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The Swedish business was founded in 2005 under the name Kreditor, before changing its name to Klarna in 2009. Today, the company offers services to over 89,000 online shops in 14 countries. More than 60 million actives customers use Klarna.
Klarna is Europe’s leading provider for billing-based payment solutions in internet retail. It offers online shops a secure billing and instalment purchasing process and takes over the fraud and credit risks.
In 2013, Klarna acquired the German business Sofort Überweisung. Through this acquisition, Klarna added direct transfer to its payment method portfolio.
Customers who choose Klarna’s invoice method at checkout will receive the product or service from the merchant before they pay. The shop sends the product after the order is completed. The customer then has 14 days to pay the bill. Traditionally, offering clients the option to pay by invoice implies a higher risk for the merchant, who might lose money if the customer does not pay, as the product has been shipped. However, Klarna offers customers to pay by invoice while the merchants are guaranteed payment for the product, even in the case of default of payment or fraud.
Klarna also offers users the possibility to pay in instalments. For purchases starting from 200 euros, customers can choose to pay in flexible instalments.
Customers then agree to transfer each instalment payment when it is due, with each instalment usually 1/24 of the bill sum. Each month, a bill is sent to the customers, remind them to pay an instalment.
The instalment amounts vary. Customers can choose to pay a higher amount than the monthly bill or the entire amount left to pay, as long as it is within the agreed upon payment period. In some cases, Klarna works together with online shops to establish instalment payment contracts with constant payment deadlines, e.g. 3, 6, 12 or 24 months.
Klarna offers different financing options for their Pay later and Slice it payment methods. Flexible Month-to-Month payment, or standard purchases, are similar to a traditional credit line. The customer only need to pay at least their monthly payment, without a fixed term commitment. Additionally, Klarna offers two other financing options as promotional offers, Planned Payments and No Interest If Paid In Full. Planned Payments allows eligible orders to be purchased with a reduced APR. Customer choosing this option will have a fixed monthly payment. As the name suggest, with the No Interest If Paid In Full option, interest is deferred during the promotional period. If the entire balance is paid before the expiration date, no interest is charged. Minimum monthly payments are required with this financing method.
Klarna works with merchants of various industries, such as automotive, electronics, fashion, furniture and sports equipment merchants. The company publishes a full directory of their partner shops, which include the Chinese marketplace Wish, Lenovo, and the German portal of Etsy.
When customers submit a financing application, a credit check will be performed. In some instances, Klarna prescreens to determine the available payment options, this does not affect the credit score. A credit line is then attributed to the customer. This can be seen on the account statement.
Online shops using the Shopify e-commerce platform can add Klarna’s pay now, pay later or slice up the payments options at checkout. Merchants simply need to integrate the Klarna Shopify plugin to their online shop. It is available to Shopify merchants in Austria, Denmark, Finland, the Netherlands, Norway, Sweden, the United Kingdom and the United States.
Klarna develops its own official WooCommerce extension, which makes it easy to handle orders in WooCommerce after a purchase is complete. With a single click of a button, merchants can activate, update, refund and cancel orders directly from WooCommerce without logging into the Klarna administration.