Klarna Shifts Credit Risk to Merchants
Open Banking entrepreneur on Klarna's TAM expansion opportunities
Klarna’s real edge is that it sells merchants more sales, then uses that lift to make merchants absorb the economics of consumer credit. In practice, the merchant pays Klarna a 3% to 6% fee, Klarna pays the retailer upfront, and the retailer accepts lower gross margin because Klarna can raise conversion and basket size. That means underwriting quality matters, but merchant demand generation matters more, because the merchant fee is what covers funding costs, processing fees, and losses.
-
Klarna’s classic BNPL model puts consumer default risk on Klarna, not the retailer, but the economics are still shifted upstream to merchants because merchants fund the model through commissions of up to 5.99% in exchange for more completed checkouts and higher order values.
-
That is why the interview frames open banking as helpful but not transformative at first. Better bank data can improve KYC and underwriting, but if merchant fees already subsidize losses, the bigger near term prize is lowering card processing costs by moving payments straight from bank account to bank account.
-
The broader arc is visible in Klarna’s revenue mix. By 2024, core BNPL merchant fees were still $1.6B, or 57% of revenue, even as Klarna added ads, cards, subscriptions, and interest bearing loans. The center of gravity remains merchant monetization, not pure lending spread.
Going forward, Klarna is likely to keep pushing this model further. If it can combine merchant funded conversion gains with lower payment rail costs from open banking, each transaction becomes less like a small loan and more like a high margin commerce toll. That would make the merchant relationship, not the credit algorithm alone, the core strategic asset.