How Does Klarna Make Money? The Truth Behind Their Billion-Dollar Success [2025]

Klarna generates its primary income through merchant fees and serves 147 million active users who helped create $549.9 million in revenue during 2022. The Buy Now Pay Later giant charges businesses a transaction fee between 3.29% and 5.99%.

This business model proves beneficial for merchants as it helps boost their order values by 20-30%. Klarna's revenue stream grows further through late fees and various financing plans.

Klarna’s Core Business Model Explained

Klarna started its journey in Stockholm, Sweden in 2005 and grew into one of the world's leading payment service providers. This innovative fintech company's billion-dollar success story shows how a smart business model can change the payment industry.

What is Klarna and how does it work?

Klarna stands out as a financial technology company that makes online shopping easier through its payment solutions. The company goes beyond traditional payment processing by acting as a shopping assistant that makes buying simple.

Here's how Klarna works:

1. During checkout: Customers choose Klarna as their payment method at partner stores

2. Instant approval: A soft credit check runs without affecting credit scores

3. Seamless purchase: Customers complete their purchase and pay later

4. Flexible repayment: Customers can pay in installments or after a set time based on their choice

Klarna's payment options match different customer needs:

• Pay in 30 days: Full payment within 30 days of purchase

• Pay in 3 or 4: Equal installment payments over time

• Financing: Extended payment plans for bigger purchases

• Pay Now: Direct payment just like a debit card

A smart business model powers this user-friendly system. Klarna bridges the gap between merchants and consumers. Merchants get payment processing, fraud prevention, and credit risk management. Customers enjoy flexibility and ease of use.

Klarna's app also works as a shopping platform where people browse products from partner stores. This creates a complete shopping system that goes beyond payments.

The role of Buy Now, Pay Later in Klarna's growth

Buy Now, Pay Later (BNPL) helped Klarna grow faster. This system lets customers buy items without paying everything upfront - an idea that appeals to younger people looking for credit alternatives.

BNPL became central to Klarna's growth because:

Market timing: The company grew quickly after the 2008 financial crisis made people cautious about traditional credit. The COVID-19 pandemic pushed more people toward online shopping, creating ideal conditions for BNPL services.

Consumer psychology: BNPL makes spending feel easier. Smaller payment amounts help customers feel more comfortable with purchases, which leads to more sales for retailers.

Merchant benefits: BNPL helps stores in many ways:

• Cart abandonment drops

• Average orders get bigger

• New customers come in

• Stores face less payment risk

Data advantage: Every purchase gives Klarna useful customer data that improves risk assessment and creates customized shopping experiences.

Global expansion: BNPL's expandable solutions helped Klarna reach new markets in Europe, the United States, and Australia, bringing millions more users.

All the same, BNPL faces more regulatory oversight as people worry about consumer debt and responsible lending. Klarna responded with better transparency and stronger affordability checks.

The company keeps growing beyond BNPL by adding new products like the Klarna Card and banking services. These changes help vary revenue streams and keep growth strong as competition increases.

How Klarna Makes Money from Merchants

Merchants are Klarna's main source of revenue. The company has become skilled at creating a win-win situation where retailers pay fees for services that boost their profits.

Understanding Klarna merchant fees

Klarna earns revenue from merchants through a simple fee structure. The company charges businesses a percentage fee plus a fixed amount for each transaction. Based on accessible data, merchants pay between 3.29% and 5.99% of the transaction value plus a fixed fee of $0.30 per transaction.

The fees used to vary based on customer payment plans, but Klarna now uses a more standardized approach. These fees include credit card processing costs that usually run around 2.9% with traditional payment processors.

Businesses with annual revenues over $5 million can negotiate better rates based on their sales volume. So larger businesses sometimes get more favorable terms, making Klarna's services more affordable at scale.

Why businesses pay to use Klarna

Klarna's fees might look high compared to standard payment processors, but businesses pay them for several good reasons:

Guaranteed payment: Merchants get their full payment upfront, whatever happens with customer installments. Klarna takes all credit risk, which means the merchant never loses money on transactions that default later.

Risk management: Klarna offers detailed seller protection by handling credit and fraud risk for all transactions. Businesses can focus on operations instead of payment security concerns.

Higher conversion rates: Klarna's efficient checkout process cuts down cart abandonment, especially on mobile devices. One retailer showed a remarkable 200% increase in sales conversions during the holiday season.

