How Klarna makes money: Reinventing itself beyond BNPL

Klarna made headlines in 2021 with a $45.6 billion valuation, then lost over 80% of it in a year. In September 2025 it completed the comeback, going public on the New York Stock Exchange under the ticker KLAR at a roughly $15 billion valuation. For full-year 2025 it reported $3.5 billion in revenue, up 25% year over year, on $127.9 billion in gross merchandise volume (GMV). It also swung back to a net loss of $273 million as it provisioned upfront for a fast-growing loan book. Once known as a "Buy Now, Pay Later" (BNPL) provider, Klarna now serves 118 million active consumers across 26 markets as a global fintech platform.

This article explains Klarna's multifaceted business model. It details how Klarna makes money from merchants, consumers, and financial services. We also cover Klarna’s shift from only offering Buy Now, Pay Later (BNPL) to becoming an "everyday spending partner”.

Klarna's path to durable profitability is analyzed as well. Finally, we explore how Klarna's payment system works, how it boosts profit margins, and how artificial intelligence (AI) is changing its costs.

Klarna started with a simple idea: let people shop online now and pay later, interest-free. Today, it functions as a global payments network, digital bank, and shopping app.

Klarna’s services include BNPL, long-term financing, instant checkout, banking services (available in Europe), and a Klarna Card (both virtual and physical). The company also offers a "shopping super app" that helps users discover products, track orders, and receive alerts for price drops. 

For consumers, Klarna offers financial flexibility and instant credit approval within a seamless shopping experience. The available payment options include:

For merchants, Klarna boosts conversion rates, increases average order values, and provides access to a base of 118 million active consumers. Klarna pays merchants upfront and assumes all credit and fraud risk associated with their transactions.

At checkout, whether online or in-store, users can select Klarna and provide minimal information. The app performs a soft credit check, and the underwriting process takes place instantly. Klarna pays the merchant in full and collects repayment from the shopper in installments. Users can manage all transactions within the Klarna app, which acts as a central hub for payments, returns, and product discovery.

Several features set Klarna apart from other payment providers:

Klarna operates a vertically integrated platform. It underwrites credit in real time, finances loans from its balance sheet, and assumes all responsibility for credit and fraud risk. It generates revenue from both consumers and merchants involved in each transaction.

The duration of Klarna’s loans is relatively short, averaging 40 days. This brief repayment period allows for rapid capital recycling and tighter control over credit risk.

Klarna is well-integrated in the commerce ecosystem. It integrates with major e-commerce platforms including Shopify, Magento, WooCommerce, and BigCommerce. Payment partners include Stripe, Adyen, and ACI Worldwide. Klarna collaborates with PostNord, nShift, and Webshipper.

Klarna's retail partners include a variety of well-known brands such as H&M, Airbnb, Sephora, Uber, and Walmart (through OnePay). In 2025, a partnership with Stripe expanded Klarna's reach to millions of new merchants globally, and by early 2026 the integration had onboarded a significant share of Stripe's merchant base.

In 2025, Klarna reported $3.51 billion in revenue, a 25% year-over-year increase from $2.81 billion in 2024, $2.26 billion in 2023, and $1.85 billion in 2022. Unlike prior years, this growth came alongside a swing back to a net loss, as Klarna booked $794 million in credit-loss provisions against a rapidly scaling loan book. In 2025, Klarna processed $127.9 billion in gross merchandise volume (GMV) across 118 million active consumers.

Let’s go over some of the major revenue sources driving Klarna’s growth.

Merchants pay Klarna transaction fees ranging from 3.29% to 5.99%, in addition to a fixed fee of $0.30 per transaction. Klarna pays merchants upfront and assumes both credit and fraud risks associated with transactions. Although these fees are higher than traditional card processing fees, merchants find the tradeoff worthwhile, as Klarna helps increase the average order value by 20–30% and boosts conversion rates by up to 44%.

Merchant fees account for roughly three-quarters of Klarna's transaction and service revenue, which itself was about 71% of total revenue in 2025 ($2.5 billion of $3.51 billion). Klarna effectively operates like a performance marketing channel. Merchants pay not just for payment processing, but for improved sales outcomes.

