Klarna vs. PayPal: Comparing Payment Options for Businesses

Choosing a payment processor is a critical decision for any business. Offering Buy Now, Pay Later (BNPL) options can increase sales and average order value. Klarna and PayPal are two leading platforms that provide BNPL solutions for businesses.

While both allow customers to pay in installments, they have different features, fee structures, and benefits for merchants. This article compares Klarna and PayPal for business, focusing on their BNPL products to help you decide which is right for your company. We'll also discuss the Wise Business account. The global account that can help your company with all things cross-border.

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Klarna vs. PayPal: Quick Overview

Klarna vs. PayPal BNPL: Key Features

Both platforms give your customers payment flexibility, but their core offerings for businesses differ.

Klarna: Key Features

Klarna is a BNPL-focused provider that gives merchants a suite of financing tools to offer customers at checkout. Klarna pays the business the full purchase amount up front and assumes the risk of customer nonpayment.

Key BNPL options for customers include:

• Pay in 4: Splits the purchase into four interest-free payments, collected every 2 weeks.¹
• Pay in 30: Allows customers to try a product and pay the full amount up to 30 days later, interest-free.¹
• Financing: Offers longer-term monthly payment plans (6–24 months) for larger purchases.¹

For businesses, Klarna also provides marketing solutions to promote these payment options and potentially drive more traffic to your store.⁴

PayPal: Key Features

PayPal is a comprehensive payment platform with a globally recognized brand. Its BNPL solutions are integrated directly into the PayPal Checkout experience. Like Klarna, PayPal pays the merchant up front.

PayPal's main BNPL offerings are:

• Pay Later: Lets customers pay monthly or split their purchase into 4 interest-free payments, due every 2 weeks.¹
• PayPal Credit: A reusable line of credit that customers can use for purchases. It often includes promotional financing like "no interest if paid in full in 6 months" on purchases over a certain amount.⁷

The primary advantage for businesses is tapping into PayPal’s vast network of over 436 million active users who can use these options with a provider they already trust.⁶

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Klarna vs. PayPal BNPL Fees

Understanding the fee structure is essential for managing your business's cash flow and profitability.

Klarna BNPL Fees

Klarna’s merchant fees vary based on the payment option the customer chooses and the business's location. For US businesses, a typical fee structure might be a fixed fee plus a percentage of the transaction value.

For its main BNPL offerings, merchants can expect to pay:

• Pay in 4: 5.99% + 0.30 USD per transaction.¹
• Pay in 30 Days: 5.99% + 0.30 USD per transaction.¹
• Financing: 3.29% + 0.30 USD per transaction.¹

These fees are higher than standard card processing fees but reflect the service's value in potentially increasing conversion rates and average order size. The business receives the full transaction amount minus these fees.

PayPal BNPL Fees

PayPal's BNPL fee structure differs from its standard checkout pricing. When a customer chooses Pay Later, merchants pay a higher rate than the standard PayPal Checkout fee.

For a US business, the key rates are:

• PayPal Checkout: 3.49% + $0.49 per transaction
• PayPal Pay Later options: 4.99% + $0.49 per transaction

While these fees are higher than standard card processing rates, they are clearly defined and predictable, making cost forecasting straightforward for businesses.⁵

While PayPal's fee structure is clearly defined, businesses should be aware that Pay Later carries a higher rate than standard checkout. For an e-commerce store processing 100 orders a month at 100 USD each, a customer paying in full via PayPal Checkout would cost the merchant 3.49% + 0.49 USD per transaction, while a customer choosing Pay Later would cost 4.99% + 0.49 USD per transaction. International transactions or currency conversions will incur additional fees on top of these rates.

Klarna vs. PayPal for Business: BNPL Product Differences

Choosing between Klarna and PayPal for your business depends on your strategic goals.

Klarna is a specialist. Its brand is synonymous with BNPL, which can be a powerful tool for attracting customers who actively seek flexible payment options. Integrating Klarna signals that your business is modern and customer-centric, potentially leading to higher conversion rates and larger basket sizes. However, its transaction fees are generally higher.¹

PayPal is an established all-in-one payment gateway. Its strength lies in its massive preexisting user base and the trust associated with its brand. Offering PayPal's Pay Later is less about attracting new types of buyers and more about providing convenience to the millions who already use PayPal.^{1, 5}

For a business that relies heavily on international sales, both platforms present challenges with currency conversion. Payouts from international sales can incur currency conversion markups, which reduce your net revenue.

Conclusion

The right choice between Klarna and PayPal depends on your business's priorities.

If your primary goal is to use BNPL as a marketing tool to increase average order value and attract customers seeking payment flexibility, Klarna is a strong contender. Its specialized focus and multiple financing options are designed specifically for this purpose.

If you are looking for a trusted, comprehensive payment solution with an integrated BNPL feature and a simpler fee structure, PayPal is an excellent choice. You gain access to a huge user base and a globally recognized payment system.

For any business dealing with international customers or suppliers, it's crucial to look beyond the payment gateway and consider how you manage foreign currency. Using a dedicated platform for international payments can help you avoid hidden fees and protect your profits.

FAQ: Klarna vs. PayPal for Business

Is it better to pay with Klarna or PayPal?

From a business perspective, the choice depends on your goals. PayPal offers a clearly defined fee structure integrated into its existing payment gateway, though Pay in 4 is charged at a higher rate of 4.99% + 0.49 USD compared to the standard PayPal Checkout rate of 3.49% + 0.49 USD.^{1, 5} Klarna has higher fees but provides more diverse BNPL options that may increase customer conversion and spending.^{1, 2}

Why would a business use Klarna?

A business would use Klarna to offer customers more flexible payment options, which can lead to higher average order values and increased sales.² Klarna pays the merchant the full amount up front, taking on the credit risk and fraud liability, which simplifies cash flow for the business.

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