Why Affirm Outperforms Klarna in the Buy Now, Pay Later (BNPL) Sector

The buy-now-pay-later (BNPL) sector has emerged as a transformative force in consumer finance, with Affirm and Klarna as its two most prominent players. While both companies have capitalized on the shift toward flexible payment solutions, a closer examination of their financial performance, strategic partnerships, and long-term vision reveals why Affirm is better positioned to deliver superior returns for investors.

Financial Performance: Profitability and Scalability

Affirm's financial metrics underscore its competitive edge. In its latest quarter, the company reported a 34% revenue increase to $993 million, far exceeding expectations. This growth was driven by a 42% surge in Gross Merchandise Value to $10.8 billion, reflecting robust transaction volume and market share expansion. Crucially, Affirm's adjusted operating margin hit 28%, a stark contrast to Klarna's -1.5% margin. This divergence stems from Affirm's business model, which prioritizes interest-bearing loans and avoids reliance on volatile fee-based revenue. By contrast, Klarna's 17% revenue contribution from reminder and snooze fees highlights a less sustainable path to profitability.

Affirm's RLTC (revenue less transaction costs) also outperforms, reaching 4.2% of GMV-well above its long-term target range. This margin expansion, coupled with disciplined cost management, positions Affirm to generate consistent cash flow, a critical factor for investor confidence.

Strategic Partnerships and Ecosystem Development

Affirm's strategic alliances further reinforce its advantage. The company secured a $750 million partnership with Liberty Mutual Investments and a $4 billion agreement with Sixth Street Partners, ensuring ample capital to fund its lending activities. These partnerships, combined with a renewed, long-term deal with Amazon through 2031, solidify Affirm's presence in e-commerce, where it captures high-margin transactions.

Klarna, meanwhile, has expanded its U.S. footprint through non-exclusive integration into Apple Pay, a move that broadens its reach but lacks the exclusivity of Affirm's Amazon partnership. While Klarna's GMV ($32.7 billion) remains larger in absolute terms, Affirm's focus on high-margin, scalable partnerships-such as its Affirm Card-demonstrates a more investor-friendly approach. The Affirm Card, which grew GMV by 135% in 2025, now serves 2.3 million cardholders, with CEO Max Levchin targeting 10 million cardholders spending $7,500 annually. This product's rapid adoption and high transaction value suggest a path to long-term, recurring revenue.

Investor Positioning and Long-Term Vision

Analysts project a 32% upside for Affirm and a 54% upside for Klarna, but Affirm's near-term profitability and disciplined growth strategy make it a safer bet. Its focus on margin improvement-evidenced by a 60% increase in RLTC-aligns with investor priorities for sustainable returns. Klarna, by contrast, is prioritizing ecosystem development at the expense of short-term profitability, a strategy that risks underperformance in a tightening regulatory environment.

Regulatory headwinds, including new CFPB rules on dispute resolution, could disproportionately impact Klarna's fee-heavy model. Affirm's reliance on interest-bearing loans, however, offers greater resilience, as it mirrors traditional finance and avoids the volatility of consumer behavior around late fees.

Conclusion

While Klarna's larger user base (150 million globally) and ecosystem ambitions are commendable, Affirm's superior financial performance, strategic partnerships, and scalable product offerings make it the stronger investment. By prioritizing profitability, securing critical retail relationships, and innovating with products like the Affirm Card, Affirm is not only outpacing Klarna today but also laying the groundwork for sustained long-term value. For investors seeking a BNPL leader with both momentum and margin discipline, Affirm is the clear choice.