What’s stopping potential customers from buying from your online store? Although there likely are many factors at play, if the cost of your products and services is discouraging would-be users from purchasing from you, it may be time to come up with an outside-the-box solution.
One option? A buy-now-pay-later (BNPL) solution that gives customers the ability to spread out payments in a budget-friendly fashion. Issuing short-term loans to customers yourself, in the form of financing or installment plans, can be risky, both financially and legally. So the smart choice might be to partner with an established BNPL partner like Klarna to give customers financing options while keeping your own risk low.
What Is Klarna?
Klarna is a so-called fintech company â the name indicates the company’s origins in the tech startup world â that partners with businesses to expand consumers’ payment options. Founded in Sweeden in 2005 with the aim of making online shopping easier, Klarna currently functions as one of Europe’s largest banks. The company serves 85 million consumers and more than 130,000 merchants in 17 countries; it facilitates one million direct pay, pay after delivery, and pay by installment transactions each day.
In the United States, where it has been operating since 2015, Klarna is headquartered in Columbus, Ohio. Recently, Klarna launched a customer loyalty program, Vibe, that allows users to earn reward points they can redeem for gift cards and special offers. Although Klarna originated as a means to facilitate online shopping, the company is focused on expanding its in-store POS financing opportunities too.
Consumers who choose to use Klarna as a BNPL option are subject to a “soft credit search,” meaning the search won’t affect their credit score, although users who fail to pay off their accounts with Klarna could see a negative effect on their credit rating. Klarna’s financing decisions are almost instantaneous, and once consumers have opened a Klarna account, they can apply for payment plans by entering minimal personal information at POS.
Popular Merchants That Use Klarna
Although Klarna offers financing to consumers, it all begins with a partnership between Klarna and an individual merchant who decides to make Klarna available as a payment option.
With more than 3,000 merchants in the U.S., Klarna is gaining market share here as the company adds up to six million users each year. It’s especially popular in the apparel industry, where notable users include Abercrombie & Fitch, Adidas, Bearpaw, Clarks, and Dr. Martens, to name a very few from just the top of the alphabet. Scroll through the rest, and you’ll find big names like Givenchy, H&M, Hollister, Hugo Boss, Hurley, JanSport, and a slew of others.
While clothiers may form a large portion of Klarna’s base, many other industries are connected as well. From beauty products like Sephora and Shein to electronics vendors like Bose, and Cleer Audio and home goods purveyors like Brookstone, it almost seems easier to find an industry that isn’t represented.
How Klarna Makes Money
Consumers who use Klarna to spread out their payments over time at partner merchants essentially activate a revolving line of credit. It’s similar to using a credit card, but instead of having an open line of credit, each transaction is judged at the point of sale. Klarna almost instantly sifts through publicly available credit information after consumers enter their email and ZIP Code.
Some consumers will pay Klarna interest on their purchases, although the majority are offered as no-interest options â provided the buyer makes payments on time and pays in full within the agreed-upon time frame. On every sale, Klarna collects from the vendor a small percentage of the sale. In exchange, Klarna assumes the financial risk of offering instant credit to consumers.
And don’t worry. Even when customers take time to pay, the merchant still gets paid right away.
How Klarna Works For Businesses
Although Klarna shaves a percentage off of each sale a business makes, the company’s data shows that giving customers the BNPL option can be a smart strategy. The company claims big increases in average order size and conversion rates when vendors offer Klarna’s interest-free installment payment options.
Consumers can choose from these BNPL options:
- 30-Days To Pay: Shop online and try out the purchase for 30 days before making a payment. If items are returned, or if they are kept and paid in full within the payment window, consumers pay no interest.
- Installments: Activate interest-free payments with four equal payments due. Consumers pay the first 25% at the time of purchase, using a credit or debit card. The remaining 75% of the purchase price will be charged automatically to that card every two weeks until the amount is paid in full.
- Financing: Take a loan to purchase products and make monthly payments over a period that can range from three to 36 months. The full cost of an item and the minimum monthly payment using Klarna is displayed at checkout, where customers can choose their payment timeframe.
Offering Klarna as a payment option is simple. Sign up as a Klarna partner, then add it as a payment option at checkout, and your customers can choose what type of installment plan they want to pay for their purchases. Klarna integrates with some of the top eCommerce platforms, including:
- Magento Commerce
- Salesforce Commerce Cloud
- SAP Hybris
You can also use Klarna’s API or SDK to integrate without any system or on a custom platform. And, if you want to offer Klarna as an option for in-person sales, you can use Verifone or Vend to make that possible. Custom solutions are available through Klarna as well. Klarna promises materials you can use in marketing initiatives to let your customers know you’re offering the service.
How Klarna Works for Customers
From the perspective of customers, Klarna is an attractive option. The 30-day payment option gives them a chance to test items out before paying for them, and consumers who are able to adhere to the repayment schedule will appreciate the financial flexibility that no-interest installment payments offer them.
What’s more, Klarna offers a Buyer Protection Policy that covers all online transactions. If a shipment goes missing or arrives damaged, Klarna assumes the role of mediator between vendor and consumer. You’ll still get paid while the details are sorted out, even if customers do not pay before the matter is resolved. Consumers’ security and data protection are guaranteed. Transactions are conducted with high levels of security, and Klarna promises never to sell or pass on confidential information to third parties without receiving express permission first.
Klarna Fees & Pricing
If Klarna sounds like an attractive option and you’re considering adding it to your online store, you may have one unanswered question, and it’s a big one: “What’s this going to cost me?”
The answer to that question depends on what installment plan customers choose. All Klarna fees include credit-card processing fees, which could normally cost you between 1.5% and 2.9% of each transaction, depending on your arrangements with your third-party gateway processor.
- 30 Days To Pay:Â The vendor pays a $0.30 transaction fee and a variable fee of up to 5.99%. Customers pay no interest if they pay in full within the 30-day period.
- Installments: The vendor pays a $0.30 transaction fee and a variable fee of up to 5.99%. Customers make four equal payments, with the first due at time of purchase and the other three at two-week intervals. They will pay no interest as long as they stick to that payment schedule.
- Financing: The vendor pays a $0.30 transaction fee and a variable fee of up to 3.29%. Customers can choose the term of their loan, and they will pay interest accordingly, with the full cost available as they decide at checkout.
Is Klarna The Right Buy Now Pay Later Solution For Your Small Business?
Klarna offers solutions to businesses of all sizes. But is what Klarna has to offer the kind of solution that your business needs? Here are some of the advantages:
Shoppers Love Payment Options
Because Klarna is an addition to your payment menu and doesn’t replace more traditional methods, it should be seen as a benefit for those who want to use it. Klarna is especially attractive to younger shoppers, who may not have extensive credit card limits or sufficient cash flow to pay in full upfront.
Order Sizes Increase
Klarna reports a 68% increase in average order value after merchants begin offering Klarna.
Secure Transactions Build Trust
Klarna offers consumers one-click transactions. Though they’ll provide their credit or debit card information to Klarna, they won’t have to enter it on every website they want to buy from. That should make them more secure about doing business with you, especially for first-time customers.
The downside is plain. If you offer Klarna as a payment option, you’ll be giving away a portion of each sale you make. The calculation you must make is whether increased order size will make up for the additional charges you will incur on transactions processed using Klarna.
If you’ve looked at the numbers and feel Klarna is a good option for you, sign up as a partner and get started!
If you’re feeling unsure, or if you’ve decided Klarna isn’t right for your business, keep looking. There are plenty of other BNPL options out there, and with a little due diligence on your part, you’re sure to find one that makes sense for your business â and for your customers.
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