Klarna

Klarna is a Swedish payments company and licensed bank best known for buy now, pay later (BNPL) options at online and in-store checkout. In checkout & payments, Klarna appears as a payment method next to cards and digital wallets: the shopper chooses to pay later or in installments, Klarna pays the merchant, and the shopper repays Klarna according to the selected plan.

Founded in Stockholm in 2005, Klarna operates in many markets across Europe, North America and Oceania. For merchants, it is primarily a tool to raise conversion and average order value; for shoppers, it is a way to spread or delay payment with short-term credit that is often interest-free when repaid on time.

How Klarna works at checkout

Klarna works as a credit intermediary between merchant and shopper. When a shopper selects Klarna, the provider runs an instant credit assessment, typically a soft check combined with its own risk models, and approves or declines the purchase within seconds. If approved, the order completes like any other payment.

The merchant receives the full purchase amount, minus fees, on its normal settlement schedule, and Klarna takes on the credit and fraud risk of collecting from the shopper. This transfer of risk is a key difference from a merchant offering its own invoice terms.

Klarna earns most of its revenue from merchant fees, which combine a percentage of the order value with a fixed amount per transaction, and additionally from interest on longer financing, late fees and advertising. This structure explains why Klarna presents itself to merchants as a sales and marketing channel, not only as a payment method.

Klarna payment options

Klarna offers several payment products, and availability depends on the market, the merchant’s contract and the order value. The table summarizes the most common ones.

Late payments can lead to late fees, collection steps and, in some markets, reporting to credit bureaus. Shoppers should treat every Klarna plan as a real credit obligation, even when no interest is charged.

Beyond checkout, Klarna runs a shopping app in which users track purchases, manage repayments, report returns and discover stores. For merchants, the app acts as an additional discovery and traffic source, because returning users can find and pay at participating stores without entering card details again.

Klarna compared with other payment methods

Klarna is one provider within the broader buy now, pay later category, and it also competes with cards and wallets for the shopper’s choice at checkout. The comparison below focuses on what changes for merchant and shopper.

The higher merchant fee is the price of conversion and risk transfer. Merchants accept it when Klarna measurably increases completed orders or basket size, which they should verify through their own testing rather than assume.

Integrating Klarna into an online store

Merchants add Klarna either directly through its own APIs and checkout components or through a payment service provider that already supports it. Most major store platforms and payment gateways offer ready connectors, which reduces the work to configuration and testing.

• On-site messaging shows installment amounts on product and cart pages before checkout.
• Express checkout buttons let returning Klarna users pay with stored details.
• Order management calls handle capture, partial capture, refunds and cancellations.
• Returns handling must notify Klarna so the shopper’s balance is adjusted promptly.

A frequent integration error is capturing payment at the wrong moment. Many setups authorize at order time and capture at shipment; capturing too early can start the shopper’s repayment period before the goods arrive, which generates complaints and service contacts.

Regulation, risks and practical considerations

BNPL services such as Klarna are moving into stricter consumer credit regulation. In the European Union, the revised Consumer Credit Directive brings most BNPL products under credit rules, with affordability checks and clearer disclosure, and the United Kingdom is introducing its own regulation of deferred payment credit.

For shoppers, the main risk is stacking several installment plans across stores, which makes total debt harder to track. For merchants, the main risk is reputational: promoting credit carelessly can attract regulatory attention and damage customer trust.

A plain-language summary

Klarna is a way to buy now and pay later. At an online checkout, a shopper picks Klarna instead of a card. The shop gets paid right away. The shopper pays Klarna later or in a few smaller parts.

It works a bit like a friend who covers the bill and lets you pay back over a few weeks. It is still borrowing, so missed payments can bring fees and other consequences.

An example from practice

An online furniture retailer sells sofas with an average price of about 1,100 euros. Many visitors add a sofa to the cart but leave at the payment step. The retailer adds Klarna through its existing payment service provider and shows the installment amount on product pages.

For three months, the team compares results against the previous period and tracks returns closely. It configures payment capture at shipment, because delivery often takes two weeks, so that repayment starts after the sofa arrives.

The retailer finds that a meaningful share of buyers choose financing, completed checkouts increase and complaints about early billing stay low. Because the Klarna fee is higher than its card fees, it keeps the option for orders above a set value, where the conversion gain clearly outweighs the cost.