Klarna: New Era of Finance

In partnership with

👋 Hi, it’s Rohit Malhotra and welcome to Partner Growth Newsletter, my weekly newsletter doing deep dives into the fastest-growing startups and S1 briefs. Subscribe to join readers who get Partner Growth delivered to their inbox every Wednesday morning.

Latest posts

If you’re new, not yet a subscriber, or just plain missed it, here are some of our recent editions.

• Interview with Jenny Rothenberg

• Coreweave: AI Gold rush

• Blend: Reshaping Consumer Finance

Partners

Start learning AI in 2025

Everyone talks about AI, but no one has the time to learn it. So, we found the easiest way to learn AI in as little time as possible: The Rundown AI.

It's a free AI newsletter that keeps you up-to-date on the latest AI news, and teaches you how to apply it in just 5 minutes a day.

Plus, complete the quiz after signing up and they’ll recommend the best AI tools, guides, and courses – tailored to your needs.

Sign up to start learning.

_{Interested in sponsoring these emails? See our partnership options here.}

Subscribe to the Life Self Mastery podcast, which guides you on getting funding and allowing your business to grow rocketship. 

Previous guests include Guy Kawasaki, Brad Feld, James Clear, Nick Huber, Shu Nyatta and 350+ incredible guests.

S1 Deep Dive

Klarna in one minute

Klarna, the Swedish fintech powerhouse, reshaped the Buy Now, Pay Later (BNPL) market and has since expanded into AI-driven banking, payments, and advertising. Founded in 2005, Klarna now operates in over 45 countries, working with more than 675,000 merchants, including Nike, H&M, and Sephora. The company processes over $115 billion in annual transactions, making it one of the largest alternative payment providers globally.

Klarna’s business model is built around offering flexible payment options at checkout, charging merchants a fee for driving sales while providing interest-free installment plans to customers. The model worked—until it didn’t. After years of heavy losses, Klarna returned to profitability in Q4 2023 thanks to aggressive cost-cutting and AI-driven underwriting improvements.

Now, Klarna is gearing up for a $15–20 billion IPO. But the road ahead won’t be easy. The BNPL space is becoming crowded, with Apple Pay Later and Visa ramping up competition. Regulatory scrutiny is also tightening, with concerns about consumer debt and financial stability. Can Klarna maintain its dominance, or is the BNPL landscape about to shift? Let’s dig in.

Introduction

Klarna isn’t just a Buy Now, Pay Later (BNPL) company anymore—it’s building a global financial ecosystem. While most fintechs focus on single-product solutions, Klarna has evolved into a comprehensive platform that connects consumers and merchants worldwide.

Founded in 2005 in Sweden, Klarna pioneered the BNPL model with a simple “Pay Later” offering at checkout. Fast forward nearly two decades, and Klarna now operates in 26 countries, with a strong foothold in the U.S. and Europe. Its network includes over 93 million active consumers and more than 675,000 merchant partners—names like Nike, H&M, and Sephora.

But Klarna’s ambitions go beyond BNPL. Today, the company calls itself a “next-generation commerce network,” combining payments, banking, and AI-driven advertising under one roof. Klarna isn’t just facilitating transactions—it’s embedding itself in the entire consumer journey, from discovery to purchase to payment.

The strategy is working—sort of. Klarna processes over $115 billion in annual transactions, making it one of the largest alternative payment providers in the world. But profitability has been elusive. After years of aggressive expansion and rising losses, Klarna finally returned to the black in Q4 2023, thanks to cost-cutting and AI-driven underwriting improvements.

Now, Klarna is preparing for a $15–20 billion IPO. But the BNPL landscape is shifting fast. Apple Pay Later and Visa are ramping up competition, and regulators are increasing scrutiny on consumer debt. Klarna isn’t just competing on product anymore—it’s competing for survival in a rapidly evolving financial market.

History

Klarna was founded in 2005 by three university students—Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson—after pitching an idea at a startup competition in Stockholm: a payment system that would let shoppers receive goods first and pay later. The idea didn’t win, but the founders pressed on, convinced that the BNPL model could transform e-commerce.

In the early years, Klarna focused on scaling across the Nordic and German markets. By 2010, the company had gained traction with merchants and consumers, offering a seamless checkout experience that quickly became popular. By 2015, Klarna was valued at $2.5 billion and had secured banking licenses, evolving from a payments company into a full-fledged digital bank.

