Klarna IPO Spotlights App as the Center of an Expanding Pay-Later Ecosystem

In Klarna Group’s F-1 filing with the Securities and Exchange Commission (SEC), its precursor to a public listing of shares in the United States, there are 45 references to the ecosystem taking shape, with company’s app at the center of it all.

By the headline numbers, Klarna, like many of its buy now, pay later (BNPL) peers, continues to ride a tailwind of growth and demand by consumers to pay over time: the company’s sales year on year surged 24% to $2.8 billion, while it also logged a profit, at $21 million (though operating losses widened in the latest year to $2.9 billion from $2.6 billion in 2023).

Merchant and Consumer Growth

The SEC filing also revealed that at the end of last year, there were 93 million active Klarna consumers, up 11% year on year, where the gross merchandise volume was up 14% to $105 billion. Net new merchant additions across the company’s network were 22% higher in 2024, at 110,000 with a year-end roster of more than 675,000 merchants across 26 countries. No single merchant represented more than 10% of GMV, the filing detailed.

Pay Later represented 76% of total transactions (79% of GMV), Pay in Full represented another 23% of transactions and 16% of GMV, and Fair Financing (allowing consumers to settle transactions over a longer period of time and as long as 48 months) the remaining 1% (and 5% of GMV).

The Network Effect

As for the network and ecosystem effect, Klarna contended in the filing that “consumers come to Klarna to pay flexibly and securely, to find goods, services and experiences that are relevant to them, and to manage their purchases and savings, all in a trusted environment” adding that “we accelerate commerce by connecting consumers and merchants with comprehensive payment and tailored advertising solutions, both online and offline.” The players tied to that ecosystem are far-ranging for eCommerce and in-store payments, spanning payment service providers, traditional banks, card networks, commerce enablers and technology partners.

“Our network offers the benefits of open and closed networks. We open our network to a broad consumer and merchant ecosystem, similar to Visa, MasterCard and Amex, but also benefit from our proprietary closed-loop network where we issue, fund, process and settle the entire payment, while retaining a direct relationship with our consumers,” Klarna said.

Additional Revenue Streams

Beyond the transaction fees and consumer fees, the firm also gains revenue from advertising services used by its merchants, enabling targeted ads. That service leverages uses data gleaned across its network, including first-party and SKU-level data, such as browsing, searching, transacting, tracking, returning and customer service information. Klarna said advertising revenue had scaled from approximately $13 million in 2020 to $180 million in 2024. “Digital advertising represents an additional approximately $475 billion market opportunity globally (excluding China) in 2023,” per the filing.

“Additionally, we are well positioned to build a leading presence in strategic adjacencies such as retail banking services,” Klarna said, with a nod to its future ambitions. The filing detailed that the firm’s deposit-taking business had garnered $9.5 billion in consumer deposits as of the end of the year, tied in part to Klarna Balance, which allows users to hold funds with the firm, and store and withdraw money through those accounts, settle existing Klarna debt and receive cash back. The funding model is based on those consumer deposits, Klarna said, as those savings accounts are offered directly to consumers across several European countries — and the model funded 94% of the firm’s financing (read: installment) products.

As for scale, Klarna said that  82% of adults used Klarna in 2024 in Sweden (which Klarna termed its most mature market), with a 10% corresponding percentage in the United States.

The company said that “consumer credit delinquencies at 30 days for the twelve months ended June 30, 2024 were 72% lower than the credit card industry average of 4.2% in the United States based on data from the Federal Reserve Bank of St. Louis.” The read across here, then, a 30-day delinquency rate of about 1.17%. Consumer credit losses represented 0.47% of total GMV last year, the company disclosed, growing by $142 million year over year from the 0.38% in 2023, to $495 million.

“The U.S. market is at an earlier stage of development compared to our more mature geographies, leading to higher credit losses on a consolidated basis,” said Klarna in the filing, adding that “a change in product mix also contributed to the increase in consumer credit losses, as the share of transactions utilizing our Fair Financing product in our GMV increased.”