How does Klarna make money? – Klarna’s Business Model

Klarna is a Swedish financial technology company that provides credit and payment services to online retailers. If you are wondering how Klarna generates revenue, then you have come to the right place. In this article, we explain the business model of Klarna and how does Klarna make money. Let’s dive in!

What is Klarna?

Klarna, founded in 2005, has grown rapidly and offers a variety of interest-free payment plans with an easy-to-use interface. Klarna’s main features include two short-term interest-free plans, with many other options for shoppers who want to pay with interest. In 2020, the company helped process $53 billion in transactions.

Klarna is an app that connects to your bank account, and you can use it to pay for goods from online retailers. Previously it only worked with certain retailers Klarna had partnered with, but now it can be used at all online retailers. All you need to do is download the app to your phone, connect your bank account, and seamlessly shop anywhere you want.

Your purchase will be delivered to you immediately. You’ll get an email from the store when payment is due. If you’re not happy with a product, you have 14-30 days (depending on the store) to decide whether you want to keep it or not before you have to pay. You can use a debit card to settle your balance when it’s time to pay.

When you’re in Klarna, you don’t have to wait for your refund to process. You can choose to spread the cost of the item over several months or years or pay it all off immediately. Unlike credit cards, Klarna doesn’t charge interest or fees.

HeadquartersStockholm, Sweden
PeopleSebastian SiemiatkowskiNiklas AdalberthVictor Jacobsson
Business TypePrivate

What does Klarna do?

Klarna has been a successful fintech startup since 2005. The company has proven to be the most lucrative in Sweden and even in Europe. As of March 2021, it had raised over $2 billion of funding, giving it a valuation of around $30 million.

Klarna operates a network of over 200,000 partner merchants in 17 countries worldwide. The company has headquarters in Stockholm, with more than 4,000 employees scattered across 16 offices around the globe.

Klarna partners with retailers to handle payment processing. If a customer needs a loan, the website provides consumers the opportunity to get an instant loan with interest-free repayments over four consecutive months, or to pay it back daily with Klarna’s app.

Klarna offers longer-term payment options, too. They charge the merchant, not the consumer, for transaction processing fees. Klarna does a ‘soft credit check,’ which won’t impact a customer’s credit score. However, if you have bad credit, it may affect how much you pay in interest and monthly payments.

how does Klarna make money

How does Klarna make money?

Klarna makes money through fees paid by the merchant, late payment fees for the customer, interest on customer loans, interchange fees with other banks, and interest earned on cash.

Payment Fees

Klarna is a business that makes money through fees and interest. Merchants pay Klarna to provide their e-commerce service. Customers can borrow from Klarna, but they have to pay for it in the form of interest, late payment fees, and interchange fees with other banks. Klarna also makes money from the interest it earns on cash.

It is important to note that if you are operating within the United States, business owners must pay $0.30 for every transaction. The fee ranges anywhere from 3.29% – 5.99%.

Klarna has a variety of methods for paying. They range from quick checkout to Klarna financing. Klarna’s Instant Shopping solution is a payment option that allows customers to pay within a few clicks. Merchants can pay to use this service.

  • A monthly subscription fee for $30.
  • A small service fee, of $0.30.
  • Variable, onsite fees of up to 3.29%, and offsite fees of 3.79%.

For customers that want to pay later, Klarna offers financing options. They can settle their bill in 4 payments (with 2 weeks in between each payment) or take care of it over the course of 12 months. Klarna’s financing options come with a $0.30 fixed fee and variable finance rates up to 5.99%.

Klarna Financing allows customers to spread the cost over up to 36 months by paying monthly. This service is completely free for merchants, and Klarna charges consumers a fixed fee of $0.30 and a variable rate of 3.29%.

Klarna’s “Pay in 30 days” option is ideal for customers who want to try the product for 30 days before they commit. This option is mainly aimed at fashion merchants like ASOS or TOMS. Klarna payments must be settled within 30 days or the company will charge up to $35 on top of the late payment fees.