Growth came fast—and so did capital. Over the years, Klarna raised over $4 billion from high-profile investors like Sequoia Capital, SoftBank, and Silver Lake. At its peak in 2021, Klarna was valued at $46 billion, making it Europe’s most valuable private fintech company. But the market turned. By 2022, Klarna’s valuation had plunged to $6.7 billion as BNPL competition intensified and interest rates rose.

Klarna responded with aggressive cost-cutting and a strategic pivot toward AI-driven banking and underwriting. The shift paid off. Klarna returned to profitability in Q4 2023, driven by improved credit quality and more efficient operations. Today, Klarna processes over $115 billion in annual transactions, working with over 675,000 merchants and reaching more than 93 million active consumers.

Risk factors

Klarna’s transformation from a BNPL leader to a full-scale AI-driven banking and payments platform has positioned it as one of the most influential fintech companies in the world. But as Klarna prepares for a $15–20 billion IPO, it faces a range of risks that could threaten its financial health, competitive edge, and long-term growth.

1. Regulatory Crackdown on BNPL

Governments are tightening the screws on BNPL services. Regulators in the U.S., U.K., and EU are pushing for stricter disclosure rules, affordability checks, and underwriting requirements to protect consumers from overborrowing. Klarna’s interest-free installment model is under direct scrutiny. If Klarna is forced to adjust its lending practices, compliance costs could rise, and margins could shrink—directly hitting profitability.

2. Profitability Isn’t Guaranteed

Klarna finally turned profitable in Q4 2023 after years of aggressive expansion and rising losses. But the business still relies on high transaction volumes and thin margins. A slowdown in consumer spending or a drop in BNPL adoption could erode those margins quickly. Klarna needs to balance growth with cost control—something that’s historically been difficult in the payments industry.

3. Big Tech and Banking Giants Are Closing In

Klarna isn’t just competing with other BNPL players like Affirm and PayPal anymore—it’s up against tech giants like Apple and financial powerhouses like Visa and Mastercard. Apple Pay Later gives Apple a massive edge with its 1.2 billion iPhone users and deep integration into Apple Pay. Visa and Mastercard are embedding BNPL features directly into their credit networks, threatening Klarna’s merchant relationships and competitive edge.

4. Credit Risk Is Always a Threat

Klarna takes on direct credit risk by offering installment payments. Its AI-driven underwriting has reduced default rates by 40%, but the risk remains. An economic downturn, rising interest rates, or a spike in customer defaults could increase loan losses and pressure Klarna’s balance sheet.

5. Uncertain IPO Market

The fintech IPO market is shaky. Klarna’s target valuation of $15–20 billion is ambitious in a market where high-growth, low-profitability fintech stocks have struggled. Affirm’s stock fell 70% post-IPO, and investors are wary of BNPL players’ reliance on consumer debt. If sentiment weakens, Klarna may need to lower its valuation or face post-IPO volatility.

Klarna’s Balancing Act

Klarna has shown it can adapt—from BNPL pioneer to AI-driven banking platform. But execution risks are high. Klarna needs to maintain profitability while navigating rising competition, regulatory headwinds, and shifting consumer behavior. If Klarna pulls it off, the IPO could cement its status as a dominant player in fintech. If not, it could become another overvalued casualty of the BNPL bubble.

Market Opportunity

The Buy Now, Pay Later (BNPL) market is massive—and growing fast. Klarna sits at the center of this financial shift, transforming how consumers shop and how merchants drive sales. Over the past decade, BNPL has evolved from a niche payment option into a global financial trend, changing the landscape of e-commerce and consumer finance.

The global BNPL market was valued at $179 billion in 2023 and is expected to surge to $576 billion by 2030, growing at a 15% compound annual growth rate (CAGR). Klarna’s position as a market leader gives it a significant advantage in capturing this growth.

The breakdown is striking:

• $92 billion in BNPL transactions in the U.S. in 2023—projected to exceed $300 billion by 2028.

• Klarna holds an estimated 70% market share in Europe across Sweden, Germany, and the UK.

• BNPL in Asia-Pacific hit $62 billion in 2023 and is forecasted to surpass $180 billion by 2030.

Why Consumers Prefer BNPL

Credit cards have long dominated deferred payments—but they come with high interest rates, hidden fees, and complex terms. Klarna’s BNPL model offers a simpler, more transparent alternative: no interest (for short-term payments), no hidden fees, and seamless checkout integration.

According to a McKinsey survey:

• 75% of Gen Z and Millennials prefer BNPL over credit cards for online shopping.

• Over 50% of U.S. consumers use BNPL to avoid credit card fees.

• BNPL users spend 40% more per transaction than traditional payment users—boosting merchant sales.