Customer acquisition: Klarna does more than process payments. It refers millions of shoppers to retail partners, which helps lower customer acquisition costs.

Benefits of Klarna for business owners

Klarna offers more than just payment processing, with many advantages:

• Increased order value: Customers spend more when they can spread payments over time. Merchants see average order values rise by up to 68% with Klarna. This happens because customers feel better about buying higher-priced items or adding more products to their carts.

• Upfront capital: Merchants get paid right away, even though customers may pay in installments. This helps cash flow and eliminates waiting for payments.

• Customer insights: Klarna's data analytics give practical information about customer behavior, spending patterns, product trends, and shopping habits. Merchants can use this information to improve their offerings and marketing strategies.

• Customizable integration: Businesses choose which Klarna payment options to offer and tailor the experience to their customers and products.

• Operational efficiency: Klarna processes payments quickly, which reduces checkout times and improves efficiency by automating manual tasks.

Business owners looking at payment options find Klarna attractive despite premium fees. The combination of guaranteed payment, risk protection, and its track record of increasing sales makes it worth considering.

Revenue from Consumers: Interest and Late Fees

Klarna makes a lot of money beyond just merchant fees. The company gets substantial revenue straight from consumers through its financing options and penalty charges. This popular Buy Now, Pay Later (BNPL) service has created multiple ways to earn from consumers that add up substantially to its profits.

How Klarna earns from financing plans

Klarna's "Pay in 4" and "Pay in 30 days" options don't charge interest. But the company makes good money from its longer-term financing plans. Customers making bigger purchases can get financing for up to 36 months with interest rates from 7.99% to as high as 35.99% APR.

These financing plans work for purchases over $400, and customers can spread their payments over a longer time. 

The interest rates change based on several things:

• Customer's credit score and history

• How much they're buying and where they're buying it

• How long they want to take to pay (6-36 months)

WebBank (member FDIC) issues Klarna's financing products in partnership with Klarna. Customers make their first payment a month after the store processes their order. After that, they pay monthly on the same date until they've paid everything off.

Late payment fees and their structure

The company uses different late fees based on how much you bought. Missing a payment or not having enough money on the due date leads to these fees:

Total Order Value	Fee per Late Repayment	Maximum Late Fee per Order	Snooze Fees
$0.00-24.99	$0.00	$0.00	$0.00
$25.00-59.99	$2.00	$6.00	$1.00
$60.00-99.99	$4.00	$12.00	$2.00
$100.00-199.99	$6.00	$18.00	$3.00
$200.00 and above	$8.00	$24.00	$4.00

Payments that are 10 days late can cost up to $7.00. The good news is that late fees never go above 25% of what you bought.

Klarna tries to collect again after missed payments and adds any unpaid amounts to your next payment. Your debt might end up with collections if they can't get the money.

What this means for users and credit scores

Users only need a soft credit check to sign up with Klarna, which doesn't hurt their credit score. But since June 2022, the company tells major credit bureaus like Experian and TransUnion about payment history.

This credit reporting affects users in several ways:

• Paying on time could help build better credit

• Late payments can hurt credit scores substantially

• Defaulting on payments shows up on credit files for up to seven years

Lenders can now see BNPL payment history in credit reports, which affects overall creditworthiness. This visibility might make it harder to get other types of credit.

Missing payments leads to more than just fees. Users can't make new purchases through Klarna until they've cleared their outstanding debt.

Klarna Card and In-Store Payments

Klarna now reaches beyond the digital world with physical payment options and in-store solutions. The company makes money from both card payments and in-store transactions that blend naturally with its online business model.

How the Klarna Card works

The Klarna Card is available as both physical and virtual Visa credit card that works at any Visa-accepting location. The card stands out from regular credit cards by letting users choose how they want to pay. 

Customers who make purchases with the card can:

• Pay in 4: Convert eligible purchases into four interest-free payments within 12 hours in the app

• Pay in full: Pay the entire amount at once

• Move to next month: Push the payment to the next statement cycle

• Pay over time: Split larger purchases across 3, 6, 12, or 18 months

The card naturally blends with Klarna's app. Users can watch their spending and adjust payment priorities right from their phones. The card comes with no monthly or annual fees and works worldwide without foreign exchange fees.

