Klarna Stock

Okay. We are going to get started with the next session. Up next, I'm very pleased to have Sebastian Siemiatkowski here, Co-Founder and CEO of Klarna. Sebastian, thank you for coming out all the way to the West Coast. I know it's very far from where you live, and we're very pleased to have you.

Thank you for having me. It's great to be here.

So we're about at the 1-year mark from the IPO. It's been a very eventful year. A number of different moving pieces in the business between the ramp in Fair Financing, the launch of card products around the world, the PSP default rollouts and a lot of education for the new investor base along the way. As you look back on the first year as a public company, what has played out as you expected? And then where has reality been different from the plan? And where are you focused on executing over the next year?

Sure. Well, look, I think, first, if we take the bigger perspective, long-term perspective, we have 3 segments of payments or spending that we offer services towards the consumer. It's everyday spend, kind of low average tickets. It is the mid-ticket segment, which would be fashion, cosmetics, beauty, et cetera. And then there's been high ticket, which is financing. And just as it has been before the IPO, it has continued to be after the IPO, which was that in every market we enter, the mid-ticket is our entry strategy because it grows frequency, brand awareness, brand preference. And we can train our credit underwriting models based on issuing small amounts of $100 on average, which lets us understand the customer and their payments behavior over time before we start extending the big ticket items, so what we call Fair Financing, which is basically point-of-sale installments.

About 2 years ago, we started focusing in the U.S. and also in the big ticket segment where we have been quite small before. And we've seen great success, in our opinion. We have signed Walmart. We signed Apple. And as a lot of, to your point, have followed, Fair Financing has grown a lot as a share in general in the market. So that's very much according to our strategy, as we always do. And obviously, it comes with more revenue and transaction margin dollars. So all of that very much according to plan. And we're excited to see that Fair Financing took off so much since it's a competitive market, but we see that the offering is in demand, both from the merchant side and the consumer side.

I think in general, if I look at like -- I mean, if I look at the fact that revenue was up in Q2, 27%, transaction margin dollars 42%, ARPU 24% year-on-year. So all of that great, right? Where we fell short, Germany. In May, we assumed Germany would firm -- second half would be firm, right? But then what we started seeing is -- and I think this is important to remember, we do 3.8 million transactions a day, right? So we actually see these things before the statistical office sees it. And on August 18, we adjusted on what we saw, which was about 3% of volume guide, even though we adjusted up our transaction margin dollars for the year. And we got the confirmation on the first of September when the official federal statistics office of Germany, Destatis, published that online sales in the -- in Germany was down against expectations 5.6% in July.

So again, like we -- I mean, if you think about it, we built this company for the 10-year ambition, and that's kind of what we still run that way. But you rightly hold us to the number we said in May, and we miss -- a miss against that number cost credibility against that 10-year plan. So going forward, the rule is guide to what we can see and change the guide when we what we can see changes, so -- at all our quarterly reports.

And when you talk to investors kind of in the days after the print, what do you think is being misunderstood or underappreciated about the quarter or the underlying trajectory of the business or execution along that 10-year plan?

Look, the market is the market. So I understand why people anchor to volume, but volume fluctuates, right? You will have a seasonality effect, there's currency effect. There is also the lapsing of big partnerships that may impact numbers and so forth. So I think still that like we still believe that the right focus is the transaction margin dollars and how that develops. And we're very pleased to see that development in last -- over the last quarters.

So maybe let's touch on Germany a little bit. It got a lot of attention in earnings. It's Klarna's largest big -- it's Klarna's largest market. So I think it would be helpful if investors maybe understand the complexion of that business for Klarna. My understanding is that the German volume is relatively low take rate, very high margin. So maybe we can do a little bit of an education on what that market looks like. I assume it's heavily pay now and pay later. What does the volume look like? And then how do transaction costs differ in that market versus other markets?

Yes. So I think it comes back to the fact that Germany, just like many other European markets, the primary reason people use Klarna is not for lending. It is for what we call actually the ability to kind of touch and see the package before you pay for it. So in e-commerce, that's the big, big thing. So you're using credit as a way to increase your safety when shopping online as opposed to a lending factor. So that's a big difference that applies to these European markets. And then what we see is high frequency. The people shop a lot with Klarna. It's a very well-known, renowned brand in the German market.

What is different also is that if you look at Klarna in general, actually, not everyone, I think, notices this, but the biggest cost of Klarna is actually payment fees. Higher than what we provisioned for credit. So -- but that's not true in Germany because in Germany, we primarily fund through very cheap ACH-based type of funding mechanism. And that allows the kind of gross margins being more in the 50s, 60s on those transactions.

The other thing is, again, that it's very much what we refer to as spend-centric, not lend-centric. So Germany is not the market where financing is as large. There's still potential to grow it. There's more opportunity. But generally speaking, a lot of it is just paying back within the 30, 60 days that allows us to turn the books 10 times a year because you have that velocity of spending, but short duration credit.

Got it. Okay. That makes sense. Maybe switching over to the U.S. business. The U.S. has been growing rapidly. What should we expect for the U.S. in the coming years?

Well, we saw 27% growth of the volume last quarter. And it -- we're very pleased with that. It's our largest market now by revenue by number of users. It's 30 million users. And what we see is that if you look at Klarna in that mid-ticket segment, as we talked about, if you go to any merchants that you would find in that luxury -- sorry, not retail clothing, if you look at beauty, cosmetics and so forth, you will see Klarna very prominently across those. I mean we recently, for example, announced Ulta Beauty as an example and so forth, right? So there we have that presence and -- which is very critical in how we execute the strategy in each market.

And then we're adding more segments. You could see potentially, some of you noticed, we announced Southwest Airlines. So we announced -- which also generally tends to be in that ticket segment actually because those are cheaper airfares. But then obviously, the big opportunity has been to grow into the financing and high ticket spend where we see a lot of opportunity and recently announced both Walmart and Apple this last year. So that is still a big opportunity. And I think that especially when you compare not necessarily to other peers that we often get compared to, but if you look just like at incumbents of that space, point-of-sale installments and lending in the U.S. still has large room for growth in additional verticals in offline so forth.

So I guess with that as context, do you feel like -- where do you feel what inning are we in? I don't know if the inning is too American sports. But where are we in that build-out of the growth in Fair Financing and the maturation of that part of the business?

Yes. I think that one thing that we tried to highlight is that if you look at -- because we -- over the years, we found that, that high-velocity, spend-centric product is the core and foundation of the business and Fair Financing is this additional opportunity to grow into to earn more revenue and so forth, right? So to us, it was always critical to win in that mid-ticket segment. And if I look at it for the U.S. market, even though there's been discussions and highlights, as you said initially, that like Fair Financing has grown a lot, and it's true, it's grown a lot in the U.S.

If you look at it historically, in the 20 years Klarna has existed, the share of Fair Financing compared to the more buy now pay later like the mid-ticket is still actually lower than in the most extreme years, right? So we think the balance is getting healthier between those 2 products in the U.S. and we still see a lot of opportunity in the Fair Financing segment where there's a lot of money to be done. But the balance between that is very healthy. And it's important for us because you have to remember that our outstanding balance on a customer, in general, at Klarna is a few hundred dollars, which still compared to a credit card the average outstanding balance is $5,000. And we like it like that. We like it that it's high velocity, spend-centric.

We see the direct -- and we can make adjustments in our underwriting, and we can refresh our balance sheet in less than 6 -- half of our balance sheet in just 60 days. So it gives us a lot of agility to -- in how we manage our risk.

So maybe sticking with some of the more recent partnerships. You recently announced a partnership with Apple. And I think there's a lot of -- a lot of interest in hearing more about your expectations there. I understand you're probably limited in terms of what you can say, but -- maybe we could try it this way. Can you talk about how the deal came together? What made Klarna a good choice for the partnership? And then second, can you talk about the broader context on Apple financing in the market. There historically have been other providers of credit. How is Klarna going to be positioned relative to other options to finance Apple products going forward?

Well, to tell a funny anecdote, I was here 11 years ago, pitching for the Apple deal back then when the company that we currently replaced won the deal. So obviously, I'm very happy to see that we, this time around managed to come to it. At that point of time, we were basically absent in the U.S. It was probably a little bit early to win that deal at that point in time. Now -- no, I mean we've had a long partnership with Apple already on Apple Pay, on other offerings together. And we were very pleased and happy that like when they approached us about the opportunity to think and kind of rethink the upgrade program, they found us to be a partner to sit down and think through how can we do this in an even more attractive way for the consumers, how can it relate to?

I think what I'm also very proud of is, in my opinion, Apple is a company that has product quality at the very, very top, the experience and all that, which is what I aspire for with Klarna as well because that drives, again, the preference and the conversion rates and so forth with our services. So we were very pleased that we got the opportunity to pitch and then finally also win this deal. And today, it's a big day as they're announcing new devices. And so it's a very -- we keep a close eye on it, it's fascinating.

Yes. No, it's certainly an exciting partnership. We're definitely excited to follow along and hopefully track the performance. Another big topic that I mentioned at the top of the conversation is around card. You crossed 5 million active after the global launch across multiple countries, multiple continents, can you talk about how the card is impacting the near-term numbers? I know there's issuance costs, there's scoring costs upfront. Longer term, what impact do you expect it to have on the mix of volumes between the 3 main products and maybe talk about if it's leading more towards everyday spend like the core business or if it's driving a higher mix of financing like we've seen at some of the competitors.

Well, it's actually 6.5 million active. So it's had a good quarter. I think that the -- look, to us, the key strategy there is that, again, if we zoom out a little bit, look macro, we saw that in general in financing, retail banking, taking Amex as an example, other companies, the point is that the biggest barrier of entry is customer acquisition costs. That's what's most expensive. So when we thought about our strategy long term, we said that like we have this amazing merchant network. We have these merchants that find value in offering Klarna to their consumers and that becomes a very, very attractive and efficient customer acquisition channel that is very, very low in cost compared to, I don't know, stand in the airport and try to sell you a credit card. So -- and that has really been the first phase of this, which is how we scale to 130 million users.

And now we're in that second phase, where it's all about, okay, how do we take this relationship, somebody saw us online at one of the big retailers, tried it, liked Klarna, how can we then increase the frequency of purchase, get them to use the app? Explore the app and its features and then eventually turn that into a card experience. And we launched that about a year ago. We're very pleased with what we've accomplished so far and the adoption rate of it. And we see it in the ARPU, right? Like because what happens, obviously, is the customer that goes from shopping with us occasionally online, when they transform into the card, it has very significant impact.

As I mentioned, the growth in ARPU that we've seen. So for our long-term strategy, this is exactly what we were planning for and now are executing on, and we will continue to focus on this and the membership and subscription as well, which is part of the kind of how this all ties together.

And any commentary on how customer behavior differs on the card between different markets? Are there any notable call-outs in customer behavior?

Well, I can add to what you asked me earlier and I actually forgot to answer, which is like the payment mix. I think that like in general, we think about the card as a vehicle, right? It's basically people who like using us online, whether they used us for, which is most common, obviously, the kind of buy now pay later mid-ticket segment. We then have a fairly large group that uses us for everyday spend, uses our debit products as well. It's still a significant part of our volume. And then we have the Fair Financing. And the card for us is just basically enabling people that optionality in store.

I think that some of you may remember, at least when I used to work at Burger King back in the days when people swiped their card, they used to press 1 for debit and 2 for credit. And then the credit card companies removed that because people wouldn't revolve and build as much of a balance and wouldn't put themselves in as much of debt, right? And -- but we see that there is true consumer demand for that control experience that, that gave you. Customers want that optionality. Every time they pay, not -- obviously, if you're in Metro, you just want the debit. But for a lot of purchases, they like that optionality of themselves being in control of debit and credit. And I think that's what -- when we talk to consumers in the U.S., it is -- that's why our NPS is high.

That's why we're getting a new audience because these are customers that are looking for that, the responsible people that want to be in control, and they find the traditional products of the bank and the credit cards to not give them that level of control. So that is really the thing that we with the card are bringing to the physical world as well, which is highly appreciated. And that kind of is reflected. So the mix of how they pay depends obviously on what they're purchasing.

Yes, makes sense. Okay. Maybe let's talk distribution. PSP partnerships was one of the major changes to how Klarna distributes the product around the world. Moving from merchant by merchant integration to default placements through PSPs like Stripe and Worldpay and JPMorgan. So it's a 2-part question. First, can you just talk about the strategic benefits of being default rather than an add-on alternative payment method at these processors? And then second, at a high level, can you walk through what the economics look like. I think there are some investor questions around whether this channel has an impact on pricing or economics or whether the volume kind of like-for-like is the same. So maybe you could talk through those 2 pieces.

Yes. I think that it's all about what we call like Visa, Mastercard parity, right? So you want to be accepted. You want to have as many acceptance points as possible. That is additionally important when your primary customer acquisition channel is to be present at the checkout, right? Because the more acceptance points you have also means that you're growing the number of user base and the number of people that use the product. So what we concluded is that people have chosen different strategies.

Some companies in our sector tend to offer both PSP acquiring products and buy now pay later products. And we saw that we did not want to compete with our distributors. So we have chosen the path of being pure in what we do, and that has strengthened our relationships. But there's a few other things that were important. The other thing is if you work with these large PSPs like a Stripe or a JPMorgan and so forth, for you to truly be able to be default. So what does default mean, right? It means the merchant comes to them and says, "Hey, I want to sign up for payments." Either they get Visa and Mastercard and then they have to take the additional choice of adding Klarna or some buy now pay later provider or it's part of the default standard package. And our Holy Grail was always to be default. Be part of that standard package that you get when you sign up because we knew that we were going to reach millions and millions of acceptance points, that's what's going to be necessary to work closely with these distributing partners. That's important. But for that to be relevant, you have to have a few things.

You have to have international presence because a lot of the retailers will not sell to a single market. So you can't -- the problem for the PSP will be, well, we can only turn them on default in one market but not in the other. So they like the fact that Klarna offers so many markets that we have so broad coverage because that allows them to really make it default, right? Second, you need to have payment methods that are relevant for low-ticket everyday spend, mid-ticket that I already spoke about and the high ticket. So that if you're on a subscription merchant or some other, you still have a relevant offering because otherwise, again, it's not viable to say you're default because you will have to select which of your merchants this is actually a relevant product for.

So those were very, very key for us to have all types of payment methods, debit, credit, high ticket, medium-ticket and international presence, and that has unlocked this ability to then go default with these large partners that do trillions and trillions of dollars of volume and that now grows. As you saw, we have a significant growth this year in number of acceptance points and merchants as a consequence of that. And we continue to believe going to be an important part of strategy and the foundation for continuous growth for the coming years.

Yes. And just on economics, how does the PSPs price Klarna when they distribute it?

So it depends, obviously, because these partners depending on whether they're SME-focused or enterprise-focused will price differently. But for us, it's very effective and great distribution channel. And I would also say, in addition to that, you have to remember that it actually means less sales cost, right, because we don't need to do the sales ourselves. We don't have to have salespeople calling all these merchants. We don't have to do the same level of marketing. We get more through the distribution channel. So we find it a very cost-effective distribution channel.

Got it. All right. I want to talk through the topic of AI and operating leverage. Klarna has talked a lot about being an early adopter of AI internally. Margins have improved, but are still relatively close to breakeven at the moment. So how do you think about the ability to bend the cost curve over time? And then how do you think about the incremental margin profile of the company from here?

Yes. So we -- I mean what we've already publicly shared, right, is that we were early to launch one of the first like AI customer service agents. At that point of time, the equivalent of about 700 people's jobs. Since then, we now -- I think the last -- 6 months ago, something we shared a new updated metric that was 850. So it's actually growing that share. And it's very cost-efficient. We, at the same point in time, try to communicate effectively that in the world of AI, we think AI is going to be the cost-efficient, fast customer service. I can see like, for example, the most important metric was actually that customer resolution time when chatting from a human was 12 minutes and an AI was 2 minutes. So it really made it much faster, right?

But we wanted to offer a human support as kind of the VIP experience with higher quality. At the same point of time, if you look inside the company, we used to have a revenue per employee of about $400,000. It's now $1.4 million. So we've doubled revenue in the last few years, and we have recruited less than the natural attrition of the company. So we have not done any major layoffs. We have simply made sure that the recruitment rate is lower than the natural attrition rate that usually for a tech company like us runs in the 15% to 20%. And then we have proactively sought out efficiency opportunities in the company where I would argue that AI has contributed. It's not always -- obviously, some of it is just efficiency gains that we've had by the focus of it. But that then has grown revenue per employee to about $1.4 million as it is now with the combination of those 2. And we continue to be very optimistic that AI allows us to continue on that path of productivity, revenue and cost optimization throughout the company.

So I think we -- what I hear and I talk to others, I get the impression that we are fairly far in the adoption and learning of how to utilize this internally, and there's a good understanding of it, which is helping us in that regard.

And efficiency is important, but maybe switching gears to more revenue opportunities around AI. Can you talk about how Klarna is positioned for agentic commerce and how you think about the pace of scaling of broader agentic commerce volumes?

Yes. So I think, again, the most important to me is that you have preference. If you have preference with your consumer, it doesn't really matter if it's agentic commerce, other commerce. You will have preference and you will have volume and growth that's the key one. But taking that aside, no, I think it's very exciting for us. We have announced some partnership with OpenAI. One of the reasons they were interested in working with us is because for every transaction we do different than the traditional networks, we carry SKU-level data. So what that means is we understand not only that you spent for $200 at that merchant, we often know exactly the items and products that you bought. And as you think in a world of agentic commerce and personalization, that kind of information becomes extremely valuable.

The more the agent knows about you and your purchase habits, the more likely it is to be able to recommend you and help you. So there's been great demand in partnerships because of that unique aspect of Klarna and also the fact that we actually operate one of the largest product catalogs across Europe and the U.S. in the world. I think Google Shopping is large one, but then after that, this is one of the largest. This is due to an acquisition we did in the Nordics a few years back. And that's also helpful because for agentic commerce to function, it's important to know not only what products exist, but know what exact price they're being sold at right now and what exact inventory exists right now. And this is what that brings to the mix. So that has also been in great demand. So I think there's a lot of strength in Klarna that allows us to be very relevant in the agentic commerce space.

Yes. Okay. I'm going to jump around a little bit. But I wanted to talk a little bit about the broader thesis on Klarna from an investor perspective. I think that thesis since the IPO has been that as Klarna expands into higher-margin products, higher-margin geographies, Fair Financing in U.S. playing a role there. You could see gradual expansion in the transaction margin after a period of depression kind of late last year as a lot of these products are scaling. So margins are on pace to exit this year, still a bit below 2024 levels. Is that the right thesis to think about the trajectory of margins over the long term? And how do you think about the time line to which we could see stronger unit economics play out in the form of higher margins?

I think we have focus very much on the transaction margin dollars because we think that going forward is the right metric to talk about and focus. So we're hoping to -- we hope that people have noticed. I think that the -- that is the key thing that I focus on every day into the business is like how do we grow that transaction margin dollars? What's -- what are the activities that we can take. And if you look at it generally, if you come back and focus on the buy now pay later, the mid-ticket segment, I'm very pleased to see that the transaction margin in the U.S. has improved significantly from a year ago. It's now in the 23% gross margin -- transaction margin kind of level. And if you look at our established markets, it's in the 60s, that's what some of the established markets are. So I think that is obviously a continuous focus for us.

Okay. That makes sense. Another question that we got post the quarter was just on the cadence of volumes in the back half of the year. You mentioned a couple of large partnerships, Apple, in particular, Southwest that are going to be ramping. The question that we've gotten is you're lapping a period of really impressive implementations last year, Walmart, Airbnb, eBay, Expedia, all the names that we talked about at the time of the IPO. And so can you talk about the shape -- can you talk about how pipelines look today versus a year ago? And how you feel about the cadence of new merchants coming on board in the back half of the year?

I think you mentioned already, the ones that you mentioned, I mean, Apple just went live about a month ago, and obviously, today with the announcement. So -- and then Southwest Airlines, I'm not sure is live. I think it's only announced that the partner is it live as well, Niclas? It's announced, but not live, exactly. So the point is that that's obviously an interesting new experience for us because as a private company, these things wouldn't matter as much. It would be like, yes, they're going to come live eventually. Now we are obviously much more focused on the exact timing, the lapsing and so forth. But generally, if I look at the pipeline, there is -- we are still a tiny fraction of the total payments volume in the U.S.

If you look at any report, it will tell you that buy now pay later is taking market share that it is growing as a phenomenon. There's adoption among the consumers. And there is still a tremendous amount of merchants, specifically in new verticals and segments that still do not offer it compared to what we're used to in Europe because you have to remember, in some of our markets, if you look at the more -- like the very old markets that we've been for a long period of time, be it in the Nordics or in the German-speaking countries, you will see Klarna across every vertical. Every type of merchants and so forth. And that's definitely not the case in the U.S. yet and not in some of our newer European markets like Spain, France and Italy. They are also showing great growth, but not true in the U.K. either. So I think that, that like vertical expansion is one of the big opportunities going forward. And obviously, we try to make sure now that every time we lapse a big launch, we try to make sure there's a new one coming in. That's part of the focus.

Yes. Okay. So obviously, a lot of growth in the business, a lot of new volume coming through the pipes. One of the questions that we've got post quarter has been around the funding strategy and the philosophy around how Klarna is kind of managing the balance sheet for some of the exceptional growth the company is putting up. So as you think about that, as you think about the move to some of these loan sale agreements over the past year, how do you view the funding strategy longer term? Is this a permanent shift? Or is this a change in the funding strategy to accommodate the outsized growth in some of these partnerships that you're seeing?

So the core advantage and an important aspect has been that like over the economic cycles that I have been with Klarna. Even I was in Klarna in 2007, I've seen it in 2013 and so forth. The best form of funding is deposits. Deposits is the best stickiest. And in addition to that, what's really attractive about our deposits is that they are fixed term long durations, 12 months. So it means that they are very sticky, very long-term durations compared to, as I said, our balance sheet that we turn around so often. That's the key, and it's also a very cost-efficient way.

Now what we have increased in the last year is that we have -- thanks to the amazing work of Niclas. We have increased the amount of forward -- different forward contracts, different ways to offload the balance sheet and so forth. And that comes at some expense at the margin, but it also unlocks even more capacity. I think that what you see is that if you think about it in decades, what you're going to see is in because you always focus on the return on equity and you think about how you manage your balance sheet and the volume growth, you're going to see in heavy expansion areas that it's smart to use these forward contracts and these additional levers to allow yourself to really keep the growth pace that you want. And then in other parts, in phases where you are seeing slightly lower growth, you may bring some of that volume down -- volume back, sorry, not down, but volume back in order to increase your return on equity and the profitability of those deals.

So that's just a smart way to build a bank and to grow a bank over like a very extended period of time. And I see that with some of our peers when they slowdown in growth, they start bringing more volume back. That increases their profitability and returns because that's the natural thing to do when you're in that pace. It's just a question of where you are. We have been in a very expansive phase. We have expanded a lot in the last year, and it's been natural as a consequence to -- also for diversification reasons and so forth, to use more of these contracts. And I think right now, it's the right thing to do so. Might be over time, in a few years, we start bringing some of that back again. So it's just a question of where you are in that cycle.

Okay. Maybe if you could just talk about investment spending. I know this is one of the comments -- one of the comments you made on the earnings call that Klarna is investing in growth in the back half of the year. Can you talk through the complexion of those investments and how you think about the return on that spend?

Yes. I think -- I mean, we are very much a retail business, more than maybe somebody -- sometimes people recognize. So it means that we have a lot of volume in the fourth quarter. A lot of seasonality due to e-commerce and Christmas sales and all of that on Black Friday and all of these things. This obviously also ties to where we tend to do a lot of our marketing and activation strategies with our merchants. One of the things I find very interesting is that if we take any merchant, right, what will tend to happen is when we do marketing activities and if we do them at the right time of the year and if we do it in the right way with our partners, what happens is you will see us be, let's say, at this share of checkout, then during the marketing activation, it will grow dramatically. But then after the marketing money is spent, it will come back and stabilize at a higher level than it was before, right? And this is what's very fascinating.

So we try to do that at the end, especially during -- we take these opportunities during Christmas sales and so forth to make that investment because it helps us next year, right? We grow that share of checkout through these. So that's part of the focus for Q3 and Q4, and that's what you're also seeing in the numbers that there will be more of the spend. And that's kind of one thing we have done historically always because it really pays off in the long run.

Got it. All right. We've got about a minute left. I want to just hand it over to you for this last point. Klarna has been an innovative company. Has been around the block for many, many years, still growing very rapidly. What can we expect in the coming years from a product and a business perspective?

Well, look, some of you may have noticed, I decided myself to purchase shares recently. So I'm a big fan and supporter of the company, and I believe in its future. I -- right now, the focus is on the transaction margin dollars and eventually to turn that into EPS when that materializes. That's the focus. I think that the services we have, the market coverage we have today, the products we offer, there is not much more to wish for us, to be honest. What it is more about is how do we get the adoption rates up. How do we get more users?

Like some of you may not even be familiar. We actually have Klarna Mobile in the U.S. A few thousand subscribers are using us for phoning with them, right? Like -- so there's a lot of features live, but the question now is how do we grow the adoption rate of these products. And that's the phase that we're in right now. And that all translates into the growth of the transaction margin dollars, whether it's products that are balance sheet -- has balance sheet implications or products like subscriptions, marketing revenue and other products that doesn't have any balance sheet implications or any risk associated with it.

So like right now, it's just like it's not doing more things. It's doubling down on things that work and really focusing how that comes through into the transaction margin dollars and then eventually longer term on the EPS as well.

Okay. Understood. That's a great place to leave it. Sebastian, thanks for joining us today. Really appreciate the conversation.

Thank you.

Hello, everyone, and welcome to Klarna's Second Quarter 2026 Earnings Call. During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC.

During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period in 2025. [Operator Instructions]

Before we move to Q&A, we will begin with a brief presentation. Sebastian, please go ahead.

Good morning, everyone, and thank you for joining. This was a good quarter. We delivered above the high end of our guidance on every line for the second consecutive quarter. Revenue grew faster than volume and transaction margin dollars, which is our most important metric, grew faster than both. Volume was up 18%, revenue up 27%, transaction margin dollars up 42%. Adjusted operating income reached $91 million, up $62 million year-on-year, and net income was positive at $9 million. Our operating costs grew just 16%.

We are investing in our business whilst delivering strong operating leverage, which is what we have been building toward. As I said, we measure our progress in transaction margin dollars. That number shapes how we build products, how we price and how we underwrite. And because operating costs grew far slower, growth in transaction margin dollars is what over time turns into earnings per share. On our last call, we told you what to expect for the year, transaction margin dollars compounding at roughly 30% ahead of revenue. That is the shape we described in May and is the shape the year is taking.

I'd like to review our three business areas, which cover the entire consumer wallet. Everyday spend with the payment option of Pay in Full for purchases under $75 with high frequency. In this business area, we monetize through payment fees, subscriptions and deposit interest. Transactions here are no balance sheet risk. Pay in full contributed $3.6 billion of volume this quarter and subscriptions reached 2 million subscribers.

Lifestyle spend or Pay Later is the payment option for purchases between $75 and $500 a purchase. This is our marquee 0 interest short-term fixed installments product. It is the equivalent of and has the economics of charge cards over 30 to 90 days. Spend-centric rather than lend-centric, and the reason why our book turn is 10x a year. Pay Later grew 13% this quarter.

And big-ticket spend or Fair Financing, which is designed for purchases between $500 to $10,000. These are fixed term installments, and it's our fastest-growing product, up 82% year-over-year to $4.7 billion, offered by 256,000 merchants now, up from 151,000 when we first spoke to you in November. In the U.S., it more than doubled.

We're happy with the balance between these three, making sure we have an attractive offer for every purchase our customers make and with the effect it has on transaction margin dollars. Worth highlighting, Fair Financing is now 13% of our total volume. In the early 2010s, it was roughly 1/5 of Klarna's volume. And in Sweden, our most mature market, it held 16% to 20% for a decade. So Fair Financing today share of volume is still lower than historical averages. And the average Fair Financing balance is $400 on a fixed term with a known payoff date against a $6,700 average American credit card balance, which again reflects the fact that our customers borrow responsibly.

We believe every market we operate in follows the same path and has the potential for strong transaction margins. Volume first, then scale, then the margin follows. We have run that sequence enough time to know what it looks like. In total, transaction margin reached 43% of revenue, up 4.5 points in 12 months. The U.S., our fastest-growing large region this quarter, went from 14% to 23% in the year. Global ex-U.S. sits at 54%, up 4 points. And the markets where we have operated longest run at roughly 60%. This quarter, the margin expanded while volume kept growing in the U.S. and everywhere else, both at once. We measure our progress in transaction margin dollars, and we continue to convert more of our volumes into them.

Five business updates to highlight this quarter: Klarna membership reached 2 million paying subscribers, 8x a year ago, and subscription revenue grew over 600%. Recurring revenue like this is high margin and worth noting, almost no GMV with it. This decouples our growth over time from GMV. It grows transaction margin dollars directly, part of how transaction margin dollars grow faster than volume.

The Klarna Card reached 6.5 million active users across 16 countries, up from 1.3 million a year ago. On our first earnings call in November, that number was 3.2 million. It has more than doubled in 9 months. Last week, we launched new membership plans built on what consumers actually want: cashback and benefits.

In May, we told you JPMorgan Payments would launch later this year. It went live on August 6, ahead of peak season. JPMorgan Payments is the largest merchant acquirer in the United States, processing $2.6 trillion of payments a year and every merchant on their platform from boutiques to big box can now offer the full Klarna suite, Pay in Full, Pay Later and fixed-term installments through their existing setup with no new integration.

We recently announced that Klarna is the partner for Apple Upgrade, a new device leasing program available from Apple. This is a natural extension of our big ticket strategy. Consumers apply at Apple and then pay and manage with the Klarna app, creating a direct relationship with new U.S. consumers that supports Klarna's ability to grow engagement, ARPAC and profitability.

And consumer credit keeps performing better. Delinquencies improved again this quarter and provisions have declined the share of volume every quarter since our first report as a public company.

Before I hand over, I'd like to mention two things. First, we have adjusted our annual volume outlook to reflect a softer-than-expected German consumer and changes in FX. Niclas will explain both.

