Author: Adam Senior

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Simple Overview Afterpay vs Klarna vs Affirm

	Klarna	Afterpay	Afirm
Amount Due at Purchase	25%	25%	As low as 0%
Repayment Terms	Pay 25% every 2 weeks	Pay 25% every 2 weeks	Dependant on loan type
Interest	0%	0%	0% / 10% / 30%
Credit Check Required	Soft credit check	Soft credit check	Dependant on loan type
Late Fees	$7	At least $10 and up to 25% of the purchase price or $68 (whichever is less)	None
Popular Brands Available	Bed Bath & Beyond, Macy’s, Sephora, Nike, H&M	Bed Bath & Beyond, Old Navy, Forever 21, Pandora, UGG	Peloton, Target, Pottery Barn, Walmart.com
Other Financing Products	Pay in 30 days or finance for 6 months	None	Virtual card numbers, Affirm Savings Account, Affirm Debit+ card

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Buying on Credit

Extra charges associated with the main credit providers like Visa, Mastercard, AMEX, etc. have made buying on credit expensive. Besides, not everyone has credit cards and many actively avoid owning one – especially millennials. According to this study, only one-third of adults aged 18-29 in the U.S. own a credit card.

With the likes of Afterpay, Klarna and Affirm, we now have a buy now pay later system that is easy to use for both merchant and customer and often costs no more for customers than the face value of the goods – with no interest!

Of course, everybody still needs to get paid but BNPL arrangements encourage shoppers to buy more without paying unnecessary additional costs. And you as the merchant don’t have to do any of the work to get paid. You pay a small fee to the app service and a small commission on each sale while the app service sets up the payment plan with the customer and collects what’s owing to them. You get paid either way.

You’ve probably heard of these “Big Three” BNPL apps but what are their main differences between them and which one is best for your Shopify business?

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How do these apps work?

Afterpay, Klarna, Affirm, Splitit, Sezzle and so on are all apps that integrate with Shopify stores quite seamlessly. Affirm is now (since June 2021) “baked” into the Shopify Pay service under a formal partnership but that doesn’t mean you have to use Affirm as a merchant.

BNPL apps enable customers to split up their payments and pay less upfront. Some people call them “installment payment providers”.

The option to pay later will be provided during the checkout process – or customers can pay as they would normally do by debit, PayPal or another preferred method.

Normally, the customer commits to paying a percentage of the total costs upfront – 25 percent or a percentage that may vary based upon the cost of the goods – and then they will enter into a payment plan with the service provider.

Importantly, the customer does not have to leave your store to arrange this and it all appears as a seamless transaction.

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Who benefits?

Let’s look at BNPL services as a win-win-win.

The merchant wins because the customers are encouraged to buy more. For instance, Klarna claims that their platform increases average order value by 41 percent and increases overall conversions by 30 percent. 

The customer wins because they can get their products quicker without having to save up the money.

And the app provider wins because they earn fees from the merchant, a cut of every sale, interest fees, and sometimes late fees from customers.

Of course, the last point is important. BNPL are not charities. They make money. Lots of it right now. Most of their income comes from the fees charged to merchants like you and late fees from customers.

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Who’s behind these Apps?

Afterpay is based in Syndey, Australia. Founded in 2014, Afterpay has grown to become one of the main BNPL apps. It was acquired by Square in August 2021 (Square is an American financial services and digital payments company based in San Francisco and founded by Jack Dorsey of Twitter fame).

Affirm is a San Francisco-based fintech company founded in 2012 and its business almost entirely revolves around providing installment loans for customers at the point of sale to finance purchases (buy now pay later).

Klarna brands itself as a “shortcut to shopping”. It is a well-established Swedish organization, a regulated banking company, and it offers a range of online financial services from payments for online storefronts and direct payments to post-purchase payments. Founded in 2005, it has become best known worldwide for its BNPL app.

Some people ask: is Klarna and Afterpay the same company, in short no.

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Who are they designed for?

Practically any Shopify store will find that these apps can help them grow.

They are being used by brands large and small across the world from Nike and Walmart to up-and-coming names in fashion, apparel, sportswear, accessories, makeup, sportswear, homeware, and more.

You name it. There will be a BNPN facility available from multiple brands in the field.

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Main customer features of the “Big 3” BNPL apps

Let’s take a look at the main features offered to your customers if you choose to use Afterpay, Klarna or Affirm in your store.

