How Klarna Works, Klarna Business Model and Key Insights

Table of Content

Follow us on:

Blog Summary:

Klarna’s Buy Now, Pay Later (BNPL) model is a powerful business model driving innovation across retail and fintech. This blog breaks down how Klarna generates revenue, its key features, and the numerous opportunities for businesses seeking to develop similar solutions. Whether you’re a bank, startup, or retail brand, Klarna’s playbook offers inspiration for your next big move.

Table of Content

When credit cards were introduced into mainstream finance in the mid-20th century, consumer finance took a giant leap forward. From retail transactions to everyday entertainment-seeking user behaviors, card networks have become the most widely accepted payment method.

However, as commerce became electronic, these networks were still not optimized for customer clarity. They were more focused on profits, opaque, and involved many expensive fees. At this time, Buy Now Pay Later (BNPL) surged in popularity.

Fast-forward to 2022, and BNPL apps experienced a significant increase in installs, reaching nearly 10 million. The market is poised to increase in gross merchandise value (GMV) to USD 899 billion by 2028.

As a global payments company, Klarna has emerged as a leading player in the BNPL market. For companies entering this space, several opportunities have emerged by developing an app similar to Klarna.

This in-depth blog provides a comprehensive understanding of how Klarna generates revenue through strategic partnerships and platform integrations.

The Growth of Klarna Business Model: Facts & Statistics

Klarna’s first transaction took place on April 10, 2005, and continuous improvements led to the opening of its website. Today, this student’s idea of fixing a broken credit card payment system has grown into a powerhouse with a user base of 150 million and a processing capacity of almost 2 million transactions per day.

Collaboration with Big Brands

Collaborating with over 500,000 global brands, including Nike, Adidas, and IKEA, Klarna held a 77% market share in Europe in 2022. With its extensive presence across North America, Asia, Oceania, and Europe, Klarna’s growth is poised to be a showstopper in the coming years.

Major Payment Partners

The major payment partners that have integrated with Klarna are PayPal and Afterpay, which have contributed to a minimal-friction BNPL checkout experience. Klarna and one of its biggest competitors, Affirm, have made a similar acquisition.

Klarna is also integrated into major e-commerce platforms like Shopify, Magento, and WooCommerce. Other payment ecosystems include digital wallets such as Google Pay and Apple Pay, which facilitate payments via in-store transactions, apps, and virtual cards.

You Might Also Like:

How To Streamline Payments with Payment Gateway Integration

The Story Behind the Success of Klarna

Klarna has an interesting founding backstory that began in Sweden in 2005. Before the BNPL business model became popular, one of the co-founders, Sebastian Seimatskowki, was working for a debt collection agency that collected debts from merchants of e-commerce platforms.

Recognizing the Market Gap

At that time, he recognized a gap in collecting unpaid debt beyond its due date. Hence, the idea arose when he thought of a way to simplify the process for merchants with flexible payment options.

Together with classmates Victor Jacobsson and Niklas Adleberth, who were pursuing a Master’s degree from the Stockholm School of Economics, they proposed the idea at a university entrepreneurship competition. Though their idea didn’t win that time, it planted the seed for what would become Klarna in 2005.

Short-term Automated Financing

It quickly evolved into a global, consumer-focused app based on the BNPL model. It focused on splitting purchases into multiple interest-free payment plans, made on time, as a compelling alternative to traditional credit cards.

This short-term financing option can be applied at checkout, either online or in-store, using virtual cards. Since they are automated, it’s a faster payment method than credit cards, while also making transactions more transparent.

Brief Overview of The Klarna Business Model

Klarna’s business model offers several payment plans, including Pay in 4 and Pay in 30. These multiple payment options can be divided into four equal payments over six weeks or a single interest-free deferred payment after 30 days.

It also has other long-term financing options with APRs up to 24.99%. These choices are presented seamlessly at the checkout with quick soft credit checks for approval.

Unlike other US players in this segment, Klarna gains its competitive advantage by positioning itself not only as a lender but also as a payment service provider.

It enhances the checkout experience by keeping users engaged on the app through other features such as order tracking, price comparisons, and other personal financing tools.

We’ll explain the business model in detail in the later sections.

How Klarna’s BNPL Model Works and What Businesses Can Build With It?

The way Klarna works provides various opportunities for small and large businesses looking to build different types of platforms centered around this model.

The most common approach is to integrate this at the Point of Sale (POS) and e-commerce platforms. Traditional banks and issuers seeking to enter the market by developing a similar model can acquire or partner with fintech companies.

