How Does Klarna Make Money?
Whenever you shop online these days, you’re likely to be asked if you’d like to pay with Klarna or other Buy Now Pay Later (BNPL) services.
Paying by Klarna might seem like a great way to spread the cost of payment, particularly for larger, more expensive items, but it’s really important to know exactly what you’re getting yourself into whenever you use any form of credit, including Buy Now Pay Later.
So what is Klarna and how does Klarna make money?
What is Klarna?
Klarna is a Buy Now Pay Later service. This means that shoppers can use Klarna to make purchases and pay the balance later. Customers often choose to use BNPL to spread the cost of larger purchases with online retailers. BNPL is also sometimes referred to as a point-of-sale loan, but it means the same thing. In effect, you borrow the money from Klarna and pay them back in instalments. It allows you to take items away without paying in full at the time of purchase.
Klarna, a Swedish fintech company, was founded back in 2005 by three entrepreneurs – Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson. Initially, they made their service available in Sweden before introducing Norway, Finland and Denmark in 2008. By 2010, they operated in Germany and the Netherlands. 2012 saw them launch in Austria and in 2015 they launched in the USA. The United Kingdom saw Klarna introduced in 2016.
How Does Klarna make money?
One way that some BNPL companies make money is to charge interest on purchases. However, Klarna doesn’t charge any interest when you use their services to make a purchase.
So how does Klarna make money then? The answer to this is that Klarna makes money in a few different ways:
- Payment fees
- Interchange fees
- Advertising
- Licensing fees
- Referral fees
- Interest on cash
Payment Fees
The largest chunk of Klarna’s earnings comes from charging their merchants payment fees. Sellers will pay a fee for every sale they make using Klarna.
Unfortunately, Klarna doesn’t seem to have published how much this transaction fee is anywhere online, at least not for merchants based in the United Kingdom. However, it seems that merchants in the USA are paying a $0.30 fixed fee as well as an additional varied fee for every sale they make using the service.
Klarna also makes money by charging late payment fees to customers who can’t or don’t make payments on time. Again, they haven’t published exactly how much late payment fees are, or how late payments need to be before they incur a charge. Late payments are also reported to credit agencies which can affect your credit score. A poor credit history can have a devastating impact on your ability to access financial services, so it’s worth taking care when considering using a BNPL scheme. Late payments are also referred to a debt collection agency who may add their own fees and interest to the outstanding balanc.
Interchange Fees
As well as BNPL, Klarna have also introduced its very own payment card. Although the Klarna card works in a similar way to a credit card, it isn’t quite the same thing. With the Klarna card, customers get 30 days to pay their balance off in full. But the benefit of using this card is that it’s interest-free. If you use a card and don’t pay in time, there is a 10-day grace period but after that, late payment fees are charged.
Klarna also makes money from the card by charging a fee to merchants whenever a Klarna card is used to pay.
Advertising
Klarna seems to be absolutely everywhere online these days, so it is perfectly placed to offer premium advertising space to brands who are willing to pay for it.
Advertising options include banner adverts and email advertising. It’s not known how much Klarna makes from advertising, but as they are such a well-used payment option for so many consumers around the world, this has got to be pretty lucrative for them.
Referral Fees/Affiliate Income
In 2022, Klarna launched a price comparison tool aimed at helping consumers find what they’re looking for at the best possible price. In order for this to be beneficial to Klarna, they earn commission when customers click through from the price comparison tool to the retailer and make a purchase.
So there you have it, I hope that’s answered how does Klarna make money.
