooth repayments.

Later sections will break down risks, regulation, and unit economics so you can evaluate similar services for your own business. This is not financial advice, but it is actionable context.

• Alignment: merchants gain conversion and bigger baskets; customers gain flexibility.
• Focus: I’ll show which fees move the needle and which are ancillary.
• Preview: upcoming sections cover checkout mechanics, revenue streams, and regulation.

The U.S. BNPL scene has reshaped checkout expectations for both buyers and sellers. I’ll define what this means for everyday shopping and for the merchants that adopt these services.

Buy Now, Pay Later lets consumers split purchases into installments or delay payment for 30 days, often with no interest if they pay on time.

Retailers such as H&M, Nike, Sephora, IKEA, and ASOS commonly offer this option at checkout.

Adoption rose as online shopping and mobile checkouts grew. Instant approvals, simple plan selection, and fewer upfront costs made the option attractive.

BNPL platforms act as intermediaries: they pay merchants upfront and collect from buyers later. That model reduces cart abandonment and boosts conversion and average order value.

• For shoppers: transparent schedules and reminders help manage cash flow without revolving credit.
• For merchants: the trade-off is paying fees in exchange for higher sales and repeat customers.
• Competition among platforms has driven product innovation and better user experiences across the market.

My goal here is to show the distinct product mix that makes the app both a payment tool and a shopping hub. I’ll summarize the core services and the choices consumers see at checkout.

• Pay in 4: four installments, with the first payment often due at checkout. This option is usually interest‑free when paid on time.
• Pay in 30: a short trial window that lets buyers receive goods and pay within 30 days with no interest if on schedule.
• Long‑term financing: plans up to 36 months. These can carry APR, so interest may apply for larger purchases.

The company serves over 150M consumers, works with 500,000+ retailers, and handles 2M+ transactions daily. That scale shapes merchant deals and integration choices.

“Installment options give predictable payment paths for buyers and clearer economics for sellers.”

I’ll follow this with a closer look at checkout mechanics and the fee dynamics that drive the business model.

A single tap at checkout triggers an instant workflow: eligibility, funding, and a record in the app. I’ll walk through each step so you can see who pays, who gets paid, and where the risk sits.

Most short-term plans use a soft credit check. That quick check gives approval without affecting a buyer’s credit score.

For longer financing, a hard credit check may be required and happens before the plan is finalized.

After approval, the platform remits funds to merchants upfront, minus fees. This looks like a normal card settlement to the retailer.

I note that this shifts credit risk off the merchant and onto the provider, which prices that risk into fees and underwriting.

Purchase and repayment information lives in the app. A customer can track due dates, swap payment methods, or request a reschedule when eligible.

Returns and partial refunds flow through the platform to adjust remaining installments or cancel the balance.

“The in-app controls and reminders cut missed payments and make post-sale changes straightforward.”

• Quick decisions: soft checks speed approval for most customers.
• Retail payout: merchants see near-standard settlement timing.
• Post-sale controls: the app holds information and tools for changes.

This section separates the core profit centers from the smaller, supporting income streams behind the product.

I break the model into five main revenue streams: merchant commissions, interest on long-term financing, late fees, interchange from card products, and retail media / partner promotions.

Merchant commissions are the largest source. Retailers pay a take rate per sale in exchange for conversion lift and higher average order values.

Interest and late fees appear on longer-term plans or missed payments. Most short-term plans remain interest-free for consumers who pay on time.

Merchants fund much of the short-term consumer benefit through commissions. That lets the app present low-cost or zero-interest options at checkout.

Ancillary income, such as interest earned on cash balances and interchange, helps margins but does not drive the bulk of revenue.

• Pricing varies by plan, market, and borrower risk, which affects margins.
• Underwriting and collections are critical so fee income exceeds credit losses.
• I will dive deeper into merchant fees, APRs, and card economics in the next sections.

I’ll focus on the fees retailers pay and why those charges fund the consumer experience.

The basic structure is simple: merchants pay a flat per-transaction fee plus a percentage of the sale. For short plans like Pay in 30 and Pay in 4, that can reach about 5.99% + $0.30. For longer financing, the rate is lower, around 3.29% + $0.30. This applies both online and in-store because the platform assumes the credit risk and handles collections.

Retailers treat the commission as a marketing cost tied to conversion and basket lift. Many report roughly 44% more orders and about 68% higher average order value after enabling the payment option.

Transaction-level fees also align with revenue recognition at checkout. Merchants get near-immediate settlement while the provider collects from customers over time. That clear split makes the commission easier to justify in accounting and planning.

Closed-loop measurement is critical. Retailers must track incremental sales and repeat behavior to confirm the commission is an effective growth investment for their business.