Second, in early '27, we will make two leadership transitions. Niclas Neglen, our CFO, after 6 years at Klarna and an extraordinary period of growth and transformation, he told me with plenty of runway, and I respect that. This is an early heads up, not a goodbye. Nothing changes tomorrow. Niclas remains CFO and will continue to lead the finance organization and investor engagement, supporting a transition into next year, including in his capacity as Board member. The search for a New York-based CFO is underway.

And David Sandstrom, our CMO for 9 years, will also hand over during next year in the same planned way. In those 9 years, David built one of the most recognized brands in global finance, and he hands it over the same way Niclas hands over the numbers, deliberately and from strength. Both Niclas and David have been great contributors, and we are grateful for all the work.

Nothing about them changes what we're building or how we run the company. The best evidence is the quarter we just delivered and the transaction margin dollar outlook we are raising today. Niclas will take you through it.

Thanks, Sebastian. It's been an extraordinary 6 years, and I'm deeply proud of what we built together. I'm very pleased we've been able to plan the transition in a way that gives Klarna plenty of continuity.

Now to the numbers. Let me take you through the financial highlights of the quarter and then spend some time on our outlook. Starting with the P&L summary for the second quarter. The business executed strongly, and we delivered above our guidance. Total revenue was $1.042 billion, up 27% and ahead of volume growth of 18% as our mix continued to shift towards higher-yielding products.

Transaction costs were $596 million, up 17%, well below revenue growth, reflecting improved underwriting and scaling of our offloading programs. Transaction margin dollars were $446 million, up 42%, well above the $375 million to $395 million we guided in May. Our transaction margin dollars was 42.8% of revenue, up approximately 450 basis points from a year ago, with both the U.S. and our global ex business expanding.

Non-transaction-related operating expenses were $419 million, up 16% as we invested ahead of peak season and ramped marketing around the World Cup in the U.S. Our operating expenses growth is well below our revenue and TMD growth, and we expect to continue that. So TMD conversion is high. That gap of 42% TMD growth against 16% operating expense growth is operating leverage Sebastian described. Three years ago, our transaction margin did not cover our adjusted operating cost. Today, roughly $0.56 of every additional transaction margin dollar reaches the operating line.

That takes us to operating income of $27 million, an improvement of $73 million and an adjusted operating income of $91 million, up $62 million. Net income was $9 million with the basic diluted EPS of $0.01 against a negative $0.14 a year ago. We are delivering real operating leverage with volume, revenue transaction margin and profit each growing faster than the last.

Total GMV in the second quarter was $36.6 billion, up 18% year-over-year. This was 15% on a like-for-like basis, reflecting the lapping of the Q2 '25 Fair Financing launch and less of an FX tailwind than the first quarter. GMV growth was broad, and we delivered growth in every geography.

The U.S. delivered GMV of $7.9 billion, up 27% year-on-year and was our fastest-growing large region. Global ex-U.S. GMV was $28.8 billion, up 15% or 12% on a like-for-like basis. During the quarter, some markets, most notably Germany, grew at a more measured pace, whilst our performance across our more mature Nordic markets accelerated. I will speak in more detail to the volume outlook in a few pages. U.S. share of GMV rose 2 percentage points year-over-year to 22%, while U.S. transaction margin grew 9 percent points to 23% of revenue, exactly the trajectory we want and a structural reason why TMD growth outpaces revenue growth.

By product, our Fair Financing, our point-of-sale installment product, grew 82% year-over-year to $4.7 billion in GMV with continued merchant and market rollout and is now offered by 256,000 merchants. Higher engagement products like Fair Finance and the card generate stronger transaction margin per dollar of GMV as they mature. And as you have seen, are a key reason for our strong profit growth in the quarter. Pay Later, our charge-card equivalent, grew 13% and Pay in Full, our everyday spending product contributed $3.6 billion.

Now to revenue in more detail. Transaction and service revenue was $707 million, up 17%, broadly tracking volume with continued strong growth in membership fees with subscription revenue up over 600%. Interest income was $266 million, up 21%, driven by new originations and continued recognition from loans originated in prior periods and the lapping of the launch of Fair Finance in the second quarter of last year. Gain on sale was $69 million, driven by both the U.S. forward flows and the German back-book sales.

U.S. revenue grew 37% to $376 million, ahead of U.S. volume growth of 27%. The higher take rate in the U.S. reflects the contribution of interest income and gain on sale of originations from previous quarters, where Fair Financing is most established. Global ex-U.S. revenue grew 22% to $666 million or 18% on a like-for-like basis, ahead of volume growth of 15%, with Fair Financing, the card and membership fees driving this faster growth.

Transaction costs were $596 million in the second quarter, up 17%. Within that, processing and servicing was $233 million or 0.64% of GMV, down from 0.79% in the first quarter, which carried the servicing of a higher fourth quarter originations. Provisions for credit losses were $192 million, growing slower than volume. So provisions declined as a share of GMV to 0.52%. That rate reflects continued underwriting improvements, growing forward flow arrangements and the natural maturation of our Fair Financing book. The dollar growth follows the size of the book. Funding cost was $171 million, broadly flat sequentially at 0.47% of GMV.

We delivered a strong transaction margin dollar result of $446 million, up 42% or 39% on a like-for-like basis. As a percentage of GMV, that is 1.22% or 1.14% adjusted for the one-off sale. In the U.S., transaction margin dollars was $88 million, up 126% year-over-year, more than 3x the pace of revenue growth, which was 37%. That takes the U.S. margin from 14% of revenue a year ago to 23% in the second quarter. Sequentially, it was modestly below the first quarter as we completed a back book receivable sale in Q1 that we did not repeat.

Global ex-U.S. transaction margin dollars was $358 million, up 30% at a 54% margin, up 4 percentage points year-on-year and sequentially higher than the first quarter as we executed a back book sale alongside the launch of our German forward flow during the quarter. Ex-U.S. volume grew 15%, revenue 22% and transaction margin 30%. Our most established markets run at approximately 60% transaction margin. The 450 basis point uplift we delivered this quarter closes more of that gap.

Consumer delinquency rates remain healthy across both product lines. Here are the U.S. delinquencies. The green dots represents our newest cohorts of origination from 1Q '26. As you can see, they are lower than our 4Q cohorts, representing a sequential improvement. Comparing each vintage at the same point in life, Fair Financing delinquencies 30-plus days past due fell approximately 20 basis points quarter-over-quarter. Pay Later improved approximately 30 basis points on the same measure, in line with the same period last year. Our global ex-U.S. book improved on the same basis with recent cohorts down both quarter-over-quarter and year-over-year, and you can find those metrics in our supplementary data pack.

This is a short duration, high-frequency credit with the portfolio turning over 10x a year with an average consumer balance of just $124. We underwrite every transaction individually, starting customers with small balances and scaling exposure only as we build confidence. Where we have taken a more measured view of volume, that is a conscious choice to hold our underwriting standards and stay within our credit box. We would rather protect our risk-adjusted returns than chase margin or volume.

Before the outlook, the scoreboard on what we told you in May. We said provisions would keep declining as a share of GMV. They did from 55 basis points to 52, the third consecutive quarterly decline. We said transaction margin dollars will continue to compound faster than revenue, and they are.

Now let me take you through our outlook. We are guiding to GMV of $149 billion to $151 billion adjusted from above the $155 billion previously. That is a growth of approximately 17% year-over-year. Of that revision, approximately $600 million is currency movement since our previous guidance. The remainder is a more measured view of European volumes concentrated in Germany, our largest market by volume, where retail sales grew less than 1% in real terms in the first half. This is consistent with what you have heard across German retail this season. Our guidance simply assumes Germany stays softer rather than recovering.

We expect GMV growth in the U.S. to be strong in the second half as we scale five significant integrations, JPMorgan; Adyen; Worldline; Worldpay, now part of Global Payments and Fiserv's Clover. And we are excited about the launch of the Apple Upgrade program. U.S. volume assumptions are unchanged, and the U.S. remains our fastest-growing large region.

On revenue, we expect $4.08 billion to $4.16 billion against above $4.34 billion previously guided. From the second half of 2026, we expect to manage a larger share of our U.S. and German Fair Financing books with intent to sell. That shifts substantially all new originations for these products and regions from booking provisions upfront to fair value through P&L with fair value recognized in the gain on sale line at origination as required under IFRS 9.

The effect is presentational. Reported revenue and transaction costs each reduced by approximately 10 basis points of GMV, which is why the reported take rate is down to 2.74% to 2.75%, while the comparable take rate rises to 2.84% to 2.85%, and because prior periods are not restated, reported revenue in the third and fourth quarters will understate the underlying business. The revenue lines move, the margin line does not.

Turning to transaction margin. We are raising our full year outlook $1.62 billion to $1.65 billion or 1.09% of GMV, up from the 1.04% we guided in May. Given the fair value presentation change, more of the economics are recognized earlier. There is a small timing benefit equivalent to expected approximately 2 basis points positive impact to full year 2026 transaction margin as a share of GMV. The rest comes from our better economics.

Excluding the presentation change, stronger unit economics are expected to contribute between $40 million and $50 million of TMD for the year on lower volume. This change applies prospectively to new originations from the second half of '26. Prior periods are not restated and loans already on our balance sheet continue to recognize interest income and provisions as previously. A video explaining this concept is available on our Investor Relations website. We are earning more on every dollar we process, driven by Fair Financing volumes, our offloading programs, the card and the growing membership fees.

We expect adjusted operating income of $280 million to $300 million at 6.9% to 7.2% of revenue. For context, we delivered $65 million of adjusted operating income in the whole of 2025. We have delivered $159 million in the first half of this year alone, and this guide is more than 4x the 2025 full year.

On costs, individual quarters move with the timing of our investments. For the full year, we're guiding to roughly 15% growth in our adjusted operating expenses versus a transaction margin dollar growth of over 30%. We're investing to compound growth over the long term through the second half launches. In dollar terms, adjusted operating income moves with the revenue base. On margin, we are guiding in line to modestly above May.

The third quarter is deliberately our investment quarter. It funds the largest set of launches in our history. We're guiding to volume of $35 billion to $36 billion, revenue of $940 million to $980 million, transaction margin dollars of $340 million to $360 million and an adjusted operating income of $5 million to $15 million.

The third quarter will be the highest level on the share-based payments in 2026, reflecting our vesting and our grant of our annual compensation review. Fourth quarter is where we expect that investment to show with PSP and marquee merchants live ahead of peak season. We expect it to be a strong transaction margin quarter with strong drop-through to adjusted operating income.

We exit this year with a wider network, five PSPs enabling Klarna as a default-on payment option, our leasing program and a structurally higher margin mix. We measure our progress in transaction margin dollars. Every dollar of volume we process is worth more to us today than it was a year ago.

With that, Sebastian and I are happy to take your questions.

[Operator Instructions] Your first question comes from Will Nance from Goldman Sachs.

I wanted to touch on some of the moving pieces in the transaction margin in the back half of the year guidance. Obviously, very strong margin result this quarter and nice to see continued improvements in most of the credit metrics across the board. Can you talk about the expectations for transaction margin in the back half of the year? It seems like that's been quite strong for the first half of the year and then the guidance implies an exit rate kind of considerably lower than the first half of the year. I might have thought with the fair value changes, you might have seen some incremental lift there.

So just maybe talk through, help us understand what seasonality? Is there some element of prudence in the guide? And how are you thinking about kind of continued ramp in Fair Financing driving the overall transaction margin over time?

Great. Thanks. Will, it's Niclas here. Good question. So if you look at it, we're looking at around about 23% year-over-year growth on TMD in the second half, if you take the midpoint of our guide, that is compared to 42% in the first half of '26, right? This is quite natural for a couple of reasons. Firstly, obviously, we had the lapping of the Fair Financing growth that kicked off at the back end of 2Q '25. We also have the FX, which we should not forget, we had an FX devaluation in the second half of this quarter and such, right? So I think those are the key things that are driving it.

But if you look at it -- if you just break it down a little bit, right, what you're going to see here is overarchingly, interest income in the second quarter was around about 72 basis points or 0.72%. In the 3Q and 4Q, given the fair value presentation, we're going to see that coming in a little bit lower. Gain on sale will be obviously running around about the same percentage level as 2Q as a percentage of GMV. Processing and servicing costs will grow a little bit ahead of GMV based on the fact that we're doing card and financing mix shifts. And then we have our provisions, which we expect to see relative stability to slight downward trends in the second half of the year.

And so if you look at it -- we are continuing to grow really strongly in the U.S. You can see the TMD rising from 14% to 23% year-over-year. And we expect that particularly to compound with the new pipeline that we have with default options or the default partners that are coming on board as well. So overarchingly, the key thing here is continued strong growth, particularly in the U.S. on the volume side, that's then really turning into strong TMD performance into the second half as well with then a bit of headwinds on the FX from that.

Your next question comes from Rob Wildhack from Autonomous Research.

Just to unpack the volume guide, can you give us some more details? It seems like you're attributing the slowdown there to the German market. I know it's about low 20% of revenue. But given the effect that, that region is having on the outlook, can you give us some color on GMV that comes from Germany, the mix between Pay Later and any Fair Financing? And then what kind of growth were you expecting for Germany earlier this year versus what's the revised growth outlook for Germany embedded in your guidance today?

Sure. Great. So if you look at it, what we saw towards the back end of 2Q was a softening in basically the consumer discretionary spend in Germany. Germany is our largest share of volume or our largest market from a volume perspective, right? And what you're seeing is primarily there, you have Pay Later and Pay Now being large portions of that business.

What we saw in the beginning of the third quarter, which as you see compounds the trend is the fact that we're seeing continuously softness in that German market, particularly in the discretionary spend on the retail side. And that's where we're playing out through the rest of the year, assuming that we're not seeing a recouping of that. So that's really the baseline for it.

And if I could follow up on that, if Germany is basically Pay Later and Pay Now, and less Fair Financing, so those are lower margins versus Fair Financing, which is higher margin. And that's the reason that the volume is slow. I guess why does the transaction margin so much softer in the second half? If your slowing region is lower margin. Does that make sense?

Yes. I think -- but I don't think it's so much that. If you look at it, transaction margin dollars is still growing very, very healthily at 23%. Again, I think if you compare it to the first half of the year, part of that is more a performance in the first half of 2025 when we had slower growth and therefore, slower TMD progression. And so the comp was different there, right?

In the second half, we're working against both the FX rebound, but also at the same time, we had a stronger growth in the first -- in the second half of the year, particularly around Fair Financing in the U.S. So I think this is really around the U.S. growth more so than the softening of the German volumes with regards to TMD. Ultimately, if you look at...

Next, we'll go to the line of Harshita Rawat from Bernstein.

Niclas, we'll miss working with you. Best wishes. Sebastian, I want to follow up on the planned departures after long tenures. You said the CFO search is explicitly New York based. Why is that? And also, should investors infer kind of any change in approach to funding, capital allocation, brand investments, U.S. expansion from this leadership change?

I'm sorry, can you repeat the second half of that question? I couldn't really hear, sorry.

Yes, no worries. So I think the second part of the question was, should investors infer any change in Klarna's approach to funding, capital allocation, investor engagement, U.S. expansion from this leadership change?

Got it. Well, look, I think that the -- as we highlighted here, this is long-term forward-looking and planning. These transitions are expected to happen at the beginning of next year. Both Niclas and David has been amazing contributors and built solid foundations within the organizations that will continue to operate. We plan to continue operating the way we have.

When it comes in regards to New York, in particular, it's obviously the case that Klarna continues to perform extremely well in U.S. It's our largest market by revenue, not yet by volume, as we heard in regards to Germany, but largest by revenue. And it's where we have over 30 million consumers. So having a stronger presence in New York is important to us. At the same time, we think it's also helpful to be close to the Investor Relations community and the stock market and so forth.

Your next question comes from James Faucette from Morgan Stanley.

James, I don't think we can hear you.

Can you hear me now?

Yes. Now we can hear you, James.

Apologies about that. I wanted to ask quickly on forward flow and financing. Just wondering how we should think about expectations for loans sold on both Pay Later and Fair Financing? And how we should think about evolution of gain-on-sale margins with the fair value change?

Yes. So ultimately, the strategy for us is very clear, right? And that is that we will try to be as capital light as possible and as capital efficient as possible. We have had very good success in building out these programs, and we are very focused, particularly on the Fair Financing forward flows. And I think as we've ramped them up to a certain level now, we've come to the point where basically all -- substantially all of our loans will be eligible to be sold in the second half of this year, and that's where we're making that fair value change, right?

Ultimately, like I said, if you look at it in totality, we are guiding to about 1.09% of transaction margin, TMD. And if you think of it from that perspective, about 2 basis points is pulled forward in that fair value view, which means that the gain on sale is basically going to be slightly flatter because you're adding more of it into the second half of the year. But at the same time, you're actually pulling up TMD. So what you fundamentally are doing, excluding the fair value, is improving the TMD for the volume base that we actually have.

So as I said earlier on the call, right, we have about 1.09% of TMD in the guide. And what we are -- if you back out the 2 basis points, we have 1.07%, right, in TMD. That's an actual raise versus the 1.04%. And it actually means that we're adding about $40 million to $50 million more of true transaction margin dollars, i.e., we're generating more transaction margin dollars for every dollar of volume that we bring in.

Great. And you may have missed it, but Niclas, thank you very much for all your contribution. Good luck.

He will continue being with us for more earnings calls. So it's friendly of you to say that, but there will be more opportunities.

Your next question comes from Bryan Keane from Citigroup.

I guess just to go back, making sure I have the numbers, just to quantify the Germany impact, how much is that hitting the numbers versus the ramp of JPMorgan and some of the other PSP relationships? I would have thought that would have offset the weakness in Germany. Just trying to run us through maybe Germany versus some of the onboarding of some of those larger contracts and how they hit the volume in particular would be helpful.

Yes. Look, I mean, fundamentally, we're coming from lapping a very strong second half of growth last year with regards to Fair Financing, and we continue to see that growth. If you look to the U.S., we are growing extremely strongly. Fair Finance, for example, grew 114%. And I think to the comments we made earlier, we have a very, very strong pipeline in the U.S. today and a lot of things that we're going to be ramping into the second half of this year.

So I think there's a lot of opportunity there. Again, we fundamentally focus on the trend base here when we look at these guidances. And so the German softness in consumer sentiment that we're seeing in the discretionary spending trends are really playing out through that without an assumption that we are going to be overshooting on the -- or overperforming on some of the great pipeline that we have. So our focus is very much on execution in the second half around a lot of the things that Sebastian earlier said.

Got it. And just in particular, Germany is going to grow negative or at least in the model? How do you model it out, the German business?

Yes. So again, as -- versus expectations, Germany is going to be a bit softer. And what we expect is that what we saw in the first half of this quarter is going to kind of continue to trend. So on that baseline, we're expecting very, very marginal increases in Germany overall. And remember that...

Your next question comes from Connor Allen from JPMorgan.

I wanted to ask about Apple, if you don't mind, the Apple Upgrade program. I realize there's only so much you can probably say about a specific partnership, but maybe you could help us understand if there's anything assumed in guidance for the second half around that program? And any other details you might be able to provide about that partnership would be great to hear.

Great. Well, we're very happy with the Apple Upgrade program for obvious reasons, right? As we said earlier in some of the statements we made when we did the earnings release or the release of that partnership, we expect a positive AOI in 2026 and through the life of the program, right? We see this very much as a multiyear similar to what many of our other partners we have where we start and we start ramping, which we will do this year. And then we continue to develop that over time, right?

So like I said, we are very trend focused here with regards to running a larger portfolio. That Apple partnership is a fantastic partnership, and I think it can be very accretive over time. But we're focused now on the trend and what we have in the guide is where we are.

Your next question comes from Jason Kupferberg from Wells Fargo.

Can you hear me?

Yes.

So I just want to come back on the full year GMV guide. I guess if we take the midpoint of Q3, it looks like you have to grow GMV about almost 25% quarter-over-quarter in Q4 to get to the midpoint of the new full year outlook. Hoping you can talk about the visibility there. Obviously, you've got the favorable holiday season dynamics, but this would be a faster quarter-over-quarter growth rate than what we saw in last year's Q4 when you also had more tailwind from the initial Walmart ramp. So I know you've got PSP ramps, you've got Apple, but really wanted to hone in on the visibility there as we made the guidance adjustment today.

Yes. Great. Thanks. Good question. So if you look at it in the second half, you're right, we're a seasonal business. We're very focused on growth. I think if you think about it from a perspective of where we're seeing a lot of that, the U.S. is continuing to really, really chug along on all engines, right? So we have very strong growth there.

As we mentioned, we have a number of pipelines -- a number of things in the pipeline, right? We're investing into not only the Apple Upgrade, but also the default partnerships. I'd also mention the fact that the card, particularly in the U.S., but also particularly in the Nordics, where we've launched Fair Financing and the card, we're seeing mid-teens growth in the Nordics, right? So there's a lot of really good things that are going on, and we haven't even started fully rolling out all of the features from the Nordics into the rest of Europe. So I think there's a lot of things to speak for the fourth quarter that builds up to the guide.

Your next question comes from Andrew Bauch from BMO Capital Markets.

I wanted to ask about subscriber monetization opportunities. You had the 2 million subs in the quarter, revenue is growing triple digits again, and we saw the expansion of subscriptions in Europe last week. Longer term, what percentage of revenue or transaction margin dollars do you believe can come from recurring subscriptions? And are there any guideposts investors can monitor to gauge that progress?

I can start with the commercial aspect of the subscriptionship, which we are very excited about. We, as you highlighted, have seen strong growth in it, 600% growth year-on-year. We've reached 2 million subscribers. We also announced, as you highlighted, about a week ago, some additional updates into the benefits and perks of the membership programs. And this is combined with additional changes to the card that has also grown, and we now have 6.6 million active cardholders -- or 6.5 million, sorry, that -- and those will obviously start merging into the same offering, which becomes the core of our financial partnership with the most engaged consumers, which is also part of how we drive up the revenue per customer metric that we've seen increased and reported on today.

Now where -- how big it can become, that is too early to tell, but we have looked at peers offering similar products where subscription is a significant larger share of their revenue than it is with Klarna. So we believe there's more potential to grow it. For the exact financial targets, Niclas, I'll hand over to you.

Yes. We won't be guiding you to a particular long-term view. Let's say, I think it's going to be a significant portion over time. And ultimately, it's going to help us do what we're doing today. Today, in the second quarter, you can see that we are basically earning more TMD for every dollar of volume that comes in. And reality is that these membership programs will allow us to accelerate the TMD continuously without having to add on more and more transactions, right? Because it really means that the consumer will be with us, and we can build a deeper relationship with them as an everyday spending partner with them. So as such, over time, we see this as something that's going to be significant for us and is a key pillar of the strategy from a monetization of giving value back to the consumer.

Your next question comes from Matthew O'Neill from Bank of America.

Congrats again, Niclas. I was hoping I could follow up on the Apple Upgrade program, particularly the accounting. We've had a number of questions around precisely how the devices will sort of impact, I guess, the financial statements. So could you just give us an idea about the -- if the leases will be originated on balance sheet, held at amortized cost? Or will they follow the new forward flow treatment? And then on the back end of the term, who will effectively hold the residual value risk on Apple, et cetera? If you could just help us understand a little bit more about how this should impact things as it grows into the book.

Great. Sure. So it in very simple terms is that this is really treated as a financing receivable for us, right? And that is practically what it is. So it's no different to how we treat the Fair Financing point-of-sale installment product that we have today from a perspective of accounting. We will fair value the asset when we bring it on our book. We have the optionality to offload it, and we will look at those things opportunistically based on the economics of it. And that's really the kind of extent of what I can talk about from a commercial agreement. But ultimately, the receivable is a financing receivable.

Okay. Understood. And I guess we'll sort of wait to understand more as it comes, but with respect to the residual value?

Yes. Again, as I said, if it's a financing receivable, I carry the receivable of the loan on my book.

Your next question comes from Harry Bartlett from Rothschild & Co Redburn.

I just wanted to touch on the competitive environment. And maybe you could just give us some color on what you're seeing in Europe and the U.S. And maybe just in the German market, do you think there's any intensification of competition there that's maybe causing any of the weakness? Or is it just purely macro?

I think I can take that question. This is partially why we also introduced and presented to you the three business areas because I think in order to answer like general questions on the competitive environment, Klarna has the aspiration and ambition to offer products and services that are relevant for consumers and all of our consumer spend, right, whether it comes from everyday spend, debit type of purchases or it's the short-term buy now, pay later or the big ticket items.

What we -- when we established ourselves in the U.S., we were particularly focused on first establishing us within the buy now, pay later lifestyle spend segment -- sorry, area because it gives us a unique opportunity to grow relationship with now over 30 million users, while at the same point in time, issuing very small credit where the average credit is $100. And then as we have established that relationship with those consumers and see their credit history, that's when we have more recently expanded into the big ticket spend. And there, we are -- partly as we've described on earlier earnings calls, it was almost a surprise to us how well received that product was by merchants and the adoption rate and interest for merchants. So we've seen a strong scale in that. And if -- as you know, it's this quarter growing 84%, where U.S. is contributing a lot to that.

So I think from a competitor perspective, I would argue that when it comes to lifestyle spend, the traditional buy now, pay later or Pay in 4, mostly known in the U.S., we are clearly dominant and the largest player in that market in the U.S. and seeing healthy growth in that segment. In big ticket spend, we are more -- we have -- we are more newer in that, but have seen a fantastic adoption rate. And we previously announced Walmart, now we're announcing Apple. So we're seeing lots of great progress there.

When it comes to the European competitive space, I would argue that Klarna, thanks to its global presence and the fact that we're active in so many markets, is actually creating a significant competitive advantage because any local player or anyone that is in any of those markets, both we have the distribution of our partnerships, or PSPs, as previously like we announced here, JPMorgan Chase or Stripe and others before that. And we have obviously the brand awareness and the consumer awareness with millions and millions of users in those markets. So there's no real change in that regard rather the -- what we have said here about Germany is that it is a -- is that we are seeing a softer-than-expected consumer sentiment in that market. Yes.

Your next question comes from Kyle Peterson from Needham.

I just wanted to touch on the guide a little bit. So I appreciate all the color you guys gave on Germany, in particular, and the trends you guys are seeing there. So I guess my question would be, have you guys seen any volume curtailments in any other European or surrounding countries either in the second quarter? And I guess, what does the guidance assume in terms of transaction trends in some of these other European markets that are kind of surrounding Germany?

Thank you. So generally speaking, Germany is more pronounced. We have seen some softness here and there in pockets, but we run in 26 markets. And I'd note that it is a varied picture, right? If you take the Nordics as an example, I mentioned before, we're getting double teen growth rates as we've expanded the Fair Financing and the card rollout there. And that's off a back of a market where we've been for a very long time and have a lot of share of wallet already.

So I think there's -- generally speaking, there's good growth in Southern Europe. There is a little bit of -- certain countries that might be growing a little bit slower than what we had expected. Ultimately, the larger point is here Germany and why we're calling it out from a consumer sentiment perspective, we're seeing that discretionary spend adjust. But ultimately, very good growth where we're seeing us expanding to more products and features and more partnerships.

Your next question comes from Thomas Nilsson from Nordea.

Q2 showed significant operating leverage with transaction margin dollars growing 42% against much slower cost growth. So looking ahead, if transaction margins kind of grow at 20% plus, when do you see Klarna being able to achieve a double-digit or mid-teens adjusted operating margin, when in time would you say?

So if you look at it, you're right, like we're growing really strongly. If you look at it overarchingly for the full year, right, we're growing our adjusted -- our transaction margin dollars at around about 32% and our adjusted OpEx by about 15%. We're seeing very strong growth in the U.S. as we see here, both on the volume side, the revenue side, but that's really translating into an accelerated growth in our transaction margin dollars as well.

Transaction margin dollars as a percentage of revenue went from 14% to about 23%, and we're expecting to see growth in that through the quarters as well on a sequential basis. On that basis, we don't guide to a specific date, but I think we have the right traction in transaction margin dollars, the key metric that we're really focused on, both in the U.S., but also in global ex-U.S., right, particularly in Europe, where you're seeing an expansion in that transaction margin dollar over time.

So one should really look at a seasonal business that on a whole will fluctuate some quarters to quarters, but the overarching trend is moving in the direction that we have. And we have a long-term target of a 50% transaction margin dollars and 25% adjusted operating income. So we'll continue to move towards that direction, but we won't put a particular quarter to it.

Your next question comes from Moshe Orenbuch from TD Cowen.

I was hoping to talk just a little bit about Fair Financing. You mentioned the growth in merchants and whether -- I wonder whether, a, that's going to continue? And is there interaction with respect to the card? I assume the card has a higher-than-average kind of mix of Fair Financing. Could you talk about those two and its impact on the Fair Financing share of your total volume over time?

Sure. I will start and hand over the second part to Niclas. When we -- what we're seeing is that part of our global Klarna default distribution with our partnerships with PSPs is to make sure that every merchant that offers Klarna does not only offer one of our payment products, but all of them. And this has been a major focus of ours, which is partially what has driven the growth of number of merchants accepting.

So you can still see that out of the over 1 million merchants that accept Klarna, we are now at about 250,000 offering Fair Financing. So there's still additional potential there to grow to make sure all of them offer all payment products. But obviously, they may -- also some of them be in categories where there will be less spend in the size of $500 and above. So that is basically how it works.

Now with the card, we think about the card as like people love using Klarna online. They have, however, not had the opportunity to fully use Klarna offline. And so the card in a way is just a vehicle to bring these debit, the Pay in 4 opportunity as well as the big ticket spend or Fair Financing products into the everyday purchases in the physical world. So basically, the same payment methods are available, but now through the utilization of a card in those stores. And this is the debit flex card that we've launched and seen great growth with, which we're very excited about. The rest, I will hand over to you, Niclas.

Sure. Thank you. Yes. I think just to add a little bit more color on the numbers there, right? It really depends on the maturity of the market right now, what we're seeing. So in Sweden, where there is deep penetration and usage of Klarna, you're seeing very much more growth in the Pay in Full [ pair ] of the product as people use it for everyday spending, right? What you're seeing in some of the less mature markets but are also -- that is growing is really that they act exactly like with the card as they do online and with the merchant, right? So you're seeing much more of an equal split.

So the card is not changing as significantly the types of payments that we're making. But we're seeing that improving, right? So you'll see, for example, the U.S. Pay in Full, albeit on a very low base, is growing significantly faster now, which is proof that the more we engage with consumers with this product, the more they're using more of the types of spending products that we can support them with.

