Klarna shook up the fintech world in March with the announcement that it was becoming the exclusive buy now, pay later (BNPL) provider for Walmart, replacing its competitor Affirm in one of the most sought-after partnerships in the industry.
“This is a game changer,” Klarna CEO Sebastian Siemiatkowski said in a statement. “Millions of people in the US shop at Walmart every day—and now they can shop smarter with OnePay installment loans powered by Klarna.”
- OnePay is the Walmart-backed finance app and digital wallet provider that is managing the partnership with Klarna. Through the OnePay app, which is already integrated across Walmart’s digital and physical channels, customers will be able to access installment loans from Klarna with repayment terms ranging from three to 36 months.
Yet the battle for the nation’s biggest retailer might not be a done deal. While Klarna said the plan is to drop Affirm, Walmart customers can still access the rival’s payment options, according to an SEC filing.
If Walmart does drop Affirm, however, the company is set to lose a sizable chunk of revenue. The filing also stated that in the last six months of 2024, purchases through its Walmart program made up approximately 5% of Affirm’s gross merchandising volume.
“We win business when merchants want superior performance and maximum value, given our underwriting and capital markets advantages,” Affirm said in a statement. “We will continue our long-term strategy of competing on our products and entering into sustainable partnerships.”
Picking the winner: What’s behind this shake-up? It depends on who you ask. Christopher J. Uriarte, payments expert at Glenbrook Partners, said it’s a sign of the industry’s maturity that retailers are reevaluating their BNPL strategies.
“As more and more retailers have realized that BNPL strategies help increase conversion and average spending in many cases, competition has ramped up among providers,” he told Retail Brew via email, adding that Klarna has “attempted to differentiate itself with AI-powered marketing services and competitive conversion rates.”
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Michael Gunther, VP and head of insights for research firm Consumer Edge, said it’s likely about the demographics of their respective customer bases. “Klarna skews younger, so they’re more dependent on 18- to 24-year-olds and 25- to 34-year-olds compared to Affirm,” he said, citing in-house data.
It could also be a case of Walmart “following the winner,” he said, as Klarna has pushed past Affirm in terms of market share globally.
Different practices: In addition, the two companies have very different business models when you look under the hood.
In 2024, Klarna said 99% of transactions on its network were interest-free, and the interest-bearing products it did offer were underwritten by third parties. At Affirm, meanwhile, 72% of its products are interest-bearing, and the company does all of its underwriting in-house.
The difference is meaningful for investors, some of whom might see the interest-bearing side of these businesses as more sustainable and primed for growth.
Through its partnership with OnePay, Klarna is on track to offer more longer-term loans. This could push the company into untested territory, as it relies more on third-party underwriters such as Pagaya, which recently garnered criticism from a short seller for its financial practices.
There is another difference between the companies. One has committed to charging no fees, while the other draws a substantial portion of its revenue from the practice.
“Regarding consumer value, Klarna generated 17% of 2024 revenue and 135% of adjusted operating income (AOI) from consumer-paid fees, versus Affirm, which generates no revenue or AOI from fees,” analysts for William Blair wrote in a research note. “We submit that only the most biased observer would argue over which is more consumer-friendly.”