I break down the long-term loan options so you can see when interest applies and what monthly payments look like.

6–36 month plans are aimed at higher-ticket purchases. These plans use fixed monthly payments until the balance is paid in full.

Interest applies on these longer terms. Typical APRs vary by borrower profile and market — many offers sit near ~19.99% while some tiers can reach higher rates, sometimes approaching 29.99%.

Longer financing often requires a hard credit check to confirm eligibility. That check affects credit reports, unlike the soft checks used for short-term options.

Why this matters: the company prices risk into APRs to balance competitiveness and credit losses. I treat these plans like an installment loan, not a revolving line. Review rates and full terms in the app before you commit.

Late fees are small in dollar terms, but they play a clear role in keeping accounts current. I view them as behavioral nudges: not a primary revenue driver, but a tool to reduce missed payments and protect overall credit performance.

The company applies charges on missed installments for interest-free plans. Structures vary: some markets use tiered fees tied to order value, while U.S. practice has included set amounts (for example, an $8 fee) after a short grace window.

The app sends reminders and shows clear information to help customers avoid a late penalty. If an account slips, temporary restrictions or limits can apply until the balance is current.

“Small penalties and fast reminders cut delinquency and protect pricing for merchants.”

Why it matters: modest fees help keep repayment rates healthy. That lowers the risk built into merchant pricing and keeps the short-term BNPL experience effectively fee‑free for most buyers. For readers who want the broader context on the business model, see this business model overview.

I describe the physical card option and why it matters for in‑store purchases.

The virtual card can be added to Apple Pay or Google Wallet so shoppers can pay at the register with their phone. This turns the app into a true point‑of‑sale tool and keeps the checkout flow familiar for buyers.

Virtual card basics: the card works like a credit card in wallets and lets customers choose installment plans at checkout.

Monthly card fee: there’s a small monthly charge of about $3.99 after the first year, which adds a direct consumer revenue line.

Shoppers use the card at major U.S. retailers such as Macy’s, H&M, Saks Fifth Avenue, Sephora, IKEA, Nike, Foot Locker, The North Face, and GameStop.

“The card extends reach beyond online shopping and feeds data back to underwriting and personalization.”

By linking issuance to the app, shoppers get budgeting, tracking, and plan selection at the point of sale. Broader in‑store use drives more purchases and boosts merchant fee volume while tapping existing wallet infrastructure for smooth adoption.

Interchange is a small slice of each card sale that can scale into steady revenue when routed through a program issuer.

At a basic level, retailers pay interchange on card transactions. Issuers and program partners receive that payout, and a portion can flow back to the platform that issued the card.

My read: the company offered debit and account services with Visa, which means some interchange—often near ~1% in cited examples—can accrue to the issuing partner.

• Interchange is incremental to merchant commissions and diversifies the business model.
• Levels vary by card type, network rules, and the transaction category.
• Routing transactions through linked cards expands monetization beyond BNPL rails.

The per‑transaction fee is modest, but at scale it strengthens unit economics. I view interchange as a complementary revenue line that boosts margins when the platform issues many cards and drives frequent payment volume.

I’ll look at the in‑app ad space and why brands value direct links from exposure to purchase.

Within the app, sponsored search results, banner placements, and curated tiles sit between browsing and checkout. These formats let retailers promote seasonal drops or targeted offers to high‑intent shoppers.

Closed‑loop attribution is the key benefit. When a click leads to an in‑app purchase, advertisers can trace the path from ad to sale. That precision turns advertising into accountable spend, not just impressions.

• Search ads surface partner products at the point of intent.
• Banners and curated spots highlight promotions during browsing sessions.
• Personalized placements use payment and browsing signals for better targeting.

Why it matters: these solutions diversify the business model by monetizing attention beyond checkout fees. Clear performance data helps retailers justify ad spend and the commissions tied to short‑term payment plans.

“Retail media inside the app turns buyer intent into measurable outcomes, which is priceless for brand budgets.”

Let’s trace the dollars: who is paid at purchase and who repays over time. I start with the simple flow and then show the levers that tilt profit toward sustainability.

At checkout merchants receive near‑immediate settlement, net of a commission. The platform books a receivable from the customer and recognizes commission revenue at the time of sale.

The practical effect is clear: retailers get cash and the platform assumes credit risk. Retailers accept the fee because the option typically lifts conversion and average order value.

Unit success depends on conversion uplift exceeding commission costs plus credit losses. A favorable spread between take rates and loss rates supports scalable returns.

Portfolio management matters: underwriting, soft and hard credit checks, limit controls, and targeted approvals keep delinquency in check.

“Reminders, autopay, and a smooth app UX cut missed payments and protect margins.”