Here’s how Klarna works and what types of fintech app businesses can build based on it:

Building standalone products: Klarna works by underwriting APIs at the merchant level. Names such as Sezzle, Affirm, and Splitit are other platforms that leverage it.
White-label embedded finance platforms: Klarna offers BNPL modules to merchants. Adyen and Stripe are examples of this category, where banks and payment processors offer buy now, pay later (BNPL) features.
Merchant Extensions and Plugins: Klarna’s integration with BigCommerce is a go-to example for adding extensions and plugins with BNPL options to e-commerce stores.
Bank or Credit Unions: Klarna offers you ample opportunities to embed your credit cards with fintech mobile apps. For example, Citi BNPL and Settle for Apple Pay Later.
Shopping Wallets: Klarna works as a shopping wallets and a reward app that incorporate BNPL features. Another good inspiration for this is Shop Pay by Shopify.
Risk Assessment Firms – For credit reporting agencies and risk assessment firms, BNPL is ideal for underwriting credit risk, much like Klarna does.

Key Features: How Klarna Fuels Fintech Innovation?

Key Features of an App Like Klarna

Klarna employs a distributed architecture to ensure its features remain reliable and scalable during high-volume transactions, while maintaining high uptime during peak periods. With an account, they can manage orders, track payments, schedule them, and access customer support.

Here are some of the features:

Flexible Payment Options

Klarna offers an intuitive interface with flexibility in various payment options, which contributes to a 20% increase in purchase frequency. Splitting purchases into interest-free installments, they can pay without a credit card.

Streamlined Checkout Process

Klarna enables customers to select it as their preferred payment method when checking out on an e-commerce site, app, or even in a physical store. It integrates directly into merchants’ checkout flows, helping to reduce cart abandonment.

Customer-centric Approach

Klarna’s BNPL model is available in both online and offline stores, enabling customers to pay using any mode of payment, between virtual cards or mobile devices.

With a wealth of real-time customer data insights on behavior, demographics, and preferences, Klarna develops more effective marketing campaigns and product offerings.

Data-Driven Decisions

Personalized marketing driven by data helps Klarna’s customers to purchase high-value items. It also helps merchants and businesses increase their average order value by 68% and achieve a more than 200% increase in sales conversions.

Fraud Prevention and Security

When a customer chooses a payment option, Klarna verifies the creditworthiness and identity to advance the purchase amount to the business. It is built on a secure fintech app architecture that features global authentication systems offering various methods for authentication.

Klarna’s Revenue Streams: How Does Klarna Make Money?

Klarna’s pricing mechanisms favor both consumers and merchants. It offers flexible payment options and cashback benefits for consumers. For merchants, Klarna offers various avenues to increase conversions and order values.

Here’s how Klarna makes money:

Commission from Merchants

Klarna doesn’t charge its consumers anything because the merchant charges help subsidize the interest-free installments. Timely payments result in no interest being paid on the pay-in-4 and pay-in-30 plans.

However, Klarna charges them for BNPL transactions with a pay-per-transaction fee of approximately USD 0.30, plus 3.29% to 5.29% of the sales amount. In 2024, 75% of the revenue was generated from merchant transaction services.

Late Fees and Interest Income

If merchants miss a payment, a late fee of USD 7 is applied per missed payment. Klarna also sends reminders to the merchants when a payment is due. Apart from that, Klarna also collects a small portion of revenue from customers through longer interest on loans.

In 2024, 16% of the revenue was generated from consumer transactions. The reminder fee is capped at low amounts to encourage repayments.

Long-term financing products help Klarna earn interest income, even though it amounts to 0.7% of the gross merchandise value (GMV). Consumer deposits also play a significant role in funding Klarna’s credit offerings in Europe, contributing to USD 9.5 billion in 2024.

Card Transactions

With increased product cross-adoption, it also features a product card exchange. Klarna claims it has a global network of around 1,30,000 merchants, including big shots like Nike, H&M, Adidas, ASOS, Abercrombie, Sephora, and IKEA.

All these sites offer Klarna as a payment option. The merchants are paid within 2-3 days, and customers’ instalments are collected, assuming the credit risk.

Affiliate Marketing & Advertising

Klarna’s ecosystem is monetized through search ads, brand campaigns, and affiliate placements. It also invests heavily in celebrity endorsements with high-profile ads to attract younger generations. With high investments in AI technology, the revenue generated from advertising came to 8% in 2024.

A Detailed Breakdown of The Klarna Business Model

The first pitch for this business model by the co-founders at the innovators’ event didn’t succeed due to the negative feedback. However, they found a Swedish angel investor, Jane Walerud, who was ready to give them 60,000 European Dollars.

With a 10% stake in the company and five software developers, they began working on the project to increase Klarna’s stake to 37%.

Let’s understand the entire model in two parts:

Part 1: Acquisitions and Competitors

What started as Kreditor Europe AB later became Klarna within two decades after the launch. One of its major acquisitions includes Germany-based Sofort AG for USD 150 million. It brought Klarna a 10% market share in Europe’s e-commerce market.

In 2015, it entered the US market when Jacobsson, the CFO, sold his investments to the Norrsken Foundation. In November 2022, Klarna became the first fintech company to launch a ChatGPT plugin, enabling customers to ask natural language questions and receive personalized product recommendations.

