Klarna vs PayPal UK 2026: Fees, Features & Which to Choose

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Klarna and PayPal are two of the most widely recognised names in UK online payments, but they serve quite different purposes. Klarna is primarily a buy now, pay later (BNPL) provider that also processes standard card payments, making it a strong fit for retail and fashion e-commerce businesses that want to boost average order values. PayPal is a full-service payment platform covering online checkout, invoicing, pay-by-link, and in-person card acceptance, suiting businesses of almost any size that want a single, trusted payment brand their customers already use.

Klarna vs PayPal: Fee Comparison

What is Klarna?

Klarna is a Swedish-founded payments company, established in 2005, that launched its UK operations and gained significant consumer traction through its buy now, pay later products. UK shoppers can split a purchase into three interest-free instalments, pay in 30 days, or take longer-term financing. For merchants, Klarna takes on the credit risk entirely you receive the full payment upfront regardless of how or when the customer repays. As of 2026, Klarna serves over 18 million UK consumers and is integrated with more than 100,000 UK retail partners.

Beyond BNPL, Klarna also offers standard card payment processing and a hosted checkout experience. Its merchant dashboard provides sales analytics, dispute management, and marketing tools including Klarna's own shopping app, which lists partner retailers. The shopping app had over five million monthly active UK users as of early 2026, giving participating merchants an additional discovery channel. Read the full Klarna merchant review for a detailed breakdown of fees, integrations, and suitability.

What is PayPal?

PayPal is a US-headquartered payment platform founded in 1998, and it is one of the most widely used payment methods in UK e-commerce. It operates two distinct products in the UK: the consumer-facing PayPal wallet and checkout button, and Braintree, its developer-focused payment gateway aimed at scaling businesses. PayPal's checkout button appears on an estimated 80% of major UK e-commerce sites, and the company reports over 45 million active UK accounts as of 2025. Its familiarity alone drives measurable checkout conversion lifts PayPal's own research puts this at up to 28% higher conversion compared to guest checkout.

PayPal also offers physical card readers through PayPal Zettle, its point-of-sale product. Zettle card readers start at around £29 plus VAT, with transaction fees of 1.75% per in-person card payment. This makes PayPal a genuinely multi-channel option in a way that Klarna is not. Businesses processing more than roughly £15,000 per month may be able to negotiate a custom rate directly with PayPal's sales team. Read the full PayPal merchant review for a complete assessment of costs and features.

Klarna vs PayPal: Features Compared

Payment Methods

Klarna's primary differentiator is its BNPL suite. Merchants can offer Pay in 3 (three interest-free monthly instalments), Pay in 30 Days, and longer-term financing plans up to 36 months, subject to Klarna's approval and your agreement terms. Standard Visa, Mastercard, and debit card payments are also supported. Klarna does not natively support PayPal as a payment method, American Express acceptance is limited, and there is no direct debit or open banking option within the standard merchant integration.

PayPal covers far more payment methods out of the box. Customers can pay via their PayPal balance, linked bank account, Visa, Mastercard, American Express, or PayPal Credit (its own BNPL product). Braintree additionally supports Apple Pay, Google Pay, and Venmo for eligible merchants. PayPal's breadth here is a genuine advantage for businesses that want to minimise checkout abandonment by accepting however customers want to pay.

Hardware and In-Person Payments

Klarna does not offer card payment hardware. It is an online-only solution, meaning if you also trade in-person at a market stall, pop-up, or physical shop you will need a separate card machine provider alongside Klarna. This is a real limitation for multi-channel retailers.

PayPal Zettle fills this gap. The Zettle Reader 2 costs £29 plus VAT and accepts contactless, chip and PIN, and mobile wallet payments. The Zettle Terminal is a standalone all-in-one device at around £199 plus VAT. In-person transaction fees are a flat 1.75% per payment. PayPal Zettle is a reasonable entry-level option, though it lacks the advanced till software of dedicated EPOS providers.

Integrations

Klarna integrates directly with all major UK e-commerce platforms: Shopify, WooCommerce, Magento, BigCommerce, and Salesforce Commerce Cloud. It also offers a straightforward API for custom builds. The onboarding process is generally quick most standard Shopify and WooCommerce integrations are live within one to two business days.

PayPal integrations are similarly broad. The PayPal checkout button can be added to virtually any website with minimal code. Braintree offers deeper API integration for businesses that want full control over the payment experience. Both platforms connect to major accounting software including Xero and QuickBooks, though neither offers native two-way accounting sync without a third-party connector.

International Support

Klarna operates in 45 countries and supports 17 currencies. For UK merchants selling into Germany, Sweden, the Netherlands, or the US, Klarna is well-established and consumer trust in those markets is high. Currency conversion fees apply for non-sterling transactions, and rates vary by market.

PayPal supports payments in over 200 countries and 25 currencies through the main PayPal product. Braintree supports multi-currency settlement in a more flexible way, allowing businesses to receive funds in local currencies. PayPal's international reach is broader than Klarna's, but its cross-border fees can add up: typically 1.5% above the standard transaction rate for international payments.

Fraud Tools

For BNPL transactions, Klarna carries all the credit and fraud risk itself. The merchant is paid regardless of whether the customer defaults or the transaction is later flagged as fraudulent. This is a significant practical benefit for online retailers, removing a layer of chargeback exposure. For standard card payments through Klarna, standard chargeback rules apply.