Merchants Are Seeing Results

BNPL isn’t just benefiting consumers—it’s a sales machine for merchants. Retailers that integrate Klarna see:

• 20–30% increase in conversion rates.

• 41% higher average order values.

• 2x higher repeat purchase rates compared to credit card users.

That’s why over 675,000 merchants worldwide have partnered with Klarna, including Nike, H&M, Sephora, and Wayfair. Klarna’s ability to drive incremental revenue has made it a go-to payment partner for both e-commerce and physical retail.

Klarna’s Move Into Banking

BNPL may be Klarna’s foundation, but the company is building something bigger. After securing a banking license in 2017, Klarna expanded into personal loans, checking accounts, debit cards, and AI-driven credit services. The goal? To become a next-gen digital bank in the $12.5 trillion global payments market by 2028.

Klarna’s AI-driven approach to underwriting and customer targeting gives it a competitive edge. By analyzing transaction data and spending patterns, Klarna can personalize financial products and drive higher customer engagement.

Klarna isn’t stopping at e-commerce—it's targeting new high-value markets:

• Healthcare BNPL – Projected to reach $50 billion by 2028, Klarna is positioning itself as a financing option for medical procedures.

• Travel BNPL – A $120 billion market by 2030, Klarna is eyeing partnerships with airlines and hotels.

• Luxury Goods BNPL – A growing $90 billion market where flexible payment options could drive higher purchase volumes.

  

Competitive Pressure

Klarna isn’t alone in the BNPL race. Apple Pay Later, Affirm, PayPal, and Visa are all expanding their BNPL capabilities, embedding them directly into their existing payment networks. Klarna’s edge lies in its established merchant relationships, AI-driven risk management, and global reach.

Klarna’s Long Game

BNPL remains Klarna’s growth engine, but its push into AI-driven banking and adjacent financial services positions it as more than just a payment provider. Klarna is building a financial ecosystem—one that spans payments, shopping, and personalized financial services. The question now is whether Klarna can scale profitably while fending off rising competition.

Product

Klarna started as a Buy Now, Pay Later (BNPL) pioneer—but today, it’s building a full-scale financial ecosystem. Klarna isn’t just a payment platform anymore—it’s expanding aggressively into banking, AI-driven shopping, digital marketing, and financial services. The goal? To become the central hub for both consumers and merchants, combining payments, shopping, and financial tools into a single platform.

With over 150 million active users, 2.5 million daily transactions, and 675,000 merchant partners, Klarna is one of the largest platforms in global fintech. Here’s how Klarna’s ecosystem is driving growth and positioning the company for long-term dominance.

1. Klarna’s Core BNPL Business

BNPL remains Klarna’s core product—and its biggest revenue driver. Klarna’s BNPL model allows consumers to split purchases into smaller, interest-free payments, creating a frictionless shopping experience that drives higher conversion rates for merchants.

Klarna’s BNPL offering comes in three main formats:

➡️ Pay in 4

• Klarna’s most popular BNPL option, especially in the U.S.

• Shoppers split purchases into four equal payments over six weeks—interest-free.

• Example: A $400 purchase would be divided into four $100 payments every two weeks.

• Adoption: Used by 50%+ of Klarna’s U.S. customers, driving 100% YOY growth in North America.

➡️ Pay Later in 30 Days

• Consumers receive their order immediately and have 30 days to pay in full, interest-free.

• Klarna’s most popular BNPL product in Europe, particularly in Germany, Sweden, and the UK.

➡️ Long-Term Financing (6 to 36 Months)

• Klarna offers installment plans with interest rates ranging from 0% to 29%, depending on creditworthiness.

• Klarna partners with banks to issue these loans, reducing its own credit risk.

• Klarna currently manages over $6 billion in outstanding consumer credit.

➡️ AI-Driven Credit Decisions
Klarna evaluates customer eligibility using AI and alternative data sources. Its machine learning model processes over 20 million transactions per day, approving 60% of applicants within seconds.

• Klarna’s AI has reduced default rates to 1.4%—well below the 3–4% default rate for traditional credit cards.

2. The Klarna App

Klarna’s app is no longer just a payment tool—it’s becoming an AI-driven shopping platform designed to boost engagement and increase consumer spending.

Key Features Driving Engagement

➡️ AI-Powered Shopping Assistant (“Smooth AI”)

• Uses machine learning to provide real-time, personalized shopping recommendations.

• Klarna’s AI models analyze over 5 billion shopping behaviors annually to predict buying patterns.

➡️ Price Drop Alerts & Deal Notifications

• Users track favorite products across hundreds of retailers.

