BNPL Built on Merchant Commissions

The key point is that BNPL economics were built as much around merchant marketing budgets as around lending. In practice, the retailer paid Klarna a 3% to 6% commission because installment payments lifted conversion and order size, while Klarna took the credit risk and funded the gap until the shopper repaid. That makes BNPL look less like a pure consumer credit product and more like checkout software bundled with short term financing.

• Klarna’s 2020 revenue mix was 74% merchant commission and 26% net interest income. That is the cleanest evidence that merchant payments, not borrower fees alone, carried the model. Merchants were effectively buying a sales tool that sat at checkout and helped close larger baskets.
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• The reason merchants were willing to pay is concrete. Klarna paid the store up front, let the shopper split the purchase over time, and absorbed chargebacks and defaults. For a merchant selling apparel, electronics, or furniture, that could mean more completed checkouts and fewer abandoned carts on high ticket items.
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• This also explains why Chime stayed away. Chime’s core engine was debit and credit builder interchange tied to everyday spend, while BNPL required merchant integrations, upfront funding, and a risk model around off balance sheet consumer obligations that banks and regulators struggled to see clearly.
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Going forward, BNPL winners are likely to look less like niche lenders and more like merchant commerce networks. As merchant fees compress and regulators demand more visibility into consumer debt, the durable players will be the ones that turn checkout financing into a broader package of merchant acquisition, payments, and shopping app distribution.