PayPal offers Seller Protection on eligible transactions, which covers unauthorised payments and items-not-received disputes. This protection is not automatic and depends on meeting specific criteria the transaction must be marked eligible, shipped to the confirmed address, and have proof of delivery. PayPal's fraud screening uses machine learning across its global transaction network, which at scale is genuinely powerful. However, PayPal is also known for account holds and fund reserves, particularly for newer or lower-volume merchants, which can create cash flow problems.

Customer Support

Klarna provides merchant support via a dedicated portal, email, and phone. Response times vary phone support is generally faster but is not 24/7. The Klarna Merchant Portal includes a self-service help section with reasonably detailed documentation. UK-based account management is available for larger partners.

PayPal's customer support is a frequent complaint point among UK small businesses. Phone and live chat support exist but wait times can be long. Account access can be restricted or suspended with limited advance notice, which is one of the most consistently reported frustrations. For straightforward queries, the PayPal Help Centre is extensive. For disputes or account access issues, the experience is less reliable.

Pros and Cons

Klarna Pros and Cons

Pros

• BNPL options typically increase average order value by 30 40% for eligible retail categories
• Merchant receives full payment upfront Klarna absorbs the credit and default risk on BNPL transactions
• Strong brand recognition with UK consumers, particularly in fashion, beauty, and homeware
• No monthly fee on standard merchant agreements
• Klarna's shopping app provides additional product discovery for participating retailers

Cons

• No in-person payment hardware unsuitable as a standalone solution for physical retail
• BNPL transaction fees are higher than standard card rates and are only confirmed after negotiation, making upfront cost comparison difficult
• Standard card payment fee of ~0.99% + £0.20 becomes expensive relative to interchange-plus pricing above around £20,000 monthly volume
• Consumer BNPL products are now FCA-regulated, adding compliance obligations for merchants marketing Klarna credit products

PayPal Pros and Cons

Pros

• Checkout conversion benefit is well-documented customers trust the PayPal brand and complete purchases faster
• Covers online, in-person (Zettle), and invoicing from a single account
• Supports over 200 countries and 25 currencies, useful for UK exporters
• No monthly fee or setup cost on the standard plan
• Seller Protection provides meaningful fraud cover on eligible transactions

Cons

• Standard checkout rate of 2.99% per transaction is high at £20,000 monthly volume that is £598 a month in fees alone before any other charges
• Account freezes and fund holds are a well-reported problem, particularly for new or seasonal merchants
• Customer support quality is inconsistent resolving disputes or account access issues can take days
• Braintree requires developer resource to implement properly, which adds cost for small businesses without in-house technical support

Which is Better For...?

Small Online Retailers in Fashion or Homeware

Klarna is the stronger choice here. Consumers in fashion and homeware actively seek out BNPL at checkout, and Klarna's market presence in these categories is substantial. The average order value uplift of 30 40% can outweigh the higher per-transaction cost. Adding PayPal as a secondary checkout option alongside Klarna is a sensible approach the two are not mutually exclusive.

Multi-Channel Businesses with Online and Physical Sales

PayPal is the better fit. Zettle covers in-person sales, the PayPal checkout button handles online orders, and invoicing covers any B2B or service-based work all from one dashboard. Klarna simply does not offer an in-person product, which rules it out as a sole provider for any business trading face-to-face.

High-Volume E-commerce (above £50,000 per month)

Neither Klarna nor PayPal is the most cost-efficient option at this scale on their standard rates. PayPal's 2.99% standard rate on £50,000 monthly volume costs approximately £1,495 per month. An interchange-plus acquirer such as Stripe, Adyen, or a traditional merchant acquirer would typically deliver a lower effective rate. That said, Klarna and PayPal both offer custom pricing at higher volumes it is worth requesting a tailored quote before ruling them out.

Businesses Selling Internationally

PayPal has the edge for international coverage, operating in over 200 countries. Klarna is strong in Northern and Western Europe but has less consumer penetration in North America and Asia-Pacific compared to PayPal's global footprint. If cross-border sales represent a significant share of your revenue, PayPal particularly via Braintree offers more flexibility in multi-currency settlement.

Our Verdict

Klarna and PayPal are not direct competitors in most practical senses. Klarna is a specialist BNPL and online checkout tool; PayPal is a broader payment platform. For many UK online retailers, the smartest approach is to offer both at checkout Klarna for customers who want to spread the cost, PayPal for customers who want speed and familiarity. Running both in parallel is technically straightforward on most major e-commerce platforms.

If you can only choose one, the decision comes down to what you sell and how you sell it. Klarna wins for online-only fashion, beauty, and homeware retailers where BNPL demand is high and average order values are significant. PayPal wins for mixed-channel businesses, service businesses, and anyone selling outside the UK who needs broad international coverage and in-person acceptance through Zettle. Neither provider is ideal on pure cost grounds once your monthly volume exceeds around £30,000 at that point, a dedicated merchant account with interchange-plus pricing will almost always work out cheaper.

Compare Card Fees is a free, independent advisory service that has helped UK businesses find better card payment deals since 2012. Use the Compare Card Fees comparison tool to get tailored quotes from multiple providers based on your actual monthly volume, and see exactly how Klarna and PayPal stack up against the full market.