We live in an era where everything from shopping grocery and money transfers to booking cabs has to be done online. With one-tap purchases becoming more common, cash and credit card payments are becoming less common. Mobile wallets such as Stripe and PayPal have been available for some time. However, advanced features and functionalities like “buy now, pay later” and digital identification are continuously changing the finance industry.
Klarna is one fintech-based software developed in Sweden that has transformed the way online shopping is done. According to statistics, Klarna has received over 10 million downloads from the Google Play Store. In addition to their app, Klarna interacts with online retailers to help their customers purchase products now and pay for them later. It is currently installed in around 163,471 eCommerce stores, all thanks to Klarna’s business model.
So, are you also running a business in the financial sector and have been trying to maximize ROI or grow your business? This write-up is for you. Let us begin by understanding what Klarna is and its business model, and then cover how the company generates its revenue.
Overview of Klarna
Klarna is a well-known payment services provider that allows customers to try products before they finalize their purchase. The company collaborated with the retailers to easily manage the payment process on their behalf. Usually, the customers have the option of “Buy Now, Pay Later.”
In addition, customers can choose from an array of payment options to make the payment. They can either make a direct payment or choose interest-free rates. Moreover, Klarna enables them to make payments via modes such as PayPal or bank transfer to complete the purchase.
Klarna Business Model: How It Works?
Klarna associates with multiple retail merchants who are charged a commission fee on each sale driven via Klarna. The stepwise working is as follows:
- Retailers wanting to collaborate with Klarna sign up for the services and choose a payment option for completing their checkout processes. Also, customers need to sign up for Klarna if they need to use Klarna.
- Upon signing up, Klarna performs the credit check as the first initial step of the onboarding process. If the customer is approved, they are then allowed to buy products leveraging Klarna credit. It also saves customers from providing any financial information while making online payments using Klarna.
- Klarna allows customers to choose 3 payment options available when checking out.
- Upon payment processing, the payment platform runs a soft credit check to make sure they are still eligible for credit without any impact on their credit score.
- The merchant pays the company a set charge and some amount of the total sale cost following the sale made through Klarna.
- Upon paying the fees, the customer receives the order along with the klarna’s invoice comprising all the details.
Klarna’s Benefits for Consumers
The benefits to consumers when signing up on Klarna involve:
- No limitations to payment options
- Eliminates ordering uncertainty regarding any specific product type
- Allows making payment upon receiving the products, saving from any payment risks
- Provides interrupted access to low-cost credit in return for conventional credit cards
Klarna’s Benefits for Retailers
The advantages offered to retailers by Klarna are as follows:
- Offers an easy-to-set-up payment service for websites and applications owned by merchants
- The merchants are always paid specified fees by Klarna, reducing the possibility of fraud.
- Reduces consumer commitment and leads to higher conversion rates.
- Allows merchants to offer loans without taking on any risk on their websites.
How Does Klarna Generate Revenue?
Klarna leverages multiple streams to make money. For instance, it generates revenue leveraging several streams such as interchange fees, merchant fees, payment fees, and advertising. Let’s explore these in detail.
Payment Fees
Klarna makes most of its money with a fixed transaction fee and variable percentage fee charged to merchants. This fee, however, depends on the customer’s preferred payment method and the country they are present in.
A payment fee is also yielded when consumers:
- Want to complete the checkout process in a few clicks Klarna provides an amazing feature called Instant Shopping where merchants are charged a product fee of $30. It further comes with a fixed transaction fee of $0.30.
- Want to convert and pay the fees in 4 installments. In such a scenario, Klarna charges a transaction fee of $0.30 which is combined with 5.99% variable fees.
- Want to make the monthly payment. Here, Klarna again takes a fixed transaction fee of $0.30 and a variable fee of 3.29%. Customers will also be charged interest throughout the loan, with annual percentage rates as high as 29.99%.
- The company charges $8 as the late or missed payment fee upon failing to make the payment within the set due date or within 10 days of the due date.
Interchange Fees
Klarna has recently released one of its new bank account services. It is about offering free debit cards to customers in collaboration with Visa. Here, the retail store pays the card issuer an interchange fee with a total of 1% interest in the complete product purchase pricing.
Further, enabling customers to leverage Visa cards for purchase, Klarna charges some amount of money as interchange fees.
Advertising
Klarna has introduced several advertising alternatives for its partner retailers. These different ways to advertise available with Klarna are search, banner ads, and emails.
It nearly costs the retailer depending on how many times the user has clicked on the ads.
In addition, the major advantage for retailers for running ads on Klarna is the end-to-end trackability. Customers can continuously check out via the Klarna app, enabling advertisers to easily track the number of clicks resulting in actual sales.
Interest Fees
Customers interested in using Klarna’s financing services to make product purchases with more expensive pricing are made to pay a fee of 19.99 APR. Here, the rate of interest they have to pay is calculated by their current credit score.
However, there are two more options offered to the customer if they want to avoid paying interest rates. It includes a 30-day pay choice or converting the amount into four installments.
How Can Orion eSolutions Help in Finance App Development Like Klarna?
To keep it simple, building a fintech app like Klarna is not easy though not that challenging as well. It requires a strong base in terms of the right tech stack, a team of experts, and a proven business strategy in place.
Fortunately, Orion eSolutions has everything together including advanced technology and professional designers, developers, and project managers. We provide reliable AI development software development services to help ensure the building of expected solutions that take your business toward growth.
Final Words
With the continuous technological advancements, it has become vital for all businesses to make the most of it. Here, Klarna’s business model is following the exact rule of employing modern technology to change how the Fintech industry operates. Thus, generating huge revenue. The company has made high valuations in the past many years and business expansion can be expected in the coming years.
In addition, Klarna’s marketing strategy is at the point – of partnering with renowned brands and acting as a payment platform. This helped Klarna grow at a rapid pace and establish its presence in the list of leading online payment providers. So, look nowhere and hire a trustworthy web development company today to build an app like Klarna.
Frequently Asked Questions
Q1: What is the cost of building an app like Klarna?
Answer: The average pricing to create an app like Klarna depends on the complexity of features and functionalities and the set timeframe. In addition, it varies based on the reliable and trustworthy finance app development company you seek assistance from.
Q2: Why hire a web development company to build a finance app like Klarna for your business?
Answer: Hiring a web development company for developing a finance app like Klarna ensures expertise in terms of security, compliance, custom features, and delivery of high-quality user experience. Furthermore, their skills save time and avoid the need for maintenance that costs hefty while offering long-term support.
Q3: Can I hire remote developers to build a finance app?
Answer: Yes, you can. When you hire remote developers, you can rest assured that all the challenges associated with finance app development are tackled efficiently. Additionally, offshore remote developers strive to offer your business the agility to maintain business competitiveness, work quality, and cost efficiency.
