How Does Klarna App Make Money? – App Generate Revenue?

“The first rule of Klarna Club is: you do not pay upfront.” Okay, perhaps that isn’t how Fight Club actually begins, but it describes Klarna’s business model fairly accurately.

If at some point in the future you find yourself shopping online and think, “Man, I really don’t want to shell out all this money at once,” then consider Klarna your best friend. 

Its Buy Now, Pay Later (BNPL) wizardry allows you to pay in four interest-free installments – or spread larger-item purchases upto 36 months for maximum of flexibility. It is just like a dream come true. 

But the million-dollar question is “If Klarna is letting consumers shop without paying up front, where does the money actually come from?”

Here’s the catch: Klarna isn’t running a charity. In fact, it’s a $14.6 billion fintech powerhouse, and it knows exactly how to turn your shopping habits into serious cash.

So, what’s the catch? How does Klarna make money while offering “free” payment plans? Buckle up – we’re about to dive deep into Klarna’s revenue model, and trust me, it’s more interesting than your online shopping cart.

What is Klarna?

Klarna was launched in 2005 in Stockholm, Sweden, by three university students, namely Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson. Their concept? To simplify online purchases by allowing individuals to buy products upfront and pay later.

Today, jump forward to 2025, Klarna is now a fintech giant valued at $14.6 billion. Its peak valuation of $45.6 billion in 2021, however, was trimmed due to changes in the market and increased BNPL competition.

The firm now has operations in 45+ countries, with over 150 million active customers and a partnership with 500,000+ retailers across the world, including major brands such as Nike, Sephora, and H&M.

How Klarna Works?

The magic of Klarna is its Buy Now, Pay Later (BNPL) platform, where shoppers can:

• Pay in 4 installments (interest-free)
• Pay later in 30 days (also interest-free)
• Finance purchases between 6-36 months (with interest)
• Make use of Klarna’s shopping app for exclusive offers and cashback

Although Klarna seems like a consumer’s utopia, companies enjoy it as well since it boosts conversion rates by 44%. But then, the question is: how does klarna make money? Let’s analyze it.

Klarna’s Revenue Streams: How Does Klarna Make Money?

Since we now know that Klarna is not an amiable lending fairy, let’s dive into the details of its revenue model. Klarna makes most of its money from merchant fees, interest charges, interchange fees, advertising, and subscriptions.

• Merchant Fees 

Merchants don’t partner with Klarna for the sheer altruism of it – instead, they pay Klarna a merchant fee for each purchase made on its platform. This is Klarna’s largest source of revenue, accounting for more than 60% of its overall revenue.

Why Do Merchants Pay Klarna?

• Klarna increases checkout conversion rates.
• Customers spend more when they don’t have to make an upfront payment.
• Companies receive immediate payment, while Klarna absorbs the risk.

These merchants charge different fees, but they usually charge between 2% to 6% of each transaction, plus a flat $0.30 processing fee.

• Interest & Late Fees

Klarna’s interest-free payment plans may lead you to believe it’s a free ride, but skip a payment, Klarna will charge you late fees. These range up to $7 per skipped installment, up to 25% of the purchase price.

Klarna also provides long-term credit (6-36 months), which does incur interest. Varying rates, but up to 24.99% APR.

• Klarna Card Interchange Fees

Klarna has a virtual card (like a credit card) that allows you to pay wherever Visa is accepted. Each time you use the card, Klarna receives an interchange fee (typically 1-3% per transaction) from the merchant.

• Advertising & Affiliate Revenue

Ever seen Klarna advertising some brands in its shopping app? Merchants pay Klarna to do that. That’s an affiliate model for Klarna, so they earn a commission when you shop through their app.

• Subscription-Based Revenue

Klarna launched Klarna Plus and Klarna Business subscriptions, which offer benefits such as special offers and priority support. These are priced at about $4.99/month, another source of revenue.

• Data Monetization 

Though Klarna says it does not sell people’s personal data, it does employ aggregated consumer information to fine-tune ad targeting – yet another source of revenue.

Klarna’s Business Model vs. Competitors

Of course, Klarna is a strong rival in the BNPL market; it isn’t alone. Other powerful fintechs operating and attracting the same clientele with similar products include Afterpay, Affirm, and PayPal Pay.

But how does klarna make money apart from the rest? Where does it shine, and where does it not? 

To summarize how Klarna is set apart from other major competitors in the BNPL space, here is a short comparison:.