Interchange and subscription fees

Klarna earns interchange fees from merchant banks every time someone uses their card. These fees usually range from 1-3% per transaction. The system works just like traditional credit card fees and brings in steady income.

Klarna Plus launched in early 2024 as a $7.99 monthly subscription service. 

Members get premium perks such as:

• No service fees with Klarna's One-Time Card at non-integrated merchants

• Double rewards points on purchases

• Special discounts at partner retailers

This subscription approach creates steady income beyond regular transaction fees.

Expanding Klarna beyond online shopping

Klarna grew its in-store presence by a lot in 2025 through strategic collaborations. The company joined forces with Clover to add its payment options to more than 100,000 US merchant point-of-sale systems.

Customers can pay in stores through:

1. Physical Klarna Card

2. Virtual card through Apple Pay or Google Pay

3. One-time cards or QR codes from the app

Klarna's Chief Commercial Officer says, "We're bringing Klarna to Main Street... now we're changing how they pay everywhere."

These collaborations and physical payment options help Klarna earn more from store purchases while growing its merchant network beyond online stores.

Other Revenue Streams and Klarna’s Profitability

Klarna has expanded beyond its core payment processing business to create new revenue streams that accelerate growth and strengthen its market position.

Affiliate marketing and advertising

The Klarna shopping app works as a powerful marketing platform where the company earns money through affiliate commissions. Users receive personalized recommendations and discovery feeds that connect them to partner retailers, and Klarna collects fees for successful referrals.

The company's advertising model includes:

• Sponsored listings that help merchants boost their visibility within the app

• Rewards programs that drive repeat purchases while generating extra merchant fees

• Tailored marketing based on shopping behavior data

This affiliate strategy has delivered results, as the Klarna app now connects over 70 million shoppers to retail partners each month.

Interest on cash and banking services

Klarna has grown into banking services in several European markets. Since becoming a licensed bank in Sweden in 2017, Klarna makes money through:

Deposit interest margins: The company profits from the difference between interest paid to depositors and earned from lending these funds.

Currency exchange: Customers pay a 2.5% fee on international purchases.

Account management fees: Premium banking services come with monthly fees.

Banking initiatives now include savings accounts, which are popular in European markets where traditional banks pay minimal interest.

Is Klarna profitable in 2025?

Klarna turned profitable in 2023 and managed to keep making money through 2025. This success came after major changes:

The company cut operating costs by nearly $500 million through staff reductions.

Better underwriting models reduced credit losses from 1.2% to 0.4% of Gross Merchandise Volume.

New revenue streams beyond merchant fees created more stable income sources.

Klarna's 2025 profits show how operational improvements and strategic growth changed it from a payment processor into a complete financial services platform.

Conclusion

Klarna's soaring win comes from its diverse revenue streams. The company makes money from merchant fees, financing plans, late fees, interchange fees, and banking services. Its rise from a payment processor to a detailed financial platform has made it profitable after years of focused growth and improvements.

FAQs

Q1. How does Klarna generate revenue if they offer interest-free options? 

While Klarna does offer some interest-free plans, they make money primarily through merchant fees, late payment fees, and interest on longer-term financing options. They also earn revenue from interchange fees on card transactions and their subscription service, Klarna Plus.

Q2. What are the main sources of Klarna's profit? 

Klarna's profit comes from multiple sources. These include merchant fees for processing transactions, interest charges on financing plans, late payment fees from consumers, interchange fees from card transactions, advertising revenue from their shopping app, and income from their banking services.

Q3. Are there any potential drawbacks to using Klarna? 

While Klarna offers convenient payment options, users should be aware of potential risks such as overspending, late fees for missed payments, and the impact on credit scores if payments are not made on time. Additionally, some Klarna options may involve interest charges or fees that users should carefully consider.

Q4. How does Klarna's card work and what are its benefits? 

The Klarna Card functions as a Visa credit card, allowing users to make purchases and choose how to pay later. It offers flexibility with options to pay in installments, pay in full, or postpone payment. The card has no monthly or annual fees and can be used internationally without foreign exchange fees.

Q5. Has Klarna achieved profitability, and how? 

Yes, Klarna became profitable in 2023 and has maintained positive financial performance. This was achieved through cost-cutting measures, improved underwriting models to reduce credit losses, and diversification of revenue streams beyond merchant fees. Klarna has transformed from a payment processor into a comprehensive financial services platform.