Klarna vs Affirm Payments: Which Is Best for Buy Now, Pay Later?

The global Buy Now, Pay Later (BNPL) market is expected to reach $3892.19 billion by 2031, growing at a 20.7% CAGR over the forecast period. So it's no wonder why BNPL payment providers like Klarna and Affirm command significant attention in the industry.

Klarna and Affirm Payments are transforming the eCommerce landscape with a suite of features designed to meet the diverse needs of their customers. But how do these platforms stack up against each other?

That's the question I want to help you answer in today’s guide. We'll explore the strengths, benefits, and challenges of Klarna and Affirm, offering a clear comparison to help you decide which platform best fits your payment needs. Whether you're a BNPL eCommerce veteran, consumer, or simply eager to learn more about the BNPL sensation, you won't regret reading this article!

Klarna Features and Overview at a Glance

Klarna is a leading Buy Now, Pay Later payment provider enabling consumers to purchase items from eCommerce and physical stores without paying the full amount upfront. Founded in Stockholm, Sweden, in  2005,  Klarna's growth spurt began with invoice payments streamlining for eCommerce customers. The reduced payment friction meant more sales and high conversions for business.

But Klarna's rapid expansion came after the team introduced the BNPL model in the early 2000s, onboarding over 575,000 global merchant partners and ~150 million customers across 45 countries, with ~34 million based in the U.S. Today, Klarna is Europe's leading BNPL provider, commanding 70% market share as of recent estimates, and is poised to be one of the next big fintech IPO.

Klarna's BNPL model has proven especially beneficial to online retailers, reducing cart abandonment rates, which had plagued the industry due to complicated checkout processes. Klarna’s higher-converting checkout experience allows shoppers to pay for purchases in four interest-free installments every two weeks or settle the entire amount within 30 days. Klarna is said to process two million transactions daily, with big-name users including Nike, Adidas, and H&M.

klarna's Key Features

Klarna gives users a convenient payment process, whether they're purchasing from an eCommerce website, a mobile app, or a physical store. Klarna empowers users to avoid predatory debts by enabling them to track orders, payment programs, payment history, and access customer support all within the Klarna app. Notable Klarna features include the following:

• Pay in 4: Consumers can split purchases into four interest-free installments, with the payment due at checkout and the next three charged biweekly.
• Pay in 30: Customers can shop now and pay for transactions within 30 days if they are satisfied with their purchase.
• Long-term Loans: Klarna provides options to finance larger purchases over an extended period—typically ranging from 6 to 36 months, with competitive interest rates starting at 7.99%—through Klarna partner, WebBank.
• Klarna Card: Consumers can use a Klarna virtual card for installment payment and financing even if the store they're transacting with has yet to integrate the service.

For banks, fintechs, and merchants, Klarna's open banking makes finance "more accessible, fair, and simple for everyone." Klarna achieves this by enabling companies to leverage its connectivity to develop new products that benefit end users. Klarna says 15,000 partners are currently using its open banking API service.

Their quick and easy integration allows merchants to enhance their stores by adding the option to pay later. You can choose the payment method that best suits your customers, craft a custom solution, or integrate through payment service providers on platforms like Shopify, WooCommerce, or Magento.

Klarna Pricing

Klarna's business model is to charge merchants a flat fee per transaction and a percentage of sales—around 5% in the U.S. This is slightly higher than traditional card processors like Stripe or Shopify Payments charge. Klarna says their fees can also vary based on the country and which Klarna service the consumer chooses to use:

1. Klarna Pay Later: Klarna's Pay Later option, which allows customers to settle their purchase within 14-30 days,  generally attracts transaction processing fees between 3.29% + $0.30 and 5.99% + $0.30 per transaction.
2. Klarna Pay Now: Klarna's Pay Now option, offered through SOFORT, a notable bank transfer system available in Austria, Belgium, Germany, Netherlands, and Spain, carries a transaction fee of ~2.99% + 40.30 per transaction.
3. Klarna Financing: Klarna's extended financing option includes transaction fees ranging from 3.29% + $0.30 to 5.99% +$0.30.
4. Klarna's Merchant Fees: While there are no setup fees, Klarna's merchant fees vary monthly based on the merchant's agreement and sales volume.
5. Chargebacks Fess: Klarna charges ~$15 chargeback fee for every transaction dispute filed against you.

Buyers can also use the Klarna app at other retailers for a $2.12 service fee. There may be other costs like currency conversion fees for international payments and integration fees. These costs vary based on the platform involved.