• In 2024 alone, Klarna helped consumers save over $300 million through price tracking and real-time notifications.

➡️ Cashback & Rewards

• Klarna offers up to 10% cashback on certain purchases.

• Over 30 million users actively participate in Klarna’s loyalty program.

➡️ One-Click Checkout

• Klarna’s one-click checkout rivals Amazon’s in speed and convenience.

• Checkout conversion rates are 30–40% higher than standard e-commerce platforms.

3. Klarna’s Banking Expansion

Klarna secured a Swedish banking license in 2017 and has since built out a range of financial products aimed at replacing traditional banks for younger consumers.

Klarna Card—The BNPL Credit Card

• Klarna launched the Klarna Card in Europe and the U.S., blending BNPL flexibility with a traditional credit card.

• 200,000+ new signups per month make it one of Europe’s fastest-growing fintech cards.

• Offers zero interest on Pay in 4 purchases, with 0–24% APR on revolving balances.

High-Yield Savings Accounts

• Klarna introduced 2.5% APY savings accounts in Germany, Sweden, and the Netherlands.

• Over 1.2 million users have opened Klarna savings accounts, holding over $5 billion in deposits.

AI-Powered Personal Loans

• Klarna offers short-term loans with flexible repayment options.

• Klarna’s AI-driven credit scoring has reduced default rates by 35% compared to traditional banks.

Stock Trading & Investments (Coming Soon)

• Klarna is rumored to be developing a zero-commission stock trading platform, similar to Robinhood, set to launch in 2025.

4. Klarna for Business

Klarna isn’t just consumer-facing—it’s a major revenue driver for merchants, helping them increase sales and customer retention.

➡️ On-Site Financing for Retailers

• Klarna is integrated into 675,000+ retailers’ checkout pages.

• Retailers see up to a 30% lift in conversion rates when Klarna is an option.

• Klarna powers BNPL for brands like Nike, H&M, and Sephora.

➡️ AI-Powered Marketing & Insights

• Klarna helps brands target consumers with personalized product recommendations.

• Klarna’s ad network generates over $300 million annually in marketing revenue.

➡️ Customer Analytics

• Klarna provides real-time insights on consumer spending behavior.

• Repeat purchases increase by 25% when Klarna’s analytics are applied.

  

5. Klarna Ads

In 2023, Klarna launched Klarna Ads—an in-app ad platform that allows brands to promote products directly to Klarna users.

➡️ Klarna’s first-party shopping data gives brands 30–50% better ad targeting than Facebook and Google.
➡️ The ad business is projected to generate over $500 million in annual revenue by 2026.
➡️ Klarna’s direct connection to consumers gives it an edge over traditional ad platforms.

Competitive Advantage

Klarna’s edge lies in its data, AI, and direct consumer relationships. While traditional banks and tech companies are adding BNPL to their platforms, Klarna’s established merchant network, AI-driven underwriting, and scale give it a competitive moat.

• Klarna’s AI models continuously improve based on billions of data points from shopping and payment activity.

• Its deep merchant relationships make it difficult for competitors to displace Klarna as a checkout option.

• Klarna’s ability to offer personalized financing, rewards, and shopping experiences creates a flywheel effect—consumers keep returning, and merchants see higher sales.

BNPL remains Klarna’s core growth engine, but its expansion into AI-driven shopping, digital banking, and advertising is positioning it as a financial super app. Klarna is building a full-stack commerce and financial platform—one that could redefine consumer spending and merchant sales globally. The challenge now is maintaining profitability while scaling into new markets and fending off competition from Apple, Visa, and Affirm.

Partners

Amplify Labs partners with founders, CEOs, and busy professionals to build authority, generate leads, and grow audiences across LinkedIn, X (formerly Twitter), and newsletters.

We specialize in crafting high-performing written content tailored to your unique voice, goals, and niche—helping you stand out and become a go-to expert in your industry. One of our clients generated 50+ qualified leads from a single post. Another landed inbound interest from a multibillion-dollar company.

_{Interested in sponsoring these emails? See our partnership options here.}

Business Model

Klarna started in 2005 as a Swedish startup with a simple idea—let people buy now and pay later without using credit cards. Fast forward nearly two decades, and Klarna has grown into a global fintech powerhouse. It’s no longer just a BNPL company—it’s now a multi-layered financial ecosystem generating billions from merchant fees, consumer lending, banking services, and advertising.

But Klarna’s growth hasn’t come without challenges. Regulatory pressure is mounting, competition from Affirm, PayPal, and Apple Pay Later is heating up, and rising defaults have tested the company’s risk models. Klarna has responded by expanding its business model beyond BNPL and building a diversified set of revenue streams. Here’s how Klarna makes money—and where it’s headed next.

