If you’re not paying interest and the service is free to use, how exactly do Klarna, Afterpay, and Affirm make money? The short answer: they charge the retailer, not you. But there’s much more to it.
Key Takeaways
- BNPL companies primarily make money by charging merchants a fee (2–8% of each transaction)
- Late fees from consumers are a secondary but significant revenue stream
- Interest on longer-term financing plans is another major income source
- Data and advertising revenue is growing as BNPL platforms become shopping destinations
- The model only works if defaults stay low
1. Merchant Fees (The Core Model)
When you use Afterpay or Klarna at checkout, the BNPL company pays the retailer the full purchase price immediately. You then repay the BNPL company in installments.
In exchange, the BNPL company charges the retailer a merchant discount rate — typically 2–8% of the transaction value.
Merchants accept this because BNPL:
- Increases conversion rates by 20–30%
- Increases average order values by 30–50%
- Attracts younger shoppers who don’t use credit cards
2. Late Fees
- Afterpay: $10 per missed payment, capped at 25% of order value
- Klarna: Up to $7 per missed payment
- Zip: $5–$7 per late payment
Small individually, but across millions of transactions, they add up significantly.
3. Interest on Longer-Term Plans
Not all BNPL is interest-free. Longer financing plans (6, 12, or 36 months) often charge interest up to 36% APR. Affirm’s interest-bearing plans are a meaningful revenue stream.
4. Interchange Fees (on BNPL Cards)
Klarna and Afterpay have issued physical/virtual cards. When used at any retailer, the company earns interchange fees — the same model banks use on every card swipe.
5. Data and Advertising
BNPL companies know exactly what you buy, when, and how much you spend. This data has real commercial value:
- Klarna’s app lets retailers pay for premium placement in its shopping marketplace
- Retailer referral fees when you discover brands through the BNPL app
- Essentially a Google Shopping model layered on top of payments
6. Float Income
The brief period between receiving your installment payment and paying out earns interest. Small per transaction, meaningful at scale.
7. Subscription Revenue
- Klarna Plus: $7.99/month for fee waivers, exclusive deals, higher limits
A growing direct consumer revenue model as the industry matures.
The Risk: Defaults
If customers don’t repay, the BNPL company absorbs the loss — the retailer has already been paid. This is why BNPL companies run credit checks, limit new customer spending, and restrict access after missed payments.
What This Means for You
- The merchant fee comes from somewhere — some retailers quietly build it into pricing
- Late fees are planned revenue — set up autopay
- Your data is valuable — BNPL shopping apps serve targeted ads
- Longer plans cost real money — read the APR before agreeing
The Bottom Line
BNPL companies make money from merchant fees, late fees, interest on longer plans, data monetization, and subscriptions. It’s a legitimate model — but it works partly because a percentage of users miss payments and because merchants pay a premium to close more sales.