Credit approvals

Credit approval decisions can often be made in seconds with all three apps. If not seconds, approval can be expected very quickly and should not impact sales.

Mostly, the apps all combine soft checks of the customer’s credit (credit history, age, salary, etc.)  with what is discovered from machine learning and social media activity to approve credit.

There is very little to choose between the apps in this respect.

Some customers have said the Klarna Express button option speeds up the checkout process. Additional merchant fees are charged for this.

Payment and fee arrangements

Afterpay allows customers to buy now pay later with four equal payments over a term of six weeks. The first payment is taken at the time of purchase – so effectively you are paying 25 percent upfront and 75 percent later. There are no interest fees charged but late payment fees will be charged for any payments unable to be collected – up to 25 percent of the order value.

With Affirm, customers can spread the cost of a purchase over a fixed period of 3-36 months. There are no fees (not even late fees) but there is a simple interest rate of 0-30 percent applied depending on the setup. Affirm is designed for customers who want a simple, long-term payment solution for their purchases, often for funding the purchase of large items.

With Klarna, customers can split any purchase into four automatic interest-free payments over a two-month term. No interest is charged but a fee of up to $8 is charged if an automatic payment cannot be collected. For these reasons, it is the preferred BNPL app for customers looking for help over a short or medium timespan – mainly for smaller orders under $1,000. For larger purchases, Klarna may offer finance up to 36 months with multiple payment installations.

Returns/cancellations

Each provider has a different policy regarding payment of charges for returns and cancellations. Customers should be aware that they may be charged interest by the BNPL service even if your store provides a full refund. 

Try before you buy

Klarna provides a “try before you buy” service. Customers can try out products and pay for their order 14 or 30 days after the order is shipped.

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Merchant features of BNPL apps

Payments and fees

With Afterpay, merchants pay a 30-cent fee per transaction and a commission rate fee of 4-6 percent per transaction, depending on the plan you arrange with the app provider. Afterpay does not pay the merchant until the customer has received their items – payment is then made in full.

With Affirm, you are guaranteed to be paid in full within 1-3 business days of purchase. It is also flexible with the payment terms you can offer to customers. Affirm charges merchants a percentage fee for every sale that is conducted through its platform. Though the fees are not publicly disclosed, most estimates are between 2 and 3 percent. Before you commit, check this important detail

Klarna charges merchants a monthly product fee, a fixed transaction fee, and a variable percentage fee. The fees vary from country to country and depend on the payment plan selected by the customer at the time of purchase. Klarna guarantees swift payments to merchants – in full and upfront regardless of the payment arrangement with the customer.

Remember, even if a customer doesn’t pay all installments, the Shopify store owner still gets paid in full with these apps.

Support

All apps unsurprisingly provide good online support during normal business hours but if you expect live 24/7 support, Klarna probably has the best reputation historically.

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Shopify Pay Later App: which app is best?

While the three major BNPL apps all provide great options for installment payments for customers and great benefits for Shopify merchants, the slightly different emphasis and features of each app mean that they are particularly suited to different types of merchants and customers.

Afterpay – typically best for making smaller purchases and is one of the “darling” apps of stores that target millennials.

Affirm – typically best for larger purchases as the payments can be spread over anywhere up to three years.

Klarna – typically best for order values under $1,000, with approval rates of approximately 50 percent for these types of purchases. Lower approval rates for larger purchases

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Buy now pay later: Install now grow later!

Cold feet because of cash flow issues can deter customers from clicking the PAY NOW button at checkout. As we have already noted, millennials are generally less fond of running up credit card debt.

Anything that helps you as a Shopify store owner convert BUY NOW clicks should be embraced.

BNPLapps like Afterpay, Klarna and Affirm help you overcome buyer objections like “Can I afford to pay for this right now?”

While buy now pay later is really another name for buying on credit, it is generally seen as a more friendly and cheaper solution than running up credit card debt and, while these apps may have made their charge during the pandemic, few people would argue that they are not here to stay.

BNPL helps you sell more online, increase repeat purchases of all types of items from customers, and make every transaction seem that little bit easier.

Your choice of app has hopefully been made a little easier too by our breakdown of how each app works. Admittedly, the fee structure is likely to be a major deciding factor in your decision on which app is best for your Shopify store.