Klarna generates interest income from its longer-term financing products, which range from 6 to 36 months and have Annual Percentage Rates (APRs) between 7.99% and 29.99%. It also earns interest on deposits and liquid assets held with credit institutions.

In 2025, interest income reached $937 million, about 27% of total revenue, up from $675 million (24%) in 2024. This reflects a shift from Klarna's earlier focus on interest-free offerings to more profitable, interest-bearing credit products. The Walmart OnePay partnership, which offers loans from 3 to 36 months, exemplifies this strategic pivot.

Klarna now describes itself as a digital bank rather than a BNPL app, and its banking products are the fastest-growing part of the business. It defines banking consumers as those who use financial services beyond payments, such as the card, Fair Financing, or savings. That group reached 15.8 million users in the fourth quarter of 2025, up 101% year over year, and generated about $107 in revenue each against roughly $30 for the average consumer.

Fair Financing is Klarna's interest-bearing, longer-term lending, the counterpart to its interest-free installments. Its GMV grew 165% year over year in the fourth quarter of 2025, accelerating from 139% in the third quarter and reaching 193% in December, as consumers moved away from revolving credit cards. This revenue is mostly interest, so it largely sits inside the interest income line rather than a separate segment.

The other banking lines monetize differently. The Visa-backed Klarna Card reached 4.2 million active users in the fourth quarter of 2025, up 1.9 million in a single quarter, and earns interchange on spend. Deposits fund the loan book cheaply: Klarna held about $12.3 billion in deposits across 11 European markets and launched an FDIC-insured US savings account paying up to roughly 3.38% on balances up to $50,000. A subscription tier, Klarna Plus, adds a smaller recurring line at $7.99 a month in the US in exchange for waived service fees and cashback.

Klarna does not report banking as its own segment, so its economics show up across the interest income, interchange, and consumer fee lines rather than in one figure. The pivot also lengthens the loan book. Fair Financing loans run far longer than Klarna's roughly 40-day BNPL average, which raises credit exposure and helped push credit-loss provisions to $794 million in 2025. Deposit funding adds interest-rate and liquidity management that a pure payments business never carried.

Klarna charges consumers late fees of up to $7 or 25% of the installment amount, as well as insufficient funds fees of up to $27. The company refers to these as "reminder fees," noting that they only impact a small percentage of users.

Still, consumer fees accounted for an estimated 15% of transaction and service revenue, adding up to roughly $375 million in 2025. While Klarna reports that over 98% of loans are repaid on time, this revenue stream matters to its margin structure and may draw regulatory scrutiny given the reliance on what some perceive as "mishap fees."

Klarna generates revenue by selling in-app ad placements, creating branded content, and earning affiliate commissions from outbound traffic. This ad-driven model taps into Klarna’s behavioral and transactional data to deliver targeted marketing campaigns.

Advertising contributed to an estimated 9% of transaction and service revenue in 2025, or about 7% of total revenue, reflecting a rebound from 8% in 2024 and a low of 8% after declining from 11% in 2022. Klarna's estimated ad revenue for 2025 is approximately $230 million. The company aims to evolve into a retail media platform, similar to Amazon or Shopify, by helping brands acquire customers within its ecosystem.

Klarna collects small interchange fees—around 1% on average—when users pay with Klarna’s debit or credit card products, mostly in Europe. Merchants who accept Klarna Card transactions pay these fees.

While Klarna does not specifically break out interchange revenue, it is included under "interest income" and "other" revenue categories. At this time, interchange fees represent a minor contributor to revenue but have growth potential as the use of Klarna Cards expands.

Despite robust revenue growth, Klarna's turnaround required aggressive cost-cutting across nearly every part of its business. Between 2022 and 2024 it optimized staffing, slashed marketing, and replaced expensive software tools with AI-driven alternatives, holding operating expenses roughly flat while revenue grew. In 2025, adjusted operating expenses still rose far slower than revenue, though total costs climbed as credit provisions and funding costs scaled with the loan book.

Below is an overview of Klarna’s main cost centers.

Klarna’s fixed costs encompass technology infrastructure (cloud services, engineering tools, internal systems), along with product development and research and development (R&D). A large portion of these costs is directed toward fraud prevention and enhancing AI capabilities.