Your next question comes from Giuliano Bologna from Compass Point.

Just checking up on the Apple partnership. I realize that you've already answered a handful of questions around that, but it seems like the type of program that has potential to be relatively large over time and you have a little more duration on those assets. When you think about the funding strategy for that, would you -- do you think you would plan on continuing to focus on trying to offload a lot of those off balance sheet just because there's a lot of potential that could create on the balance sheet growth and capital consumption over time?

So look, we plan our capital for the long term, right? And we have the optionalities of all the tools in our toolkit. We will offload if we think that the economics make sense with regards to the Apple leasing product, right? But ultimately, we look at this as a portfolio as a whole. And as such, that is -- we don't see it as one or the other, but rather we give ourselves the optionalities and then we see what makes most sense in the market.

Got it. That's helpful. And then maybe thinking about just the current balance sheet composition. I noticed there's been a tick down in your deposit funding. I'm curious if that's something that's intentional with the balance sheet composition and pulling down assets? Or is that something -- or is there a different trend or seasonality that's impacting that?

So yes, so it's going to be seasonality, right? So our savings deposits are basically what consumers come and bring with us. We will alternate our rates depending on the needs as well. And so you will always see a cycle in the first half where you have a little bit of slowdown in the growth of deposits and then you see it accelerating towards the peak season. That's generally the modus operandi.

And your final question comes from Lemar Clarke from Freedom Capital Markets.

On the guidance revision, you pointed to a more measured view of German volumes and flagged softening towards the back end of Q2. I wanted to press on the quarter-to-date picture. Can you characterize what you're seeing in Germany so far in Q3? Has the deceleration you saw exiting June stabilized, continued at that pace or stepped down further in July and into August?

Sure. Generally speaking, we're seeing roughly the same kind of trend downward trend, right, which is what we've included in the guide, right? Hence, why we are seeing this. So that's basically where we're at. So the guide really reflects the actuals there.

I think the key thing to remember in all of this here, right, is, obviously, if you look at it, transactions and volume is one key driver for Klarna, right? But as we're expanding our feature set and as we are generating various ways to support our customers and both our consumers and partners, we're actually now starting to generate more and more transaction margin dollars on every dollar of volume, right? And I think that's the key takeaway here that depending on fluctuations on transactions is obviously something that we will always live with. But the fact is that we're starting to monetize our consumers on a deeper basis and with a deeper engagement, and that's really what the second quarter shows.

Thank you. That was our final question for today. Thank you all for joining Klarna's Second Quarter 2026 Earnings Call. This concludes today's presentation. You may now log off, and we hope you have a wonderful rest of your day.

Hello, everyone, and welcome to Klarna's First Quarter 2026 Earnings Call.

During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC.

During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC.

Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period in 2025. [Operator Instructions] Before we move to Q&A, we will begin with a brief presentation.

Good morning, everyone, and thank you for joining. This quarter was a good quarter. We delivered above the high end of every line. Revenue, $1.012 billion, up 44%. Transaction margin, $389 million, up 44%. Adjusted operating profit, $68 million against $3 million a year ago, and net income turned positive.

Same three products, bigger network, deeper engagement. Here are the three things we did this quarter. First, our global default PSP strategy. We cover 26 markets. We carry three payment products, debit for everyday spend, the charge card equivalent Buy Now Pay Later for mid-ticket and point-of-sale installments Fair Financing for big tickets.

PSPs have been reiterating the same thing to us for years. For us to be able to be default with them and across all their merchants and reach parity with the big networks, we need relevant payment methods for every vertical of merchants they serve, subscriptions, groceries, ridesharing, airlines or fast fashion.

Geography plus product range. We are borrowing from Amex 2000's parity and ubiquity playbook, and it's working. That strategy is showing up across the payment lines. Payment transactions, 27%, up from 13% a year ago. Volume, 33%, up from 6%. Transaction and service revenue, 29%, up from 7%. Stripe and Nexi are scaling, and you can already see it in our merchant count, $1.07 million, up 49%. JPMorgan Payments and Worldpay are signed, launching later this year.

Second, we are still spend-centric, not lend-centric. Our book turns more than 10x a year. From 2020 through '24, our priority was Pay Later, especially in the U.S. We are now live with the majority of the U.S. top 100 online retailers. Pay Later means we start small with every new customer, $100 transaction we paid in weeks. That's how we get to know each other.

In '25, we shifted to Fair Financing. The vast majority of those borrowers are existing customers with proven repayment history. Fair Financing took off faster than we forecast. We took meaningful market share in less than 12 months, especially in the U.S. We said as much in February. But let's zoom out.

In our 14 profitable years before the build-out area, point-of-sale installments were 10% to 20% of volume. This quarter, Fair Financing is 12%, not a new business, it's the same business restored. Credit data confirms it. U.S. financing 30-plus days past due improved 36 basis points from the Q2 2025 peak. This quarter, the revenue margin from earlier cohorts are starting to catch up.

We have listened to the feedback from this audience. Starting today, we will report volume by product and U.S. versus non-U.S. separately. We will publish provisions by cohort for both Pay Later and Fair Financing.

Third, the Klarna card crossed 5 million active users globally this quarter. The everyday spend account is the center of the customer relationship, daily app usage, debit transactions and the credit option when they want it, additional bank products for the deeply engaged. Point-of-sale financing on the card unlocks revenue, the debit side unlocks engagement. Both are important.

All of this builds the funding base. Everyday spend feeds the deposits, deposits fund the originations. Klarna is diversified, deposits at the core, 91% consumer deposits average duration 270 days, one of the most predictable funding profiles in banking. That base lets us price U.S. originations competitively and earn peer level returns.

Our forward flow capabilities expanded this quarter as announced, they are additive, not a substitute and allow us to manage capital more efficiently. Diversified deposits at the core is a structural advantage. We will manage the mix actively.

Now I was going to tell you three priorities for the rest of 2026. They are the same three things we just did, default PSPs, focus on the spend-centric foundation and everyday spend and deposit funded growth. Our biggest additional upside opportunity for transaction margin dollar growth is payment fees, which is basically the remaining gap between Europe and U.S. pay later economics. Niclas, over to you.

Many thanks, Sebastian. Good morning, everyone. Before I cover our Q1 results and outline our Q2 and full year 2026 guidance, I want to highlight that alongside our results, we've also published an enhanced supplementary data pack. This data pack is supported by a short video walk-through, which should enhance visibility and understanding of our business. I encourage you to take a few minutes to review it.

Starting with the P&L summary. Before going into details, I would like to highlight that our business has executed strongly in 1Q, compounding nicely across all lines, and we're well on track for our full year guidance, which we have reiterated this morning. GMV came in at $33.7 billion, revenue at just over $1 billion and transaction margin dollars at $389 million, all accelerated quarter-on-quarter. Adjusted operating income of $68 million was up $65 million year-on-year. These results underscore the operating momentum in the business.

Revenue in the first quarter grew 44% year-over-year to just over $1 billion with a like-for-like growth of 36%. Transaction costs were $623 million, up 45% year-on-year or 37% on a like-for-like basis. Within that processing and servicing costs grew 62%, reflecting the scaling of Fair Financing, our point-of-sale installment product and our card product.

Provision for credit losses was $186 million or 55 basis points of GMV, a sequential decline from Q4, reflecting both favorable seasonal collections and the natural maturation of our Fair Financing book, where upfront provisioning on new originations shrink as a share of total revenue over time. Funding costs grew 32%, broadly in line with GMV.

Transaction margin dollars, which is our North Star metric for the health of the business, reached $389 million, up 44% year-over-year and 34% on a like-for-like basis. You can see that progression clearly on the right-hand side of this slide from $270 million in Q1 last year to $389 million this quarter.

TMD is the cleanest signal of how our model compounds because it absorbs the upfront provisioning drag of growth and shows what we earn after all variable costs.

Non-transaction-related operating expenses were $373 million, up just 3% year-over-year. Transaction margin dollars are growing more than 14x faster than our cost base. This operating leverage is structural and driven by our compounding network. Adjusted operating income was $68 million, a $65 million improvement year-over-year. Operating income turned to positive $17 million from a $90 million loss a year ago, a $106 million improvement.

Net income was $1 million, a $100 million year-over-year improvement, and earnings per share improved by $0.25 from a negative $0.26 to negative $0.01, effectively breakeven. EPS remained slightly negative as a portion of the net income is attributable to capital bond interest payments.

Turning to GMV. Gross Merchandise Volume grew 33% year-over-year to $33.7 billion or 22% on a like-for-like basis. Growth was broad-based across geographies and products. By geography, the U.S. grew 39% to $7.1 billion, representing 21% of the total GMV. Our global ex U.S. business grew 31% to $26.6 billion.

By product, Pay Later, our charge card equivalent, continues to deliver strong global growth, growing 29% and representing 77% of GMV. Fair Financing, our point-of-sale installment product is scaling rapidly at $4.1 billion, up 138% year-over-year as more merchants adopt it. 225,000 merchants now offer Fair Financing, up from 103,000 a year ago. Pay in Full, our everyday spending product contributed to $3.5 billion.

The volume mix is important because it directly drives the revenue and the TMD opportunity. Higher engagement products like Fair Financing and card generate stronger TMD per dollar of GMV as they mature.

Now to the revenue composition and the TMD in more detail. On the left-hand side, you see the revenue by type. Transaction and service revenue was $671 million, up 29%, broadly tracking our volume growth. Interest income grew 56% to $284 million, driven by both new originations and the continued revenue recognition from loan originated in prior periods. Gain on sale of receivables were $57 million in Q1. We will continue our asset-light strategy and act opportunistically on receivable sales.

By geography, U.S. revenue grew 67% to $399 million, significantly outpacing U.S. GMV growth of 39%. The higher take rate reflects the contribution of interest income and gain on sale. Our global ex U.S. revenue grew 33% to $613 million with Fair Financing and membership fees growing -- growth driving the acceleration. On a like-for-like basis, total revenue grew 36%.

Now on the right, the metric that matters the most, Transaction Margin Dollars or TMD. TMD by geography tells the story of where our model is heading. Total TMD was $389 million at a 38.4% margin on revenue, growing 44% year-over-year, 34% like-for-like. In the U.S., TMD was $106 million with a 26.6% margin on revenue, up 58% year-over-year. Our ex U.S. business delivered $283 million of TMD at a 46.2% margin. And within that, our most established markets are generating approximately 60% transaction margins. We expect the U.S. margins to continue converging towards mature markets over time.

Turning to credit quality. Consumer delinquency rates remain healthy across both product lines. The charts show 2024 and 2025 vintage performance side by side. In Pay Later, our charge card equivalent product and our largest by volume, 30-day plus delinquency rates are stable and well managed. This is a short duration, high-frequency book. It turns over approximately 10x per year with an average consumer balance of $124. We underwrite every transaction individually, starting with small balances and scaling exposure as we build confidence.

In Fair Financing, our point-of-sale installment product, delinquency rates are tracking favorably with both 30-plus and 60-plus day past dues rates declining quarter-over-quarter. Our ability to continuously improve underwriting driven by transaction level decisioning, short duration exposure and the data set built on over $0.5 trillion of cumulative transactions since inception remains a key competitive advantage and a direct contributor to TMD expansion.

Finally, our outlook. Our full year 2026 guidance is unchanged. We continue to target GMV of greater than $155 billion, revenue of greater than 2.8% of GMV, TMD of greater than 1.04% of GMV and adjusted operating income of greater than 6.9% of revenue.

For Q2, our guidance reflects normal seasonality for our retail-driven business as well as FX normalization following the sharp U.S. dollar depreciation in Q1 of last year. Specifically, we're guiding to GMV of $35.5 billion to $36.5 billion, revenue of $960 million to $1 billion, TMD of $375 million to $395 million and adjusted operating income of $30 million to $50 million. Since we provided our full year and Q1 guidance, FX has not had a material movement.

To summarize, we started 2026 well. TMD grew 44% to $389 million. That is our focus, and it is compounding. Our network is scaling profitably. Our credit quality is healthy and our operating leverage is clear. Accelerating TMD growth and the value created for shareholders remain my primary focus.

[Operator Instructions] Your first question comes from the line of Harshita Rawat from Bernstein.

I want to ask about the U.S. and their Fair Financing expansion. Maybe take a step back and reflect on the key learnings from the past year driven GMV growth and also quite a bit of volatility in financials. And if you talk about what in your view may be less appreciated by the investment community as it relates to Klarna U.S. growth beyond the mechanics of revenue recognition? And maybe also talk about the surprise in the first quarter, kind of what drove that on the positive side.

So I think we're seeing what we had expected over time, right? Overarchingly, Fair Financing grew about 220% in the first quarter. And we've seen that, that has driven and supported the growth of our interest income, up about 56% year-over-year. And that's also coupled with the fact that we are continuing to compound from the volumes that we saw in the second half of the year.

Overarchingly, I think the first quarter really represents a good momentum in the business, and we continue to execute. We obviously beat volumes slightly higher than what we had come in and expected. That supports it. And then there's two other things. There was a later asset sale towards the back end of the quarter, which meant that we generated more interest income off that prior to the sale of those assets. And then finally, we had really strong collection performance in the first quarter. Generally, we have seasonally stronger collection performance, but this performance is even above what we had expected, particularly in the U.S. as we saw consumers repaying us off the peak season.

Next, we'll go to the line of Darrin Peller from Wolfe Research.

Nice quarter and nice results. Just thinking about your GMV trends and comparing what we saw in first quarter to the guidance for second quarter, maybe just provide any puts and takes on how to think about the driving factors. It was very, very strong in Q1. I know there's a tougher comp. But anything else we should think about?

And then underneath that, what are the key drivers if you kind of rank ordered what you'd expect to see the strength coming from going forward for the remainder of the year? Obviously, care financing is still going to be strong, but I know it will moderate. So maybe a little more color on that, too.

Sure. So I think we've had good momentum in the business so far. One should appreciate that we are a retail-focused business that is driven by seasonality. We, in the first quarter, clocked around about 20% of our total full year volume. And in the second quarter, we're clocking about 23% of our full year GMV. So overarchingly, this is very much in line with normalized trends.

And if you look to 2025, we obviously had a few central wins at the beginning of the year. I think we expect a slightly larger ramp towards the back end of the year.

And then obviously, as I mentioned earlier, the significantly lower FX tailwind in Q2 versus Q1 because of the U.S. depreciation. But overarchingly, we had set up a framework for the guide of greater than. And I think we are comfortably moving towards that and focusing on beating or meeting our full year guide.

Next, we'll go to the line of Will Nance from Goldman Sachs.

Thanks to Niclas and the IR team for all the work on the incremental disclosures. I'm sure that will be appreciated.

If I can maybe just ask a question on some of the credit results that you guys have seen because I'm sure we'll get questions on it. I think in the deck, you're showing some of the initial cumulative losses from the second half of 2025 and non-U.S. financing cohorts. I think probably as one would expect, given some of the composition of merchant launches in the back half, the losses look like they're trending a little bit higher than prior cohorts.

Maybe you can just talk about how those are trending versus your own expectations internally? And higher level, can you talk about any changes in the underwriting or in the pace of Fair Financing originations as you guys have progressed over the last 6 months?

Sure. Thank you. We're performing -- continuing to perform well and in accordance with our expectations. If you look to the forward-looking metrics, 30 days past due and 60 days past due, all of them are trending in the right way in the U.S. They're coming sequentially down in the first quarter, which just shows that we're continuing to do the underwriting in the way that we want with strong risk management.

In regards to your actual question around the cumulative net charge-offs, they're also in line with expectations. As we ramped in the second half, our card business as well as our 3-month loan tenders, we saw and needed to adjust the models a little bit around that. And we're seeing good performance in both the third quarter cohort as well as the fourth quarter cohort as those normalize and our models adjust appropriately.

Next, we'll go to the line of James Faucette from Morgan Stanley.

I wanted to ask related to acceptance, et cetera. It seems like you're adding a lot of new merchants again this quarter. Just wondering how many of those merchants are net new to BNPL overall compared to merchants that already had another BNPL provider like Affirm or whomever? And what does your volume capture look like in those situations? Just trying to get a sense of how well you're being able to differentiate and attract new merchants to the product.

Yes, this is Sebastian. So we don't have that exact number to give you, but I can give you a directional answer.

Generally speaking, with our partnerships, as we highlighted -- as I highlighted in the beginning of the call today, the reason they're working with us is because we cover so many markets and that we have a payment method for every type of payment. If you are one of those PSPs and you want to allow us to be default side-by-side with Visa and Mastercard so that every merchant they work with has and offers Klarna, then it's important that our payment methods are relevant for each one of those. So some of these partnerships then sometimes are exclusive. Some of these partnerships, sometimes there's other providers.

But the big difference is that they are usually not default, which means that they would require that particular merchant to add on an additional, for example, buy now, pay later provider as opposed to coming out of the box when you sign up with that PSP.

And then in that case, what we track closely is if we are side-by-side with others, who would consumers actually prefer and who do they choose. And when we track that, we have seen over and over again, both in the U.S. and in Europe that we get a higher share of checkout when side-by-side with other buy now, pay later providers, which to us speaks to the strong brand and consumer preference of Klarna.

Next, we'll go to the line of Bryan Keane from Citi.

Niclas, maybe you could just talk about transaction margin that came in better, which was great to see. Can you just talk about the cadence as we go into second quarter and then third and fourth, what transaction margin will look like this year?

Sure. Thank you. Yes, transaction margin ended up at $389 million, up 44% in the first quarter. We expect it to continue to grow over time. It's our focus, obviously. And as you can see on transaction margin dollars, you'll see that revenue today is growing at the same pace as transaction margin dollars. We actually expect that through the year, and as you will see from our full year guide, transaction margin dollars will compound faster as the Fair Financing point-of-sale installment portfolio matures. And as such, we are guiding towards roughly about 30% growth in the transaction margin dollars versus a 22%, 23% growth in the revenue through the year.

Next, we'll go to the line of Connor Allen from JPMorgan.

Sebastian, could you talk about the current card? You now have 5 million actives there. Any surprises in the rollout and the usage of the customers?

And if you don't mind, Niclas, maybe just as a follow-up on that. Could you talk about how the ramp-up of the card this year is impacting the P&L?

Yes, happy to start. What I'm particularly pleased about with the card and the success of it is obviously it's high growth, the fact that we now are over 5 million users globally.

The additional thing that I found interesting and happy about as well is that the debit side of the card is stronger than we initially expected. So there's a lot of debit volume on it in addition to the financing point-of-sale installments that we also offer on it. So that's great to see because that speaks to the objective that we have to make this into people's truly everyday spend card that they use when shopping. Over to you, Niclas.

Thank you, Sebastian. So yes, with regards to the P&L, what we're seeing is a strong increase in our membership fees. So they're up over 600% or so in the first quarter versus prior year. And that's obviously a key element of how we continue to monetize by allowing and engaging with the consumers in the right way with the card.

What we're also seeing in the card is that a card user is around -- has about 3x the frequency of a non-card user. And when you see the maturity of the performance of those, you also see an average revenue per user of about 4x higher after about 6 months of maturity into the card. So this is something that we will continue to expand on.

The next, we'll go to the line of Sanjay Sakhrani from KBW.

Obviously, consumers are under quite a bit of pressure around the world as a result of the geopolitical situations and your credit remains really strong.

I'm just curious sort of if you could peel the onion a little bit for us and tell us what you're seeing, how you're managing the business? Is it sort of impacting how you're growing?

And then specifically, maybe you could just talk about how confident or comfortable you are with the growth trends you're seeing from your key relationships here in the United States that you formed?

I'll take that one. So with regards to the first thing, I think we see a healthy Klarna user. What we're seeing is that delinquencies on the Pay Later side are stable and the delinquencies in the Fair Financing point-of-sale installments are trending stable in global ex U.S. and downwards in the U.S. as we continue to expand that portfolio, right?

Overarchingly, I think the key elements of this come back to the fact that we have a short-tenured user. We have a strong brand. We have over 1 million merchants that we work with. So we're ubiquitous and people use us for everyday spending needs as well as for large ticket and medium-sized ticket. And that really is the driver here.

We have done about 0.5 trillion worth of volume in the last 20 years, and we continue to improve our models, but also build on that spending with consumers. So most of our volume is actually from returning users.

And then your second question with regards to the U.S., we see good performance across our large merchants and partnerships in the U.S. We continue to expand relationships, both online and offline through various partnerships.

Next, we'll go to the line of Robert Wildhack from Autonomous Research.

One more on the transaction margin outlook. I hear you on the dollar growth there, but as a percentage of volume, the guidance would imply that the transaction margin is down sequentially in the second quarter and then moves even lower in the second half. And I think that's the opposite of what we might expect to see given the growth and seasoning of Fair Financing. So is there something specific that would drive that? Or any other color you could add would be helpful there.

Yes. I think, again, revenues continue to expand sequentially with regards to the Fair Financing and interest income and gain on sales. Obviously, there are some elements of timing with regards to when you do your gain on sale items.

With regards to the transaction costs, you will notice that we have a strong performance with regards to our provisions for credit losses, and we expect those to be maintained. We're also looking to continue to see our processing and servicing unit economics improve over time through the year. So those are really the elements that are going to be driving the transaction margin dollars.

Next, we'll go to Matthew O'Neill from Bank of America.

So just -- this is [ Caroline Lada ] on for Matt. So just on the receivables sale this quarter, generating that $57 million gain on sale. I know you said you'll act opportunistically, but how should we think about a potential run rate cadence of forward flow transactions and the impact on reported interest income volatility?

Sure. Thank you. So basically, today, we booked about $57 million worth of gain on sale. Around about 50% of that comes from routine forward flow versus the remainder through the -- what you call a back book sale. We continue to see the growth of the gain on sale sequentially every quarter is my expectation and slightly -- a slight trend increasing through the period.

Next, we'll go to the line of Thomas Nilsson from Nordea.

Could you speak a bit to the long-term earnings potential of the model with adjusted operating margin now at 6.7% in Q1 and non-transaction operating costs growing just 3%. What do you see as a sustainable medium margin target range for Klarna?

Yes. So I mean, we're slightly early to give guidance further than 2026. But generally speaking, the way we're thinking about this is the transaction margin dollars of roughly 50% as the various parts of our portfolio matures towards the more steady state. And then on the adjusted operating income, we look towards roughly 25% in the medium to long term.

Next, we'll go to Nate Svensson from Deutsche Bank.

Nice results. I did want to ask about expectations for the back half of the year, I guess, in light of the reiterated full year guidance. So very solid 1Q results. Q2 looks pretty good as well. But just the implied back half growth does look a little bit lower.

I know we're going to be lapping some of the larger merchant wins last year, but I was wondering if you could just walk through the puts and takes on what we should consider for growth in the back half of the year. It just looks like it's decelerating a little bit. Is there any one-timers in 2Q to keep in mind? Anything there would be helpful.

The full year guidance framework is really currently based on that greater than line items. And as we spend driven, it's just natural that seasonally in the first quarter, we've only done a bit more than about 20% of our full year overall volume expectations. And so we've got a lot of the year ahead of us, right?

Given the retail-driven seasonality as well, I think, and our greater than framework. To me, there's no reason right now to change our outlook today. We have good underlying momentum in the business. We've generated strong performance in our transaction margin dollars, which is our focus point, right, up 44%. And we're going to continue to execute and deliver on that guide.

Next, we'll go to the line of Andrew Bauch from BMO Capital Markets.

This is [ Connan ] on for Andrew. I appreciate the additional color on the breakout of GMV. I'm not sure if you gave it, but what was the Klarna GMV growth? I think last quarter, it was up 209% year-over-year.

And then my second question is on Agentic. Could you maybe touch on your Agentic commerce strategy? Given the press release this week on Klarna embedding with Gemini and Google Pay, how do you think about presentment from a competitive standpoint versus your key peers and other payment methods? Is there a way you're thinking about better positioning Klarna to be the top choice of payment method in an Agentic transaction?

Great. So I'll take the first point. We haven't disclosed card growth. But ultimately, you will see the different payment forms that we have, and they're all growing very strongly with Fair Financing up 138%. We've got a good growth on our Pay Later, up about 29%. And then we're continuing to expand our pay in full product as well. So I think that's kind of the focus for us right now to look at those rather than the card channel.

Right. And on the Agentic Commerce, I think Agentic Commerce need three things, and we own all three of those. That's trust, data and transaction layer. As you mentioned, this week's Google Pay launch Inside search in the Gemini app. But I would also highlight, for example, the fact that we are the solely only buy now, pay later inside Stripe Links which, if I remember correctly, is now over 200 million user wallet. So each one of these puts Klarna as a settlement layer of every major agent stack.

In addition to that, it comes back to preference as we talked about in the side-by-side when Klarna is available side-by-side with other providers. So at the core of it is the strength of Klarna, the preference and then basically, whether that is executed as we today are available on Apple Pay, on Google Pay, in other Agentic layers, there will always be the question, what do you want to pay with and preference is the answer to that question.

Next, we'll go to the line of Craig Maurer from FT Partners.

I wanted to ask about the progress being made with Walmart and how we should expect that volume to feed into the total, considering the likely drag on margins and take rate.

So Walmart is going very well from a volume expectation and in line with what we thought. We continue to expand our partnership with One Pay and look to different ways to support them in Walmart. From our perspective, we're in a good performance, and we don't generally point or speak to particular partnership volume flows. But ultimately, we see this as a very good relationship and one that continues to expand in accordance with our expectations.

Next for our final question, we'll go to the line of Jason Kupferberg from Wells Fargo.

This is [ Cassie Shannon ] on for Jason. I guess just broadly, there's been concern in the investment community about the health of the lower to middle income consumer amid rising gas prices and whether that could be a headwind for the BNPL industry overall. But is there a counterargument to be made that perhaps in times of her finances, a consumer may lean into more of BNPL as more of like a cash flow management tool. I'm just curious what your data might be showing on that front.

Yes. I can start with answering that. I mean the Klarna consumer is showing very stable as we have seen in the numbers and that Niclas has already quoted. But I think add to that, it's important to recognize that sometimes Buy Now Pay Later may be referenced as a new phenomenon. I think about it as a charge card equivalent product. It has a short duration, people pay back and they borrow very little compared to, for example, an outstanding credit card balance might be $6,000. In general, our outstanding balance on buy now, pay later is about $120.

So -- and as we have seen historically, charge card equivalents fare very well in different macro-economical environments. It is also the case that since we do take underwriting decisions in real time, it means that in the event of changing macroeconomic environments on the last 20 years, we have always had the strength of being able to adopt such underwriting and see that.

It actually generally takes only about 60 days for us so that more than half of our balance sheet is underwritten by new standards. And this is another reason why we have chosen and preferred to focus the business on the Buy Now Pay Later charge card equivalent side of the business and then only extend Fair Financing to the existing user base that has a track record of payments history with Klarna in -- as they've been already using the other products.

And that was our final question for today. Thank you all for joining Klarna's First Quarter 2026 Earnings Call. This concludes today's presentation. You may now log off, and we hope you have a wonderful rest of your day.

Thank you, everyone, for being here at the next session. We're very excited to have Klarna's CFO, Niclas Neglen here. So thank you very much. We appreciate your time. A lot of topics to kind of hit on, but I did want to start by congratulating you guys on a milestone yesterday, 1 million merchants, a lot.

We're very pleased to -- thanks for having me here.

Yes.

Thanks, everybody, for coming.

Yes. Well, that's a big accomplishment. And I guess maybe to just kind of dive in on market opportunity for Klarna, we think about buy now, pay later adoption in some of your key markets, right? We think about Germany, Sweden, the U.S. Tell us how you're thinking about penetration in terms of percent of e-commerce that buy now, pay later now represents? And what's kind of the upper limit? Where can this go over time? Because it feels like there's still a lot of runway, but maybe the answer in terms of how much runway varies a bit by region.

Jason, I think it's a great question. And the way that we think about ourselves in Klarna is really about being spend centric, right? And that means that we have a payments product that is relevant for every type of vertical, right? And that's a key, I think, differentiator and a strategy of ours. So last year, we had 118 million consumers purchasing goods and services for $128 billion across now almost 1 million merchants at the time. And really, the focus is less than buy now, pay later. That's just a component of what we do. It's about having a payments product that is relevant for every vertical, right? And so what that really means for us is that from our perspective, we're looking at expanding our ability to serve customers wherever they are, whether that be online, offline. Whether it be with the card or whether it be through the merchants, Apple Pay, Google Pay, et cetera. And I think that's really our focus. So while obviously, buy now, pay later is a part of that, and I think it will grow as part of e-commerce. If you take Sweden as an example, we have 80% population penetration in Sweden and around about 40% of e-commerce there. But we're still growing at double-digit teens last year in the fourth quarter, driven by the fact that we're continuously expanding because we have relevant payment products for every type of vertical.

Okay. Okay. Yes. I know it is important to remember, you've obviously diversified the business model pretty materially over time. So just as you've scaled both sides of the network, right, the consumers and the merchants, have you seen any noticeable shift in the demographics of the consumers that are coming on to the platform?

I think it's a great question. From our perspective, because we have a broad-based adoption, like I said, 80% population penetration in Sweden, we have 30% plus in Germany, 20% plus in the U.K. And even here in the U.S., we've got 10% of the population, right? So it is a very broad-based thing. And really what drives that is the expansion of our -- continuous expansion of our network, right? So you mentioned the 1 million, which we're obviously very proud of, the 1 million merchants that we now have. And it's all about ensuring that we have that relevant payment product to be able to allow us to do that. So in 2025, we had key wins Walmart, DoorDash, eBay, Apple Pay, but also those default PSPs. And that really allows us -- default PSP basically means that we are just being part of the standard offering for a merchant that comes and connects with one of these PSPs. So we're live with Stripe, and I'm sure we'll talk more about it later. But ultimately, what that means is that we have an evolution of the channels, the verticals, distribution as well as product expansion. And all of those things together is really what's driving the expansion of usage.

Okay. I wanted to hit on competition. I mean, we get this question all the time because as buy now, pay later has obviously become a lot more mainstream, including in the U.S. It's natural for more competitors to kind of come into the market. With that said, Klarna clearly remains the largest player globally. And so I wanted to get your take on, have you seen any notable shift in the competitive landscape, whether that's just from other kind of buy now, pay later providers or even for traditional financial institutions or credit card companies that are offering some form of installment payment options? How do you see the landscape?

