Discover How Buy Now, Pay Later Services Revolutionize Your Shopping Experience in 2025

Like most ecommerce sellers, you’re probably on the hunt for ways to boost your bottom line and improve conversion rates. Offering more payment options at checkout could help you get there. In one study, this strategy increased revenue by nearly 30% for small businesses.

Buy now, pay later services are an increasingly popular option, especially among younger consumers. Klarna is one such service, founded in 2005 by students from the Stockholm School of Economics. With Klarna, customers can split a purchase into manageable installments—often with no additional fees if they follow the payment schedule.

Here’s how Klarna works and what to know before adding it to your point of sale.

What is Klarna?

Klarna is a buy now, pay later (BNPL) service that allows customers to purchase merchandise on credit and pay for it over time. When a customer pays with Klarna, Klarna pays the merchant the full purchase price and then collects payment from the customer in installments. Merchants can offer Klarna as a payment option at the point of sale, online and in store.

Klarna offers four payment options for its users:

• Pay in 4: Klarna splits the purchase into four interest-free installments. The customer covers the first installment at the point of sale and pays the others over the next six weeks. If they miss a payment, the customer may owe fees.

• Pay in 30 days: Klarna gives the customer 30 days to pay for the entire purchase with no interest. The customer can use the Klarna app to pay off the balance earlier or extend the due date for a fee. 

• Pay over time: Klarna splits the purchase into payments over a longer term, ranging from three to 24 months with an annual percentage rate (APR) of 0% to 35.99%.

• Pay in full: Klarna will charge the customer’s chosen credit or debit card at the time of checkout and will process the full payment.

Once the customer chooses their installment plan, Klarna verifies the customer’s identity and runs a soft credit check. This type of credit check doesn’t impact the customer’s credit score. Klarna uses this information to gauge whether the customer can make payments. The company uses a proprietary metric called Purchase Power to set the customer’s limit. This feature analyzes the customer’s credit history along with their payment history and outstanding balance with Klarna.

Once the transaction is complete, Klarna advances the purchase amount to the business. The customer repays Klarna according to their agreed-upon payment schedule. This means Klarna does the heavy lifting of tracking payments, assuming the risk of nonpayment and fraud, and dispensing refunds in the case of a return or dispute.

Why do ecommerce businesses use Klarna?

• Higher average order value
• Improved cash flow
• Younger customer base
• Less risk
• Integrations with POS

Offering BNPL options, including Klarna, provides several benefits for ecommerce businesses. Some of those benefits include:

Higher average order value

Customers tend to be more willing to complete a purchase when they have the option of choosing a manageable installment plan instead of paying a bigger lump sum upfront.

The setup also encourages customers to generally spend more, upgrade to premium versions, or add accessories, thereby increasing their average order value (AOV).

This is reflected in Klarna’s own reports that show a 23% increase in AOV for merchants who offer their BNPL services. The number is even higher for Shopify’s BNPL product, Shop Pay Installments. Merchants using this offering can experience up to a 50% increase in average order value.*

Improved cash flow 

Klarna’s buy now, pay later structure benefits both the merchant and the customer. You get paid upfront, while customers choose their own payment plan. This ensures a steady and uninterrupted cash flow for you, rather than waiting for payments from customers at different times.

Providing this option at checkout can even attract frequent customers. Klarna says its users show a 46% higher purchase frequency than average shoppers.

Younger customer base 

Nearly half of surveyed millennials and Gen Zers have used BNPL services, compared to just 21% of consumers from other generations. Offering Klarna at checkout may help you appeal to younger consumers who prefer the flexibility of paying over time. In the report, respondents said they were interested in finding the most competitive repayment terms. 

Less risk

Klarna assumes all risk in the transaction, which means you still receive the full purchase amount even if the customer defaults. Klarna handles customer payments as well as returns, if applicable. 

Integration with your POS

Klarna streamlines the integration process, making it easy for merchants to add the payment option to their checkout process without a call to tech support. Klarna says adding the feature to your Shopify store takes as little as 20 minutes.

Drawbacks of Klarna for ecommerce businesses

Like all payment options, Klarna has some drawbacks you’ll need to weigh before offering it:

Transaction fees and chargeback fees

While shop owners won’t be on the hook for an annual fee, they pay a transaction fee to Klarna each time a customer uses the payment method at checkout. The transaction fee reportedly varies each month based on the merchant’s agreement and sales volume. Sellers also pay Klarna a chargeback fee for each transaction dispute a customer files. 

Opaque fee structure 

There’s no merchant fee list presented on the company’s website, and its chat function and merchant support email forms are limited to verified customers. To determine your specific fee structure, you’ll need to contact a sales associate for a customized quote.

Alternatives to Klarna

If Klarna doesn’t seem like the right fit for your business, consider these alternatives:

Shop Pay Installments

Shopify’s BNPL service, Shop Pay Installments, offers complete online store and POS integration, fast disbursement (one to three business days), and no payment processing fees for refunds and returns. Merchants pay a processing fee on each transaction. You can contact Shopify to learn the specific rate for your business.

Affirm

This BNPL service also integrates seamlessly with Shopify’s platform and offers higher credit limits and longer-term installment plans for customers than some alternatives. However, Affirm does not disclose some of the fees it charges. 

Afterpay

Afterpay offers just one payment option with lower spending limits. It could be a good fit if you want to keep your payment options simple. But the provider may take up to five business days to send payment to you, while most other BNPL providers pay upfront.

*These statistics are based on internal Shopify data. The sample size consisted of 281 merchants using Shop Pay Installments with varying financial packages. Individual results may vary.