PayPal's Checkout Dominance Threatens Klarna

PayPal matters because it can turn BNPL from a standalone wedge into just one more button inside the biggest existing checkout network in the US. Klarna has to win merchants and shoppers market by market, while PayPal can add installments on top of a base of 434 million active accounts, broad merchant acceptance, and a wallet consumers already trust at checkout. That scale makes pricing tighter, customer acquisition cheaper, and merchant adoption faster.

• The practical advantage is distribution. PayPal already sits in front of consumers at checkout across a huge merchant base, so adding Pay Later does not require teaching shoppers a new flow or persuading merchants to add a separate lender from scratch. That is why incumbents entering BNPL put pressure on specialist margins.
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• Klarna has still built the larger dedicated BNPL network. In 2024, Klarna reported $105B in GMV and $2.8B of revenue, while later research estimates PayPal Pay Later at roughly $33B to $35B of BNPL GMV despite PayPal having far more users and merchants overall. That shows first mover strength, but also how much surface area PayPal can still use to catch up.
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• The deeper issue is that Klarna’s network effects are weaker than PayPal’s. BNPL users can multi home, merchants can stack several payment buttons, and checkout is crowded with PayPal, Apple Pay, Shop Pay, cards, and BNPL options side by side. In that environment, the player with the default wallet and the lowest distribution cost starts with a structural edge.
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This pushes Klarna toward becoming more than a pay over time button. The path forward is to deepen its own consumer destination, app engagement, ads, card, and broader banking products so merchants see it as a source of demand, not just credit at checkout. If PayPal keeps BNPL as a feature, Klarna has to become a habit.