Yes. I don't think there necessarily has been a shift in the landscape of -- on the competitive landscape. I do think that the reality is you should think about this more as how are consumers wanting to spend? How do they want to spend? They want to save time. They want to save money. They want to be control of their finances, right? So they're looking for that versatility. And I think Klarna brings that to the table in a way that others don't, right? And what I really mean by that is having that kind of broad-based offering, having being spend centric. And finally, I think it's really key point is also is that I think kind of a pure buy now, pay later doesn't have is that focus on consumer preference, right, ensuring that one really builds the right type of product with the right type of experience and allowing consumers to choose between how they want to manage their money.

Okay. Okay. So it sounds like things are pretty much status quo in that regard. I mean, look, it feels like from our perspective, like there's still a rising tide that's going to lift multiple boats, right, again, coming back to our point around penetration so far. So we touched on some of the differentiation you see for Klarna. Why don't we turn to guidance for 2026, which you guys obviously provided in February? So there's a couple of different dynamics in play here. We know that the fair financing product continues to ramp. And so the guide in terms of your transaction margin dollars, I think, is somewhat back half loaded. So if you can comment just on the visibility on that second half acceleration because I think the compares actually get a little tougher. And then as part of that, maybe just remind the audience -- I know you've done this a lot before, but just remind the audience around the accounting mechanics of fair financing because since you're still relatively new to the public markets, it's important for people to understand the impact on the P&L over the short term.

Okay. That's, great.

There's a lot there.

I'll take the 2 parts. I'll start with kind of the guide and then let's spend some time on the fair finance accounting dynamics, if you want to call them that. So basically, we added about $20 billion worth of volume in 2025 versus 2024. In 2026, we're guiding to greater than $27 billion, right? So I think that's a meaningful increase on the base, right? And it's really driven by what we talked about before, the merchant expansion, right, ensuring that we're ubiquitous in more places, the card expansion, which allows us then to be in more places as well as the fair financing piece, right? So I think we have a kind of solid line of sight towards where our growth is on those dynamics, right? What we saw in the fourth quarter, particularly was an accelerated shift towards fair financing, particularly in the U.S., which that coupled with the fact that we've seen an accelerated increase in our direct-to-consumer volumes, primarily our card, but also Apple Pay and Google Pay, et cetera, means that we've kind of -- we've factored that kind of trend into 2026, taking a view of what that means for us, right? And that has a couple of fundamental dynamics, right, which you saw play out in the fourth quarter and which we then have baked into '26 guide.

So firstly, on the fair financing, right, just as a nature of how this is, is that you provision for your expected credit losses upfront, while you earn prudently your revenues over the life of the loan, right? So that's simply what we're doing, right? So you take the call it cost upfront in simple terms and then you earn the revenue of life, right? So as you're ramping a portfolio, this is very natural and it's happened with any fintech or any financial company that expands, right? But if you're expanding at our pace, what it means that you're actually provisioning a lot more than you're earning from a revenue perspective until you bake that in over time. So it's the compounding nature of things, right? And obviously, given the fact that we have on an absolute basis, a very strong growth, still the comp-over-year becomes a bit tougher right from a percentage perspective as you normalize this book, what you will see is that revenue compounds above and then basically overtake that provision, right? And that's basically what we factored into 2026 and how we're thinking about it. So hopefully, that answers the question, but happy to.

Yes. And maybe just to kind of to follow up on guidance as sort of a general topic. So I mean, you've now had 2 quarters as a public company, right? And maybe give us a sense of how your approach to providing guidance to the investment community is evolving because there's always going to be parts of the business, right, where your visibility is inherently more limited, especially at the start of a given year. So I would just love to hear a little bit about how you're thinking about evolving that. I think every company like post their IPO, they go through that process, right, or kind of figuring out adjustments they may want to make and ultimately finding the right balance between how much guidance to give versus not giving too little, not giving too much.

No, I think a good question. So if you think about our focus has really been on giving as much clarity and transparency in the guidance as possible, right, appreciating and recognizing, I think that we have this evolving business that's growing, right, in the right ways towards that spend centricity, and we're expanding the amount of payment products that we have so that we're relevant in every type of vertical, right? And so fair financing and card adoption, like I just said, are really the big dynamics of that. So again, fair financing really driven by that upfront provisioning, earning over time and the book then normalizes sequentially over a number of quarters. On the card, right, we've seen the strong adoption rates, and we're assuming into the guide, expecting that, that to continue -- that adoption rate to continue. That comes with a certain level of upfront costs, which again, issues, et cetera, right? But also what we see with things like the card is a higher frequency of use, right? So on average, in the cohort that we see today, about 3x higher frequency than if you are not a card user, right, which has a great opportunity for expanding Klarna's network and being that everyday spending partner, right? Building that habit of using us for multiple different types of spending is an important element of our strategy.

So it kind of sounds like as you guys thought about issuing the initial 2026 guidance, you said, hey, fair financing and card have really ramped even better than we thought in like the back half of '25. Let's just assume that those trends continue so that we're less likely over the very short term to see any kind of negative surprise on transaction margin?

Yes. So the way we think about it -- yes, we think about the trends and obviously, what we think we're going to achieve and we have plans and other on that. I think the key thing here to me is that the consumer momentum is there. The merchant expansion momentum is there. And the engagement levels are there with the application of more opportunities for consumers to spend with us in more places. And I think that's a very important structure because it sets the right foundations for continuing to build on what we've been building for the last 20 years.

All right. Now we're going to hit agentic commerce, right? Big topic. I mean, we've written a lot about it. We think it's probably the biggest theme in this sector over the next 3 to 5 years. We're actually going to have a panel on it right after your session. But talk to us about how Klarna is laying the groundwork to participate in agentic commerce. We've been trying to think through a lot of different scenarios for like branded button presentment and prominence in a world where consumers are transacting more in an agentic context. So would love to just hear how you're approaching that and really how Klarna can arguably continue to differentiate in an agentic world?

Yes. So I think to some extent, and we think obviously a fair bit about this ourselves. We just launched with Stripe partnership in this area as well. At its core, fundamentally, whether it's an agent or a consumer directly, the fundamental principles still hold, right? Are you relevant and available in all the different places where the agent goes, i.e., where the consumer goes, right? And so are you available at all these checkouts? Are you available using the card? Are you available on Apple Pay, Google Pay, et cetera, right? The second piece of this, think is the fact that you want the preference because ultimately if you are a high frequent user of Klarna then the agents will most likely look at that and compare that to, okay, well if I have a set of products that are all equal from an economics perspective, then I will follow the preference of the consumer. And I think that's why it's important to build the network that we're building today with or without agentic commerce, right? I think we are well positioned for that going forward.

Okay. Yes. I mean we agree. I mean, I think ultimately, it's still going to be the consumer that's kind of making the ultimate decision, right, perhaps providing some instructions to the agent, right, but then ultimately making the call. So -- and we saw the announcement you guys had with Stripe last week, too, which I think was important. I mean do you guys have a view just in terms of like are we going to hit like a specific tipping point where agentic commerce is going to really inflect? Or does it feel like a very gradual blocking and tackling process because you got to get merchants on board and issuers on board and figuring out how they're going to interact with the LLMs?

I think there's always going to be questions about how to kind of develop. It's a little bit like driverless cars. We don't know when the tipping point is, but it will come, right? And so the question is more being relevant in that conversation upfront by being in as many checkouts as possible and building relationships, consumer preference as well as with the merchants.

Yes. I mean I thought it was interesting, too. I guess it was last week or the week before that OpenAI announced that they're not doing embedded native checkout within ChatGPT anymore, and they're going to actually have the merchants integrate their apps into the LLM. I thought that was kind of telling because they hadn't really gone down that path very long. And now all of a sudden, they seem to be backing away from that a bit, which I think is kind of favorable for merchants. And then by extension, those that the merchants partner with branded solutions such as Klarna as opposed to the LLMs kind of disintermediating the status quo.

Yes, that makes sense.

Yes. Okay. So the other angle with AI, I wanted to hit on is just how Klarna is using it internally, coding, customer support. I guess it was -- obviously, prior to your IPO, there had been some widespread media reports about how much cost you had taken out, I think, the customer support function and maybe some tech functions, too. Maybe just update us on where we are there because, I mean, your growth in revenue per employee has been pretty impressive.

Yes. No, I think to some extent, the numbers speak for themselves there, $1.24 million of revenue per employee, I think that's increased over the last few years. The last 5 years since 2022, we've increased our revenues by 104% and our adjusted operating expenses have gone down by 8%, right? And partially AI, partially efficiency, et cetera, right? I think though that it's a little bit like where do we use electricity, right? I mean AI is now so spread out within the organization. And what's really helping is to -- this talent base we have allow them to be even more effective, right, in what they're doing. And I think that is super exciting, whether it be within my area of finance or whether it be in customer services or helping to write code. It doesn't really matter where it is. I think it permeates the organization, and we're trying to lean in. There's really not an area where it isn't being touched right now, I think.

Are there certain areas where you've seen the most productivity gains or the most cost saves from AI that then makes you lean in a little bit more in those specific areas or...

To be honest, I just think like there is very few use -- there's very few places where there isn't a use case. And I think it's more up to helping our talent learn how to use it effectively irrespective of where they are.

Okay. So presumably, you've trained most everybody at this point in some way, shape or form?

Yes, it's learning by doing, right? What's nice with AI, in my opinion, is that you have the ability to actually talk to AI about teaching -- teaching yourself how to use it better. When people ask me a question, I can say, have you asked AI? If they ask me how to do this, AI will do it.

Yes, sort of tell my kids. So you touched on this a little bit, but I wanted to ask you kind of the open-ended question of how this broader push into banking services is really driving ARPU growth and engagement. And you can kind of take that in whatever direction you want. I think there's probably a lot to say there.

Yes. I think at its core, right, spend centricity it is our focus, right? And so if you think of it from that perspective, all the kind of banking services that we're trying to put in place is really supporting that everyday spending plan, right? So that means we want to be sure that we have an effective card that you can use debit sometimes, credit when it's appropriate. We underwrite every single transaction, but you get the flexibility and you have the control, right? At the same time, we've launched [indiscernible] balance where you can engage your refunds back onto your card, right? We have a very effective savings product in Europe, about $13 billion worth of deposits and we have been billing that since 2013. And this is all about finding ways and moods for our consumers who help them save time, save money and have more control of their finances while they are doing their everyday spending, right? And that's really the focus that we've had and with -- I think it's interesting is that what you are seeing is that what you want to see, which is an average revenue per user expansion overtime. So if I take 2 examples, right, one is that in the 2022 cohorts, there average revenue per user that year was $12, today it is $52, right? So you see that expansion of consumer piece is more. The second piece is that because we were launching these services, and we're getting that higher adoption that we have more vertical expansion, so we're more ubiquitous, and we also have more product expansion or more products, right? What we're also seeing is that the average revenue per user for the first year has also accelerated. So -- and it was $12 in 2022. Today, it is around about $21, right? It just shows that people are adopting more of our services and seeing the benefits of us trying to take a holistic view to being their spending partner.

So you're getting more of that upfront attach with some of the banking products. Okay. Good. Let's talk a little bit about the card specifically, 209% GMV growth in Q4, still scaling quite incredibly. 4.2 million active users. Talk to us about the mix of transactions you're seeing there in terms of pay in full versus pay later. And then I would also be curious to hear about Klarna card usage in-store versus online. How is that evolving?

Yes, sure. No, look, we're very excited about the card. And I think it just shows an amazing growth over the last 6 months, 4.2 million cards. What you see here to me is really a question of increased frequency and engagement that obviously is important for that spend centric model that we have, right? So we have about, on average, I said, 3x higher frequency on the card. If you look at it, generally, a consumer will start their journey with a merchant, a buy now, pay later product. And then as they expand their preference, they then choose the card, right? And that then starts giving us a different shape of form of spending, right? So I mentioned Sweden already, but I'll do so again just because, but I think it is an important kind of benchmark, right? 80% population penetration with continued growth because people are using the card. And what's interesting here is that you have this card that has the flexibility of debit and buy now, pay later, pay later in 30 days or for a larger purchase of fair financing product, right? And what we're seeing even in Sweden is that people that were maybe very frequent users of our buy now, pay later are now starting to use us also for pay in full as well as when they're making larger purchases, right? And that's habit forming. And that's a really critical part of a network like ours that we're building. So we feel very good about that. I mean the card in the U.S., just to comment, maybe 25% of all of the purchases are now offline, which shows ability for us to continue to expand through those things. So I feel very good about where the card is as a product set, and I think it's going to be very accretive over time.

I also wanted to ask before I forget because we're asking all the companies here today, just it wasn't that long since you reported, but just any quick comments on how Q1 is tracking versus plan. Obviously, we've got a war that's popped up in the Middle East. So any exposures worth calling out there that we should be aware of?

No, we continue to see a healthy consumer, right? And I would make a point that irrespective of macroeconomic environment, we have controls and processes in place that we've been managing and improving over the last 20 years, right? We've underwritten about $0.5 trillion worth of volume since inception, right? And what I think is important that with our short tenure, right? So our average duration is 39 days, our average outstanding balance is $124, right? That means that I have the ability to manage and control the exposures and risks with regards to that, right? And we do so on an ongoing basis. We underwrite every single transaction. And our focus is really to do that on an ongoing basis. So that is kind of our focus. We've always been doing it in that way, irrespective of macro. And as of today, we see a healthy consumer.

Okay. And no -- I don't think offhand you have any direct exposure or operations to the Middle East. Is that?

Yes, that's correct. We don't have any activities in the Middle East.

Okay. All right. Thanks for clarifying that. I wanted to hit on take rate as well just when we think about transaction margin dollars as a percentage of GMV. How should that evolve over time? I mean, obviously, fair financing growing faster than kind of traditional core pay later, right? And I think sometimes the investment community, in my view, gets a little too hung up just on absolute level of take rate and just looking at it black and white, oh, it's going up, it's going down, that's good, that's bad, right? But there's all kinds of factors, including mix, right, that can impact it. And so maybe talk us through how you're thinking about the evolution of take rate at Klarna, whether it's because of some of these mix factors or other dynamics?

Yes. So I think important here when you think about it from a long-term perspective, we're looking at a target of 50% transaction margin as a percentage of revenue, right? When you look at it, there's obviously, to your point, different dynamics. In the fourth quarter, we had about 12% of our total volume being fair financing. So we obviously will see that expand. In 2026, we expect roughly mid-teens, right? But ultimately, what you're seeing is we upfront provision and then basically take our revenues over time, and that is starting to compound through 2026, right? So you see transaction margin dollars growing at about 30% year-over-year in the guide, which is a meaningful step up, right? And what you're also seeing is that it's growing faster than what our general revenue is because you're starting to get that compounding nature through the year, right? And that's kind of really the driver as we normalize the portfolio and the shape of the portfolio over time.

I think you're looking at, what is it, at least 104 basis points, I think, is effectively the...

Yes, greater than 104 is the guide.

Yes. So just as we think about that, Eva, I mean, is there headroom there over time for that to go higher? I mean maybe there's some ins and outs in that thought process, right? But what -- how would you encourage able to kind of model that?

Yes. The way we -- I would think about this is really we're going to continue to expand as we get more and more of our average revenue per user driven by things like membership fees, et cetera, right? You won't always have a direct correlation to the transactions at the same level, right? And I think it's important to think about this from a transaction margin dollars percentage as a percentage of revenue, where long term, we're guiding towards that 50%.

How is it going with the memberships? You just mentioned it briefly. I mean I know that was an initiative. When did that start last year? Was it?

It started with the card really.

And then different levels of membership.

We got a 4-tier product process or product set here. Think of it as you've got your core, your plus, then you've got your 2 more high-end tiers. The point here is really to allow the consumers to benefit from using our network more frequently, right? And what we've seen is out of the 4.2 million users at the end of the year, we had about 3.5 million members, right? And so we'll continue to see how we expand that kind of offering because it is an important element of the network that we're building around the card.

For sure. Let's come back to the PSP partnerships. I know you mentioned it earlier on. But you do have a number of them that are still in flight. They're ramping. Let's focus in on which ones those are because I think Stripe is pretty fully ramped at this point. Is that...

Yes. no, it's not. I think it's just the beginning even of that. So maybe if I take a step back the broader base of things. I think it's just the beginning even of that. So maybe if I take a step back the broader base of things. So I think, first and foremost, for people that -- just to kind of set the stage a little bit, one of our key strategies to becoming ubiquitous is to have the ability to have every type of product and every payment product for every type of vertical. And that is important because that means that we can do these default partnerships, right, with Stripe and Worldpay and others, right? Because it means that when you come in as a merchant, you can then as standard can get the standard payment products, including Klarna there, which means that we become more ubiquitous. And so what we've done now over the last few years is to sign up Worldpay, JPMorgan, Stripe, Nexi and Adyen, right, which constitutes around about $9 trillion worth of spending opportunity, right? And we started ramping with Stripe. And obviously, you start with the -- with one of their systems and then you continuously continue to integrate with them. So I think there's lots of opportunity with Stripe as well. They're the primary driver for us adding about 285,000 merchants in 2025, right, which was up 42% year-over-year. But I think there's lots more opportunity here as we start ramping each and every one of these, right? And to me, I see this as probably the most exciting element of Klarna strategy because I think it's truly a multiyear growth story here of being able to continue to compound with these great partners, right? So I think that's how we think about it. And I think Stripe has opportunities beyond this as well.

So the others that you mentioned, those have not yet started?

No, they haven't started to ramp yet. So they will start ramping. I mean Clover, et cetera, a few of these will start ramping and they will start ramping through the year.

Okay. Okay. Got it. So is there -- I guess, ex Stripe, is there anything material in the guidance this year for the others? Or is it just going to be too soon?

So we will see how these build up too, right, as such.

Okay. Okay. So we'll continue to monitor that. Let's talk about credit. I mean I know you mentioned high level consumer is still pretty healthy and resilient. And certainly, the data that you guys reported in Q4 showed healthy credit trends. But as you look across your major geographies, I mean, are there any signals in the data saying, hey, maybe we need to tweak the credit box a little bit?

So look, we see a healthy consumer. Losses are in line with our expectations. We generally, like I said earlier, short-term credit, basically 39 days average tenor $124 of average outstanding balance. I think we will continue to work through those things, right? But we're very comfortable with what we're seeing today, and we will use the processes we've had in place for many years to manage through that.

And so if we look at the 2026 guidance, does that basically assume status quo? Or is there some cushion in there in case loss rates creep up a bit?

So the guidance is a realistic view of what we think is where kind of things are trending.

Okay. And then just when we think about moves in interest rates, how could that impact your P&L? I mean, in the U.S. until recently, everyone thought we were going to see more rate cuts. Now it seems like at a minimum, those are kind of delayed. But just as a general statement, how should people think about impact of interest rates?

So I think a couple of things -- points I would make. Number one is because we're spend-centric, the vast majority of our transactions are not interest-bearing, right, and so we generate primarily merchant fees and other types of advertising fees and membership fees and such, right? We turn a book 10.4x a year. So practically almost the whole book within 1 year, right, given the short tenure. And then the other thing is that with our bank license, we effectively raise deposits in Europe, and those deposits are used globally to fund our business. And that I think is a very strong cost advantage versus a kind of pure wholesale funding model, in my opinion. And then finally, because of the short-term nature of our lending, particularly with the fair financing interest-bearing loans that we do, we have the ability to adjust price as necessary.

Right, right. Yes. No, I think definitely that those deposits are a differentiator for you on the funding side. I wanted to then ask about profitability a bit. I mean, if we think about adjusted operating margins or even GAAP operating profit for that matter. I mean I know those aren't metrics that today Klarna provides formal guidance to the street on. Is that kind of on the longer-term road map as the business matures a bit more? I mean, inherently, you're always making some trade-off decisions, right, between growth and margin. But just would love to hear how you're thinking about that because we do get asked that quite a bit.

Sure. One of our primary targets is to get to profitability, right, and there's -- that, I think, it's a...

GAAP profitability.

GAAP profitability over time.

But no time frame yet, right?

We haven't set the time frame. But ultimately, what we've said is long term, we're looking for transaction margin dollars around about 50% with an adjusted operating income of roughly 25%, right? And that's really driven by that compounding growth, right, in our network and then an operating leverage that continues to expand. I mean the guide for 2026 calls for an operating leverage improvement of about 500 basis points, right? And so we'll continue to kind of drive towards profitability in that manner.

Well, we look forward to watching that journey. We're out of time, unfortunately. Thank you very much, Niclas. Really appreciate all your thoughts.

Thank you very much.

All right, guys. Why don't we go ahead and get started. Thank you again for joining us for Day 2 of the Wolfe FinTech Forum. Really happy to have Klarna with us. David Sykes and I met actually during the IPO process, but he's -- and that was actually in Sweden when we were just talking about when we met. He's been in the industry for a longer time than that, though, by far. And really, really great to have you here with us.

David does -- really does the deals for a Klarna, and he strikes a lot of the commitments between partners, PSPs, merchants. Really great to have you here to talk about how the business operates, how you really convince merchants, and what they want to see that -- from Klarna, really. And so thank you for joining us.

Thank you, [indiscernible].

Just to begin with, maybe you could share what you're seeing as the key highlights for a Klarna from over the last year? Looking ahead, what are the main areas of focus for '26? It's only been really a few quarters since you've been a public company, but you've been operating for many, many years. It's a pretty large -- the largest BNPL company in the world, actually. So I'll start there.

Look, last year was a very exciting year for us. A lot of big partnerships launched eBay, Walmart, DoorDash, a big partnership with Apple. Growth was very, very strong, 38%, had our first $1 billion quarter, very, very exciting. So it was a really exciting year. I think building on that, when we think about 2026, it is a year of execution versus strategy.

We were very fortunate to launch a big partnership with Stripe last year. This year, we have JPMorgan. We have Adyen. We have Nexi, we have Worldpay. I think we added 2 million new card customers in Q4 alone. There's just a lot of executing to do this year. But I think the platform that we laid for 2025 was fantastic.

And when we think about the remainder of this year, you see a lot on the table in terms of opportunities?

Yes, absolutely. I mean, like I said, we're -- sorry, I'm talking about next year. I should say 2026. Still living in December. All of those partnerships go live.

That's correct.

So yes, JPMorgan, Nexi, we -- first steps, launched Paytrail, big PSP in the Nordics. There's a lot of opportunity this year.

Nice. Look, we're going to come back to all the deals you're striking and all the way you do it. But just talking about Fair Financing for a minute, given it's been a hot topic for the story, clearly been strong growth. Number of merchants offering Fair Financing has meaningfully increased. I think you have 194,000 merchants doing it as of fourth quarter.

Yes.

It was up 116% year-over-year and 28% sequentially. So just help us understand what's driving this kind of accelerated adoption first?

I mean, not only the year-on-year, I think in December, it was up 193%. So I think the growth has been unbelievable. The pitch to merchants is pretty easy, if I'm being really honest. When you offer financing, it really leads to a very profound change in consumer purchase behavior. I think what's most interesting is not the conversation with merchants about bigger basket sizes and better conversion and more higher frequency, what's really interesting with merchants is being able to have a conversation with them about taking some of their top-of-funnel investment in marketing, so their digital spend, their out-of-home spend, their brand spend and bring it closer to the point of sale with a 0% buydown.

That, I think, has been a really interesting part of the story that we can now have a conversation with a merchant that says, take some of that marketing investment and take a 20% APR and make it a 9.9% APR, take a 20% APR and make it a 4.9% or 0% APR. And in doing that, really have a big impact on conversion. In fact, an outsized impact relative to that marketing spend. So funny enough, the sales pitch to merchants has been probably the easier part of the equation.

I think our model is always really, really straightforward, which was launch with Pay in 4, get really significant surface area with Pay in 4. Launch Pay in 4 on Nike and Saks and all of these different partners. And then the conversation has just been, hey, you have Pay in 4, it's working for you very, very effectively, why not add financing? And we enjoyed a lot of success with that approach.

What I think is interesting going forward is we do have a lot of merchants offering it, it's only 20% of our coverage. It's only 20% of our coverage. So even if I never add a net new merchant on financing, I can still 5x this business just by increasing that type of coverage. And that's where I spend a lot of my time thinking about it.

Okay. That's really helpful. I mean this might be more of a question that you're -- you'd ask a CEO or CFO that -- but company-wide, I mean, is there a balance the right place in terms of mix between Fair Financing and Pay in 4 that you think is appropriate?

Yes. I mean, the reason we have all these payment solutions is we decided very early on -- In fact, I was always -- I jokingly say, what's my job? Sebastian says, my job is to have Klarna accepted as many places as Visa. Visa is at $150 million, we're at $1 million. So we've got a lot of work to do that. But we realized if we -- if that was actually the ambition to have real ubiquity, we needed a set of payment products that covered for every use case.

So micro transactions, we've got you. Subscriptions, we've got you. $5 Uber ride, we've got you. $5,000 Airbnb, we've got you. And so we really thought it was important to have every use case covered. And so we're not -- when we think about like what's the right balance, it really depends on the retailer. It really depends on what they sell. It really depends on the average order value.

And I think having that balance though of whether it's Saks -- there's a lot of orders where financing makes a heap of sense. DoorDash, probably less, right? So the balance is going to be really retail specific. I think going forward in 2026, like we're still going to deliver really strong dollar growth in financing. I don't think you're going to see the same percentage types of growth. But in absolute terms, it's still going to grow really strongly.

Okay. Okay. I want to go back to the underlying PSP partnerships and everything else. But I actually want to hit first on the differentiation that's resonating so much with your customers. Again, you're talking to your customers and signing new deals. What are they saying to you that they really want that they love about adding Klarna? And how are you winning so much in the market, and you are winning across both consumers and merchants?

Yes. And look, we've recently had some really big enterprise wins, Walmart, Airbnb, eBay, Stripe. And I think it's just interesting listening to investors asking me questions today. I think a lot of the focus is on a perception that those partners must have done those deals focused on price. And the reality is, like you take an Airbnb, for example, the only thing they care about is customer experience.

The only thing they care about is customer experience. Stripe, customer experience. We win overwhelmingly because we can convince partners, we will offer the best consumer experience. These are customer-obsessed businesses. That's what they're focused on. They're focused on payment conversion. They're focused on customer experience. So we start there, we start with the customer experience.

And I think that's one of the things we think differently about relative to some of our peers in market. I don't believe, I'm competing with other providers to win the merchant, I'm competing to win the customer. I'm competing against credit cards and PayPal and cash and all of these other fantastic payment offers. And in every market in the world where we have won, and that's the majority of the markets we've been in, we've won because we've won the consumer.

We've won preference, consumer preference. And if you win enough consumer preference, you become undeniable for the retailer. Retailers choose us because customers choose us. And so that's a big, big part of it. And my first 10 slides of a pitch deck are about brand and why the brand matters and why it resonates with consumers. Because the last thing I'd say is, we operate in an industry that has lots of consumers, but very few fans. Rarely do I meet someone who's a fan of their bank.

Now it is a transactional relationship. It's a utility. I know a lot of fans of Amex. I know a lot of fans of American Express. And so we're very, very focused on taking those consumers, making them fans. And then in the act of doing that, you become undeniable for the retailers.

That's really helpful. Let's go back to the partnerships because I do think that it's probably an underappreciated opportunity. I mean you have Stripe now, Chase, you have Worldpay, I think, right? [indiscernible] I mean there's been quite a few. And I know Stripe has been live already for, what, 3 quarters now.

Yes.

I mean just talk about how that's been going for you? It's really meant to provide you with a better platform to get you into merchants that otherwise may be a longer tail, right?

Yes. I mean I remember even a couple of years ago, I think maybe we had 400,000 customers at that point. I think PayPal had $400 million. I even remember back then going 400 to -- I could probably do that over 7 years, 8 years -- sorry, I mean -- sorry, we had 100 million customers, they had $400 million.

We had 400,000 retailers. They had $32 million. And I remember going like that is how do you do that? Like that's tough. And I think Klarna has always been a tremendously successful enterprise sales engine, like we've always been able to win the big deals. We didn't have a really fluid motion for that SME portfolio. And so what we realized was what PayPal had done a phenomenal job of doing was, it had put itself in the opt-out bucket instead of the opt-in bucket.

We put itself in the opt-out bucket. And what I mean by that is you launch a new business, you're not focused on optimizing your payment mix, you're focused on building a great product, finding a new customer, creating profitability. And so we spent a lot of time with these big PSPs going, take us out of the opt-in bucket and put us out of the -- into the opt-out bucket. And that's been transformational. Like if you look at our Stripe relationship, we added 285,000 merchants year-on-year.

That's almost as many merchants as we had in 2021. We added in 1 year. And what's incredible, if you look at that growth and then you look at our OpEx, once upon a time, if I doubled my merchant base, I would have doubled my customer support headcount, I would have doubled the amount of people who are doing KYC, I would have doubled the amount of people doing integrations. I would have actually signed 280,000 contracts.

And yet, we can do that at scale now in a durable fashion without increasing OpEx because we have this incredible distribution mechanism. And what's cool is like Stripe is a phenomenal partner, but we haven't even started with JPMorgan. We haven't even got started with Worldpay. All of that happens this year. So anyway, that's something we get really excited.

I mean you think about the volume opportunity on these places, these partners, I mean several trillions of dollars.

The ones we've signed so far collectively do $9 trillion in volume. And that's the amazing thing. Like Stripe is a super successful business. I think it's like #3 on this list in terms of total transaction volume, which sort of gives you a size of opportunity.

What -- I mean what is the time line about Chase and Worldpay? Because Stripe, I know we signed and you're in process with and it looks like there's still a lot to go there. But how about the other...

Every one of them this year, various stages as we speak from integrating to testing. Nexi is a good example. We've already launched with the first part of the Nexi portfolio. So this is not a years out, this is a quarter's out thing.

And as a reminder, the relationship, is it exclusive? Is it not? Is it -- how do you think about sharing it?

It's a mix of both, right? Like I'm a genuine believer in exclusivity is a short term, not super durable competitive advantage. And again, like if you win consumer preference, if you really dominate consumer preference, exclusivity doesn't matter. So with these guys, it's a mix. Some of them are exclusive, some aren't. We think being first is really important, and we're excited to be first. But on a long enough time horizon, my expectation is nothing is exclusive and what's durable is consumer preference.