Merchant Fees

Klarna’s core business model is built around charging merchants a fee for processing BNPL transactions. Retailers pay Klarna a commission of 2% to 6% per transaction, depending on the region and transaction volume. This is higher than what Visa and Mastercard charge (typically 1.5% to 3%), but merchants are willing to pay the premium because Klarna drives higher conversion rates and bigger orders.

For merchants, Klarna isn’t just a payment option—it’s a sales engine. Klarna users spend an average of 45% more per transaction than traditional credit card customers. For an e-commerce brand, a 30–40% lift in conversion rates can justify the higher fees. That’s why over 675,000 merchants worldwide—including Nike, H&M, Sephora, and Macy’s—have integrated Klarna into their checkout pages.

In 2024, merchant fees generated over $2 billion for Klarna, making it the company’s largest and most profitable revenue stream.

Interest Income

While Klarna’s Pay in 4 product is interest-free for consumers, the company generates significant revenue from longer-term financing options. Klarna offers installment plans ranging from 6 to 36 months with interest rates between 0% and 29%, depending on creditworthiness.

Klarna currently manages over $6 billion in outstanding consumer loans, and the interest income from these loans added $800 million to Klarna’s top line in 2024—up 20% year-over-year.

Risk is part of the business. Klarna’s default rate spiked to 2.9% in 2022 during an economic downturn, but AI-driven underwriting improvements have since brought it down to 1.4%—well below the 3–4% charge-off rate typical for credit cards. Klarna’s AI models analyze over 20 million daily transactions, adjusting credit limits and approving 60% of applicants within seconds.

Late Fees and Consumer Charges

While Klarna’s Pay in 4 option is interest-free, it isn’t risk-free for consumers. Klarna charges late fees ranging from $7 to $35 if a payment is missed. This segment generated about $250 million in 2024.

Klarna also generates revenue from its Klarna Card—a hybrid BNPL credit card with an annual fee of $5 per month in Europe. The card allows customers to use Klarna’s BNPL features anywhere that accepts Visa. In some markets, Klarna also charges a one-time service fee of around $5 for high-risk customers or certain transaction types.

This consumer fee model is growing—but it remains a relatively small portion of Klarna’s overall revenue.

Klarna Bank

In 2017, Klarna secured a Swedish banking license, giving it the ability to expand into more traditional financial services. Klarna’s banking business is growing rapidly, and it’s starting to resemble a full-service neobank:

• Savings Accounts – Klarna offers high-yield savings accounts with a 2.5% APY in Germany, Sweden, and the Netherlands. Klarna currently manages over $5 billion in customer deposits.

• Checking Accounts – Klarna provides checking accounts with Klarna debit cards in Sweden and Germany, allowing customers to manage everyday spending directly through Klarna’s app.

• Personal Loans – Klarna offers short-term loans of up to $10,000 with flexible repayment options. Klarna’s AI models adjust credit limits based on real-time spending data.

In 2024, Klarna’s banking business generated over $400 million in revenue, and that figure is expected to surpass $500 million by 2025. Klarna is positioning itself to rival digital banks like Revolut, N26, and Chime—and it already has a built-in user base of over 150 million.

Klarna Ads

In 2023, Klarna quietly launched Klarna Ads—an in-app advertising platform that allows brands to promote products directly to Klarna users. Klarna charges both cost-per-click (CPC) and cost-per-thousand-impression (CPM) fees for ads placed within its app.

Klarna’s advantage in advertising is its first-party shopping data. Klarna knows what products users are searching for, which brands they prefer, and how much they spend. That allows Klarna to deliver highly targeted ads with 30–50% higher conversion rates than Facebook and Google.

Klarna Ads is projected to generate over $500 million annually by 2026—potentially becoming Klarna’s highest-margin business segment. Klarna isn’t just monetizing payments anymore—it’s monetizing attention.

Management Team: 

Sebastian Siemiatkowski – CEO & Co-Founder
Since co-founding Klarna in 2005, Sebastian Siemiatkowski has been the driving force behind the company’s evolution from a Swedish payments startup to a global fintech leader handling over $100 billion in transaction volume. Under his leadership, Klarna has expanded into 45+ markets, pivoted from BNPL to AI-driven banking, and built a $500M+ advertising business. His long-term vision has positioned Klarna as a key disruptor in the finance and retail sectors.