In 2023, improved credit performance and higher top-line growth helped return the business to quarterly profitability. That shift shows how reducing losses plus volume growth changes the model.

My takeaway: clear information and responsible product design keep the system healthy for merchants and customers. When conversion benefits exceed the combined cost of commissions and credit losses, payments products scale into profitable growth.

Understanding credit checks matters when you choose a short plan or longer financing. I want to give clear information so you know which checks affect your record and which do not.

Soft pulls are used for most interest‑free options. They let the platform verify identity and basic risk without changing your credit score.

Hard pulls apply for longer loans or higher limits. These formal inquiries can show up on your credit report and may affect your score temporarily.

I track repayment history closely. On‑time payments generally increase future limits and unlock more plans for customers.

Missed payments can trigger restrictions, reduced limits, or extra documentation. The service also uses dynamic limits, fraud controls, and identity verification to manage risk.

“Transparent schedules and proactive reminders help customers avoid surprises and maintain access to better options.”

• Check terms in your market before committing.
• Use short plans for predictable cash flow to protect your score.

I’ll summarize recent performance and show why credit discipline shifted outcomes.

Q2 2023 revenue reached SEK 6B (~$550M), up roughly 30% year over year. That top-line growth set the stage for improved margins.

By Q3 2023 the company reported a profit of SEK 90M versus a SEK 2.1B loss the prior year. The swing reflected about a 50% reduction in credit losses and roughly 30% revenue growth.

“Reduced credit losses and disciplined cost control drove the return to profit.”

The firm raised about $4.5B across 27 rounds, which shows deep capital backing. Valuation peaked near $45.6B in 2021 and reset to about $6.7B in 2022, mirroring wider fintech repricing.

My read: investors now prize sustainable economics over pure growth. The underlying business model—merchant fees plus prudent underwriting—benefits when the company invests in technology for better risk decisions and collections.

For more context and detailed metrics, see this Klarna statistics.

Competition in BNPL is active, with several firms staking claims across price, product, and partner networks.

I map the main players and note what each emphasizes so you can see why retailers choose one solution over another.

• Affirm: transparency and larger-ticket financing for big purchases.
• Afterpay (Block): strong penetration in fashion and beauty; integrated with Block payments.
• PayPal: wallet ubiquity and Pay in 4 leverage broad consumer reach.
• Sezzle & Zip: consumer-focused options with simple onboarding and retail partnerships.
• Splitit: card-on-file and B2B focus, using existing credit lines for installments.

I see the platform win coming from depth: a full spectrum of plans, global scale, and an in‑app shopping hub that combines discovery, retail media, and checkout.

The result for retailers is choice: one partner can supply short installments, 30‑day trials, and multi‑month financing while also offering advertising and analytics.

“Platform breadth and partner networks often decide which payments solution a retailer enables.”

My takeaway: the company’s multi-revenue approach and integrated services give retailers practical reasons to pick a single partner for both shopping and checkout.

I want to outline the main risks and regulatory shifts that could reshape BNPL offerings in the U.S. I’ll cover credit performance, consumer protection, and the product changes likely to follow.

Credit performance matters. The company improved profits after a roughly 50% drop in losses, but a recession could reverse that gain.

Rising funding costs and higher interest rates squeeze margins. Regulators are also focused on clear disclosures, fair lending, and affordability checks for pay later plans.

Consumer protection initiatives will push firms to show full terms, limit punitive late fees, and keep schedules transparent in apps.

Tighter underwriting and dynamic limits are practical levers to reduce risk while preserving growth. I expect more focus on retail media, card programs, and richer financing features as new revenue lines.

Services that blend advertising, cards, and installment loans diversify income and make the overall model more resilient through cycles.

“Technology investments in data and identity will remain central to performance.”

• Key risks: rising losses, tougher rules, and higher funding costs.
• Consumer priorities: clear terms, fair late-fee policies, and easy-to-read schedules.
• Mitigants: stricter underwriting, dynamic limits, and better risk data.
• Opportunities: growth in retail media, card integration, and value-added payments features.

In short, regulation may raise compliance costs but can also legitimize the space. I think continued investment in technology will decide which firms scale profitably and which struggle to protect margins and revenue.

Conclusion

I’ll wrap up with a concise view of why the klarna business model works when credit is managed tightly and product mix stays balanced.

The core business model centers on merchant commissions, with financing interest, late fees, interchange, and retail media adding depth. That mix lets the platform make money while keeping many short plans fee‑free for shoppers.

Most consumers see smooth payments and simple pay later options. Scale—150M+ users, 500k+ retailers, and 2M+ daily transactions—and a return to profitability show the concept can work.

Retailers gain higher orders and bigger baskets, which often offsets the commission. I believe a diversified product set and clear, responsible terms will keep the company resilient through cycles.