You also partner with them and we just saw Pfizer walk off stage. You also partnered with Clover, in-store.

Exactly.

How is that trending? And what is the opportunity?

In-store is huge for us, right? Even our -- you look at our credit card, 25% of spend is in-store. In-store is obviously like the untapped, really big opportunity. When I think about partnerships like Walmart, like we're barely getting started in in-store with Walmart, right? 200 million customers every week walking into a Walmart.

So long term, we think in-store is tremendously valuable. Clover is obviously exciting because it's -- Pfizer is obviously a huge -- hugely important partnership opportunity for us. So we were very excited to sign that.

Why do you think these partners chose to work with you guys more? I mean some of them are exclusive, right? So we're working with you guys more, I would say, than, for example, Affirm. Why? I mean is it a consumer size because you have a much bigger consumer population?

Look -- and look, they have a lot of great partners to choose between. I think when I reflect on why do they choose us: one, we were the first to present this opportunity, I think being innovative, having an eagerness to invent is really important, core to our business; two, we're global. Like default on sounds like a great option, but most partners can't do default on. Most partners are, yes, default on, but not subscriptions, but none of you low AOV, but I can't service that market.

It's not really default on, it's a very small slice of the pie. It's default on if it's perfect for me. And so we really positioned ourselves to be truly default on. Every brand you support, we can support. Multiple markets. It's not a contract that you sign. We totally rebuilt our tech stack to be able to facilitate this. So it's not an easy thing to do out of the gates. We were the first to position it, pitch it, and we've been the beneficiaries of that.

Okay. Let's talk about the wallets. I mean, Apple Pay, Google Pay. I mean, you've been partnering there as well. Just talk a little bit more about how these partnerships are helping to drive ubiquity for Klarna.

I mean, like Apple Pay and Google Pay have been unbelievable for us. One, just as a form of payment, they're growing explosively. But more importantly, like it was all about putting Klarna where consumers are shopping, putting ourselves in the trusted channels. That trusted channel might be Stripe merchant checkout, it might be Apple Pay.

And it's not even just Apple Pay and Google Pay, we just launched with Google Autofill. We launched it with Vipps. Many of you won't know Vipps. It's the leading payment platform in the Nordics. We just launched last year with Stripe Link, 200 million users. So this is going to be a really important part of our sort of go-to-market going forward. And it is exciting because it means that we don't have to be at the check at a target. You can use this because we're at Apple Pay. I mean it just really, really increases service coverage.

Okay. Great. Talk about Walmart for a moment. I mean, last year, you guys announced a partnership with OnePay. It made Klarna the exclusive provider of installment loans at Walmart in the U.S. And just how has that partnership been progressing? Any color on traction you're seeing? And just how are Walmart shoppers actually [indiscernible].

I think of all of the deals I've done in the past 8 years, I've been in Buy Now, Pay Later. This is the deal I'm most proud of. I think I love the OnePay team. I love the Walmart team. These are really high integrity people. They're really high integrity people. And everybody talks about being customer obsessed. Walmart is truly customer obsessed.

They're truly customer obsessed. The adoption has been fantastic. We've rolled out online. But like I said, I feel like we're barely getting started. We have barely scratched the surface of these store. We just announced the ability to take a debit transaction and turn it in -- post transaction, turn it into an installment transaction with OnePay.

And the thing is when you have partners of this size and scale, the most iconic retailer in the world, it is impossible to not be successful. Like they just had so much opportunity in and around them, like the scale of them is so vast. So we are enormously excited. The initial traction is fantastic. But I really think it's tip of the iceberg stuff. We're talking the biggest retailer in the world. I think this will pay dividends for a very long period of time. And hopefully, we can add more and more value to the partnership.

Okay. Going to the U.S. more broadly now. I mean, the U.S. -- it continues to grow extremely well. It was up 58% year-over-year last quarter, and I know GMV was up over 40%. So I think you're serving almost 30 million consumers, which is incredible given when you really launched in the U.S. time-wise, right? Help us understand a little more what you're doing in the U.S. that's resonating so well.

Yes. I mean, look, to be honest, a big part of this is like as big as we are, we're still tiny. That's the truth. Buy Now, Pay Later is tiny relative to all payments. So when I think about why we're growing, like part of the reason we're growing is that these large enterprise retailers, 5 years ago, was doing 5% of their business, 4 years ago, it was doing 7%, then it was 8%. This year, it's 10%, next year, it will be 12%, right?

Now 12% share of checkout sounds like a lot. In the U.K., I do 30%. In Germany, I do 60%. So there's just so much headroom. Like that's part of the reason like my installed base every year, consumer preference, more customers choosing us. If I think about last year, we added Gap, we added American -- even forgetting Walmart, eBay, DoorDash, we added Gap. We added American Eagle. We added Aritzia.

We added Starlink. Like every single year, I'm always surprised by how many additional large -- 4 years ago, adding Gap would have been the biggest news in the world. It's just in context to some of the others that we're partnering with. And so we have this really good installed base that's growing year-on-year. Every year, new merchants entering the network, and that's before you talk about the card volume, before you talk about launching JPMorgan. The U.S., we just have so much room to grow. So it's big, but it's just -- we're still got a lot ahead.

I mean one of the things that we get asked about with Klarna a lot is really profitability levels and whether or not the deals you're striking. And since you're really striking the deals, I'm curious to hear your -- the way you handle that, right, the way you keep that in consideration, whether it's Walmart, which is a topic of conversation, how profitable that could be.

If you could just comment on just high level, at least if you see that. And then even just more broadly, the new U.S. business, what kind of measurement do you keep in check around profitability when you sign new arrangements?

It's a very fair question. And I think the message from investors is really, really clear, like what's the priority for this year, for next year, for the near term, like it's just be profitable. Like that's a really clear message. We've heard it loud and clear. Every deal we do needs to be economic. Just to be very clear. Every deal we do needs to be economic.

I think when you think about some of the near-term impacts of some of these deals and businesses, it's all about the growth of their financing. Like I think the surprise for us this year was -- candidly, we didn't expect their financing to grow at 193% in December. And the nature of that model, as you guys all probably know better than me, is we take all of those losses upfront. We recognize that revenue over time.

I didn't expect consumer adoption would be as high as it was. Like to put it in relative terms, we also grew paying full adoption by 60% last year. Now that seems -- that ballpark seems reasonable to be. We just got caught off by how quickly it was growing. But the deals we do like -- I forgot to sound like, but somebody else, they're great deals. There -- it's important for us that we do economic deals like for sure.

Okay. From a competitive standpoint, I mean, again, we talk about what you're doing that's resonating in the market. We are seeing -- I was talking to you about all the different Buy Now, Pay Later companies here at our conference, right? There's quite a few of them. PayPal, for instance, is talking more and more -- trying to be more promotional in the market to try to buy themselves placement at merchants because I think they know they need that, right, for one of their growth pillars. Do you see any changes from a competitive landscape, whether it's from pricing or others trying to buy more placement of the merchant?

It's funny, like having been in the industry for a while now, it is less competitive than it has ever been, quite honestly. Like in 2021, every deal was like a 5-sided knife fight and the subsidies that were being thrown around were insane. And I definitely did a deal or 2 in 2021 at the peak that I probably wouldn't do now. I can't think of a deal I've done in the 2 years that I wouldn't happily sign again tomorrow, right?

It is less competitive than it was. And the primary reason for that is, back then, you had a bunch of venture fuel companies, us being one of them, who were only focused on growth. That's all it was. And now what you have is a small number of much more disciplined publicly listed companies that are very focused on doing deals that make sense. And I know there's a lot of players in the mix, for sure. But the reality is if you didn't escape 2022 at like escape velocity, if you were subscale coming out of 2022, it's not that you can't be relevant, it's just you're not in the conversation with Walmart or Gap or American Eagle.

That's the reality of it, right? So you have a smaller number of companies, much more disciplined. Again, when I think about competition, when I think about what -- it's not me versus one of my peers to try and win a net new merchant, it's like it's share of wallet. How do I -- I'm competing for that customer against 100 other payment options. That's where I think the competition is.

Okay. Look, it sounds like it's from a competitive standpoint, you're still doing well and differentiating. Are there other big new deals we can expect that we could hope for some announcements around, you're ultimately...

No, I was going to say like I'm new to this.

No. So I don't imagine names, but I mean, anything that you're excited about for this year.

Yes, every year, every year. I mean that's the thing that, again, surprises me is like we are -- guys, we are still so small. The opportunity is so untapped. Like I go into markets where every single person not only knows Klarna, they use it. If for whatever reason, the service is down, it makes national news. Like we are still so underpenetrated in the U.S. And so I just have a way of going like, yes, there will be some very exciting things that will happen this year. And then that's going to happen the year after and the year after until we get to something like the type of scale we operate on in some of our mature markets.

Okay. So you're in 26 markets now, mostly across Europe, North America and Australia and New Zealand. Just when you think about expanding the presence even further, what markets are you looking at? And where do you see the most opportunity?

Yes. Look, without announcing anything, I think the reality is what does it take for us to be in a new market, right? That market needs to be large enough for it to make sense to our existing partnership base. So one of our durable competitive points of advantage is when I launch in a new market, like I'm not starting from scratch. On day 1, I launched some of the biggest brands in the world. If I go live in Italy, day 1, unlike with [ Shien ], day 1, I'm live with Nike, Airbnb.

So like it's important that the markets that we launch are important enough for the brands that we support. That's one important factor. Two, we've got to be able to underwrite a consumer. There's a whole heap of markets in the world where I think our product would resonate, but they don't have a sophisticated enough series of data points that I can draw from to underwrite a consumer or underwrite a merchant. It has to be an e-commerce heavy market, doesn't want to be cash. So there's -- you could type those variables into any LLM and they're going to come up with 7 or 8 markets.

That's probably a pretty good indicator of where we want to go. But for us, I don't need to launch a new market tomorrow to grow. Like if I -- like we see in the U.S., like there's nothing I'm going to do tomorrow that's going to compete with 50% growth in the U.S., right? So I think near term, just doubling down on what's in front of us today, like really executing well is the big focus.

Yes, that makes sense. And just growing with your existing customers into new markets. I mean how much of that has been a trend for you?

That's probably my #1 KPI is like Airbnb, we're live in 24 of the 26. Why not the other 2? Because it's the easiest upsell to a partner is take us live in another market. There's no additional contracting, no additional tech work. It's a really, really simple thing to do, and it adds immediate value. Again, part of the reason we're growing so fast is it's the installed base, doing things like that, adding a new product, adding a new market, adding on-site messaging, adding Express Checkout.

I could never add another merchant and still grow for the next 10 years just with my current installed base using all of our products, all of our markets, it would be a very, very successful business.

We've talked to Sebastian about AI for a while. But just remind us again, how is Karna actually utilizing AI internally first? And then I want to talk about agentic commerce as well.

Yes. I mean, look, it sounds like a cliche, but like it's almost now like going. So what are you using electricity for? Like it would be -- I would be harder pressed to find a part of the business that isn't using AI to really transform how we work. And Sebastian talks a lot about this. We were a 7,000-plus company. We're a 3,000-plus company. Honestly, even if we hadn't saved $1, we still would have made that transition. And the reason is we are a more effective business now.

The people who are with us are using these tools. Talent density has increased. Time and chair has increased, so you know your business well. Like we would have done it even if you didn't save $1. And I just say that by way of going, AI and the tools that you can now use, whether you're in sales, whether you're in the CFO office, whether you're in an operational frontline role, it is transforming.

It's turning people into super humans, right? And so it's hard to say a single use case because it is now, there's nothing. There's almost no part of the business where it's not touching.

Okay. Agentic, obviously, is an area that we get brought up. It's brought up to us as a risk potentially for anyone that has a wallet for model, right? What do you think about that? I mean is it -- is there data something that's going to help you? Is the extension of credit really going to help differentiate and keep as a barrier?

Yes. Look, at the risk of belaboring the point, like I actually think consumer preference is what will matter most. And what I mean by that is if you think about my business today, like it's just a war of the buttons. You go to a checkout, you see us, you see PayPal, you see Affirm, you see Alipay, you see Bitcoin Pay. All I think about now is like why do you, as a human, pick the pink Klara button and it's going to be brand, buy.

There's a variety of reasons right? That's all I think about. I actually don't think about winning merchants as much as I think about winning the consumer in that point of time. In an agentic commerce world, it's exactly the same. It's just why does the agent pick that button? Why does the agent pick? And I don't think they're going to care about brand. I don't know if that's going to be the deciding factor.

What will be a deciding factor is if that agent knows that, that customer has used Klarna 2 or 3 times before, 1 million percent they click our button before they start an application process with somebody else. Assuming all things being equal, the offer is equal, the fees are equal and all the rest. And so when I think about our urgency and our intensity to win consumer preference to get those 30 million in the U.S., the 10 million in Italy, the 7 million in France, 12 million in the U.K., like 20 million in Germany.

The urgency, the intensity there is that consumer preference isn't just winning today, it will be a defining factor in an agent commerce world. They're going to pick your preferred brand for sure. They're going to pick whoever you use last. They're going to pick whoever you're a member of. And so we actually think that, that is part of what you need to have. If all you've done is built a utility play, which is just a financial infrastructure product, but you haven't got a relationship with the consumer, I think you're going to be in a really tough position because then you're competing on price, that's it. That's going to be tough.

All right. That makes sense. Last one for me, and then guys, I'll take a question or 2 from the audience. But apparel and accessories has really been the areas in the U.S. that you've succeeded in. But if I look in Europe and other markets where you've done more -- you're a little more mature, it's much more diverse. So just thinking about going forward, how do we see that shape up in the U.S. and really mirror what you've done in the [ past ].

Yes. I mean it's already become a focus for us. And some of -- there's a lot of focus on the big PSPs that we take live. Like a real area of focus for us is like the -- what I would describe as almost like the vertical PSP/software plays that have just won certain industries. We're live with like Mindbody, for example, like that's been a big, big focus for us. How do we win those platform plays.

The truth is, in every market, we just start where we win market share easiest. That's always been fashion, then we move into cosmetics and apparel and footwear and pretty soon, we're in homewares and then we're in electronics. And it is a natural progression to now we're doing on-demand and now we're doing hair clinics and now we're doing Botox. I don't know what you described as Botox [ file ] whatever.

But that's a big part of our business in other -- not even us, you go into Australia, you walk into a hair salon and there's an Afterpay sticker there, right? So it's just this natural progression that you just cascade into the next vertical. You're definitely going to see that happen in the U.S. It already is.

David, the stock has obviously been a little tough since the IPO. And I think investors are a little hung up on the growth of lending, right, fair financing and the provision and the modeling around it was confusing to some folks. But your growth underneath the surface has been extremely strong really across the business. What do you think is underappreciated by investors that they should help -- really should help get the stock going if they really understood it better.

I mean, look, a part of it as well, as a business, we need to understand investors better. So we need investors to understand our business, but let's be candid, we need to understand investors better. And I think we've transitioned from being a private company to being a public company. And the truth is we hear you very loud and clear, like profitability needs to be a focus for us, for sure. No question.

I think what's -- I would always say we're in like a good company when I look at other fintechs who've gone from -- and there's a lot of them who have gone from IPO to Nadir, it's a 90% drop and 80% drop. I'm not going to mention their names, but you all know who they are. I really do think investors, and I understand why, struggle, one, to put fire in a box, and it's because we haven't made it easy to put us in a box. But I also think investors struggle with companies that are banks doing what we do at the scale that we do, growing as fast as we do.

Now it would be a lot easier if we're also profitable and I get that. But like it is not easy to grow at our rate across 26 different markets, 118 million consumers. I'm not sure any bank has ever done it. In all seriousness across so many markets, so many consumers at the rate we're doing. And I think that's hard to digest. I don't know why public markets do what they do. You guys are all better placed.

In the last 5 days, I'm up 18%. I don't understand that. I don't know why I was down as much as I was. You guys will all be better judges of those sorts of things. We are -- and it's a very tight thing to say. I have absolute conviction that if we just do our job, like if we just execute, it is going to be a very different conversation a year from now, 18 months now, 24. Zero, 0 doubt about that.

What that means in terms of multiples and the share price, I have no doubt about. I don't -- sorry, no idea about. Actually, I can't give -- I genuinely don't know. But I know if we just do what we're supposed to doing. This is one thing I would say, we've lent out $0.5 trillion over time, $0.5 trillion. Like this isn't new to us. We've done it in multiple currencies, multiple locations, multiple products, multiple price points. Like this is our bread and butter. But we -- it's easy for me to say you want to see the action, and I think that's what we've got.

Excellent, David. Thanks. Guys, maybe we have time for 1 or 2 quick questions.

Thanks, David. You mentioned the DoorDash partnership earlier. There's obviously been debates around BNPL usage for lower ticket, more everyday purchases, certainly a number of headlines around that partnership being launched. Can you just touch on the trends you're seeing in verticals like these, how consumers are engaging with Klarna, what types of consumers doing from a credit perspective? And then what types of payment plans are really being used and stuff like this?

Yes. I mean, very fair question. And look, DoorDash is a perfect example. You can't use Buy Now, Pay later on DoorDash. It doesn't work that way. Like the threshold starts at $35. And what's really important is that $35 threshold is consistent across almost every Buy Now, Pay Later company around.

What we encourage you to use below $35 is paying full. We're live with Uber here in the U.S. Buy Now, Pay Later is not a part of it. That's not part of our offering. And so 20% of our business globally is paying full. And I think it's really important, like you think about the transition of a customer. And again, I remember this from being in Australia and just hearing dynamics about Afterpay's business.

And I remember someone going, "Hey, our frequency in Australia is now 14x. By the time you're using that payment method 14x, it's not about delayed payments because you've actually -- now it's coming out of your cycle a couple -- I use American Express if I'm buying a $4 coffee or a $4,000 Airbnb, I'm not kicking the $4 into next month.

There is a muscle memory that comes with these payment products. Why do people use PayPal? Why is protection? One click. I'm on the couch. I don't want to get off and go across and get my debit card. Instant refunds. In the U.S., if you're a debit card user, which I doubt anybody in this audience is, you might wait 10 business days to get a refund.

And so I think about what we're trying to solve for is that debit cards were designed to be put into an ATM and get money out. They weren't meant for online e-commerce. And so a lot of the reasons that we build our product the way we built it is we want a true proxy for that debit card. And so when it comes to DoorDash, that was a long-winded -- a lot of the way people are using for is like you can get Home Depot on DoorDash delivered. And that was part of the reason DoorDash wanted a solution. It's high-ticket items, not a lot of burritos and that was never part of the value proposition, to be honest, yes.

Okay. Guys, why don't we stop there? David, thank you very much for joining us.

Thank you.

I appreciate it.

We'll go ahead and get started here. I know that people will be coming in from Jensen's presentation, et cetera. But in order to keep people that are listening on the webcast apprised of what's happening and respecting everybody's time as best we can, we'll get started.

So thank you very much for joining us here at the Morgan Stanley TMT Conference. 2026, obviously, has been a great event. And continuing with that, we're very pleased this morning to have Klarna and their senior management joining us.

Before we get started with Sebastian and Niclas, CEO and CFO of the company, respectively, I do have an important disclosure to read. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

And for those of you that don't know me, I'm James Faucette, Senior Fintech analyst here at Morgan Stanley. So Sebastian and Niclas, thank you very much. It's a long ways to come, but I'm sure all the investors are very excited to see you. So welcome.

Happy to be here. Thank you.

Thank you.

So maybe, Sebastian, we'll start with you. You've been running this business for a couple of decades, right? And so while it may have only come on people's radar, at least here in the U.S. recently, it's been a business that's been developing for quite a while. And you've seen many cycles. You know the loss characteristics of entering and scaling new markets. What are some of the early learnings that you're having within the U.S. market? And how is your focus changing, if at all, with what you're learning from both during and after the IPO, kind of bridge the developments over the last year or so for us.

Sure. Thank you. It's great to see everyone. Thank you for coming. Look, I think that, as you said rightfully, I've been building this company for 20 years now. And it's taught me there's one very consistent pattern, and that is whenever we enter a new market, the first years look expensive and the following years, you look smart.

So I think if you look at it, we have about $0.5 trillion worth of credit that we've underwritten in the history of the company, and we've done that at less than 70 basis points. So the difference in the U.S. more is actually the adoption rate. It's been quite tremendous to see the U.S. consumer adopt Klarna at a faster rate than we've seen any of the European markets.

We're now at 30 -- almost close to 30 million users here in the U.S., and we're outgrowing competition. So that is very exciting. Obviously, though, if you see those growth rates, it does come with -- you have to provision a little bit more upfront. So that comes with some consequences from a P&L perspective. But generally speaking, according to plan and very excited about what we've seen here.

Yes. I guess that's maybe one of the benefits of bringing a product like Klarna to the U.S. is that the U.S. consumer is already well apprised of credit, how to use credit, engage with credit, et cetera. So let's dig in a little bit as you kind of suggested, is that very strong takeoff here in the U.S. And obviously, I'll have you, Niclas chime in where you see appropriate.

But let's talk about the trade-off between near- and long-term. I think this is probably the most topical investor focus area, which is your U.S. Fair Financing expansion. How would you describe that trade-off between near-term profitability, and you alluded to it just a moment ago, given the upfront provisioning and cohort seasoning versus the long-term profitability as Fair Financing scales?

So first, I think it's important to understand that the business that we're building is spend-centric more than lend-centric to borrow a term that some people may be familiar with. And what that means is that if you look at our book ratio, we turn around the book almost 12 times a year. Like I think Amex is at 7, 8. And most of the kind of traditional credit card issuers are maybe at 2 or 3. So it's a very different business model. It's very focused on the charge card equivalent product of buy now, pay later, which is very similar to a charge card because it's a short-term fixed installment, you turn around the money.

And that's also very visible in our revenue composition, where more than -- about 56% of our revenue is coming from merchant fees and only slightly more than 20% is coming from net interest income. And that ratio is actually even stronger than Amex. We are actually slightly higher on the merchant fee than they are as a revenue composition.

So even though we're now -- and I'll let you, Niclas talk to the shorter-term implications. But I think it's like the key thing is even though we're seeing an acceleration in Fair Financing, which we're very happy about, and we have expanded that part of our business, it is still going to be a spend-centric business where the lending is a smaller piece and the merchant part of the business is a bigger piece.

Great. No, I think that's a really good point. And I think from your specific question there, James, I think there's 3 things that one has to be aware of. Number one is this is a very deliberate approach that we're taking, right, with regards to the expansion of Fair Financing. And it's a very important part of it, because if you want to be part of an everyday spending for your consumers, right, you must have a relevant payment product for every type of spending that they are looking to do, whether that be pay in full, the buy now, pay later product or the Fair Financing. And so we have very deliberately scaled the Fair Financing, both in Europe, particularly in the U.S. over the last few quarters, right?

Now secondly, that comes with that upfront provisioning. And it's important to recognize that, yes, that's upfront provisioning. And as we continue to expand that growth, we then see profitability compounding over time. And I think here is really key. If you look at it, the transaction margin dollars for a Fair Financing product is about 3x higher than that of our general portfolio, right? So it is accretive to the portfolio over time, and it's an important element of what we're doing as we become an everyday spending partner, right?

And then finally, I'd say is that we have consistently been adopting more alternatives with regards to our balance sheet here. So obviously, we are a bank. We leverage primarily our funding -- deposit-based funding. But we are also now expanding into forward flows and such, and we did a number of those in the fourth quarter to kind of support that deliberate growth that we had.

Got it. So let's talk a little bit. And I think -- and we can circle back to this. But I think once people start to get their heads around a little bit of what you're describing in terms of front-end loading versus deferred value creation, what operational levers can you pull and maybe should you pull to reduce the near-term drag without sacrificing long-term value?

So for example, I'm thinking about underwriting mix, bearing duration, pricing, even the forward flow agreements. And what are -- maybe as part of that, what are the key indicators you monitor to determine whether growth is too fast? And in particular, are you sensitive to the P&L impact, especially from a quarter-to-quarter basis?

Of course, we are, right? And I think the reality of this is that there's a couple of concepts I would point to, right? Number one is what is this type of asset? It is short tenured, and it's low order value? And that is a critical part of how we think about underwriting. Now we've been doing, as Sebastian said, underwriting for the last 20 years, right? And our focus is very much on constantly assessing and evaluating through our underwriting process on a weekly basis, on a daily basis, how these cohorts are performing.

And if we see that there are things that need to be adjusted, then we make those adjustments real time. And that's something we've been doing for the last 20 years, and we continue to do with the Fair Financing product as well. The second piece, right? So that's the first thing. So we change our mix, our lengths, our tenors, et cetera, based on that underwriting that we continuously do.

And the second piece is the offloading the securitization. So we have forward flows. We do back book sales, we sell portions of the portfolio. But we also do things like securitizations in Europe, et cetera, right? So we have what I call a full toolkit for us to be able to ensure that we can always optimize our funding to manage and balance that with ensuring that we get good returns in the long-term.

So let's talk about comps and delinquencies, et cetera. And then I want to circle back to the environment, particularly as it relates to the consumer and funding. But on comps versus delinquencies, for sure, one of the recurring questions we've gotten from investors is how to think about what you communicated in terms of a deceleration in revenue growth of Fair Financing in the back half of the year? And how much of that is really a change in the environment versus just what's tough comps?

And is there any impact from the early delinquency data you're seeing with the product? I guess what investors are concerned about, maybe you can reassure us or at least provide clarity is that there are some concerns that when credit -- concerns on credit when the delinquency curves of the U.S. Fair Financing in '25, at least initially looks steeper than they were in '23, '24. So talk us through like how the credit performance is and how that may be impacting the way you think about growth?

Okay. So number one, let's be very clear, this is a math question rather than there is a concern or a change in our credit view, right? Reality is that we have been growing our Fair Financing significantly through 2025. On an absolute basis, we will still continue to return over that period -- over 2026 as well. It's just a question of the comps year-over-year from a percentage perspective rather absolute perspective.

And then on your second point, I think that is an important point. When you look at it, our 60-day stay past due and our 30-day past due. On the 30 days past due, you can see that over time, our cohorts are normalizing for '25 down towards that '24 level, right? And if you look at it further out, you can see that the coverage ratios -- or sorry, the charge-off ratios are very stable.

Got it. So if we pull back our focus a little bit just on that point, how would you summarize the consumer, consumer health, consumer strength, whether it be in the U.S. or in your other European markets right now?

I think the consumer is holding up really well. And we also see that repayment rates are stable. We see that spending patterns are consistent. So all that looks very stable. It's also, again, important to recognize that who is using Klarna in the U.S.

And I always refer to this study of McKinsey in [ 15 ] that identified that there's a target group of self-aware avoiders. These are people who actually have slightly higher income levels than your low income levels. And these are people who have tried a credit card. They didn't like the product. They felt that it was unfair. They found themselves with a revolving balance. They paid it all off. They prefer to use debit, but they like the ability to occasionally use a fixed term installment.

And so this audience is actually very financially conscious. They really care about it. I once listened to a customer of ours talking to her mom and she was like, hey, do you use this buy now, pay later thing? And the daughter said like, but -- yes, mom, but you have a credit card, right? What's your outstanding balance, $5,000? What are you paying for it, 25% or 27%?

And then the daughter says, well, look, I'm using fixed-term installments at 0 interest, and I'm paying my average outstanding balance with Klarna is $80. That's a huge difference. So -- and that's the audience that we're using, and that's an audience that's fared very well across macroeconomical cycles as well.

Good. So if that's kind of the credit -- and look, I think it's probably worth saying this upfront is that others that as they grow and especially change their portfolio mix and go to longer duration, you always see this, like the provisioning upfront versus the interest income or other income later. And so I think what you're messaging around consumer is fairly consistent with what we've heard.

What about the other concern -- another concern that investors seem to have right now for sure is availability of capital or funding capital. And Niclas, you mentioned the forward flow agreements, et cetera. What are you seeing in terms of those conversations? And how are you feeling about your funding mix right now?

Yes. So we feel very good about it. Look, we have -- as a bank, we obviously have our deposit base, right? At the same time, we have, over the last 5 years, built out a very consistent set of tools, right? So we have an investment-grade credit rating. We issue bonds. We also do synthetic securitizations as well as these forward flows that we built out. And we work with very strong solid partners. And so that is really the optionality that we have and which is very broad-based.

I think that's an important point, especially on the deposits and other sources that you have. I know that within the market right now, there is some concern about like, oh, is they're going to -- are new agreements around forward flow going to drive? I don't know. It doesn't seem like it. It doesn't look like that, but you have other sources of funding, including your own deposit base...

I mean deposit is the big thing for us. And it's always been. We like it. It's stable. It's predictable. We also do primarily fixed term deposits. It's actually sticky because it sits for 12 months, is very, very long duration. We like to have fast duration on the loans. Average duration is 40, 50 days. I say we turn around our balance sheet 12 times. And then we like long-term deposits. There is -- however, we've been exploring now more fast -- doing these forward loans and so forth. Compared to some of our competitors, we have sold very little of our book historically.

And that is also why from an accounting perspective, we book more upfront because when you sell it off, you can then also take -- book all the revenue immediately, right? So -- but we think that this is a continuous balance between those 2, but we're very happy that we're based in the bank license in Europe and the deposit base that we have because we know through the macroeconomical cycles that has been a strength.

Got it. So let's talk about another big theme, and Jensen Huang was alluding to this a little bit in his keynote presentation just before this, and that is agentic commerce. Where does BNPL fit within agentic commerce? I guess I'm wondering as shopping becomes more agentic-driven and the idea being agents and assistants comparing options, optimizing checkout, steering payment choice. Where do you see BNPL fitting? Does it become a default financing layer or a merchant-funded conversion lever that drives agent behavior? Just help us think through where you think BNPL can fit in that new world?

We have soon 1 million merchants at Klarna, right? And the amazing thing is those merchants are trusted brands, whether it's a Sephora, Etsy and eBay. That in itself creates almost a $0 CAC opportunity for us because consumers see there, they get presented with Klarna, they let's try it out. I like it. It looks interesting. Then we engage with those consumers. We grow -- we increased their purchase frequency. And then a lot of those consumers start seeing a lot of value in using Klarna, which grows preference. They want to use us. They demand of the merchants that Klarna is available as a payment method. And then that feeds more merchants. It creates a nice flywheel effect.

