Business Operations Business Models

How Does Klarna Make Money (Business and Revenue Model)

The Klarna business model

How Does Klarna Make Money?
Here’s what you should know:
  • What is Klarna, and how does Klarna work?
  • How does Klarna make money?
  • Interest Fees
  • Late Fees
  • Merchant Commissions
  • Klarna Card (in-store purchases)
  • Macy’s and Klarna Partnership
  • What is the Klarna business and revenue model?
  • Klarna’s profit and revenue
  • Klarna’s funding and valuation

How does Klarna make money? Here is a full, in depth, breakdown of their four (4) revenue streams and the different products and services they offer, as well as the Klarna business model, their year over year revenue, and how Klarna works.

What is Klarna, and how does Klarna work?

Klarna provides financial services that allow consumers to make purchases with retailers without having to pay anything at the time of purchase called “buy now, pay later” (BNPL).

Founded in Sweden in 2005 by Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson, Klarna has found its way into the U.S consumer market as well as establishing a global footprint.

As a financial lender, Klarna offers three (3) types of repayment options including two (2) that are interest-free. The interest option allows consumers 3-36 months to pay it back with APRs ranging from 0% – 29.99%.

Some of Klarna’s competitors include AfterpayAffirm, Sezzle, Quadpay, Splitit, and other “buy now, pay later” services.

How does Klarna make money?

Klarna is one of the leaders in this space with 10% of the market share in Northern Europe handling more than 1 million transactions a day.

Partnering with a new merchant every 8 minutes, they now partner with more than 200,000 retail stores globally and an additional 60,000 with an “in-store” point of sale (POS) setup.

And on the consumer side of things, Klarna has grown to more than 90 million consumers globally in 17 countries, 12 million of which are monthly active users and 55,000 daily app downloads of Klarna’s app. Which include more than 11 million customers and 2 million monthly active app users in the U.S.

So with all of that growth, how much do they make off of handing 1 million daily transactions?

Below is a breakdown their revenue model to how they of how much money LinkedIn makes from their paid users – including the revenue streams and how much they charge for each service.

Here are the 4 ways of how Klarna makes money (in 2022):

Klarna has a revenue model that makes money in four (4) ways – interest fees, late fees, merchant commissions, and Klarna Card.

#1. Interest Fees

Klarna offers three (3) payment options to their customers. They are: 4 installments, pay in 30 days, or financing.

Two of the three repayment options are interest-free. The financing option charges interest between 0% – 29.99% depending on your creditworthiness from a soft pull.

  • 4 installments: 0%
  • Pay in 30 days: 0%
  • Financing: 0% – 29.99% (3 – 36 month financing)
Klarna Interest Fees| How Does Klarna Make Money
Source: Klarna

Note: Even though Klarna is receiving 0% interest from the “4 installments” and “pay in 30 days” options, they are still receiving a 5.99% commission from the partnering merchant.

#2. Late Fees

Klarna also earns revenue through late fees from customers who miss their payments. Billing them per missed payment and also per missed month if they are not current on payments by the months’ end.

  • $7 per missed payment*
  • up to $35.00 per missed month*

Note: If the borrower was apart of a ‘No Interest If Paid In Full’ promotion, and they miss a payment, they will be charged at a 19.99% APR from the time of the purchasing date.

* Klarna says the amount of the late fee will not exceed the minimum payment due.

#3. Merchant Commissions

Klarna has almost 5,500 U.S retailers and more than 200,000 retailers globally, partnering with a new merchant every 8 minutes. As well as more than 60,000 stores using Klarna in-store point of sale (POS).

Handling more than 1 million transactions a day, Klarna earns a percentage of the total sales price as well as a transaction fee from each transaction they finance.

The commission rate Klarna receives depends on which of the three (3) payment options their customers choose: 4 installments, pay in 30 days, or financing.

  • 4 installments: $0.30 USD + 5.99% per transaction
  • Pay in 30 days: $0.30 USD + 5.99% per transaction
  • Financing: $0.30 USD + 3.29% per transaction
Klarna Commission Fees

Note: Even though Klarna is only receiving a 3.29% commission from the “financing” option, they are still receiving a 0-29.99% interest from the customer.

#4. Klarna Card (in-store purchases)

Klarna also has a virtual card that works like a credit card in-store.

The way it works is: Once you (1) download the Klarna app and tap on the “In-store” tab, (2) type in the retailers you want to shop with and set the budget you’d like on the card. Then (3) press “continue” to create the virtual card and (4) add it to your Apple or Google wallet.

Klarna Card | Klarna Business Model
Source: Klarna

Note: The Klarna virtual card can be seen as a way for Klarna to position itself to compete with credit card companies in the future. And wouldn’t be surprised to see them roll out a physical credit card with competitive interest rates in the coming years.

Macy’s and Klarna Partnership

In October 2020, Klarna announced a five-year partnership agreement with Macy’s. Allowing Macy’s customers to “buy now, pay later” over 4 installments paid every 2 weeks, interest-free.

The agreement does not include point-of-sale (POS) in any of Macy’s 839 retail stores worldwide, just Macy’s online store. This is strategic considering the retail giant mentioned that 54% of their total revenue in Q2 of 2020 was online.

* Terms of the agreement are undisclosed.

What is the Klarna business and revenue model?

Klarna makes money through a few revenue models that they combine within their company, they are:

  • Interest revenue business model
  • Commission based business model
  • B2B2C (partnerships) business model
  • Fee-for-service (FFS) business model

Klarna’s profit and revenue

In 2021, Klarna reported $1.6 billion in revenue.

Note: Because Klarna is a privately held company, they are not required to make their annual reporting, such as Form 10-K’s, pubic.

Klarna’s funding and valuation

According to Klarna’s Crunchbase profile, Klarna has raised $2.1 billion over 22 rounds with a valuation of $10.65 billion as of September 2020.