Niclas Neglén – Chief Financial Officer
Bringing deep experience from HSBC and GE Capital, Niclas Neglén joined Klarna as CFO in 2021 and played a pivotal role in turning the company profitable in Q4 2023. He has spearheaded cost-cutting measures, AI-driven operational efficiencies, and IPO preparations, ensuring Klarna remains financially strong as it scales globally.

Camilla Giesecke – Chief Operating Officer
With a background in investment and M&A at Investor AB and J.P. Morgan, Camilla Giesecke oversees Klarna’s day-to-day global operations, ensuring efficiency across its expanding footprint. Since becoming COO in 2022, she has led Klarna’s expansion into 45 markets, strengthening its position as a global fintech powerhouse.

David Fock – Chief Product and Design Officer
A Klarna veteran since 2010, David Fock is responsible for shaping Klarna’s AI-driven shopping experience. As CPDO, he has been instrumental in launching Smoooth AI, Klarna’s personal shopping assistant, and refining the user experience across Klarna’s payment and financial services ecosystem.

David Sandström – Chief Marketing Officer
With a strong background in advertising, including leading DDB Stockholm, David Sandström has transformed Klarna’s brand into a global powerhouse. He oversees Klarna’s $500M+ AI-driven digital ad platform, leveraging data-driven insights to make Klarna a leader in fintech marketing.

Investment

Klarna's rise to a multi-billion-dollar fintech leader has been fueled by some of the biggest names in venture capital and private equity. Since its founding in 2005, Klarna has raised over $4 billion, experiencing both meteoric growth and a dramatic valuation drop before stabilizing ahead of its 2025 IPO.

Here’s how Klarna’s investment history played out:

Klarna's Funding Rounds

Competition

The BNPL market is getting crowded, and Klarna’s dominance is under pressure. Klarna doesn’t have a direct rival that matches its scale, product depth, and global reach—but it faces fierce competition from BNPL specialists, credit card giants, and Big Tech players looking to carve out a piece of the short-term credit market. Klarna’s competitive positioning comes down to its ability to balance merchant relationships, AI-driven underwriting, and consumer trust in a rapidly shifting landscape.

BNPL Rivals

Klarna’s most direct competitors are other BNPL specialists that have built strong merchant networks and consumer loyalty. But each comes with strengths—and weaknesses—that define how they compete with Klarna.

Affirm – Affirm’s exclusive partnership with Amazon gives it a significant advantage in the U.S. market, where Klarna has been aggressively expanding. Affirm’s higher APRs make it less appealing for consumers seeking no-interest options, and its global presence is limited compared to Klarna’s footprint in Europe and Asia.

Afterpay – Afterpay’s integration with Square (now Block) gives it an edge in physical retail, allowing for a seamless BNPL experience at the point of sale. But Afterpay’s product suite is limited compared to Klarna’s diversified offerings in banking and AI-driven shopping. Klarna’s ability to offer personal loans, high-yield savings, and credit cards gives it a broader consumer touchpoint.

Zip – Zip has focused on expansion into emerging markets, where Klarna’s presence is weaker. But Zip lacks Klarna’s scale and financial strength, and its smaller merchant network limits its ability to drive the same level of consumer adoption. Klarna’s ability to sign global brands like Nike and Sephora gives it a scale advantage that Zip can’t match.

Credit Card Giants

The traditional credit card networks have been slow to respond to BNPL—but that’s starting to change. Visa, Mastercard, and Amex are now embedding BNPL features directly into their networks, allowing customers to split credit card payments into smaller installments.

Klarna’s advantage comes from its transparent, fixed-term installment model—there’s no revolving debt or compounding interest. But if Visa and Mastercard dominate BNPL at checkout through direct integration with major merchants, Klarna’s market position could weaken.

Visa’s and Mastercard’s deep relationships with global merchants and financial institutions give them a built-in distribution advantage. Klarna’s edge lies in its AI-driven risk assessment and ability to approve loans in real time without traditional credit checks. But the more Visa and Mastercard push BNPL at checkout, the harder it will be for Klarna to maintain its dominance.

Big Tech

Big Tech’s entry into BNPL represents the biggest long-term threat to Klarna’s market position. Apple and PayPal already have massive user bases and established merchant networks—giving them the ability to scale BNPL faster than any startup or fintech.

Apple Pay Later – Apple’s BNPL product is embedded directly into Apple Pay and iOS, allowing for a frictionless checkout experience for over 1.2 billion iPhone users worldwide. Apple Pay Later charges 0% interest for short-term installments, directly undercutting Klarna’s value proposition. Klarna’s challenge is that Apple’s ecosystem is closed—if Apple Pay Later becomes the default option for iPhone users, Klarna risks losing market share.

