PayPal's US Checkout Dominance Threatens Klarna

PayPal’s edge in the US is not just size, it is distribution at the exact moment BNPL gets chosen. Klarna had clear product fit in Europe, but US growth meant winning checkout slots on merchants’ sites where PayPal was already embedded, already trusted, and able to add Pay in 4 without charging merchants extra. That turns BNPL from a differentiated product into a pricing war around an incumbent’s default button.

• Klarna’s model depends on merchant economics. In 2020, about 74% of revenue came from merchant commissions, merchants paid up to 3% to 6% of GMV, and Klarna’s net transaction margin had already fallen from about 2.0% in 2017 to 1.5% in 2020. PayPal offering BNPL at no incremental merchant cost directly attacks that take rate.
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• The US was the right growth market but the hardest one structurally. BNPL was only 1.6% of North American online payments in 2020, versus much higher adoption in Sweden, Germany, Norway, and Finland. Klarna had room to grow, but that whitespace sat inside PayPal’s home market and next to Affirm and Afterpay, not in an open field.
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• Checkout markets tend to reward whoever already owns shopper identity and merchant integration. Later interviews with Rally and Bolt both describe ecommerce checkout as a network business where merchants end up choosing a small number of recognized payment options. That is the dynamic that made PayPal especially dangerous, because it could convert an existing wallet and merchant base into BNPL almost instantly.
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The path forward points to Klarna moving further upstream from lending into shopping discovery, merchant marketing, and consumer identity. If BNPL itself keeps becoming a feature inside larger wallets and checkout stacks, the winners will be the companies that bring merchants traffic, own repeat shopper behavior, and make the payment option feel native before checkout even begins.