Interchange Fees

Klarna announced in early 2021 that it will launch a bank account in Germany. The product works in much the same way as a traditional bank account, but with some innovative additions. Klarna, in partnership with Visa, will offer a free debit card.

Whenever you use your debit or credit card, the merchant must pay an interchange fee. This is less than 1% of the total purchase price. If you buy something for $100, only $1 of that goes to Visa. Klarna would receive some of this fee for promoting the card to its users. Details on the actual percentage are not available.

Cash Interest

As a bank, Klarna operates in a similar way to most others. For Klarna, the interest from its deposit accounts goes to other banks, which need the capital. In the U.S., in 2019, banks had a net interest margin of 3.35%.

how does Klarna make money

What is the Business Model of Klarna?

Klarna, founded in 2005, is a Swedish company providing innovative payment options. Klarna’s popularity grew when it became one of BNPL’s payment options.

Klarna’s main source of revenue comes from partnerships with merchants. Klarna earns money from the customer by offering an interest-free payment plan for their purchases.

Klarna has two sources of revenue: commissions from interchange fees in addition to transaction costs, and cash in the accounts of their customers.

how does Klarna make money

How much is Klarna worth? (Valuation and Revenue)

Klarna has achieved a tremendous level of success, raising a total of $3.7 billion across 27 rounds of investment. One of the many investors in this company is Dragoneer Investment Group, a company that has a few other notable investments. DST Global, Silver Lake Partners, BlackRock, General Atlantic, Ant Group, and many more are also investors in this company.

In 2021, Klarna surpassed other technology companies to become Europe’s most valuable company. With a valuation of $45.6 billion, Klarna is also one of the 5 highest-valued financial technology companies around the world.

Klarna has contributed significantly to the development of the e-commerce industry. With $1 billion in revenue in 2020, this represents a 40 percent increase from 2019. Additionally, turnover through Klarna’s payment platform was over $53 billion in the same time period.

2016$3.5 Million
2017$4.1 Million
2018$5.4 Million
2019$7.1 Million
2020$10K Million

What is the founding history of Klarna?

Klarna’s founders met while working at a Burger King. For the vast majority of revolutionary startups, the answer is not a fast food place. Klarna’s founders are anything but ordinary, however, and the pair have been debating startup concepts for years.

These entrepreneurs were drawn to the Stockholm School of Economics, famous for its entrepreneurial spirit. There, they met Victor Jacobsson, their third co-founder. Their fortune was good; they didn’t need to fly. They took long voyages on ships and buses to broaden their horizons and develop an idea for a company.

Klarna was not the idea that spawned after the founders missed their boat in Australia. When Sebastian came back to Sweden, he couldn’t enroll in his graduate program. The only way to get a job during this time was in sales, which was hard because of the dot-com collapse.

In the early days of the internet, businesses experienced a lot of credit loss from unpaid invoices. Sebastian eventually found work with a company that specializes in collecting unpaid invoices on behalf of e-commerce merchants. In the days when the internet was new, consumers regularly failed to pay their bills and the only company that would take on this risk and try and recover them was Sebastian’s employer. But they were uninterested in his proposal.

After informing Niklas and Victor of his previous work experience, the trio explored the idea. They pitched the first version of Klarna at an innovator’s pitch- and received a negative response, arguing that the concept would never work. The founders were luckily able to connect with one of Sweden’s most successful angel investors, Jane Walerud.

Six months later, Klarna reached profitability with less than half of the original 60k capital left. The growth rate never slowed for the next few years until 2010. That year, Sequoia Capital invested in Klarna’s growth with a $155 million round.

Key Statistics of Klarna

how does Klarna make money
  • In just a few years, Klarna’s customer base has grown to nearly 7 million people and 1.6 million app downloads.
  • The UK is well on its way to going cashless as Europe’s largest fintech has over 5,000 live merchants.
  • Klarna has over 200,000 merchants globally. In 2019, more than 75,000 of these were added.

If you liked reading this article, make sure to check out our article on how does PayPal makes money!