PayPal Pay Later – PayPal’s strength lies in its scale—over 35 million merchants already accept PayPal globally. PayPal Pay Later allows users to split purchases into four payments, similar to Klarna’s Pay in 4 product. But Klarna’s merchant fees are lower, and its AI-driven credit scoring model allows it to offer better financing options to consumers with mixed credit histories.

Big Tech’s real advantage is user behavior. Consumers are already using Apple Pay and PayPal regularly—adding BNPL to these platforms creates minimal friction. Klarna’s ability to remain competitive will depend on retaining its edge in underwriting and delivering better terms to both merchants and consumers.

Klarna’s Competitive Edge

Klarna’s strength lies in its ability to monetize both sides of the transaction. Its AI-driven risk models allow it to offer better terms to consumers while maintaining lower default rates than traditional credit cards. Klarna’s direct merchant relationships—especially with high-volume e-commerce brands—give it a strategic moat that’s difficult for competitors to replicate.

While Affirm and Afterpay are focused on short-term credit, Klarna’s move into banking, personal loans, and advertising creates a diversified revenue stream that competitors lack. Klarna is also leveraging its consumer data to build out targeted advertising and personalized shopping experiences, creating a flywheel effect that increases consumer retention and merchant value.

But Big Tech’s ability to bundle BNPL with existing payment infrastructure creates a long-term threat that Klarna can’t ignore. If Visa, Mastercard, and Apple Pay Later become the default at checkout, Klarna will need to rely on its AI-driven underwriting, product diversification, and global merchant relationships to stay ahead.

Financials

Klarna’s growth has been impressive, with revenue nearly tripling over the past four years. This surge has been fueled by a growing user base, expanded merchant partnerships, and new revenue streams like advertising and AI-driven credit services. Klarna’s ability to scale while improving monetization has positioned it as one of the most dominant players in the BNPL and fintech markets.

Revenue Growth

Klarna’s revenue reached $2.81 billion in 2024, up 24% from $2.4 billion in 2023. GMV (Gross Merchandise Volume)—the total value of transactions processed through Klarna—exceeded $100 billion for the first time in 2023 and continued climbing to $105 billion in 2024.

Klarna’s take rate (revenue as a percentage of GMV) improved from 2.11% in 2022 to 2.67% in 2024. This reflects Klarna’s success in capturing more value per transaction through higher merchant fees, better underwriting, and the addition of high-margin revenue streams like advertising and personal loans.

The combination of rising transaction volume and improving take rates has driven consistent top-line growth. Klarna’s ability to monetize both consumers and merchants gives it a dual-sided business model that scales efficiently.

Path to Profitability

After years of aggressive expansion and heavy losses, Klarna turned profitable in 2024, posting a net profit of $21 million. This marks a major turnaround from a nearly $1 billion loss in 2022.

Klarna’s net profit margin remains thin at 0.7%, but the shift from deep losses to profitability reflects the impact of both cost-cutting and improved unit economics. Operating margins also turned positive for the first time in 2024, reaching 2.4%.

Profitability wasn’t just about higher revenue—it was driven by strategic expense reductions and better monetization. Klarna’s AI-driven underwriting has lowered credit loss rates, while the expansion of advertising and banking services has provided higher-margin revenue streams.

Credit Losses

Managing credit risk remains Klarna’s biggest operational challenge. BNPL inherently involves higher credit risk than traditional payment processing, and Klarna’s exposure to consumer lending creates volatility in its financial performance.

Credit losses peaked at $710 million in 2022, when Klarna’s rapid expansion coincided with rising interest rates and an economic slowdown. Improved underwriting and AI-driven credit models helped reduce losses to $353 million in 2023, but they rose again to $495 million in 2024 as Klarna expanded its lending footprint.

Credit losses accounted for 17.6% of revenue in 2024—higher than 2023 but significantly better than the 37.3% recorded in 2022. Klarna’s AI models now assess over 20 million transactions daily, allowing for faster adjustments to credit limits and risk profiles.

Balance Sheet and Liquidity

Klarna has strengthened its financial position, building a more stable capital base and improving liquidity.

• Klarna’s total assets grew to $21.8 billion in 2024, up from $18.5 billion in 2023.

• Consumer deposits reached $9.5 billion in 2024, providing a stable source of funding and reducing Klarna’s reliance on external financing.

• Net cash flow turned positive for the first time in 2024, with Klarna generating $170 million in positive cash flow. This marks a sharp reversal from negative cash flow of $1.2 billion in 2022.

