How Does Klarna Make Money? A Complete Guide to Klarna Business Model

How about buying your favorite gadget today and choosing to pay for it later, without worrying about higher upfront costs or high interest rates. Well, that is possible with platforms like Klarna, a leading player in the financial technology (fintech) world. Klarna has eased the online shopping experience and made it more financially manageable.

In this blog, we’ll discuss some of Klarna’s business model, how does Klarna make money, and how modern businesses can design buy-now pay-later apps using similar technology within their business.

Key Takeaways

• Klarna is a leading buy now, pay later (BNPL) service
• Online buyers using Klarna can either divide their purchases.
• They can pay in 4 equal payments, pay within a month, or arrange for longer-term financing.

How Does Klarna Make Money?

Klarna was founded in Sweden, in 2005 with a unique concept- BNPL, to make online shopping safe and appealing to all. Klarna offers financial services, including direct payments, installment plans, and payment after-delivery options. Klarna’s business model – ‘Buy Now and Pay Later’ lets consumers try and buy products without paying at that very instant. However, consumers get an option to choose a payment method with a 30-day period. Else they can pay in 4- instalments without any interest. The customers can make payments through the Klarna mobile app, PayPal, or bank transfer.

This platform also provides financing programs for up to 3 years on large purchases.

Business Model of Klarna: How Does Klarna Make Money?

Retailers planning to team up with Klarna have to sign up for the service and add a Klarna payment option to their online checkout. The customers have to sign up for the service to use Klarna.

Klarna teams up with retail merchants who pay the company commission fees for each sale that comes through Klarna.

To onboard customers, Klarna performs an initial credit check and, if they approve the customer, they can make purchases using Klarna credit. Shoppers using Klarna don’t provide any personal financial information while making online payments through the platform.

At the time of checkout using Klarna and how does Klarna work, the customers can select one of the three payment options mentioned above.  At the time of checkout with Klarna, the payment platform performs a soft credit check (one that doesn’t affect credit score) to make sure they can still be approved for credit. These soft credit checks take just a few seconds. Post the completion of sales via Klarna, the merchant pays the company a flat fee and a percentage of the total sale cost.

ChatGPT Integration

Few years later after the introduction of Klarna, it announced an integration with OpenAI’s ChatGPT to improve the shopping experience of customers through tailored recommendations. With ChatGPT, users can get suggestions on products within their price range. This integration showcases Klarna’s dedication to stay at the forefront of technological advancements and make online shopping more engaging and personalized for the buyers.

For instance, a user might ask, “What’s the best smartwatch within a particular price range?” ChatGPT will present the list of smartphones based on Klarna’s database, letting them make the right decision.

Benefits of Klarna for Retailers

• It provides a hassle-free payment service that merchants can easily set up on sites and apps.
• It always makes the payment on time, so there is less risk of fraud.
• It has a higher conversion rate due to less commitment from shoppers.
• The retailers by choosing the Klarna model can offer financing on their sites without any risk.

‍Benefits of Klarna for Consumers

• The customers get unlimited payment options to pay.
• It removes the uncertainty of ordering certain types of products online.
• The customers get the flexibility to pay post-receiving items, with no risk of paying for something that doesn’t arrive.
• It provides quick access to low-cost credit as an option to traditional credit cards.

How Does Klarna Make Money: Revenue Generation

Klarna’s revenue model charges merchants rather than consumers. The detailed revenue model of Klarna and how Klarna works is written below:

Payment Fees

The merchants registered on Klarna are charged per transaction, with fees varying based on the payment method and the customer’s location. For example, in the United States, merchants have to pay a flat fee of 30 cents along with a variable fee ranging from 3.29% to 5.99%. These fees include the convenience and security Klarna provides to the merchants and consumers.

On the Klarna platform, users get several with many payment options including paying in a month, card payments, and financing plans. However, it doesn’t charge any monthly fees, setup fees, or minimum volume commitments from merchants.

Interchange Fees

Klarna has also ventured into banking and provides debit cards in partnership with Visa. These cards are used by the customers for payments but merchants are supposed to pay an interchange fee, of almost 1%. Klarna keeps a share of this fee from every transaction made using debit cards.

Interest on Cash

In addition to the ways mentioned above, there’s also one another way to generate revenue which includes interest on cash. Similar to many other businesses, Klarna also charges interest on cash on the funds stored in the banks. 

Final Thoughts

With growing technologies, it’s crucial for businesses to make the best use of available technology and Klarna is one of them. It is leveraging modern technology to transform the Fintech sector.  The business model of Klarna and how does Klarna make money is quite interesting and has helped the company earn high valuations for the past few years.

Klarna’s marketing strategy is to team up with the leading brands and offer services as a payment option. Their strategy has helped companies grow rapidly, and thus it has become the leading provider of online payments.

Create an App Similar to Klarna Business with Kodehash’ Mobile App Development

If you want to create a Fintech app similar to Klarna, but don’t know much about technology and business strategy, then worry not. Team up with Kodehash Technologies, the best eCommerce app development company, that fulfills your vision into reality. At Kodehash, we provide cutting-edge solutions customized as per your specific business needs. Whether you want to integrate BNPL services like Klarna into your platform, create tailored payment gateways, or improve your digital presence, our team is here for you.

Why Choose Kodehash?

• Expert developers with deep industry knowledge
• Scalable and secure solutions
• Seamless integration with existing platforms
• Ongoing support and maintenance

Our professional developers, designers, and other team members use the most advanced tools and technologies to take your business to the next ultimate level.

Connect with Kodehash Technologies today and let’s build buy now pay later apps for your business.

How Does Klarna Work: FAQs

What is Klarna known for?

Klarna is a popular global payment and shopping platform, presenting smarter and more flexible shopping and purchase experiences to millions of global consumers.

How do Klarna Earn Revenues?

The main sources of Klarna’s revenues are merchant transaction fees, interchange fees from debit card offerings, interest earned on cash deposits, etc.

What is the key USP of Klarna apart from other BNPL services?

Klarna’s unique selling point is the inclusion of advanced technological integrations, like the ChatGPT plugin, and its focus on consumer empowerment and sustainability.