Klarna's research and development (R&D) spending was $430 million in 2022. It dropped to $389 million in 2023, before rising again to $444 million in 2024 and $486 million in 2025. While tech and R&D costs fell as a percentage of revenue, they rose in absolute terms as Klarna invested in artificial intelligence (AI).

The company reduced licensing fees by replacing third-party software-as-a-service (SaaS) tools, such as Salesforce, and redirected spending toward proprietary technology and AI-driven product features. Klarna later reversed some of these decisions, re-engaging select enterprise SaaS vendors where internal replacements proved insufficient, while continuing to build proprietary AI tools for core functions.

Klarna's variable expenses mainly include credit losses and fees paid to card networks, such as Visa and Mastercard, as well as payment processors like Stripe. In 2025, Klarna's provision for credit losses jumped to $794 million, up 60% from $495 million in 2024, as it provisioned upfront for its fast-growing Fair Financing loan book.

The provision rate rose to 0.65% of GMV in Q4 2025, up from 0.53% a year earlier. Klarna attributes the increase to loan growth rather than weaker credit quality, and it offloads receivables to institutional investors to keep the balance sheet capital-light. It also limits risk through short loan durations, averaging around 40 days, combined with real-time underwriting. After these transaction costs, Klarna's full-year transaction margin was about $0.97 per $100 in GMV, down from prior years as upfront provisioning compressed margins.

Between 2022 and 2025, Klarna cut its headcount by about 49%. It replaced roughly 700 customer service roles with AI-driven automation while maintaining satisfaction through a hybrid model of AI and human support. It hired back some support staff after user backlash. The company continues to run leaner even as volume grows.

Revenue per employee reached roughly $1.24 million for 2025, up 3.6 times since 2022 and a sign of continued efficiency gains. Klarna also restructured its workforce toward technical roles, bundling many overhead and compliance functions.

Klarna cut marketing hard after its blitz-scaling years, then let spend rise again as it scaled. Sales and marketing expense was $414 million in 2025, up from $328 million in 2024 and $381 million in 2023, after far deeper cuts from its 2022 peak.

As a share of revenue, marketing spending kept falling even as the absolute figure rose, since revenue grew faster than spend. Klarna used AI tools to reduce its reliance on agencies, optimize spending, and improve campaign efficiency. Growth is now increasingly fueled by owned channels such as Klarna's app and checkout ecosystem.

Klarna completed its long-awaited IPO on September 10, 2025, listing on the NYSE under the ticker KLAR at $40 per share, above its range, and raising about $1.37 billion at a roughly $15 billion valuation. Preparing for the listing carried one-off costs through 2024 and 2025, including share-based payment charges tied to the IPO.

In 2023, Klarna incurred $69 million in restructuring costs, mainly from layoffs and reorganization, with smaller charges in 2024 and 2025 as it streamlined ahead of the listing. It had paused the IPO in April 2025 amid tariff-driven market volatility before completing it in September. For full-year 2025 Klarna reported a net loss of $273 million, reversing its $21 million profit in 2024, as upfront credit-loss provisioning on a fast-growing loan book outweighed revenue gains.

The BNPL market has exploded between 2019 and 2025, resulting in an influx of new entrants and consolidation. Klarna's biggest competition comes from other consumer-focused BNPL platforms and payment giants that add installment features to their services. Each competitor presents unique strengths, revealing the success and challenges of Klarna's strategic decisions.

Affirm focuses on transparent, interest-bearing installment loans ranging from 3 to 36 months. Affirm avoids late fees and emphasizes predictable payment plans. Its interest income and gain-on-sale model give it a much higher take rate than Klarna, near 9% of GMV.

Affirm has built a strong U.S. presence through partnerships with companies such as Amazon and Shopify. Its consumer-first approach and lack of hidden charges appeal to shoppers wary of traditional credit. Still, its user base is smaller than Klarna's, at about 23 million active consumers as of mid-2025. Its merchant network is also less extensive, with around 377,000 partners against Klarna's estimated 800,000.

In scale, Klarna processed roughly 3.5 times more gross merchandise volume (GMV) than Affirm in their most recent full years, about $128 billion against $36 billion. Even so, the two generated comparable revenue, with Klarna near $3.5 billion and Affirm near $3.3 billion. This underlines the monetization gap driven by Affirm's interest-based model.