So that has been core to this. And in addition to that, what we realized, however, is if we want to reach parity with Visa and Mastercard, we need -- we cannot sign every merchant ourselves. So what we've moved is from being an add-on with partners like Stripe into becoming a default standard. And this is why we added in '25 almost as many merchants as we had in total in '21, almost 300,000.

And that in itself, again, comes from the fact that like we have signed such standard default distribution deals with JPMorgan Chase, with Adyen, with Worldpay with a number of these partners. So the key thing for us is parity to be available at every checkout. And the benefit you then have is it doesn't matter if an agentic commerce like OpenAI signs with Stripe or this and that, Klarna is out of the box. It's there. It's present just like Visa and Mastercard.

In addition to that, obviously, we are talking directly. We made an announcement yesterday with Stripe for agentic commerce. But we think about it in many layers. We have Apple Pay distributing us, Google Pay distributing us that gives us availability. I don't know if you may have noticed when you open Apple Pay today, you will see the Pay in Klarna button here down here as well. So like there's many layers in which we're present. And then in addition to that, the people who pick up our card also can use us everywhere.

So I think it's obviously going to be interesting to see how this plays out. But for us, it's just making sure that we're present everywhere where Visa and Mastercard is and then make sure that the consumer has that preference for Klarna, because buy now, pay later isn't more affordable credit. It's a better affordable credit than the traditional credit card. And go to any AI and ask, should you use buy now, pay later or credit cards for specific purchases, it will tell you it's a healthier form of credit.

Interesting. So on this agreement or announcement with Stripe and enabling agentic commerce, how should we think about what the unit economics for agentic commerce may look like? Like I know there's still a lot of room for that to move around. But how do you think about those? Are they similar to the existing structures? Are they better or worse? What do you think will drive that?

You have to ask those companies to do that. I think the answer is -- I still feel coming from a European background where Klarna competes in an interchange regulated environment, where debit costs 20 basis points and credit cost 40. And then looking at the U.S., where the average cost of payments is 200 to 250 basis points, I find this as a very lucrative and margin-rich market to operate within. So we see mostly opportunity from that perspective.

Got it. Got it. So I want to move to kind of where -- I like to spend a lot of my time, and that's on strategy growth and product mix, right? And I think addressing kind of these near-term investor questions is obviously really important. But it's really most important once we then start to look into the future, right?

So if we think about the next 3 to 5 years and imagining us in that time frame, would you define Klarna at that point primarily as a payments network, a consumer bank, a commerce media platform or something else altogether? And what are the strategic choices that you're making today that will determine where we end up?

Well, I think we are a global payments network, a financial services company. We let people pay the way they like, whether it's pay the full amount, the buy now, pay later credit -- charge card equivalent or the longer-term financing. We protect consumers from fraud, hidden fees, the debt traps of traditional credit. And occasionally, we help them shop smarter, find the right price, et cetera. That's kind of what we do.

When we evaluate what we want to offer to those consumers, we think about it primarily from is this adding -- well, 2 questions needs to be answered. Like one, is it adding value to our merchants or our consumers in the sense of like is this services that they will enjoy and help them in their day-to-day lives, that's associated with what we do.

And the second thing is we want to rely on the network. I mean a tremendous fantastic thing about Klarna is how we've been able to acquire 120 million users is almost 0 CAC. And so any services that we additionally want to provide should not require a separate go-to-market strategy, but should rely on the network effect. If those 2 criteria are met, we're happy to pursue them. And I think that -- I understand sometimes people want to like which box should we put you in.

And I think people say the same about Amex, right? Is it a lifestyle company? Is it a payments company? It's a bank? It actually has a bank license. You see kind of -- so some companies get a little bit harder to define, but we want to be spend-centric. We don't want to be a lend-centric company. That's not our primary. We want to rely on merchant fees, and we want to provide value on both consumers and merchants.

So I guess that takes me into my second question, and I think you largely have addressed it, but for sake of clarity, let's specifically address like what do you want then the long-run profit engine to be? And is it a little bit of net interest plus credit, but really focused on merchant take rate and services with some subscription and banking, with advertising and commerce media being additive to that? Or -- if it works out optimally for you, how would you split up the drivers of profitability?

I think actually, we're in a very healthy mix where we are. The membership is growing at a very, very healthy rate and looks very, very exciting. The merchant fee structure and the fact that, that's more than 50% is where we would like to continue to be. So net interest income is not going to be -- it's always -- the engine is always going to be merchant fees and then that's just an add-on, similar to what it has been for Amex and some other companies as well. So I think that the mix we have today is very healthy.

Got it. So with the things that you've done, let's talk a little bit about product portfolio discipline. And as you said, you can be kind of a mix of all things and sometimes may be hard to put in a box. But talk to us, Sebastian, about what the criteria is that you use to determine whether newer initiatives should be really gone after or disbanded or just ignored. And I guess one of the questions that we often get is like how does the team avoid spreading itself too thin? Because there's always temptations to go do something else, particularly given the flexibility you guys have shown historically.

So the criteria we already mentioned is part of that. I would add maybe to that, that -- so again, it's like does it add merchant value? Does it add consumer value? Can it be distributed on the same network and the same customers that we have? But in addition to that, what has since 2022 become a very clear focus for us is to grow revenue per user.

I think it take people may sometimes look at us and other companies and have a lot of focus on take rate. I don't think take rate is that relevant for Klarna. I think revenue per user. What I'm very proud to see is that the cohort of users that we used to earn $12 in revenue per user back in '22 from the same cohort, we're now making over $50, right?

And in addition to that, when we bring new consumer cohorts on today, they used to start at around $12. Now they start around $20. Why is that? It is because we have a payment method that is relevant for every type of purchase, not just high-ticket purchasing financing. We have something that's relevant for a DoorDash or for an Uber. We have debit payments. We have the charge card equivalent buy now, pay later. In addition to that, we're in every vertical.

People are not aware of that. We are huge in subscriptions. We're huge in other verticals that people don't necessarily today in the U.S. just yet associated with us. But if you look at our European business, that's the case.

And in addition to that, we have advanced additional revenue lines from things like membership, tiers, et cetera, that we're adding to the mix. So those -- that's the key thing for me. Then some people ask us, well, why isn't your average revenue per user gone up more? And the truth is just because we've been accelerating our addition of new users that come in at slightly lower revenue per cohort still as they start off at that $20. So that depresses a little bit.

And then we also integrated a company called Stocard that added 50 million users to our base, but where the revenue per user was very, very small, and now we're starting to add that. So that's kind of depressed. It hasn't allowed the $30 to grow as much. But if you look beneath it, you see very healthy trends, and that's very exciting.

So I want to go back to one of the things, once again, in the interest of kind of trying to look over the horizon, go back to one of the things you said at the outset, Sebastian, and that is -- and talked about is the BNPL as sound financial decision-making tool for consumers, right? And one of the things that we've seen pretty persistently really since the beginning, but definitely that has become obvious over the last few years is the share gains.

BNPL keeps gaining share, particularly within e-commerce, but increasingly within consumer credit and payment more broadly. What are the main structural drivers of that shift? And how do you keep that growing rather than plateauing at some point in the near future?

I think it's the recognition that consumers realize that when they use this product, they don't overextend themselves with $5,000 outstanding limits at 27%. And the more consumers that try this and realize that they have healthier financial lives as a consequence of using that charge card equivalent that buy now, pay later is, the more of them tell their friends and they share that story and they find it superior to the traditional credit cards. I don't think it's harder than that actually.

Got it. So let's talk about TAM expansion. So once again, looking in the past or as we became aware of BNPL, it tended to be framed around purchases of retail goods. But you're pushing into higher ticket, more services-oriented categories. What has changed such that these categories are really now addressable? And what constraints, whether that be the risks, unit economics, trust, et cetera, are still most important to solve to really expand BNPL's availability?

It came back to the idea. If we wanted to really reach parity with something like Visa and Mastercard in the long term, and you want to sign these deals with somebody, whether it's a JPMorgan Chase or a Stripe to be default and standard, you have to be relevant in many markets.

People forget that like we have almost 10 million customers in Italy. We have 7 million, 8 million in France. We have over 20 million in Germany. We have over 10 million in the U.K. And then U.S., our largest market now, almost 30 million. So if you want to be relevant for somebody like Stripe to be default, you have to be able to tell them, look, I have consumers across the world. You can onboard a merchant that sells to many markets, and it's relevant for them. That's number one, right?

Number two is you have to have a payment method that's relevant to your point, for a subscription, like not everything that, for example, goes on Stripe is retail physical products purchases and most definitely not high-ticket retail purchases. A lot of it is micro services, gaming subscriptions. So you have to have payment methods that are relevant for the whole spectra of things.

And then you have to have a recognized brand with strong consumer preference where these merchants are saying, look, I want to have this thing, right? I think one of my most proudest wins of the last quarter was LEGO, right? Like I feel like LEGO with their brand. If you can win LEGO and LEGO wants to add Klarna to their website, that is a tremendous recognition.

Now all you need is like the Klarna branded LEGO bricks to put in there, right? So that's your next step. So let's talk about competition. How would you characterize the competitive environment today? Are you seeing more pressure on merchant pricing? That's always a big question that we get from investors.

What about consumer incentives or even distribution access? Just help us understand how you're viewing the competitive environment today, especially vis-a-vis other alternatives, but I'm sure people are always keen to hear about vis-a-vis other BNPL providers.

I think distribution is a very important moat. So what I just said again about the -- being default and standard on these large platforms is definitely important. But we also continue to win the largest merchants. We've seen eBay, Walmart, LEGO again, as I said.

And I think what merchants really want is they don't really stay loyal to a brand. They stay loyal to outcomes. I have some nice examples like H&M seeing 11% increase in conversion rate, eBay seeing 3 times the average order value that they're used to or Shein seeing a 25% reduction in customer acquisition cost. So that is -- continues to be the case, and we continue to win these large contracts because of this. And I think we're going to continue seeing that again as well because a lot of these large merchants are multinational brands with a very -- with very many different categories.

That was actually a big part of our whole Walmart discussion as well was that we showcased to Walmart like how can you adopt like the way we do payments for opticians for glasses may be different than what you should offer for your TV that you sell different from grocery. So the ability to kind of adjust and have different variants of the product that are very relevant for a consumer shopping a thing is important.

Got it. So let's talk a little bit about merchants themselves and their decision-making. Have you seen changes in the way that merchants are deciding which BNPL offers to make available, how to position, et cetera, especially since how much push do you see for multi-provider setups? Changes in economics? Just trying to get a handle on what the merchants are doing, especially as BNPL continues to grow.

We -- sometimes we're alone in the checkout, sometimes we are side-by-side. What's most important to me is when we're side-by-side, I even know big brands in the U.S. that have 3 side-by-side. And I know our share of checkout is the greatest. And that's what matters to me because it's about consumer preference.

Visa has been next to Mastercard, next to Amex Forever. Like these things, there will sometimes be more options. You go to Asia, you will see 40 payments method rather than checkout. So the point is the preference. And if you can grow that preference, then that's the most important thing.

Got it. So less than 2 minutes left here. When we come back a year from now, what are the 2 metrics that you most want to have surprised the market? What are the -- and really, what are the 2 internal or however many it is, internal initiatives to get there? What are the 2 things you want us most to be surprised about a year from now?

If I look back at what we accomplished in '19, people doubted our -- whether we were going to be big in the U.S. We are now the largest and growing the fastest. In '21, we managed to turn around the company to plus when people doubted that. And more recently, people asked about our growth, and we took it from 8% growth in Q1 towards 18%, 26% and now 38% -- in Q4. But obviously, I think right now, the main focus for now is profit. So that's going to be the main focus.

Got it. Got it. Any last things that you think investors should keep in mind or where you feel like investors have a misperceptions that need redirecting or even correcting?

I don't think investors have misconceptions. There's always things that we can improve telling the story of the business and how amazing it is. I'm a big shareholder myself. I'm a big believer in the long-term opportunities.

I love it so much. Sebastian and Niclas, thank you very much for joining us today. It's been really a real pleasure to have you here. Thank you so much.

Hello, everyone, and welcome to Klarna Fourth Quarter 2025 Earnings Call. My name is Filippa Bolz, Head of Communications at Klarna, and I'm joined today by Sebastian Siemiatkowski and Niclas Neglen. Our Q4 results were released at around 7:30 a.m. Eastern Time, and they are available on our Investor Relations website.

During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC.

During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period in 2024. [Operator Instructions]

Before we move to Q&A, we will begin with a short presentation. Sebastian, please go ahead.

Thank you for joining Klarna's Q4 earnings call. Klarna is accelerating its growth of our banking relationships and our revenue per customer. Millions of consumers are adopting more of our services, the Klarna Card, Klarna's Deposit accounts, Klarna Fair Financing products and, of course, our well-known buy now, pay later services. Now this is exactly what we had planned for and wanted to achieve. And in Q4 2025, the adoption of these products accelerated beyond our expectations.

As we scale this business, delivering on profitability is a key priority. In Q4, we delivered. Active consumers reached 118 million, up 28% year-over-year. Merchants grew to 966,000, up 42% year-over-year. GMV came in at $38.7 billion, above the top end of our guidance and revenue grew 38% to over $1 billion, also beating guidance.

Now let's put these numbers in perspective. We are a bank with an exceptional network that is growing at 38% revenue year-over-year. In '25, we did over $127 billion worth of volume across 26 markets and across 3 continents. And we're growing exceptionally well on every top line metric, cementing our U.S. as well as our global leadership position.

Transaction margin dollars before provisions grew 31% to $622 million, an acceleration of $107 million versus prior quarter. And after provisions, transaction margin dollar was $372 million, up 17% year-over-year and up 28% sequentially from Q3. Now the fact that transaction margin accelerated quarter-over-quarter points to the compounding nature of our model as more of our cohort's mature revenue and it's compounding at a faster rate.

Now I want to be direct and transparent. This quarter's transaction margin dollar result did not land where we guided. We take that seriously. The acceleration in lending growth is the primary driver of that outcome.

Now let's look at an illustrative example of that to understand the impact I'm speaking about. In this example, we have about $1 billion of loans originated. The lifetime profit of these loans, you can see on the left-hand side is $100 million in revenue, while your provision would be about $40 million and you would have other costs of $25 million, resulting in a net profit of $35 million.

Now like all banks, we recognize these loan cohorts over a period of time. In the first quarter, as you can see on the right-hand side, we would recognize a fraction of the revenue, but we would recognize all of the expected provisioning upfront. This results in a first quarter transaction margin dollar drag of $25 million, as you can see on the red there.

During the remaining quarters, we recognize the remaining revenue as well as the other costs. So the resulting lifetime net profit remains the same $35 million. It is simply spread over time and we see a $60 million positive impact on the P&L for the remaining quarters. This effect in the first quarter happens even when the underlying economics are strong and credit quality is stable. This is value creation that is deferred. For every provision we book today, we gain a future profit stream.

Now let's take a Klarna example. For $2.5 billion of U.S. Fair Financing portfolio originated this quarter, Q4 '25, we booked $80 million in provisions upfront, and we recognized $40 million in revenue. So yes, this quarter, that's a $40 million headwind. But there's an additional $180 million of interest income still to come, while the cost, the expected credit losses have been provisioned for already. Just to repeat, faster growth, faster adoption means lower upfront transaction margins and operating profit.

So when you look at our Q4 transaction margin dollars of $372 million, this primarily reflects the fact that the adoption of our expanding set of banking services are growing faster than we expected, including Fair Financing, GMV currently growing at 165% annually.

At the same time, to support our accelerating growth in a capital-efficient manner, we ramped up our loan sales. And in Q4 '25, we initiated our first Fair Financing forward flow with $73 million of gain on sales recognized in Q4 '25. Continuing this strategy will further accelerate our profitability improvement in '26.

Now let me speak to exactly what that growth looks like and why we're so confident in our strategy. Our partnership strategy, as described on our previous earnings call, continues to compound and support our long-term strategy of being ubiquitous everywhere as our payments network expands its acceptance points.

Over the year, we added 285,000 merchants, up 42% year-over-year. We continued to scale our default relationship with Stripe. We began the default-on rollout with Nexi through Paytrail, and we expanded Apple Pay and Google Pay into additional markets. We also launched new partnerships with Emirates, LEGO, Vinted and StockX, while further deepening our relationship with large global merchants such as Walmart, Lufthansa and Etsy.

At the same time, we're accelerating our product ubiquity, ensuring that we have relevant payment options wherever the consumer shops. We doubled the amount of merchants where fare financing is available and continue to expand our pay in full product to almost half of our total merchant base.

The benefit of building that network, close to 1 million merchants globally across 26 markets, online and offline, is that we've already captured the hardest thing to win, the consumers everyday spend. The checkout moments where trust is built, and that is the foundation. And now we're leveraging it.

Once you have the everyday spending relationship, once the consumer is using Klarna 10, 15, 20 times a year at checkout, the step into a banking relationship is natural, low friction and extraordinarily cost effective. There is no cold start. We already know these customers, and they already trust us.

And in Q4, this played out at an accelerating pace. Active card users grew to 4.2 million, up 288% year-over-year. Consumer deposits reached $13 billion, up 37%. And our most engaged consumers, the Klarna banking customers, reached 15.8 million, growing at 101% year-over-year. This growth is not linear. It is compounding as we build deeper relationship with our consumers.

Let's deep dive into a comparison of that total consumer base versus the banking consumers that have adopted more of those banking products. Our base of 180 million Klarna consumers is growing at 28% year-over-year and transact about 10x a year with us. They have an average revenue per user of about $30. But now look at what happens when that relationship expands into a deeper banking relationship. Those 15.8 million consumers transact nearly 3x as often, 28.5x a year with an ARPU of $107. The average deposits jumps from $64 for our paying customers to $475 for our banking customers.

And credit balances remain modest. Compare that to any credit card bank that would usually be at about $6,500 or 10x as much. And the charge-off rate moves from 0.6% to just 1.1%, a fraction of the 4% to 5% you would see at normal standard credit card banks. So more engagement, more revenue, disciplined risk. That's the conversion we're driving, and it's why we're leaning into this growth despite the near-term provisioning drag.

Now this expansion of our banking product is built on our transaction relationship with our consumers and the knowledge we have built around risk management for the past 20 years. Our proprietary underwriting systems that we've developed underwrite every single transaction. We don't issue revolving credit, and we leverage our deep understanding of our consumer spending habits as well as external data.

The result is consistent and stable charge-off profiles as evidenced by the stable 3% to 4% charge-off rates for our U.S. Fair Financing product. And we are delivering all of this with a fundamentally different operating model. Leading into technology allows Klarna to deliver a range of services with a headcount that is a fraction of the size of a traditional bank. Klarna's success is built on talent density and relentless focus on efficiency, and we believe this is a lasting competitive advantage.

Now look at this, revenue per employee now reached $1.24 million in '25, a 3.6x increase since '22. And critically, we've reinvested some of these savings back into our talent. That's the operating leverage that compounds alongside the banking growth I've just described.

Since 2022, we have accelerated our revenue growing 104%, while at the same time, managing our adjusted operating expenses effectively as it has declined by 8%. In 2026, we expect to continue to expand revenues faster than our operating costs as we focus on building the consumer bank of the future. As we provide 2026 guidance for the first time, we are incorporating this growth trajectory and the associated timing effects, while being disciplined and realistic in how we frame expectations.

The underlying trajectory, revenue compounding, cohorts maturing, a lean cost base give us confidence in the path ahead. Thank you.

Thank you for that presentation. We'll start with 3 investor questions from Say Technologies. The first question is from Shubhayan. When are you planning to become profitable? Klarna's share price has declined since the IPO and investors aren't happy. What changes do you think may be needed in the organization or the product?

That's a great question. So as our illustrative example showed, this is how the dynamics work in general. Every additional $1 billion in loans that we add in a single quarter will reduce TMD or transaction margin dollars by something like $25 million that same quarter, but it will increase transaction margin dollars by $60 million in the upcoming quarters. So the more we grow in these books, especially the more profit we're generating for the future.

So the real question is simply, do we want to make more money even if it means slightly less today to make significantly more tomorrow. You might also though ask, obviously, for how long. Well, the good news is we have natural cushions. As we sell more loan portfolios where revenue and costs are recognized immediately, the timing effect diminishes. We did $4.5 billion in Fair Financing last year, growing 165%, winning deals like Walmart and rolling out across all Stripe merchants and so forth. So as these growth rates obviously eventually will normalize, so will this dynamic.

Some of you may even remember JPMorgan Chase faced this, Jamie Dimon famously said on the Sapphire card that he wish he taken twice the losses. This was 2017, slightly different rules, but the same concept. So the question becomes, given that we can issue those additional loans, should we? And as a shareholder, at least my answer is an absolute yes. Klarna has issued over $0.5 trillion in loans over 20 years with record low losses across that entire period. That's a proven underwriting machine. And when we have the opportunity to deploy that machine and create significant value, we should.

In addition to that, to answer the question even more specifically, Niclas will speak about our guidance soon to give you a more concrete answer for this year.

Thank you. The second question is from Marc. How will you prioritize capital allocation between reinvestment, debt reduction and shareholder returns over the next 12 to 24 months?

Well, I think it's -- we're seeing really fantastic growth here, and we're seeing an amazing acceleration in the adoption of our banking products. And you may, at the same time, some of you may have picked up that we have a rapid product announcements, and we're basically quickly closing any feature gaps to both neobanks and incumbents alike. All of this while being disciplined on costs. So the outcome of this translates to more revenue and more profit. And when it is in the books, we can also discuss what we will do with it.

And the third and final question is from Adam. With the 102% surge in credit loss provisions reported in Q3 '25 still weighing on sentiment, what are the latest delinquency trends? And how confident are you that provisions will stabilize or decline as a percentage of GMV heading into 2026?

Thanks, Filippa. That's a great question. From a credit perspective, what we're seeing is actually stability, not a deterioration. Provision credit -- for credit losses actually declined in Q4 versus Q3 from 0.72% of GMV to 0.65%. And that really reflects both a stable delinquency trend and an impact of the increased loan sales that Sebastian previously explained.

Thank you. We will now move to questions from the analysts. [Operator Instructions] Our first question comes from Sanjay Sakhrani at KBW.

I appreciate all the commentary. Niclas, do you mind just digging a little bit deeper into this quarter's impact from the excess loan growth? I'm just trying to parse apart sort of the provision related to credit versus the provision related to growth that sort of speaks to that mitigating impact on transaction margin dollars. And then maybe if you could talk about how it might affect 2026, that would be great, too.

Great. Thanks. Sanjay, thanks for the question. Look, I mean, in Q4 '25, and I think the dynamics are here are twofold, right? You're seeing a very strong growth and seasonality that drove significantly higher pay later volumes, and those are on our noninterest-bearing loan product, right? These are actually classified as sold or held for sale as part of the cost of funds, which you can see in the broken-out report that you have on the CFO letter, right?

And these loans are actually primarily sold through our forward flow programs. And so those loans are measured at fair value. And so the result is that you get a fair value adjustment that is substantially offset by a corresponding reduction in the provisions for credit losses. And while you then see the credit losses that we have today, primarily then driven by Fair Financing.

And if you think about it, right, and we've broken out the Fair Financing volume as well in the back end of the paper. But ultimately, what you're seeing is a mix shift towards Fair Financing that was stronger than what we had expected as we're seeing more and more banking consumers coming with more banking product with us. And that's really what's been driving that.

'26, we have a guidance there, and I can take you through the details of that. But ultimately, we're seeing similar trends there. Year-to-date in January, we're seeing good, moderately stronger growth than in Q4 '25. And so I think we're heading in that right direction from that perspective.

Perfect. Thank you so much.

Okay, great. Maybe just one follow-up.

Okay. Go ahead.

Go ahead. Go ahead, Sanjay.

Sorry, I didn't know if I could ask to. Maybe just one quick follow-up for Sebastian. I mean maybe just how you feel like the Walmart rollout has played out, if you're happy with it and sort of any traction otherwise you're seeing in the United States?

No, I think Walmart is obviously one great accomplishment, and it's looking really well when you look at the rollout. But I think that what excites me the most is the strategy that we set up that we're executing on, which is to become a truly third-party network and rely even stronger on the distribution of our partners, be it JPMorgan Chase, be it Stripe, be it Adyen and so forth. And that's why you're seeing these acceptance points and merchant numbers coming up so much. This is also why you're seeing Fair Financing growth because not all of our merchants historically have that. And the way we now work with our distributors is we try to make sure that they offer all of our payment methods.

So not only is it about number of merchants that accept us, it's also about making sure that pay now, pay in later as well as Fair Financing is available at every checkout. So there's always a relevant payment option independently of what the retailer might be selling, everything from furniture to games.

And so -- and that's really what's kind of -- what is the foundation of this growth. But at the same point in time, it's early days. A lot of these large distributors of ours are still implementing, still taking us live and so forth. And that's why we're very pleased about this because we know that this will continue to drive very solid growth for us in the coming years. So very happy about what we've seen so far with Walmart and also generally seeing the effect of this both in the U.S. and then globally as well.

The next question comes from Will Nance at Goldman Sachs.

I was wondering if we could drill down into the transaction margin expectations for the coming year. As we look at the guidance that you guys have laid out, it seems like transaction margin is coming in roughly 10% or so below current consensus expectations and hear you on sort of the front-loading impact of provisions in GMV. But when we look at the first quarter, GMV was much closer to the guide, whereas transaction margin was something like 3, 4 points below.

So I guess with that context, can you talk about the transaction margin trajectory that you are expecting now versus what you had previously expected? What are the changes? And how do you think about the path to getting towards transaction margins in the kind of 115% to 120% range where the company had operated historically prior to the big expansion in lending?

Sure, Will. Thanks a lot for the question. I appreciate that. So maybe just before kind of answering you specifically, I think it's good for me to just take you through our thoughts on the guidance and how we've kind of thought about it. So I'll start with that a little bit. Start with the first quarter, right?

So we've -- like I said, already entered 2026 with a strong momentum. We're tracking modestly ahead of Q4 '25 levels already. The banking products, fare financing, the Klarna card, et cetera, remains the primary driver of that growth, and we're seeing that continued strong adoption, right? So that is one element of what we're seeing into '26, right?

Our forward flow programs, which are providing that kind of capital-light foundation for the sustained higher growth, we actually expect to continue to execute some of these agreements throughout the year, including one in Q1, and that's actually reflected in our transaction margin dollars and our adjusted operating income ranges for Q1 as well.

Transaction margin dollars as a percentage of JV is also expected to be broadly consistent with Q4 '25 as we continue that investment in supporting the rapid scaling, right? And so what you should be able to see then when we get into 2026 in full year, right, you're going to see that GMV growth and revenue growth in line with 2025, which on the context of $127 billion worth of volume this year, I think, is very, very healthy growth.

As the mix of maturing Fair Financing cohorts increase, what you're going to see is revenue compounding through the year and transaction margin growth accelerating into the second half. And that's really the natural payoff of that upfront provisioning model, which you highlighted yourself, right?

So adjusted operating income margin is expected then to become greater than about 6.9% as we continue to have that revenue and TMD outpace the growth of our operating costs, right? So ultimately, in very simple terms, when you look at transaction margin dollars, it is really a mix question of the geographies we're growing in, but also in regards to how much Fair Financing that we're doing as part of that banking evolution that Sebastian spoke about.

That's great. I appreciate all that color. And just you mentioned the offloading dynamics starting in the first quarter, likely continuing for the year. I was wondering if you could provide your latest thoughts on just expected offloading on the Fair Financing book in the U.S., maybe relative to the amount of loans sold in the quarter. Is there any kind of parameters around percentage of production sold that you guys are targeting for the full year as we just try to true up that part of the model?

Yes. So we're not going to give exact guidance because we are really commercial in the way that we think about this. We have some great partners that we work with in this regard, but we also want to be sure that we balance it, right?

So my expectation is that we're looking at the transaction in Q1. If you look at Q4, we sold about $1.6 billion. This transaction will be slightly smaller than that, right? And so what we'll see is through the year, as and when it makes sense to do these sales, we will be executing them, and that might change depending on quarter-to-quarter, right? So that's probably the best I can answer at this stage.

Over to our next question, which comes from Jason Kupferberg at Wells Fargo.

So can you just talk maybe a little bit more specifically about what you're embedding in the guidance for 2026 for Fair Financing, specifically just in terms of loan growth there? I mean, obviously, you're going to lap Walmart later this year, but I would like to get a sense of what's assumed in the initial outlook here.

Yes. So we're not going to give a specific split, but what I can say is that we're going to, from an absolute volume base, accelerate in comparison to 2025. Now as we go through the year, just given the fact that we started where we started and have been scaling so quickly, the year-over-year percentage comps through the year will kind of pan out or it kind of decelerate to some extent, right? But that's from a percentage perspective. On an absolute basis, we're continuing to compound.

Okay. Understood. And then maybe one for Sebastian, just big picture. On agentic commerce, I think a lot of debate out there about what branded button presentment and prominence might look like in a truly agentic world where transactions are being completed natively on an AI platform. How is Klarna thinking about that, preparing for it? Obviously, you guys have announced some partnerships, but would just love to get a sense of what your crystal ball is in terms of what consumer checkout experience might look like in that scenario down the road.

Thank you, Jason. Fantastic question. Look, I think there are many ways to answer that. I try to keep it short.

But first and foremost is that like we have believe that this is the evolution of e-commerce for a long period of time. That's been part of our thinking. As a consequence of that, we have thought it was very important to have the partnerships and distribution of people like Stripe and Adyen since those are often the companies that people go to, to implement agentic commerce. And so by making ourselves default and always available in all these points, that makes us like always available in those points as well.

In addition to that, you see things like we launched with Apple Pay and Google Pay makes us again available everywhere where those are being used, which again then gives us additional coverage in this. But then obviously, we also court the big AI companies, and I can't promise anything there, but like obviously, that's part of what we do as well in that sense.

I think the additional thing that I find very promising is that the conviction that we have which is that buy now, pay later is a healthier form of credit than credit cards. The fact that it's interest-free, fixed installments and so forth. This is truth.

And then sometimes people write about different things in media this and that. But the truth is if you go and ask even the big AI companies, which form of credit should I be using, which is the one that's most healthy. It will recognize the benefits that buy now, pay later provides.