Klarna’s innovation inspires many businesses to develop a similar type of e-commerce app.

Klarna’s biggest competitors include Affirm, Afterpay, PayPal, ZipCo, Sezzle, Apple Pay Later, Amazon BNPL, and Splitit. Together with Klarna, these companies originated USD 33 billion in US merchandise loans in 2022.

Part 2: SWOT Analysis

Strengths	Weaknesses	Opportunities	Threats
Market leader in the EU region	High cost to retailers with no revenue or late fees	Can expand further in the U.S. and emerging markets, such as Latin America.	Regulatory changes could cap fees or impose licensing.
World’s largest BNPL model by volume,	Holds all credit risks in the balance sheet, giving rise to delinquent payments.	Partner with non-traditional merchants for travel, healthcare, and education to deploy BNPL in new verticals.	Recessions and credit squeezes may increase defaults and reduce capital.
93 million users and 500,000 merchants globally.	Global regulators, including the CFPB, May Implement Future rules that impose disclosure and fee limits.	Leverage data and brand to offer adjacent financial services such as personal loans, savings, and banking features.	Competitors backed by big tech or banks could outspend Klarna in key markets.
Flexible financing options, along with a full consumer app.	Klarna’s aggressive expansion into 26 countries requires high investment, leading to stalled growth.	Grow the retail media and ad platform, as well as the fintech developer ecosystem.	The CFPB’s May 2024 interpretive rule treats BNPL providers as credit lenders under the Truth in Lending Act, signaling stricter oversight
AI-driven risk underwriting enables quick approvals, providing tighter control over risk.	Limited headroom in mature markets and new entrants may erode its wallet share.	Investments in technology for enabling BNPL through smartphones, e-commerce platforms, and fast fintech APIs.	High inflation, rising living costs, increasing interest rates, and a potential recession pose significant risks.
Retail partnerships with e-commerce platforms and merchants	Faces criticism as a “debt trap” because of high-profile stories of consumer hardship	Encourage reduced paper billing and cash handling with green financing merchants.	Surveys indicate that many users are concerned about debt or a decline in their financial stability.

How Moon Technolabs Can Help You Develop an App like Klarna?

Klarna’s co-founders identified a key pain point for e-commerce merchants related to payments. They solved it by offering a checkout experience that paid merchants upfront while allowing customers to pay later.

Abandoned carts and lost revenue are the major challenges that e-commerce businesses face today. As a leading fintech software development company, we help businesses solve these problems by building BNPL platforms like Klarna.

At Moon Technolabs, our experts develop software solutions that integrate secure AI-driven risk models to connect merchant APIs. Whether you’re a startup, retailer, or financial institution, we build engaging BNPL apps that know how to build trust and increase conversions with flexible payment options.

Let’s turn your payment challenges into scalable BNPL solutions tailored for your market. Book a FREE consultation to discuss your project today.

Conclusion

Klarna’s road to success as Sweden’s fintech platform proves that the best solutions often emerge from understanding real problems. It has unlocked a new market for developing customer-centric solutions focused on interest-free credit with multiple instalments.

For businesses, this is an opportunity to build similar platforms by offering user experiences with flexible and transparent finance strategies. This in-depth blog covered how your business can bring your next BNPL idea to life by building white-label solutions, risk assessment tools, or shopping apps.

FAQs

Is Gerald a good alternative to Klarna?

Yes, Gerald is a good alternative to Klarna as it offers a zero-fee payment model and a transparent buy now, pay later (BNPL) user experience. Additionally, unlike Klarna, Gerald offers a free cash advance feature after a buy now, pay later (BNPL) purchase.

How does Klarna ensure security for its users?

Klarna ensures user security through its global authentication platform, which supports both merchants and users. They can set it up once and gain instant access to several authentication methods, including SMS, email one-time passwords, local Swedish BankID, and Klarna’s self-hosted bank login.

Does Klarna offer services to other businesses (B2B)?

Yes, Klarna also offers B2B services with its checkout platform, Klarna Checkout (KCO), which Kustom has acquired. In Austria, the Netherlands, Finland, Norway, Germany, and Sweden, the KCO can be configured for B2B with Billie B2B using an e-store ID.

Is Klarna profitable as a company?

Yes, as of 2025, 2024 was Klarna's most profitable year, which helped them increase their revenues by 48% since 2022. Driven by AI efficiency and optimization, it also reduced its operating expenses by 20%, resulting in USD 40 million in net profitability.

About Author

Jayanti Katariya is the CEO of Moon Technolabs, a fast-growing IT solutions provider, with 18+ years of experience in the industry. Passionate about developing creative apps from a young age, he pursued an engineering degree to further this interest. Under his leadership, Moon Technolabs has helped numerous brands establish their online presence and he has also launched an invoicing software that assists businesses to streamline their financial operations.