Affirm reached its first full quarter of GAAP profitability in the June 2025 quarter, posting $0.20 in diluted earnings per share. It laid off 19% of its workforce in 2023 and has expanded its retail presence since. Affirm has also pushed into adjacent products, including its Affirm Card, a browser extension, and a broader suite of merchant tools.

Afterpay operates a pure-play Buy Now Pay Later (BNPL) model, offering interest-free "Pay in 4" installments. Its revenue comes from merchant fees, which tend to be higher than Klarna’s, at around 6% per transaction.

The company has gained substantial traction in Australia, New Zealand, and the United States, particularly among younger shoppers and fashion-forward retailers. Its integration with Block’s Cash App and Square ecosystem gives it a significant advantage in omnichannel commerce. However, Afterpay lacks long-term financing options and its app is less feature-rich compared to Klarna’s.

Despite its global presence, Afterpay's scale remains smaller than that of Klarna. In fiscal year 2025, Afterpay brought in approximately $700 million in revenue, which is less than a quarter of Klarna's topline. Its merchant network and GMV are also significantly smaller, limiting its ability to compete on volume.

Block continues to integrate Afterpay into its broader suite of products, embedding BNPL at the point of sale and within Cash App. It is expanding its physical retail presence and improving cross-platform coordination. Regulatory scrutiny around late fees in Australia, where new BNPL licensing requirements took effect in 2025, has created pressure to adapt its fee model.

PayPal’s BNPL offer is an add-on within its digital wallet, providing both "Pay in 4" and "Pay Monthly" plans. Unlike standalone BNPL providers, BNPL is just one feature in PayPal’s broader ecosystem and not its core business.

With over 400 million users and access to 35 million merchants, PayPal offers seamless checkout integration at scale. Its brand trust and ubiquity have driven the rapid adoption of BNPL without requiring consumers to switch to a new platform.

However, Klarna has an edge in product depth. PayPal lacks a robust discovery-driven app, offers limited shopping features, and doesn’t engage users beyond the transaction. As a result, BNPL remains more of a peripheral feature for PayPal rather than a driving force for user engagement.

While standalone gross merchandise volume (GMV) data for PayPal’s BNPL is limited, it is likely one of the largest processors by volume in the U.S. Nevertheless, Klarna remains stronger in Europe and provides a more comprehensive consumer ecosystem.

In 2024, PayPal expanded its Pay Monthly plans to include financing terms ranging from 6 to 24 months and added support for in-store BNPL transactions. The company is also deepening integration with Venmo, aiming to attract younger U.S. consumers.

Klarna’s next phase focuses on repositioning itself from a BNPL provider to an “everyday spending partner.” The company is doubling down on expanding its product offering and app engagement. This includes promoting the use of Klarna Card, embedding more loyalty and discovery features, and emphasizing its value beyond just point-of-sale financing.

Klarna posted its first full-year profit of $21 million in 2024, then swung to a $273 million net loss in 2025 as it provisioned upfront for rapid loan growth. Management frames this as deferred profit: costs booked today for revenue that accrues over the life of the loans. For 2026 it guides to GMV above $155 billion and a group take rate above 2.80%, which implies revenue north of $4.3 billion. Operating leverage keeps improving as revenue outpaces costs.

Klarna filed confidentially with the SEC in late 2024 and a public F-1 in March 2025, then paused in April amid U.S. tariff volatility. It completed the IPO on September 10, 2025, pricing above its range at a roughly $15 billion valuation. The stock jumped on debut but has since fallen by about half, leaving a market cap near $7 billion in mid-2026 as investors weigh the near-term margin cost of the banking pivot.

Klarna’s long-term vision is to become a comprehensive commerce and finance platform. The company aims to compete not only with other BNPL providers, but also with credit cards, retail media networks, and digital wallets. It continues to build proprietary infrastructure in shopping, banking, and advertising to create a cohesive and holistic ecosystem for its users.

As Klarna moves forward, several milestones will show whether the strategy works. Watch adoption of the Klarna Card and Fair Financing, whether upfront provisioning gives way to reported profit, credit performance as the loan book grows, changes in BNPL regulation, and the growth of its retail media business. These will determine whether Klarna can move from a checkout option to a core utility for everyday spending.