Now, let’s analyze further.

• Greater Payment Flexibility – Klarna doesn’t only have “Pay in 4”; it also offers interest-free 30-day payments and long-term financing—something Afterpay and PayPal Pay in 4 don’t.
• Enormous Global Presence – Klarna has a presence in 45+ countries, whereas Afterpay and Affirm are primarily confined to the U.S., Australia, and a few other places.
• Additional Paths to Profits – Not only does Klarna earn money from merchant fees and interest, but also from interchange fees (Klarna Card), advertising, and subscriptions—more sources of revenue than the competition.
• Less Costly Merchant Fees (for Certain Sellers) – Klarna takes a merchant fee of 2-6% per transaction, while Afterpay’s fees may be as much as 6%, which saves merchants money.
• Shopping Super App – Klarna boasts a fully integrated shopping app in which users can shop, earn cashback, and access exclusive offers. PayPal and Afterpay don’t provide such shopping integration.

Klarna’s Weaknesses

• Higher Late Fees Than Some Competitors – Klarna charges up to $7 per missed installment, while Affirm charges no late fees at all. That might make Klarna less attractive to cautious consumers.
• Hard Credit Checks on Some Loans – Klarna performs soft checks for short-term BNPL products but hard credit checks for long-term loans. Afterpay and PayPal steer clear of this, which makes them more convenient to use.
• Profitability Issues – In spite of its revenue, Klarna lost more than $1 billion in 2022 as a result of increasing default rates and market conditions. Affirm and PayPal, however, have experienced steadier financial performances.
• Stricter Rules on the Horizon – Several governments (particularly in the U.K., Australia, and U.S.) are raising an eyebrow on BNPL businesses because of the increasing debt burden of consumers. Klarna, as one of the largest operators, is at the most risk.

Is Klarna Profitable?

If Klarna were a reality show contestant, it’d be the one that’s really popular, makes millions of dollars but is somehow still broke by the season finale. 

That’s because although Klarna generates billions in revenue, profitability has been an ongoing challenge.

• Klarna’s Financial Performance

Klarna has seen dramatic revenue growth, but that hasn’t always carried over into profitability. In 2023, Klarna achieved an operating profit of $18.8 million for Q3 – its first profitable quarter in four years. This was a sharp reversal from its $1 billion loss in 2022 due to aggressive expansion and increasing credit losses. 

What about 2025? Well, with the new initiatives like trading in place, the hopes are really high! 

Key Klarna Financial Highlights:

• 2023 Revenue (H1): $1.9 billion.
• 2022 Losses: In excess of $1 billion.
• Profitability: It became profitable from Q3 in 2023.

So, is Klarna actually on stable ground financially? Yes, sort of. While it’s on track to be profitable, there are still issues ahead.

• Issues in the Profitability of Klarna

Although Klarna is moving slowly towards financial solvency, there are numerous obstacles that will affect its longevity.

• Increasing BNPL Defaults

Humans are fond of BNPL, but not everyone is good at making timely installments. As more people use BNPL, payment defaults are also growing, which obliges Klarna to bear losses when customers fail to pay.

• Government Regulations are Constricting

Regulators in the U.S., U.K., and Europe are closely monitoring BNPL providers. There is a risk that new regulations will force Klarna to carry out more comprehensive credit checks, and it will become more difficult to bring on board new customers.

• Competition is Heating Up

Klarna isn’t the sole BNPL behemoth in the market. Competitors such as Afterpay, Affirm, and PayPal Pay in 4 are competing for the same clientele, which means Klarna must advertise heavily and innovate at great expense.

In spite of all that, Klarna’s newfound profitability is a testament to its shifting business model. The question now is: Can it keep it up?

Get an App Like Klarna with TekRevol

If Klarna’s success story is making you ponder, “Hey, I want a slice of that BNPL pie!”You’re not the only one. The Buy Now, Pay Later market is expected to reach $1 trillion by 2030, and now’s the ideal moment to get on board. But creating a fintech app like Klarna is not merely a matter of knocking together a couple of payment schemes; it demands a smooth user experience, robust security, AI-powered risk analysis, and alignment with financial rules.

That’s where TekRevol steps in. As a top app development company, TekRevol is an expert at developing innovative fintech solutions that meet your business requirements. Whether you need a BNPL platform, digital wallet, or AI-based financial tool, we have you covered.