How Do Buy Now, Pay Later Companies Make Money? Klarna vs Affirm

Buy now, pay later looks almost too good to be true. You split a purchase into four payments, often with no interest at all. So how do buy now, pay later companies make money, and who really pays for the free loan?

Fortunately, the latest filings from two of the biggest names give a clear answer. Klarna and Affirm both earn billions. However, they make most of their money in very different ways.

How do buy now, pay later companies make money?

Buy now, pay later (BNPL) companies make money from both sides of the checkout. The shop pays them, and some shoppers pay them too. In practice, most buy now, pay later companies make money from five revenue streams:

1. Merchant fees. The shop pays a fee on every sale made with BNPL. This pays for most interest-free plans.
2. Interest. Longer plans, such as 6 to 36 months of financing, usually charge interest to the shopper.
3. Card fees. Some providers now issue their own cards and earn a fee each time someone uses one.
4. Late and service fees. Missed payments can bring a fee, depending on the provider and the country.
5. Selling loans. Some providers sell loans to investors for a profit and then earn fees for managing them.

Why would a shop pay these fees? In short, BNPL companies promise merchants more sales and bigger baskets. The merchant decides that the fee costs less than the sales it would lose without BNPL.

How does Klarna make money?

Klarna mostly makes money from merchants. Its 2025 annual report, filed with the US Securities and Exchange Commission, shows exactly how.

Shares are our calculation from the filing.

Most of Klarna's transaction and service revenue comes from merchants that offer its Pay Later and Pay in Full options. It also includes fees from the Klarna Card, which Klarna expanded across the US. Interest income grew faster, up 39%, as more shoppers chose Fair Financing, Klarna's longer, interest-bearing plans.

Behind those numbers, the scale is large. In 2025, Klarna handled $127.9 billion of purchases, known as gross merchandise volume (GMV). It served 118 million active consumers and 966,000 merchants across 26 countries. Pay Later made up 80% of that volume, Pay in Full 11% and Fair Financing 9%.

How does Affirm make money?

Affirm makes most of its money from interest. Its fiscal year 2026 ended on 30 June 2026, and its earnings supplement shows the split.

Shares are our calculation from the filing.

Affirm processed $50.2 billion of GMV in the year, up 36%, and served 27.8 million active consumers. Its revenue grew 33%.

That mix exists because Affirm leans toward longer loans, where interest builds up over months. It also sells many loans to investors, which explains the large gain on sales. After that, it earns servicing income for collecting payments on those loans.

Klarna vs Affirm: two different BNPL models

Put the two side by side, and you can see how differently buy now, pay later companies make money.

The share of GMV figures are our calculation.

In other words, Klarna runs a high-volume model. It earns a small cut of a very large number of purchases, and merchants pay most of the bill. Affirm, by contrast, earns more on each dollar it lends, because more of its customers pay interest on longer plans.

Even so, neither model is free money. Both depend on shoppers repaying on time. When too many shoppers miss payments, losses rise and profits shrink.

Do BNPL companies make money from late fees?

Some do, but late fees are a small part of the business for the biggest players. Klarna, for example, reported $32.5 million from "snooze" fees in 2025, which let shoppers delay a payment. That is less than 1% of its revenue.

Still, fees matter to the shopper who pays them. Because rules on late fees differ by country, always read the terms before you buy.

The new UK rules for buy now, pay later

The UK changed the rules this year. Specifically, since 15 July 2026, the Financial Conduct Authority (FCA) regulates interest-free BNPL, which the law calls deferred payment credit.

The rules cover plans repaid in 12 or fewer instalments within 12 months, when the lender and the shop are separate businesses. Under them:

• Lenders must check affordability before they approve you.
• You must get clear information first, including how much you borrow, when you repay and any late fee.
• You can complain to the Financial Ombudsman Service if something goes wrong.
• Section 75 protection applies, so you can claim from the lender if the shop fails to deliver.

Agreements made before 15 July 2026 stay unregulated. According to the FCA, 15 lenders received temporary permission to keep operating while they complete authorisation.

For BNPL companies, the rules add costs, such as affordability checks and complaint handling. However, they also bring the trust of a regulated product.

What this means for shoppers

Once you know how buy now, pay later companies make money, you can use them more wisely.

• The shop pays for interest-free plans. That cost can show up in prices, so compare before you buy.
• Longer plans usually cost you interest. Check the APR, the yearly cost of borrowing, and compare it with other credit.
• Several plans add up. Small instalments across many shops can stretch a budget quickly.
• Missed payments can cost you. Depending on the provider and the country, that can mean fees or a mark on your credit record.

The bottom line

To sum up, buy now, pay later companies make money in two main ways. Klarna shows the merchant-funded model, where shops pay most of the bill. Affirm, on the other hand, shows the interest-led model, where longer loans earn more per dollar.

Both depend on the same thing, though: shoppers who repay. As regulation spreads from the UK to other markets, the companies that lend carefully, and explain their costs clearly, will be the ones that last.

FAQs

Sources

1. Klarna Group annual report 2025, filed with the US SEC
2. Affirm FY Q4 2026 earnings supplement, 27 August 2026
3. Buy Now Pay Later, Financial Conduct Authority
4. PS26/1: Regulation of Deferred Payment Credit, Financial Conduct Authority

This article is for education only and is not financial advice. Borrowing costs money and missed payments can harm your credit record. Figures come from company filings checked on 1 October 2026.