Klarna’s Advantages

Klarna has cemented its place as a leading BNPL payment provider in the U.S. and globally. Notable Klarna advantages include:

1. Global availability with ~500,000 global merchant partners and ~150 million customers across 45 countries.
2. Expedited checkout speeds shorten transaction times and cart abandonment rates, a perennial problem for eCommerce.
3. Multiple repayment options are available, shoppers can choose from Pay in 4, Pay in 30, or longer-term financing plans.
4. Zero interest rates on Pay in 4 or Pay in 30 plans foster customer loyalty, as satisfied customers who can spread out their purchases are more likely to return.
5. Klarna protects merchants from the financial impacts of non-paying customers by assuming the risks linked to its financing.
6. Klarna is easy to set up and user-friendly, integrating with major eCommerce platforms for quick payment acceptance.
7. The advanced Klarna fraud prevention measures reduce financial losses.
8. Soft credit checks with high approval odds unlock revenues for businesses.

Klarna’s Disadvantages

Every platform has downsides you should look into for informed decision-making. For Klarna, the reported downsides include:

1. Klarna charges businesses a transaction fee, which is a percentage of the total transaction amount.
2. Consumers who miss repayment deadlines incur a $7 fee after 10 days. However, Klarna ensures the total late fees for an order will not exceed 25% of the total purchase amount.
3. Defaulting in repayment may see a shopper being handed over to a collection agency and reported to the credit bureau, negatively affecting a person's credit score.
4. Analysts have argued that since BNPL services use internal algorithms instead of traditional credit checks, the system can be vulnerable to fraud.

Affirm Overview and Features at a Glance

Affirm is another household name in the buy now, pay later financing vertical. PayPal co-founder, Max Levchin founded the payment network in 2012. The company went public on Nasdaq in January 2021 and has a market capitalization of $12.25 billion as of writing.

Affirm wants to be a healthy alternative to credit cards. Affirm loans come with a fixed payment plan, and shoppers know their options before finalizing each transaction. That way, they never pay more than the agreed amount. Users can transact online or with the Affirm app at participating retailers, which can create virtual card numbers for purchases at any Visa-accepting store. Additionally, Affirm customers can select payment plans of up to 48 months, which is more flexible than traditional Pay in 4 options used by competitors like Klarna.

When you create an Affirm account, they appraise and assign you a custom spending limit. While the spending limit varies for everyone, a shopper's spending limit with Affirm cannot exceed $17,500.

Affirm says almost 36 million consumers have trusted it as their transaction partner, as of June 2023. Statista's estimates on website tracking and the technologies used within them reveal that merchants from 25 countries use Affirm, with the United States and Canada ranking higher than anywhere else.

Affirm Key Features

Affirm is for purchase financing with partner merchants. Unlike some platforms that provide short-term loans alongside bill payment or money transfer services, Affirm focuses solely on shopping financing. Notable Affirm features include the following:

• No Fees: Shoppers pay no late repayment fees, prepayment fees, annual fees, or charges for account opening/closing fees.
• Pay in 4: Affirm "Pay in 4" option lets you pay in four equal installments over six weeks, with zero interest or fees for purchases between $50 and $1,000.
• Affirm Card: Shoppers can use Affirm debit cards for full payments like traditional payment cards or flexible plans via the app.
• Monthly Financing: Affirm allows shoppers to finance purchases up to $17,500, with repayment terms ranging from 3 to 48 months at ~30% Annual Percentage Rate (APR). This depends on how much risk you pose and the retailer involved.

Affirm typically allows merchants to determine credit limits for their shoppers, with a maximum threshold being $17,500. They’ve partnered with thousands of retailers across categories like apparel, travel, electronics, home, and fitness. You can shop using Affirm online or with the mobile app, and for in-store purchases, you can use the virtual card.

Affirm Pricing

Affirm does not charge any fees to shoppers. Instead, the BNPL fintech powerhouse charges merchants a percentage of the transaction amount for its services. Shoppers may pay interest on loans depending on the program they choose.

1. Affirm Loan Interest Rates: Affirm APR ranges from 0% to 30% depending on a user’s credibility. A user can pay more for Affirm compared to credit cards with an average APR of 19.07%, according to Federal Reserve data.
2. Affirm Transaction Processing Fees: Affirm transaction processing fee for merchants is ~6% + $0.30 per purchase. This can vary depending on perceived risk, business size, and selected program.

Affirm provides custom plans with tailored solutions to larger enterprises at a different fee structure. Other fees include interchange fees and loan servicing fees charged to third-party investors.

Affirm’s Advantages

Affirm offers rates as low as 0% for terms of up to 48 months. Integrating it into your store is particularly advantageous to sellers of high-ticket items priced over $500 and those targeting Gen Z shoppers, who spend under $100. Notable Affirm advantages include:

1. Getting started is effortless; the registration process requires minimal steps and details.  
2. Affirm performs a soft credit assessment on shoppers to determine creditworthiness without intruding on their credit scores.
3. Buyers can split costs four in interest-free biweekly payments, with the first installment due at purchase, or choose extended repayment over three or more months –meaning high conversion for merchants.
4. Affirm “Pay in 4” service attracts no interest, making it appealing to Gen Z and Millennial shoppers. This could translate into repeat purchases for you.
5. Shoppers do not pay any fees for late repayments, prepayment, account opening, or closure.
6. Shoppers know what they're paying before checking out, resulting in lower cart abandonments.
7. The platform has positive ratings and integrates with major stores.