And so we think the fact that we have a healthier product also means that even AI will recommend to rather use this one than revolve at 30%, right? So I think like all of these combined, these are the -- we feel that we're very well prepared and that we are in a great position as this agentic commerce rolls out.

Our next question comes from Harshita Rawat at Bernstein.

So I want to ask about the competitive environment. Some of your peers have talked about intensified dynamics in Europe and the U.S. Maybe talk about what you're seeing in the market? And then also maybe comment separately on the consumer kind of I think there's concern around continued kind of pressure on the low-income consumer. What are you seeing and hearing from your customer base, both in the U.S. and Europe?

Harshita, Sebastian, I'll jump in on that one. Let's start with competitive.

I think that the -- I feel very, very confident on this topic. And the reason again comes back to what we said about our partnerships. It was always very critical to me to become a global payment solution. So many times, we talk to merchants in different markets, and they look for global solutions. And now Klarna is perceived as a global solution, which means that we get tremendous benefit from working with everyone from an H&M to Shein to a Walmart to Sephora.

The fact is that they can work with one party that can offer pay now -- buy now, pay later and fare financing across all of these jurisdictions. This has not been -- even look at the big home electronics manufacturers, none -- that has never been possible before. So the geographic coverage means a lot when it comes to signing these deals, and it's unparalleled. Nobody else in the industry has the geographical coverage of Klarna.

So you will always find individual companies and individual markets, but that is just giving us such a tremendous strategic advantage that we see. And that's also super critical when we work with the Stripe and the Adyen of the world because there -- it's also for them much more interesting to launch with somebody that can offer their services at such high global coverage. So I feel very, very confident in our continuous ability to grow and preserve margins throughout.

Now when it comes to the consumer, we are very confident and feel very solid here as well. What we're seeing is that, again, the audience that uses our product is an audience that is what we call the selfaware avoiders. These are financially conscious, both American consumers and European consumers who are actively keeping away from credit cards, who are borrowing much less. Their average balance may be on a credit card, people would have $4,000, $5,000.

As you saw in our presentation, a pay, what we call a Klarna paying customer has $100. A Klarna banking may have $400 or $500. So it's actually 10%. And so these are financially conscious customers. They enjoy the fact that our products are 0 interest, fixed installments. They find them as a healthier alternative, and they're also keeping their economy in better shape.

So we see good performance. We see that they are shopping as they used to, they're spending as they used to, and they are also borrowing responsibly, which we appreciate and find is important.

The next question comes from Darrin Peller at Wolfe Research.

I really just want to go in a little bit more maybe for Sebastian on the tools. But basically, the idea of where you believe the right balance should be between lending and interest income and transactional streams. Just as far as the company's longer-term goals, I understand it's demand driven to some degree and to the most degree. But anything you could help us with and where you see that sort of leveling off?

And then Niclas, just maybe on a short-term basis, we're also trying to understand where we expect to see the inflection on provisions offloaded to a degree that it actually does help the TMD grow at a faster rate this year potentially.

Maybe you want to start, Niclas?

Yes, sure. Thanks, Darrin. I appreciate it. I think it's a good question. If you look at it, what we actually are looking at from a TMD perspective is a significant uptick in growth, right? And you've seen that kind of sequential increase both from Q3 into Q4 now, right, with TMD.

And I think as we continue to compound through the year, like I said earlier, Q1 definitely still has a lot of that rapid growth coming in. And then you start kind of cycling into an absolute growth balance, but then the percentages from a comp perspective kind of recede a bit into the second half of the year, right, which is kind of what I said.

So I think that is kind of the short answer to that. And I think you're going to see that continuous TMD acceleration through kind of the second half of the year, as I said earlier.

Thank you, Niclas. Sorry, Darrin. Would you mind just repeating your question for Sebastian?

Yes. I was just trying to figure out what do you guys' think is the right mix sort of in a steady state? Obviously, you're in hyper growth right now around Fair Financing in your banking products, but trying to get a better sense of where you think that should level off, where you'd like it to level off, thinking about interest income as a percentage of the mix of the business versus other revenue streams.

Yes, it's a great question. That's -- I think as a rule of thumb, even for myself, when I look at those provision for credit losses, the rule of thumb is that 80% of it is associated for kind of forward-looking, while 20% is kind of backwards looking.

So to your point, obviously, as we're growing Fair Financing right now, and we're kind of in that phase of that being a high-growth product at this point in time. But I don't think that is necessarily always going to be the case. When we look and compare ourselves to other neobanks, some of the other neobanks are much -- most of them are much smaller on the lending side and much bigger on deposits, on subscriptions, on tiers, et cetera.

So partially, what we're seeing right now is just the effect of the strategy that we implemented a few years back to, again, have our partners distribute us. And you saw that number as well in the presentation that still only about 200,000 merchants offer Fair Financing of the total 800,000. So there will probably be some continuous growth there as more and more offer that product.

But I'm very keen on growing the other revenue lines as well, the marketing revenue, the subscriptions revenue and so forth. And I think that finding a healthy balance as well as deposit revenue as well. So I think over time, it's probably going to skew more again towards the other revenue lines, but that is a little bit more -- takes a little bit longer time. And it takes time, obviously, because we're a fairly big bank right now. So like even if we make changes to our products and so forth before you fully see that materialize in the numbers is a little bit further out.

Next question comes from Tien-Tsin Huang at JPMorgan.

I want to ask on the processing cost side, if you don't mind, a model question. Lots of moving pieces, I know with partner and product ramps as we've discussed here. But how should that processing line trend in relation to GMV? Any insight there to share?

Sure. Yes. Thanks, Jason. I think in -- the reality is like partially, this is a mix question with regards to how much volume is coming in from the U.S., et cetera, as well as the type of product that you take on and the tender of that product. So in the short term, you're going to see something similar to this that you've seen through 2025.

But I think the evolution of this in the longer term or medium to long-term, right, is very much one of the -- and you've heard Sebastian say this before, one of our focus areas is really to find ways to improve that line, right? And so we are actively looking to find ways to get that trend line to move in the opposite direction, not only purely from a mix perspective, but actually getting things like now that we -- now we have a current account, we have the balance, et cetera, and we're starting to see refunds come into our accounts, which obviously then reduces the requirement for us to use other rails.

What we have slightly working against that right now is also that we have more card issuance, right, as more and more consumers are using us. So similar to some extent, similar to the Fair Financing upfront provisioning, we are making some investments here with now over 4.2 million active card users, right? We are seeing a lot of growth, and that obviously has a bit of cost in the upfront. But what we actually are creating is a very sticky consumer that's going to help us then to be able to drive more of the transactions within our own rails, which will help to reduce that processing and servicing line.

And I think to add to that quickly, Tien-Tsin Huang, is that, I mean, we -- in this case, we're coming from Europe where payment and funding costs were virtually 0 or very low. And then we move into the U.S., and we've seen significant growth. And we know looking at other fintechs and competitors that are larger and originating in the U.S. that there are smart ways to fix this. But it's going to be a continuous focus for us to do that, obviously, because to your point, there's tons of potential in there, but we need to execute it, implement it and see the results in the financials.

Understood. So it's a work in progress. Good to know. Just quickly on the -- I think, Niclas, you mentioned stable delinquency trends. It looks like from the charts in the shareholder letter that some of the newer vintages on the delinquency side are a little steeper and higher than prior vintages. I'm just curious if there's any surprises there. Or I just want to better understand those trends.

No, there are no surprises there, right? If you look at it, again, you have to understand that we're obviously ramping quite quickly through these processes. But at the same time, you're seeing that it's very much within the trend base that we expected. And as you go -- your models, as you scale, get better and better. And you can see that's why I actually included not only the 60 days past due view, right, which is we've been showing consistently, but I also show you the 30 days past due, where you can see that those trends are normalizing over time, right?

And I think that is a really key point here, right? We underwrite every single transaction. We've been doing this for 20 years. Yes, we are scaling the business, but what we're actually doing is doing that in a very disciplined fashion. And we have the ability with our low average order values and short durations to be able to manage and flex these models consistently, and that's really what we're showing on that page.

I think in addition to that, what's also important is that we -- the way we think about it is that we prefer starting with buy now, pay later and pay now with small value transactions, $50, $100, build a big audience of customers that we get to know that we've underwritten, that we've seen their payments performance. And then we're scaling like we're doing now for financing, where a large proportion of those Fair Financing volumes are existing customers that we already have relationships and doing underwriting for a few years.

And that's a critical part of our thesis, which we think is very special to Klarna that it's important for us to be in those daily transactions, both because it grows a stronger relationship with the customer, but also means that we understand them better. We follow them for a longer period of time, and it makes -- it helps a lot in the underwriting decision.

Yes. I would say that the vast majority of our Fair Financing that's being underwritten is with consumers that have had products -- other types of products in advance.

Moving on to Mihir Bhatia from Bank of America.

Maybe first question I had, I just wanted to start going with the Klarna card. Can you just talk a little bit more about how consumers are using the card? Is it actually becoming a top of the wallet card? Or is it just being pulled out more for financing transactions? Are you seeing differences in geographies or the types of customers use -- in -- how they're using the card?

Yes. Mihir, it's Sebastian. So I -- we are excited about it a lot. I mean I think that I probably -- I was trying to find a bank issuer that had launched a card with this kind of number of active users on such a short period of time since this basically started rolling out in summer. I think it's actually unprecedented, which is pretty cool.

We see very good usage of this product, both in the U.S. and Europe. What we're happy to see is that it isn't, to your point, only a -- or as you mentioned, it isn't just being used for like a pay later or Fair Financing card. It is actually has a very healthy proportion that's being used for debit transactions for day-to-day spend, which is exactly what we wanted to do.

So when we think about this, again, like when we move consumers that we call them the Klarna payers to the Klarna bankers, we want them to adopt more of our financial products. And that is both deposits, debit spending as well as credit to some degree and other -- the subscription tiers and the loyalty cards and the cash back offers that we do and so forth. So we're very optimistic about what we've seen so far in regards to that.

Could I just add something there, Sebastian. I think it's really critical point to make that what we're seeing is a high teens growth even in established markets like Sweden, where we have 80% population penetration. And that is very much because of the card, right? You're seeing that people are adopting us both online and offline here. And I think that's a very unique positioning for us to find ways to grow with our customers in the way that Sebastian described, but also then ability to expand that monetization opportunity as well.

Got it. And then if I could just follow-up, I want to go back to the questions around the trajectory of transaction margin as a percent of GMV or revenues, however, you want to answer it.

But look, I think I hear you regarding the mix and the Fair Financing growth pressuring 2026 margins a bit. But I guess, like when does the delayed profit from the back book start to offset some of that growth? Like how are you thinking about those margins maybe as you go out a couple of years? Where do you think transaction margins should settle out? Like your competitor has obviously given some guidance. And I was just wondering if you have a view on that, like where transaction margin as a percent of GMV should settle out medium to long-term?

Okay. So I think TMD, generally speaking, right, is now moving towards -- and we're not going to give like longer-term guidance and beyond 2026. But I think we gave some frameworks previously -- and we've talked about the range of somewhere between 1.5, 2 percentage points. But again, like the key thing here is the mix of the revenues that we've got, right?

And so the way I would think about this is that we can really think about what is the trajectory of the Fair Financing element of this and how that is moving forward and scaling. And I think as we get an understanding of the abilities of balances of this, we will see how those things proceed.

Moving on to Robert...

Maybe I can add something on the topic, just if you like -- I mean, generally speaking, Klarna has always seen over my 20 years is that you either go through high-growth phases. When you go to high-growth phases, you always see slight temporary deterioration in GMV and margins, et cetera. And then as you kind of mature a little bit and growth comes down, then profit transaction margin dollars return. So this is always a continuous discussion because when you grow faster, then as we've seen, for example, the accounting that was described and so forth, and this always results in these kind of effects. So that creates a lot of confidence for me.

Sorry, I think -- yes, that's a much better answer to the question. I think from the perspective of long-term guidance, I think the key thing is we're focusing on '26 right now and how we're thinking about the transaction margin there is really how you should all be thinking about it.

Moving on to Robert Wildhack at Autonomous Research.

You've talked a lot about the upfront provision for banking services. And I guess in the letter, those banking services include Fair Financing, but you've also got some products in there that at least to me, would seem lower loss like the card and savings.

So that's -- I think the thing I'm having trouble understanding is like how does -- fare financing was always going to grow this year, but then you're going to also grow into products that would seem to have a lower blended loss content, yet there's more pressure on the transaction margin, not pressure, but it doesn't go up as much in '26. So how do you square those 2 things?

Yes. Thank you, Robert. Great question. Look, I think that the 2 things are important here. The -- what surprised us was the embracement of Fair Financing among our customer base. So more people took up this product than we expected. And hence, on the transaction margin dollar, you saw more negative pressure because of that upfront booking, which is the primary driver of that. So that is it.

But to your point, we're also seeing all these other products growing really well, the card, the subscriptions. Now ironically, they also come with a slight additional upfront cost. For example, every time we issue a card, there's costs associated with that at the front end of it. So each one of those, but those effects are obviously more limited. So we think that you're going to see a positive impact that's going to come as those products have also been growing. I mean the subscription products and so forth. So I feel quite optimistic here on this topic as well. I don't know if you want to add anything, Niclas to that.

Yes. No, I agree. I mean the subscription; we're already seeing a huge amount of people coming in. We have about 3.5 million already, and we're seeing that just expand on a monthly basis. So those revenues will start building up over time through 2026 as well.

Okay. And then I see the negative fair value adjustment on pay later in the funding costs. Given the short duration there and your ability to grow deposits and the balance sheet capacity you have, what's the benefit of selling pay later at a discount?

So the vast majority of the economics of that actually sits in the merchant discount rate, right? And so the purpose of this is really from a liquidity as well as from a capital perspective. We've done a few of those, and we may do some more in the future. But ultimately, the key thing here is really to be able to balance how much return I get from every asset that I get in.

So there's also a value to Sebastian's earlier point of holding Fair Financing that generates a higher yield as well. So it's constantly a mix of ensuring that we keep ourselves capital light that we can continue to grow and expand as much as possible. But we want every tool in the toolkit, and that's why we've leveraged this type of transaction.

Moving on to Nate Svensson at Deutsche Bank Securities.

Maybe I'll sneak in 2 here. Then some questions on the competitive environment, agentic placement. Maybe a related question on that is just the topic of exclusivity, which I think is probably worth exploring in light of some recent comments from your competitors in the U.S.

I guess our understanding is that exclusivity is more the exception than the rule in the industry. Obviously, you guys have Walmart. I guess just in light of what we're hearing from competitors, do you think that dynamic is going to change? Is Klarna going to try to go after more exclusive deals? Or is something like Walmart once again kind of more the exception than the rule?

And then briefly, maybe this one is for Niclas. Just on funding costs. I know earlier in the Q&A talking about funding costs moving from Europe to the U.S. that went up again quarter-over-quarter in 4Q, presumably because of the continued fast growth in the U.S. Just wondering how we should think about funding costs as a percentage of GMV in 2026 as the year progresses.

I can start. Nate, thank you for the question. Look, I think it is -- I think that this exclusivity -- I mean, sometimes it makes sense to sign those, but I always tell my sales guys that like the best competitive advantage comes if we're the most preferred payment method in the checkout by the consumers.

And so as much as sometimes it could make sense tactically to enter such deals, we don't mind being side-by-side with others, just like Visa has been side-by-side with Mastercard or Amex has been side-by-side with them for a long period of time. So instead, what we focus on primarily is that there's always customer preference.

And we know by experience that there are some merchants that even offer 3 options, for example, within the buy now, pay later space, and we see that we get -- we grab the highest share of checkout among consumers. And that, to me, is like the primary thing to keep an eye on. Then tactically, occasionally, it could make sense to be exclusive, nonexclusive, et cetera.

But also in addition, I mean, we see what's amazing now with Apple Pay, for example, is that anyone in the U.S. that has any card from any bank can use Klarna buy now, pay later as an example, on any merchant without -- so I think that's the right way to think about it. Build consumer preference is the key long-term strategic objective.

Over to you, Niclas.

Yes. Great. Look, the reality is if you look into some of the details in the notes, you can see that what you'll see with cost of funds because we model it in accordance with the forward views on interest rates, et cetera, you would expect that to decline in line with forward interest rates, assuming that they are correct, right? And that's really how we model it.

And then like I said, we have a stable outlook with regards to the forward flows that we're doing. So those are there already practically speaking. So to me, that should be support an improvement over time, depending obviously on the interest rate base that you see, right? So that's simply where I'd say.

I think the key thing is also just to note on your comment with regards to the U.S. I think it's important to appreciate that it's not really just the fact that we're moving or we're expanding more volume in the U.S. It's actually we're expanding our volume across the board, right? We have very, very healthy growth, both in Southern Europe, but also like I mentioned earlier, in our established markets because we are expanding that banking services that we were speaking about.

Your next question comes from James Faucette at Morgan Stanley.

Appreciate all the commentary here. I wanted to follow-up on a couple of points that were made earlier. I guess on -- I want to go back to the TMD and that kind of thing. Is there a point -- and I recognize that the pace of Fair Financing growth will naturally drive [ BQs ] higher.

But I'm wondering if you could talk to us about how we should be thinking about a delinquency high watermark where you might -- if you got to that, you might feel like you were compelled to pull back on GMV. Just helping us bracket how we should think about that, especially as you continue to ramp their financing and some of the other initiatives.

I'll let Niclas answer that. James, but again, like I think it's important to remember, Klarna under the time I've been here, has underwritten $0.5 trillion with record low credit losses for that, right? So we are -- we have an extremely strong confidence into our underwriting, into our proprietary models and so forth. And as we've highlighted here, we see this as predominantly a question about timing than nothing else. And that's the same that we think about here going forward.

So yes, so I think that's the beginning, and maybe you want to jump in more specifically.

Yes, sure. James, I think the key thing when you want to think about this is that because we, firstly, underwrite relatively low average order values, and we do so on very short tenures. We have the ability to constantly adjust the portfolio, which is what we do.

So it's not so much a question of like, oh, well, there's this bar for something. It's more a question of how comfortable do we feel with those continuous cohorts that we're looking at. And we're not just looking at cohorts on a quarter or a month or something. We're looking at the cohorts literally on a weekly basis, right, and understanding the performance of that. And that's what we've been doing for 20 years. That's what we're going to continue to do, right?

And so I think we've evidenced historically, and we've talked about it before with regards to how can we adjust this and what are the impacts of those adjustments as we go along. So that's really how we think about it. And obviously, we're always trying to keep an eye on that profitability and ensuring that we do this in a balanced fashion, right? And I think we've evidenced that we can do so over the last 20 years.

Yes. I think like underwrite primarily to existing customers keep low average balances per customer, again, $100 versus $500 on the banking versus like the big banks being at like $5,000 on a credit card. So keep like -- keep low tickets per on average and then have very short duration in general compared to other banks, right? Like they sit with credit card volumes that are commitments for -- like continuously, we have very, very short durations and have great abilities to adjust our underwriting to macroeconomical conditions.

Got it. And then I wanted to follow-up on more of a thematic question. I know most of this conversation today has been around kind of the mechanics here. But any initial takes on how unit economics in agentic e-commerce will evolve for Klarna, especially in an environment where it seems like some of the labs are charging merchants as much as 4% or more.

No, I don't think really, we have a comment on that. I mean, again, what we've seen is that like we have great distribution and we're growing. And we have -- we generally still see U.S. as a higher margin opportunity because Europe is used to seeing lower cost of payments, and that's where we've been coming competing from.

Next question comes from Harry Bartlett at Rothschild & Co Redburn.

I just had a question on the GMV guide. I mean it implies kind of a minor decel. But I just wanted to touch on your comments around the U.S. Fair Financing, Klarna card all kind of coming in above your expectations and a year-on-year acceleration. So I guess, does that imply that maybe there's a bit of an offset in some other products or other regions? And maybe you could just give some color there.

Sure. Thanks. Harry. Look, when you look at the '25 versus '26, we are literally growing at the same pace off the back of a significant amount of volume, right? So ultimately, when we look at these guides for '26, like I said before, we are very much focused on ensuring that we get the -- continue to grow at those paces across all these markets. And I think we're seeing very good growth across all of them.

Yes. And I would just add again, since we're coming a little bit to the end here, Harry.

I think, look, looking at Klarna, we set out as an ambition to grow a global retail bank. And when I look at this quarter, I see that we're on a fantastic trajectory towards that. We have 120 -- almost 120 million users globally, growing at 28%. We have 15 million now banking, growing at over 100%. We're seeing all the different new revenue lines, such as subscriptions such as the card and also Fair Financing growing at a very, very healthy rate.

And I think it's very likely that Klarna, if it continues on this trajectory, will become one of the major retail banks in the world. I mean, if you even look at the current card growth rate and you just say that you extrapolate that forward, you are very soon to be one of the bigger issuers of credit cards and cards in the world. So I think that, that is -- we're very excited about what we're seeing. And then we -- yes.

Thank you. We now have time for one final question, which comes from Timothy Chiodo at UBS.

I want to hit one around TAM expansion and the topic of 0% loans to consumers merchant funded for the longer term. You mentioned earlier talking about sort of starting with smaller loans for new customers as you build, I'm just assuming in the U.S. market.

But as we look at TAM expansion going to higher income consumers, maybe with better credit profiles, it's a bigger topic for your competitor. I was hoping you could just give an update on where this sits within your mix of GMV and where it could go in terms of offering longer-term pay later merchant-funded loans to consumers? And then I have a follow-up on the U.S. business.

All right. Thank you. That's a great question. Look, I don't think it's necessarily a smaller topic with us. We just have a lot of topics to cover.

So I think that like from our perspective, our experience from Europe is that Klarna over time becomes an everyday spending partner for every consumer. I mean you have to remember, in a lot of our original markets like the German-speaking ones or the Nordic-speaking ones or the Nordic ones, we're seeing like a population penetration of like 70%, 80% or 50%. So it's really everyone using this product of every background and type.

And we believe that the same will over time happen in the U.S. as well, and then you will adjust your offering. 0% financing for that is a fantastic offering. And we see great demand among global retailers and global brands, again, because they're looking for that kind of offering across the globe. They want to work with a provider that can do that with them in all markets.

If you're a home electronics or a phone manufacturer or whatever it might be, you find it interesting that you can sign one contract and work with one team, and then get this live in more than 20 markets. So very much of a big priority for -- Sykes, who's not here today, our Chief Commercial Officer, but not necessarily what we covered mostly today on the call. So yes. And the last question, maybe Niclas, I don't know if...

Tim, you didn't ask...

No, he didn't ask the last one, Tim, sorry.

That's okay. Yes. It was on the U.S. volume growth. If there were any undercurrents that you could talk about. We would have expected a slightly faster growth in the U.S. in Q4, given Q3 had a partial contribution from Walmart and Q4 had a complete or full or close to full contribution from Walmart. And we were just wondering if there were other factors that might have led to that lack of acceleration in U.S. volume.

I must say that I'm happy to hear that you have high expectations on us. Personally, I'm very, very pleased with the performance in the U.S. And -- but what I do know is that when it comes to all these big strategic partnerships like that, there's always fixing this, fixing that, a little bit extra this and that, and you work on kind of continuously doing that. And that will continue to happen in regards to all these partnerships, both the ones you mentioned as well as the ones I've been talking about like the Stripes of the world and the Adyens of the world and so forth. So there is continuous more work getting done there, and we're seeing fantastic results.

And with that, we conclude the call. Thank you so much, everyone.

Thanks, everybody.

Thank you so much.

Okay. Good morning, everybody. Thanks for coming. Day 2 of the Citi FinTech Conference. My name is Bryan Keane. I head up the U.S. Research FinTech practice here at Citi. We're excited to have a full day today of a bunch of executives and experts, and we're going to kick it off first with Klarna, CFO, Niclas Neglen, who is virtually buzzing in here through Zoom.

So Niclas, I don't know if you can hear me. It's Bryan Keane. Thanks for doing this.

Hi, Bryan. Yes. No, I can hear you well. I can't see anybody though. So hopefully, the tech works better today than it did yesterday.

Yes, we were at the conference. I read the transcript, and it seemed like there was some communication there. But yes, we can see you great. So you're coming in well.

Great. How are you today?

We're doing great. We're doing great. So welcome to your first conference, I guess, virtually as a public company here. Thanks for doing this.

I was hoping maybe you'd start out BNPL, obviously, a hot sector right now inside of fintech and you guys just coming into the public markets. Maybe you can talk a little bit about what makes Klarna unique in differentiation when you talk about your business and how you see it the world a little bit differently maybe than some others might see it in BNPL.

Great. No, thanks. I really -- I'm happy to do that, Bryan. So if you really think about it, Klarna today, we're about 114 million consumers, growing about 32% year-over-year in the quarter. We've got 850,000 merchants growing 38% year-over-year, actually a record adding 235,000 merchants. So I think, it's really all about being a global business, which is what Klarna is all about.

So the key differentiators for us is, we're much more than just Buy Now, Pay Later. So today, we've got around about 65% to 70% of our volume in Pay Later products. So those are the kind of the more standard Buy Now, Pay Later non-interest-bearing products. We also have around about 5% to 8% of volume driven by our Fair Financing product that's growing really, really fast right now, particularly in the U.S., it grew 244%.

And then we've also got pay in full, which is the remainder, so call it around about 20% or so, right? And so what we really are, is trying to be an everyday spending partner. And I think that's a key differentiator for us. We're looking to be relevant to all of our consumers in multiple different types of verticals, right, all types of AOVs. And that's where we also have a lower average order value than other Buy Now, Pay Later players, right?

So it's all about ensuring that we're global, allowing us to serve not only 114 million consumers in 26 markets, but also supporting these 850,000 merchants that are really trying to expand their businesses on a global basis. And I think that's quite unique for us.

So it's 2 things that I would really point to. One, being that everyday spending partner for consumer with a strong consumer brand. And the second piece being that global element, which is really around about helping our merchants and partners continuously grow across multiple places for their business.

Yes. Maybe you could just talk briefly on the frequency of transaction, the ticket size and then obviously, the shorter duration of the loans.

Yes, sure. Happy to do that. So when you think about it, right, like Klarna really, we have got an average order value of about $104, right? So -- and that's pretty stable throughout, right? Then what we do is, we have an average duration of 40 days. That's an extremely low duration, right? And we really think about this that many people use us almost like a charge card, right? You spend during the week or during the month, and then you kind of pay us back within a 30-day period. That's the vast majority of the volume that we have globally.

And so, what people really do is they use that on a regular basis. So our average frequency is around about 10x, 11x a year in our highly penetrated markets such as Sweden, where we've got about 80% of the population penetration. There's obviously multiples of that higher. Germany, we've got around about 35% of the population penetration there and also a higher frequency. So people are really using us for more and more everyday spending.

We see that particularly in Sweden now as we've been launching the card and really expanding from being just online to being more and more offline. So today, we're seeing, for example, in Sweden, even with the high penetration rates we have, an 18% like-for-like year-over-year growth in our volume, which is really driven by that card and 70% of that, those transactions are actually offline. So we really are expanding beyond kind of our roots on online presence and basic Buy Now, Pay Later.

Awesome. I want to ask, Niclas, on the health of the consumer. Obviously, some concern out there on how the consumer is doing, and you guys have a lens into this by country. So maybe you could just talk a little bit globally what you're seeing with the consumer health right now.

Yes. Actually, we're seeing a really healthy consumer across the board. There's not really any particular market that's standing out differently. We generally obviously have large portions of the population that use us, and they might be using us -- use us over time for multiple things. And I think that is a differentiator. We're not just a high-ticket player or where you kind of purchase a single large item for 3 months or something like that. Given the low duration and the high frequency of what we have, it really is you see general usage across the board and a healthy consumer.

And then, how do economic factors influence your business model?

Look, I mean, like anyone, right, we're all obviously impacted by economic swings and such, right? We do about $100 billion worth of volume last year, right? We grow at around about 20%. So while we are large and in 26 markets, if you look at it, it's really the secular shift towards the digitization trend, the secular shift towards digitization of payments that we are really part of. And I think that, to some extent, trumps the overall macroeconomic environment over time. And we've seen that through the 20 years that we've been here with the cycles, right?

And I think the key thing, again, comes back to the type of business we run. With our short duration, and with our low ticket average order value. What we actually do is, we constantly underwrite every single transaction, look at the consumers on an ongoing basis, understanding what they spend, because we have the SKU level data that we collect on the vast majority of our transactions as part of our underwriting process. And that really allows us to understand the health of the consumers that we're interacting with and ensuring that we manage that in a very sustainable and consumer-friendly way as well, but always a thought of ensuring that we land out responsibly.

We've heard from a few fintechs call out a little bit of weakness maybe in the lower income demographic. Have you seen anything similar?

No, we haven't seen that at this stage, right? Like what we're seeing is a very healthy consumer. We've got a very broad-based group of users globally. And what we're seeing is that they continue to spend with us. And again, I think I obviously don't have the perfect answer to this. We're obviously a smaller portion of a much larger TAM that you see here of spending by consumers. But we are really seeing a lot of engagement and demand for the type of product we have. We don't do revolving. We have short-term transactions, giving consumers a better opportunity to save money, but also to actually, they have more control of their finances. And I think that's really what's one of the key factors that's driving the usage of our product set.

I wanted to ask about the PSP. So Klarna is making a deep push to be the default option at payment service providers. Can you talk about some of the growth rates you're seeing in some of the PSPs? I know maybe the Stripe Link product, I know in particular, is one that's launched. Can you talk a little bit about how fast Stripe was growing pre-default and now that it's kind of a default option, what the growth rates are now?

So look, we don't exactly give out growth rates now that we're a public company about specific partners, but I'll definitely talk a little bit about it. I think the key thing here is that we are a -- I think this is a key differentiator for us.

If you want to be relevant as a default on PSPs, you have to be relevant to the consumer in every type of purchase, because you want to be an everyday spending partner. And I think this is a capability that we are really able to bring. So you couple the strong affinity that consumers have to our product set and the ability for them to do -- to finance or pay in full and make a payment practically in every type of way they would want to. That allows you to be relevant to these PSPs as default just like Mastercard or Visa, right?

And so for us, I think it's a critical element of our strategy, right? We've obviously started with Stripe, and we're starting to ramp that up. But it takes time. It's a multiyear progression here because they're obviously huge. We are constantly working to integrate with more and more of their merchants. I think Stripe Link is a great opportunity for us as you've seen more and more places now with Link and the ability for us to be able to show the consumers there that we have the ability to help -- to participate in making those payments on those Stripe Link, I think, is really key. But we're seeing really great growth as well with like Apple Pay and others.

