Klarna

Klarna is an international company that offers a buy now, pay later (BNPL) service that allows shoppers to shop at online retailers and physical stores without having to pay the full amount upfront. Consumers can pay in four installments with interest, every two weeks, or pay the full amount in 30 days. They can also finance their purchases over a longer period of time through Klarna partner WebBank. Klarna calls itself "a global leader in the transformation of the credit card era."

Founded in 2005 and headquartered in Stockholm, Sweden, Klarna currently works with more than 500,000 merchants worldwide. The company says it has 150 million customers, 34 million of which are from the United States, who make more than 2 million transactions per day. The company has 5,000 employees, known as Klarnauts. Klarna's investors include Sequoia Capital and Visa.

According to Klarna's 2022 annual report, the company had revenue of 13.3 billion Swedish kronor (Swedish kronor) and a net profit of -10.4 billion Swedish kronor that year. 5

In a "letter to shareholders" included in the annual report, CEO and co-founder Sebastian Siemiatkowski wrote, "We made tangible progress toward profitability while driving growth far beyond e-commerce and reducing credit losses and costs, with GMV up 22% year-over-year in 2022." GMV is short for gross merchandise volume, or gross merchandise transaction volume.

Klarna's retail partners include Anthropologie, Converse, Etsy, Harley-Davidson, Harry & David, Instacart, LensCrafters, Nike, Petco, Versace, Wayfair, and more. Retail categories include automotive, beauty, Black-owned businesses, apparel and fashion, and electronics, among others.

How Klarna Works

Consumers must be 18 or older to download the Klarna app on the App Store and Google Play. 10

There is no fee to sign up, and Klarna does not perform a credit check. When a consumer makes a purchase or attempts to make a purchase, Klarna may run a soft credit check, which is a check that does not affect someone's credit score.

Klarna does not charge consumers any fees for using its "Pay in 4" service at participating retailers. They can also use the app at other retailers for a $2 service fee.

Consumers who don't pay their bills on time may face a $7 late fee after 10 days, although Klarna says that "the total amount of late fees charged on an order will never exceed 25% of the total purchase amount." If the person defaults on the debt, Klarna may refer their account to a collection agency and report the delinquency to the credit bureaus. If this happens, it will negatively affect their credit score.

Klarna can approve or deny any particular purchase. Klarna says one reason for declining a transaction is that the consumer already carries a large balance or that this particular purchase involves a large amount of money. Klarna says consumers can reduce the risk of this happening by linking their bank account to Klarna.

Since Klarna doesn't charge interest or fees on its standard payment options, how does it make money? Primarily from participating merchants, who reportedly pay Klarna a flat fee per transaction and a percentage of the total purchase amount, which can vary by country and by which Klarna service a consumer chooses to use. According to 2022 National Retail Federation data, the total cost to U.S. merchants of using Klarna or its competitor Afterpay is about 5%—twice the swipe fees they typically pay to credit card companies.

The Bottom Line

Klarna is a leading buy now, pay later (BNPL) service with a strong presence in the U.S. and around the world. Despite the convenience and growing popularity of BNPL services, consumer advocates have questioned whether they are exacerbating the unmanageable debt problems faced by many Americans; however, a recent study concluded that it is unclear whether such services have a positive or negative impact.