The archive · Business Models · Financial decision · 2005–2020
Klarna funds smooth checkout by billing merchants, not shoppers — pay later, get paid now
Founded in 2005, Klarna let online shoppers enter only an email and zip code while paying later — the merchant paid Klarna's fee, not the customer.
Klarna
What it had to solve
In the mid-2000s, Swedish online shopping stalled at checkout — forms, cards and trust shoppers did not have. Three Stockholm School of Economics students built a payment method where the retailer guarantees the friction away.
How it works
Klarna was founded in 2005 in Stockholm by Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson, students who wanted online checkout to stop scaring buyers away. Their first transaction ran through a Swedish bookstore, Pocketklubben, on April 10, 2005: buy now, receive the goods, get an invoice within 30 days. The twist was who paid for the smoothness — not the shopper, but the merchant.
The mechanics inverted a payment company's usual burden. A customer enters only an email address and zip code; Klarna pays the retailer immediately, then collects from the consumer immediately, in 30 days, in four interest-free payments, or over 6–36 months with interest. Klarna makes its money predominately from merchant fees of roughly 1.5–3% per transaction, plus interest and late charges, with proprietary analytics approving buyers in real time.
The model scaled: by 2020 Klarna was in 200,000 stores including H&M, Sephora and Adidas, served about 85 million users, and added a new merchant every seven minutes. After a $460M raise in August 2019 it was valued at $5.5B, and it had been profitable every year from 2005 until its first annual loss in early 2020, during aggressive US and European expansion.
Why it lands
- Merchant-funded pricing hides the cost from shoppers, who experience checkout as a frictionless, free moment.
- Paying the retailer instantly transfers credit risk to Klarna's models, letting stores sell before the buyer has paid.
- Revenue streams — merchant commissions, interest and late fees — turn one transaction into several income lines.
- Email-plus-zip checkout removed the forms that killed conversions, turning a payment option into a sales tool for retailers.
What it did
By 2020 Klarna was available in 200,000 stores with about 85 million users and added a new merchant every seven minutes; an August 2019 raise of $460M valued it at $5.5B, and it had turned a profit every year from 2005 until its first annual loss in early 2020.
What you can take
Charge the party that profits most from the convenience: the merchant's fee buys a smoother sale, while the shopper experiences the checkout as free.
Since then
Klarna became the template for modern buy-now-pay-later: its four interest-free payments and merchant-fee model were copied by Affirm, PayPal and a wave of rivals, and the company grew into Europe's most valuable private fintech. The 2020 CNBC Disruptor 50 profile ranked it fifth, serving 200,000 stores and 85 million users — evidence that charging the merchant instead of the shopper could carry a payments company through more than a decade of profitability.
Sources
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