PayPal as Klarna's Main Competitor

PayPal is the hardest rival for Klarna because it can turn BNPL from a standalone product into a cheap add on inside an already dominant checkout network. Klarna had bigger BNPL focus and stronger appeal with younger shoppers, but PayPal already sat on far more merchant checkouts, reached consumers faster after launch, and could offer installments without charging merchants extra, which directly threatened Klarna’s take rate and US expansion economics.

• The core advantage was distribution. In 2021, PayPal was accepted on 54% of websites versus 1.2% for Klarna, and 79% of the top 100 online merchants already accepted PayPal. That meant PayPal could light up Pay in 4 inside an existing payment button instead of winning new placement one merchant at a time.
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• PayPal also moved unusually fast. Within two quarters of launching Pay in 4, it had nearly 3M consumers, more than 10K merchants, $750M of US volume, and then more than $1B of GMV in Q1 2021. Klarna led BNPL mindshare with younger consumers, but PayPal could compress the market before Klarna fully scaled in the US.
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• This changed checkout from a product battle into a margin battle. Klarna charged merchants roughly 3% to 6% and carried funding, processing, and credit losses, while PayPal pitched BNPL at no incremental merchant cost. In a checkout stack where merchants can switch payment methods on and off easily, that pricing pressure pushes BNPL toward commodity status.
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The market has kept moving toward fewer standalone payment buttons and more wallet and checkout platforms that bundle identity, saved credentials, and financing in one flow. That favors companies like PayPal at the point of transaction, and pushes Klarna to win earlier in the shopping journey through app traffic, merchant marketing, and consumer engagement rather than relying on BNPL alone.