Overview of Klarna’s Business Model

Klarna has revolutionized shopping with its buy now, pay later (BNPL) service, enabling consumers to make installments rather than full payments upfront. Having established a significant presence in Sweden, Klarna reported that a majority of adult consumers utilized the service by 2024.

With operations now extending to 25 countries, Klarna has partnered with approximately 675,000 merchants, facilitating around 2.9 million transactions daily as of 2024. The company recently submitted a prospectus for its initial public offering, outlining its financial performance and growth trajectory.

Financial Performance and Market Expansion

Klarna had an impressive earnings record during its initial years, though it faced profitability challenges following its entry into the US market in 2019. With 2023 marking a pivotal year, the firm achieved the scale necessary for positive margins, leading to a reported profit of $21 million in 2024 after enduring two years of losses. Revenue surged nearly 48% within three years, climbing from $1.9 billion in 2022 to $2.8 billion in 2024.

Diverse Revenue Streams

The company’s revenue relies heavily on diverse sources:

• About 64% stems from transaction fees charged to merchants when consumers opt for Klarna at checkout.
• Around 12% of revenue arises from consumer payments, including late fees and subscription services like Klarna Plus.
• The remaining 24% is derived from interest, which includes both borrower interest and revenue from investments.

Notable merchants utilizing Klarna’s services include major retailers like Uber, Apple, and Macy’s, reflecting its widespread acceptance in e-commerce.

Trends in Payment Processing

In recent years, Klarna has observed a shift in the types of transactions processed. While 26% of gross merchandise value (GMV) was settled immediately in 2022, this figure dropped to 16% in 2024. Conversely, the “Pay Later” service, allowing consumers to delay or split payments, increased from 70% of GMV in 2022 to 79% in 2024, indicating a growing preference for installment-based financing.

Usage Patterns in Different Markets

Klarna’s presence illustrates differing consumer behaviors between Sweden and the US. In Sweden, 82% of adults reportedly utilized Klarna’s services in 2024, averaging 32 transactions per individual. Purchases were spread across various categories such as apparel, health, and home goods. In contrast, 10% of US adults used Klarna, averaging over five transactions primarily in the apparel segment, highlighting significant growth potential in the American market.

Future Growth Prospects

Klarna’s growth strategy includes broadening its partnerships with merchants, exploring new geographical markets, and attracting more consumers to its platform. The company, which holds a banking license in Sweden, aims to enhance its retail banking division while further developing its advertising business, which contributed over 6% of revenue last year.