Holding $9.5 billion in deposits gives Klarna a structural advantage over other BNPL players, which rely more heavily on external credit facilities. Klarna’s banking license allows it to fund lending directly from deposits, lowering funding costs and improving margin stability.

What’s Driving Klarna’s Turnaround

Klarna’s return to profitability reflects more than just higher revenue—it’s a shift toward higher-margin products and more disciplined spending. The company’s expansion into AI-driven lending, personal loans, and advertising has created new profit streams that are less sensitive to transaction volume.

Klarna’s AI models are improving both consumer approval rates and credit loss management, creating a more balanced risk profile. Meanwhile, the rise of Klarna Ads is adding high-margin revenue that doesn’t carry direct credit risk.

While Klarna’s profit margins are still thin, the strategic shift from pure BNPL to a diversified financial platform positions it for more sustainable growth. Klarna’s ability to maintain profitability while scaling transaction volume will be critical to its success as it prepares for a potential IPO.

Klarna’s next challenge is balancing growth with profitability. The company’s take rate is improving, but competition from Apple Pay Later and Visa’s embedded BNPL offerings will put pressure on merchant fees. Klarna’s ability to retain its market position will depend on deepening its merchant relationships, expanding its AI-driven credit products, and scaling its advertising platform.

Klarna’s growing deposit base gives it an advantage in managing funding costs—but rising credit losses remain a key risk. Klarna’s AI models will need to adapt quickly to shifting economic conditions to keep default rates under control.

If Klarna can maintain its current trajectory, it will emerge not just as a BNPL leader but as a full-scale financial ecosystem, combining payments, banking, and shopping in a single platform.

Closing thoughts

Klarna’s evolution from a BNPL pioneer to a full-scale financial platform reflects the company’s ability to adapt and innovate in a rapidly changing market. Over the past two decades, Klarna has built one of the most recognizable fintech brands in the world, with a global footprint spanning over 45 countries, 150 million active users, and 675,000 merchant partners. Its success has been driven by its ability to simplify payments for consumers while boosting sales for merchants—a win-win model that has allowed Klarna to scale rapidly.

The company’s financial turnaround in 2024 is a testament to Klarna’s strategic shift toward profitability. Higher take rates, AI-driven credit models, and a diversified product mix have enabled Klarna to improve margins and reduce operational inefficiencies. The rise of Klarna Ads and its expanding banking business provide additional high-margin revenue streams that are less dependent on transaction volume, giving Klarna a more balanced business model.

However, Klarna faces significant challenges ahead. Competition from Apple Pay Later, Affirm, and Visa’s embedded BNPL options will put pressure on merchant fees and customer loyalty. Rising credit losses remain a concern, as economic uncertainty and higher interest rates could weaken consumer repayment behavior. Regulatory scrutiny is also tightening, with BNPL providers facing increased oversight on affordability checks and lending terms.

Despite these headwinds, Klarna’s competitive edge lies in its ability to leverage data, AI, and customer insights to personalize offerings and manage risk more effectively than traditional banks and payment networks. Klarna’s global reach, deep merchant relationships, and integrated financial ecosystem give it a strategic moat that competitors will struggle to replicate.

As Klarna prepares for a potential IPO, its challenge will be to maintain profitability while continuing to grow. If Klarna can execute this balancing act, it won’t just be a BNPL leader—it will become one of the most influential financial platforms in the world.

Here is my interview with Kartik Dabbiru, the founder and CEO of ComplyStream, an innovative regulatory tech start-up venture dedicated to simplifying and unifying fragmented tools and compliance processes.

In this conversation, Kartik and I discuss:

• AI plays a central role in the Complystream platform. How do you see AI evolving in financial crime investigations?

• How does the regulatory landscapes and market dynamics differ between Europe and the US 

• How does Kartik strike a balance between creating a highly secure platform and ensuring it remains user-friendly for customers?

If you enjoyed our analysis, we’d very much appreciate you sharing with a friend.

Tweets of the week

Here are the options I have for us to work together. If any of them are interesting to you - hit me up!

• Amplify Labs: We help you grow your audience on LinkedIn, X (formerly Twitter), and newsletters.

• Sponsor this newsletter: Reach thousands of tech leaders

• Upgrade your subscription: Read subscriber-only posts and get access to our community

• Subscribe to my YouTube channel: Your Learning Playground with over 350+ podcasts. Previous guests include Guy Kawasaki, Brad Feld, James Clear, and Shu Nyatta.

  And that’s it from me. See you next week.

What do you think about my bi-weekly Newsletter? Love it | Okay-ish | Stop it