Affirm’s Disadvantages

BNPL service providers like Affirm have received criticism for various reasons. The noteworthy Affirm drawbacks are as follows:

1. Affirm offers interest-free options, but some longer-term plans are pricier than card financing with interest rates up to 36%.
2. While Affirm doesn’t charge late fees, payment default for over 120 days might result in your loan being sent to collections, potentially harming your credit score.
3. Affirm charges businesses a transaction fee, which is a percentage of the total transaction amount.
4. Refunding an Affirm order is equivalent to a credit card refund, but Affirm retains fees from each transaction.

Klarna vs Affirm Payments: The Key Differences

The BNPL services that Klarna and Affirm provide are quite comparable to a large extent. But differences abound. Let's examine these distinctions to help you decide which platform is best for you.

Payment Options

• Klarna:
  1. Offers multiple, flexible payment plans, including Pay in 4, Pay in 30 days, and long-term financing options through WebBank.
  2. Requires a 25% down payment on the transaction amount.
  3. Does not specify a spending minimum and has no predefined spending limit. Instead, an automated approval decision is made each time you pay back your loan, determining how much you can spend.

• Affirm:
  1. Offers Pay in 4, Pay in 2 plan, Pay in 30 plan or long-term loans that typically span 3 to 48 months.
  2. Customers can use the BNPL plan on eligible transactions over $100 and finance purchases up to $17,500.
  3. Allows purchases with a $0 upfront.

Interest Rates and Fees

• Klarna:
  1. Generally offers interest-free payment plans for short-term options.
  2. Longer financing attracts interest starting at 7.99% and can reach 29.99%.
  3. Charges a $7 fee after 10 days of missed payments.
  4. Might report late and default payments to the credit bureau.
  5. Merchant fees vary monthly based on the merchant's agreement and sales volume.

• Affirm:
  1. Generally offer payments at 0 APR for Pay in 4 loans.
  2. Long-term financing interest rates up to  36% APR.
  3. Does not charge late repayment fees or compound interest on late payments.
  4. Merchant fees vary depending on perceived risk, business size, and selected program.

Both platforms charge a $15 chargeback fee.

Availability and  Acceptance

• Klarna:
  1. Caters to a diverse customer base and partners with businesses across 45 markets worldwide.
  2. Widely adopted across major retail, travel and hospitality, health and wellness, and automotive sectors.
  3. 43.9 million users in 2024, a 9% annual increase, according to Orbelo.
  4. Demands that users must be residents of the United States or its territories, at least 18, have a valid card/bank account, have a positive credit history, and be able to receive verification codes via text.
  5. Higher approval rates.

• Affirm:
  1. Caters primarily to businesses that sell directly to U.S. and Canadian consumers.
  2. Does not work with high-risk eCommerce verticals.
  3. Nearly 18.7 million users, and 303,000 active merchants, as of August 2024.
  4. Demands that users must be residents of the United States, Canada, or Australia, at least 18, have a valid card/bank account, have a positive credit history, and be able to receive verification codes via text.
  5. Lower approval rates.

Target Demographic

• Both platforms appeal predominantly to the younger demographic.
• Klarna says 80% of its Instagram account followers are under 34 years old, 60% of its customers are women and 40% are men.
• Affirm reports that its services particularly appeal to Millennials and Gen Z, with 46.14% of users identifying as male and 53.86% as female.

Klarna vs Affirm Payments: The Final Verdict

Klarna and Affirm Payments have transformed how consumers make payments and experience products they love. They are safe to use and packed with features, and the interest rates are generally manageable. Integrating them into your store helps you improve your AOV and minimize cart abandonment. But if you’re looking at Klarna vs Affirm Payments and wondering which option is best for your business, here’s our final verdict:

When to Choose Klarna

• Subscriptions service: Klarna enables customers to subscribe to services, tokenizing payment preferences for automatic renewals. Shoppers can manage their settings in the Klarna App.
• On-demand product: Using Klarna as the preferred payment method in a digital wallet streamlines one-click purchase of on-demand items with flexible checkout options.
• Open banking service provider: Vendors offering Pay Now services can have their users bypass card networks by paying Klarna directly from their bank account,
• SMEs with International Operations: Klarna has more extensive coverage.

When to Choose Affirm

• Large purchases: Shoppers often use Affirm for large online transactions, providing a reliable and cost-effective solution.
• Emergencies: Affirm users rely on the platform to meet unexpected expenses like car repairs or medical emergencies.
• Local transactions in the US or Canada: If your clientele is based in the US and Canada, and you have an excellent credit rating, Affirm may be the best for you.

How Chargeflow Supports BNPL Merchants

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Take control of your chargebacks today! Our advanced technology, seamless integration, and exceptional dispute win rate are ideal for eCommerce businesses looking to improve payment processes and protect sales revenue. Here’s how to get started.