And overarchingly, the PSPs are taking up a larger and larger portion of the volume that we do, and they're growing in multiples of the direct integrations that we had previously, right? So I think it's a really, really core aspect of what we do from a strategic perspective. Super excited about the fact that we have signed a multi more of these, which we talked a bit about that yesterday, and that those are going to start ramping and starting to launch over the coming quarters. So I think it's a big opportunity for us going forward.

I think the mix was something like maybe 50% from PSPs and maybe 50% where you were going to the merchant direct. Is that roughly the breakout of that?

Yes. It's rough numbers, right? But it's also scaling quite quickly on the PSP side. Like I said, we signed about 235,000 new merchants in the last year. So that's a record for us. And we are really, really kind of expanding with the PSPs.

We also see the fact that we're now being able to have more of our products as our integrations with these PSPs on default get better. We've, for example, added about 100 -- we're now at about 151,000 merchants that have Fair Financing available to them, which again gives us an opportunity to just continue to expand with the PSPs as well as with our -- the availability of our product, right? And I think that's a key factor that I think will give us multiyear growth potential here as we continue to compound and penetrate with these partnerships.

Can you help us, Niclas, with the timing of Nexi, Chase Paymentech and Worldpay? When do those are expected to come online?

In the coming quarters over 2026, they'll start coming online.

Okay. Great. The Klarna Card, obviously, a big number, I think 4 million was the number quoted yesterday. Can you talk about that card? What it does for you, obviously, moving into the U.S. and then into other European countries?

Yes. I spoke a bit about the Swedish part, but I think it comes back to, again, what do we want to be? We want to be an everyday spending partner. We want to be a neobank that allows you to do a lot more with us. And I think that's a key center of our strategy. So one of these is obviously then to go after the partnerships with the PSPs, which we're working hard on.

The second strategy is really around getting the card to be able to get the ubiquity. And as Sebastian said yesterday, being live on the same number of touch points as Visa over time is really the aspirational target or target is the wrong word, but like aspirational drive that we have in the long term, right? And to be able to do that, the card is going to be essential.

Now what we really wanted with this card was not just another credit card, right? We wanted to be able to give people the ability to select debit or credit. You might remember that back in the old days when you were able to do that, you could actually go out and select debit or credit on the machines back in the day, right?

What we want to do is, be able to have this flexible card, allowing consumers to use debit when it's appropriate and use credit when it's appropriate, right? We continue to underwrite them in the same way. And the point here is really allowing them then to be able to use the Klarna Card in the same way they've used Klarna with many merchant websites at the 850,000 merchants we have today, right?

And so I think that bringing that to life, it's also then important that you figure out how do you kind of connect that to their daily lives. So we have the Klarna balance connected to it, which then allows consumers to receive refunds, cashbacks, et cetera. And we built it out with perks, which allows consumers to really then manage more and more of their spending with the card offline, right? And what we're seeing today, it's really, really early, right? So I would really be cautious here because it is very early days as we're seeing it. But what we're seeing with initially is that consumers use us very much in the same pattern as with what we see online, right, particularly in the U.S. right now.

And what you're seeing is that we're getting obviously multiples of average revenue per user, frequency growth as well, but similar types of margins as we're seeing online. So that's really how we're thinking about the card. And I think it's still very early. I think we're coming into the higher spending period. So it will be interesting to see how the card develops over the coming months and so.

Yes, I was going to ask about how the card makes money for you guys in different regions. Obviously, there's different interchange between Europe and the U.S. Maybe you can just talk about the revenue model for the card and any margin difference?

Yes. So again, like it will be like the interchange that you spoke about, right? But I also think you have to point towards the subscription pieces that we do, the other types of services that we can build into the card over time. So what we're seeing now is an average card user see frequency increasing, sees average revenue increasing, and we're seeing the broad-based contribution margin from those or transaction margin dollars from those consumers to be in line with non-card users as well.

Great. I wanted to get an update on Walmart. How did that ramp go into the third quarter? Is that fully cut over all the volume yet? Or where are we on that?

Yes. Yes, we're doing really well there. I think we're ready for the peak season now, like we're practically fully up and running, I think. So I think that's great. But I think the point here I would make is, yes, we've kind of come online with OnePay. The relationship is really strong. I think it's going well. But there's many more things we can continue to do. And I think the ideation around how we continue to expand with them is very much going to be one of those things that we are going to ongo for some time, right? OnePay with Walmart is clearly looking to expand and finding interesting new ways, and we're looking to find ways to help them do that over time.

And then maybe you could just touch on some of the other big merchant wins you've had this year and how it's flowing into the numbers. I know eBay, Emirates, DoorDash, many others to call out, how that will impact or how it's impacting '25 and into early 2026?

Look, I mean, overall, we're continuing to expand with them. And I think the interesting thing is, obviously, we have the large ones here. We've got the PSPs that are driving a number of merchants as well. What I find particularly interesting with the large global partnerships, and I think this is something that's very unique for Klarna, right? We signed Airbnb a few years ago, right? We continue to expand with them. We signed eBay depending on the market, the types of products we do with them, we can expand in multiple vectors, not only growing them through the penetration of the markets, but also growing the share of checkout. And I think our unique approach here is putting our sales force very closely with these partners and working really on a daily basis to see how we can be effectively working with them to drive good outcomes for them and our consumers, right? It's all about driving that.

So these are really multiyear ramp-ups, even though you say you're live and you've signed in a particular market, you see that growth over time. And I think that's a really key element of what we do and something that's kind of in our culture and has been for the last 20 years and will continue to be so.

Great. You talked a little bit about the GMV split between Pay in full, Pay Later and Fair Financing. I thought the quarterly results were really strong. So it was a little bit of a surprise to see the stock fall the way it did. And one of the concerns or at least the headlines that came out were some of the Fair Financing and how the provisions are taken upfront. So maybe you can walk us through the model as you've increased in Fair Financing, what that does to the transaction margin dollars and the provision for credit losses that happened during the quarter? And then what's the catch-up period look like as we go into fourth and into 2026?

Yes. So look, this was a very much unexpected approach, right? And I think we flagged kind of the dynamics of this at the IPO as well, right? Reality is like we have been building and we want to be an everyday spending partner, which means we need to be relevant in every single category, right? And Fair Financing, there is a category that's significant around that, right? And we have always been doing Fair Financing over the last 10, 15 years, right, and been building that portfolio, both in the U.S. and elsewhere, right?

I think what we've done is, as said, we can accelerate that, and we have been accelerating that very successfully. In the U.S., grew at 244%. Globally, we grew 139% there. So obviously outpacing the market, but also outpacing our own -- our other products from a share perspective, right?

And so the dynamics around this is really, in my mind, appreciating that it's slightly complex, but it is quite simply the fact that you invest upfront by taking your provisions upfront being prudent, which is in accordance with accounting guidelines, right? So if I take a simple consumer here, right, you would basically book all of your potential for that consumer to not repay you, but you would recognize the revenue over the time that the consumer actually pays you back, right?

So on a 6-month loan, obviously, that is a -- over that 6 months, you then have a compounding effect as you grow your revenues while you upfront take your provisions. And that's what's happening here. We're growing our portfolio. And as we grow our portfolio in the beginning, it takes time to build up that compounding revenue effect, right, and particularly at the speed that we've grown it. So we were very well expecting, and it was a known factor that we would be in the third quarter having more provisions, right? And then the revenue from those cohorts of volume are accelerating, right? So interest income grew about 48%, while volume grew 139%.

And so what we expect now is through the fourth quarter, and we've guided towards that, that we'll see a transaction margin uplift in the fourth quarter as we continue to expand Fair Financing, but the prior cohort volume is actually starting to then recognize more and more of that revenue through the fourth quarter.

So that's really the baseline that we see here. I think I'm also really happy because we are expanding and we are well aware of that. And as we do that, launching the forward flow with Elliott is really a great way for us to find a really solid long-term partner that can support us and be able to continue to expand the growth of our Fair Financing product with the demand that we're seeing for this product, particularly in the U.S. but also globally.

Got it. And so maybe you can just specifically talk about the provisions for credit losses in the quarter. You did definitely telegraph to all the analysts that this was going to happen. But maybe you can just talk specifically on that number. I assume the majority of that was due to the provisions that we're talking about from Fair Financing.

Yes, exactly. So if you look at it, and I tried to illustrate this a bit in the earnings call, right, you can find that on the investor website as well. But ultimately, if you just took the realized losses, these are losses that are not related to the provisions. So these are the true actual losses. They actually went down a bit as a percentage of volume from 45 bps to 44 bps, right?

So when you look at it in totality, right, and you look at the P&L, excluding upfront provisions, you actually saw a 25% uplift in transaction margin dollars excluding upfront provisions. And then the primary driver of the $91 million of provisions is the Fair Financing acceleration, which was very well planned and known and understood, right?

And so that is really what takes you down to the transaction margin dollars of $281 million. So it is really that, that is the main driver here. And the accelerating growth is what then is going to kind of lift that in the fourth quarter. So that is really when we compound all of the revenue from the volume that we have booked through the last few quarters and they start growing, which they will in the fourth quarter, then that's where we see that uplift in guidance to $390 million to $400 million of transaction margin dollars in the fourth quarter.

So when you see the increase in the margin, the catch-up in the fourth quarter that you described, how come we don't see an incremental impact from the new Fair Financing deals? Or if you -- what about if volume explodes even further in Fair Financing? And why doesn't that dampen the margin in the fourth quarter?

Look, I mean, we obviously have that in the plan that we continue to expand and grow, right? It's a question about how much of your prior revenue is being then recognized or your prior cohort or revenue from your prior cohorts being recognized into the fourth quarter.

So I'll make it very simple, and this is a very illustrative example. Let's for argument's sake, you say that you booked $1 billion worth of revenue -- sorry, $1 billion worth of volume. And over the life of those loans, you will recognize $100 million. right? But in the first quarter, when you've actually booked that volume, you will generate around -- you will recognize about $40 million of that $100 million of revenue, but you recognize 100% of your potential provisions, right, of, say, $30 million. So that first quarter, it will look like you've made a net of $10 million, the $40 million less the $30 million, right? But that means that you have $60 million of revenue left that you will be recognizing over the following quarters.

And as those cohorts that we've been building compound, that number then starts outweighing even the growth of the portfolio, right? And so that is what actually happens, right? You've seen this in every single type of lending where you start in this process and then you start building that portfolio over time. So hopefully, that explains it better, Bryan.

No, that's helpful. I always find those illustrative examples helpful. Can you talk about the impact of the model now from the offloading of using the forward flow agreement starting the quarter?

Yes. So I think this is an important aspect of it, right, because we want to continue to expand, but we want to be doing so in a capital-light and efficient way to minimize dilution to shareholders as we continue to expand and take more market share. So the forward flow allows us to do that in the sense that what you're actually doing is you're pulling forward some of the revenue by selling these loans on a daily basis, right? And so the intent is really that this allows us to give another avenue for us to be able to expand. And what happens is, ultimately, your revenue will increase. You will then have no provisions for those loans. And over time, you can then expand and compound like that. And that's a very standard approach that non-banks do when they finance these types of loans in the U.S.

Okay. Great. And so how do transaction margins trend? We know the fourth quarter of the guidance. As we go into next year, is there even a bigger catch-up for Klarna in transaction margin?

So we're not going into kind of the forward guidance in 2026 until we finish 2025. But generally speaking, what I'd say is, look, we run -- the growth levels that we're seeing on an annual basis, both on volume will, over time, also align themselves with transaction margins. And what I mean by that is this is that as you mature your portfolio, you're going to see an acceleration in transaction margin. And then transaction margin dollars when you get to a certain level of maturity over multi-quarters, right, you'll see a similar trend in volumes, revenue and transaction margin just because you start getting that kind of holistic portfolio. But given the growth that we have, we have the capability to continue to kind of drive and mature this portfolio with a lot of growth potential.

Got it. And just the last one, you touched on it, but just delinquencies overall, it sounded like delinquencies actually trended down a little bit for you in the quarter. What do you see as the outlook there?

Yes. So look, I mean, that is the forward-looking indicator that we look at on a daily basis, on a weekly basis, we sit down and we, as a management team, looking at those things. I think the key thing for us is to -- the trends are looking well. I think it's important that we continue to monitor those trends, right? And we do, do that. It's part and parcel of what we've been doing for the last 20 years. As you all know, we've been around for 20 years, and we understand how to underwrite these things. I think the key thing is to keep that forward-looking track. Right now, trends are progressing in line with our expectations. And I think we are -- we just need to continue to stay focused on ensuring that, that is -- that, that works, right?

Got it. Sebastian has been very positive about the developments of Gen AI and the impact it has had on the company. Maybe you can just talk about what you guys have done with AI and some of the benefits you guys have seen.

Yes. So I think you've seen the customer service, example, where we've really leveraged it to drive productivity and efficiency for our teams by allowing the AI assistant to do more and more. I think yesterday, we talked about about 150 people's worth of work -- or sorry, 850 people's worth of work that we are managing through the AI assistant at this point in time, so continuous improvement there. But it really infuses everything in what we do, right?

My teams, everybody is really, really working hard to leverage AI in everyday work, right, to just reduce the amount of kind of manual labor, ensuring that we can do analysis quicker, getting quicker answers on things, et cetera, understanding our systems better and ensuring that we can kind of drive that efficiency. So from our perspective, it's really infused in everything that we do. From my perspective, I'm always excited about this because reality is, I see so much that my teams can do today that they would not have been able to do before at a much more faster speed, whether that would be writing commentary, looking at better analysis and understanding really detailed level understanding of some of the things that we do within the business. It's just so much easier when our analysts are able to leverage the technology that we have and to be able to give that -- layer that technology on top of our own to really get better and better and better analytics that leads to better decision-making overall, I think.

Yes. And with that, maybe you could just talk about OpEx and what you guys are thinking the expense growth should be in the model?

So look, I mean, from our perspective, it's all about cost discipline. This quarter, we reduced slightly the amount of revenue growth versus -- sorry, slightly the amount of OpEx growth versus revenue growth, and we're going to continue to kind of work on ensuring that we have a tight discipline overall, right? And I think that's key for us. We are -- we are a seasonal business, obviously. So where we work very closely with our merchants and with campaigns and such through various parts of the season. But ultimately, it's all about managing and maintaining that cost discipline that we've been maintaining over the last -- since 2022. We had a chart in there that said we had grown revenues over 108%, while we've grown our cost base by about 2% in the last 3 years, which just tells you kind of the focus of the organization on ensuring that we'll continue to manage costs with discipline.

Niclas, can you talk a little bit about the deposit base funding options for Klarna, how that might impact the model if you look at bundling, balance, ACH?

Definitely. So we've got about $14 billion worth of deposits, which is our primary funding structure. Primarily, that's savings accounts. So that's a very strong cost-efficient way to fund ourselves. And I think it has been proven we've been doing this since 2013 as a very, very robust model.

We do always want to have every tool in our toolkit, so hence, the deal with Elliott and others. But I think the -- from a perspective of ACH and balance, this comes back to that kind of being an everyday spending partner, right? If we now see people start using the card more frequently as an everyday spending tool, we have the balance connected to that. And that balance is now you're able to send your refunds, your cash back to that balance, consumers can then use that, right? And so what you're doing is you're bringing more and more of consumer spend into the ecosystem. And much like other financial companies, you then have the ability to fund yourself through the larger base of deposits over time, right? So I think that's a key thing.

I also do think that processing and servicing fees, particularly in the U.S., which is one of the drivers why you see that number increasing is really about more of our volume being in the U.S. But ultimately, we're very laser-focused on figuring out how can we continue to reduce processing and servicing fees. And I think the card and the balance is part of that, because consumers will then more frequently connect us to ACH, et cetera, right, which will then help us to drive down some of those costs, right?

Overarchingly, we're actually seeing in the U.S. a slight reduction in our processing and servicing fees, but they are just a larger part of the mix right now, which is kind of why we want to continue to focus on processing and servicing.

I think bundling is very important. We're starting to see some traction on that. It's something that we need to continue to do. So we are very laser-focused on ensuring that we find new and innovative ways to leverage our ecosystem to drive lower costs, which then ultimately allows us to serve our consumers and partners better.

We only have a few minutes left, but I wanted to touch on some of the other revenue streams when you think about Klarna, how you guys drive commerce transactions there and advertising. Can you just touch on those?

Sure. I think it's a really key point. And we talked about this before in the prospectus and a bit around IPO, but maybe just taking a step back, right? We obviously collect SKU level data for purposes of underwriting. We've been doing so for 20 years. And for many years now, we've started figuring out ways to leverage this understanding subject to consumers' consent, et cetera to help them find better deals, help them find better ways to save money, save time, have more control of their finances, right?

And what we've seen is a growth in our shopping app, particularly in the U.S. with stands for around about 30% -- 30%, 40% of our volume, where consumers start their shopping journey on the Klarna app, right? And that obviously gives us the opportunity to be able to earn some affiliate revenue on that, et cetera, as consumers find what they're looking for, best deals and so on and so forth, right? So that's something we want to continue to develop, obviously. I think it's a differentiator again for how Klarna thinks about how we create value for the consumer and how we find ways for them -- for us to support them in their everyday lives. So that's really a key focus for us as well, right?

Niclas, I forget how many years you've been with Klarna, but maybe just as one of the things to wrap on, just how do you feel like the business is trending from when you started to now?

So look, I joined in March 2021. So I think everybody remembers March 2021, right? And then, since then, I think ultimately, I think we have just gone from strength to strength. And what I mean by that is, I think, we're a better operating system now. We have a very strong focus on customer obsession on efficiency drive. But we're also, I think, very clear about the building blocks today of what we're trying to build, right, which is really being that everyday spending partner, being that neobank.

Sebastian talked about our objectives yesterday. But it really, to me, comes down to our focus on our partnerships with PSPs, Apple Pay, Google, Stripe Link, JPMorgan, Worldpay, you name them, right, right, getting that default and being more ubiquitous there.

At the same time, working with large partners, ensuring that we help them expand globally, ensuring that we give their consumers the best product features possible, right? Getting the card in every wallet, I think, is a key element of this, being able to expand and being ubiquitous because I do really believe that if you take those elements, couple that with having a full suite of our product set across all of our merchants and at the same time, then leveraging some of the capabilities that we have around our bank account and such, right, I think we have truly got the ability to be that everyday spending partner and the next kind of large global neobank. So I think it's been really interesting, and I think we're just going from strength to strength when it comes to that.

Last question I'll ask you is just on any kind of medium-term targets for Klarna and some of those key drivers, I guess, we've talked about today. But how do you see kind of setting up the medium term?

Yes. Look, in the medium-term view, we have been relatively consistently, right, over the last 20 years, compounding growth, right? And particularly over the last few years, we've been growing at those 25% to 30% annually. And I think that is something that I would want to see us, and I see no reason why we can't continue to compound in that way for foreseeable future, given those building blocks that I just spoke about and we spent some time on, Bryan.

Well, thanks so much for doing this virtually. That was very helpful, and we look forward to seeing you in person. But thanks so much, Niclas.

Thank you so much, Bryan. And sorry, I couldn't be there in person. I'll be there next time.

Yes. Thank you.

Take care.

Good morning, everyone, and welcome to Klarna's Third Quarter 2025 Earnings Call. My name is Andrea Ferraz, Head of Investor Relations and M&A, and I'm joined today by Sebastian Siemiatkowski and Niclas Neglen. Our Q3 results were released at around 7:30 a.m. Eastern Time, and they are available on the same link as this webcast.

During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC.

During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC.

Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2024. [Operator Instructions]

Before we move to Q&A, we'll begin with a short presentation. Sebastian, please go ahead.

Hello, everyone, and welcome to Klarna's first earnings report, quarterly earnings as a public company. Very excited. I'm Sebastian Siemiatkowski, the CEO and Founder of Klarna. And with me, I have Niclas Neglen, our CFO. Let's get right to it.

Most of you are probably familiar with Klarna, 114 million active consumers, 850,000 merchants and above $100 billion in GMV. And we have grown this network quite extensively in the last few years. We are having users across all parts of life. These are female, male, all types of educational background, living in all areas. And as you may know also, Klarna is today much more than just buy now, pay later. We offer pay in full, pay later, fair financing. And as you will see, more and more neobank features. Our reach is global, North America, Canada, U.S., most of Europe and Australia and New Zealand. But let's look at today's headlines.

So today, I'm very proud to focus together with you on three topics: growth acceleration. It's fantastic that we're expecting to see above 30% revenue growth for Q4. We also have a record quarter for fair financing product. It actually grew over 139% year-on-year, and I'll tell you more about why, associated with the number of merchants that we're seeing growing there.

And then we're celebrating that Klarna has now actually issued over $0.5 trillion over our 20 years. And thanks to our leading underwriting technology, we have continuously lower losses than industry standards. Those $0.5 trillion has actually been issued with less than 70 basis points, put that against any benchmark, and you will see that's pretty impressive over 20 years and 26 markets. But let's go back first a little bit in time.

2015, Klarna is -- about 10 years ago, we're sitting down with most of what is the current management team, asking ourselves, what is the future of tech? What is the future of fin? And we realize this world is about to change. Eventually, we will all have digital financial assistance that helps us save time, save money and be in control of our lives. And we realize this will also have large implications for both the financial industry, the retail banking and technology.

And you can think about it this way. They -- both of these markets are pretty much malfunctioning. They have the classical fallacies of nonfunctioning markets, such as the fact that it's hard to search and find the right things. But that is going to an end now. AI is going to change, and ignorance will stop being a business model. These lock-ins that people have been able to rely on, forget about them. They're going to go from strategy to nostalgia because now AI agents will be able to move all of my so-called proprietary data, preference and all of that between different providers.

And finally, this means the moats are drained, the gates are open. We're going to see a dramatic increase in competitiveness in both financial services and tech. We're very excited about this. And what it means is that trust is the new oil, not data anymore, but trust. The one that customers actually trust to truly care to their best interest are going to be the ones that are going to gather the most following.

In addition to that, customer service minimization is going to be something that we can forget about. Historically, banks have put us on 45-minutes holds and the big tech companies, they don't have customer service at all, just FAQs. Forget about that. That's a thing of the past.

So the quiet life that we have observed among the big tech and banking companies are over. Complacency means end of business. Marble offices are gone, and the free gourmet cafeteria is no longer culture, it's overhead. This is what we're about to see.

And we can see that it's already starting to happen. Pre-AI tech, we saw tremendous perks, 0 customer service, products killed without consequence. And now we're starting to see year of efficiency, intense AI product shipping urgency and the first real competitive threats in 20 years.

And that is quite exciting because if you look at those two sectors, fin, retail banking, that's a $520 billion profitable profit pool that is addressable to Klarna. And we only cater to 0.6% of that today. And ads and technology companies are another $500 billion. These two combined is $1 trillion. Now remember, this was estimated by McKinsey, but also by Claude, and I have to admit that Claude was significantly cheaper than McKinsey in making these estimates.

Now what does this mean? Well, we say in Sweden, one person's dead, another person's bread. This is pretty much it because this means that Klarna is having a fantastic opportunity to go after these two massive profit pools. And we're going to do that by 100% focus on customer obsession, growth, operational efficiency and leading the AI innovation.

And I think that here, I want to highlight that those days when tech companies and banks could not wake up every day like retailers do and restaurants do, focusing on how do I bring in customers through the door, how do I give them the best offer, the best service and how do I make sure I operate very efficiently, so I don't go out of business. Those days are gone. And the businesses in these industries that are willing to really pursue this and work effortlessly on these topics, they are going to win and they're going to grab a lot of market share in these markets.

So let's talk about customer obsession at Klarna. Well, what we are doing is very simple. We give people back time, we give people back money and we give back them control. And this goes far beyond. A lot of you will be familiar with buy now, pay later, but we do offer a number of other services like searching for products at the right price, making sure that it's easy to pay your bills and manage your finances, to show you where your packages are in real time, so you can go and pick them up and give you control and insights of your spending habits.

And in addition to that, we offer you a lot of give back money. I mean just a number of money that our customers have saved on customer -- on not paying interest with our Pay in 4 interest fee is in the billions. And in addition to that, we offer cash back and other features as well. So this was the very topic.

I think something I would like to focus on today a little bit is that our form of credit is really the more sustainable solution. And if you would ask that digital financial provider -- the digital financial assistant of the future in what they would argue is the best form of credit, I can tell you it's not going to be credit cards with $6,500 outstanding balance with tremendous fees and never-ending payback over revolving. That's not going to be the one. It's not going to be point-of-sale financing. Yet again, another way to charge high fees, it starts at 0% financing, but then after a few months, they start to push you into 36%, and it's also not the best one.

The best one is going to be the buy now, pay later with Klarna. Why? It's low average order value, so you're only borrowing about $100. Your average outstanding balance with Klarna is $88 versus these others. The interest rate is 0 and you pay back on fixed installments. This is a healthier form of credit, which is attracting an audience that is very aware and conscious about their spending. This is also visible in our credit losses and our charge-off rates, as you can see, are a fraction of these competing credit products.

There are other ways in which Klarna already today really distinguish itself. And just today, I want to focus on one to just highlight it to you. Klarna is the only payments network in the world that collects SKU level data on basically a majority of all of our transactions, which means that when customers buy with us, when they buy with a credit card, they're used to seeing what you see on the left-hand side. You will all recognize it from your banking apps. You barely understood where you spent, just some merchant name that you can barely read and some amount.

With Klarna, we have the full SKU level. We know exactly what you purchased, so we can show you images of the items that you bought. As you can see on the right-hand side, the Nike Tech here and so forth. You can see the sizes, the colors. You can also then, as a consequence, report returns much more easily or if you have warranties or other things that you want to follow up on. So that is a tremendous value and a differentiation and richness of information that we carry at Klarna.

So putting customer obsession is really what we've been focusing on a lot and even more so in the last year. We have this very strict process where we start with insights. So we generate -- we do over 200 consumer interviews every week. We have -- we basically inspect visually 5,000 interactions in detail per week. And this drives a lot of what we call actionable insights, which are average actually about 75 currently per week. The expected value of delivering on them are estimated at $300 million of lifetime transaction margin. And we're very, very important to us that they are crystal clear on what is broken, how could it be fixed and that we have these very quick estimates of the financial impact and the efforts to fix them.

And then we obviously work effortlessly to deliver these improvements to our customers. And currently, we're shipping at a rate of about 20 improvements a week with an estimated lifetime value of about $15 million in transaction margin. And each of these shipped improvements is verified for impact, for quality and effort. This is the core of our customer obsession process to just effortlessly talk to customers, look at these recordings and then understand how we could improve on them.

The fantastic effects of this are that numbers don't lie. We have 73 in NPS, 54% in global brand trust and 41% in global brand awareness. Remember, as I said, trust is the new oil, more than data. Data will flow freely, trust doesn't come freely. Trust only comes from hard work like the one I just displayed. And this is why we don't just have customers, we actually have fans. These consumers, when you talk to them, they rave about Klarna, they rave about what we're offering them, and they exhibit a huge amount of trust for what we offer them.

Now this then brings us to growth. Now with growth, we have our objective #1, and that is that Klarna should be available everywhere Visa is, that we basically -- and we do that through what we call our default global distribution partner play. This means that we go to the biggest PSPs in the world, the ones that are doing over $1 trillion worth of volume. And then we have worked with them to say, Klarna shouldn't just be an alternative that you add on as a merchant. It should be standard, default. When you sign up for the Stripe, Nexi, Worldpay, you should automatically get Visa, Mastercard and Klarna in the default offering. And that is something that we are -- have been pushing for years and are continuing to push for.

And you can see now this quarter, we add Clover to this club of signed partners and some of them are already even live like Stripe and Apple Pay that are basically ramping up now with this new offer. And you can see that, that's having a real, real impact on the number of merchants that we're adding because if we're ever going to hit the 150 million acceptance points that Visa has, this is only through global distributions that this will happen. And you can see that it's starting to pay off the strategy as we went -- we added a record of 235,000 merchants this quarter, up, and it's now growing at 38% compared to a year ago at 13%.

Obviously, we're also still expanding with the world's best brands as well. So some of the renewed or expanding partnerships, you can see on this, and that is obviously still a big important part of our strategy, but the distributions of our PSPs, acquirers and technology platforms is the key one that's going to drive the most of the millions of merchants that we want to attract to Klarna to be on par with Amex, Visa and Mastercard.

Objective 2, and this may be something that you're not familiar with, and that is that a lot of merchants offer Klarna, as we said, about 850,000, but not all of them have been offering all of our payment methods. And this is also an important thing. We want customers to be able to expect that each of the payment method that they recognize with Klarna, which is the pay in full or pay now, it is the pay later and it is the fair financing should be available every merchant.

And we have made fantastic progress here, especially on the fair financing side, as you can see, just between last year, we were 80,000, now we're 150,000 merchants. It means that still only 18% of our merchants actually offer fair financing, but it's a significant improvement. And this is driving -- this is what is the explanation for driving that fast growth in the fair financing product. We just doubled the amount of merchants that offer it. And so consequently, you can see more than almost doubling the volume as well.

We're also working effortlessly to improve our pay in full offering. This is really -- you could -- if you would like to call it the big wallet competitor to some of our big wallets out there because this allows you to pay the full amount. Currently, we have about 43% coverage, and it is growing, which is great. We do a lot of things here to make sure that debit is an important payment method available at every checkout out there when people see Klarna.

Now then we have our third objective, which is to go from payments to full neobank. And in order to explain to you how we do that, I will take you quickly just through the customer acquisition channel that I think is totally revolutionary and very different.

Most banks will acquire customers through promotions, through standing in the airports and bug you when you're running to your flight. What Klarna does is we're available in all of these millions of checkouts and people will see us, we are associated there with fantastic brands, be it a Nike, a Macy's, a Sephora, and we bug you and say, "Hey, you know what, why don't you use us to pay this time around rather than your card." And it turns out it is so simple to start using Klarna. It's almost as simple or even as simple as using your existing card. And this drives -- this is what has allowed us to accumulate 114 million active users which is fantastic.

But obviously, they only use us -- some of them only use us for a single purchase. So what we then start doing is saying, hey, you know what, if you download our app, you will unlock a world of additional features, additional things that you can do, like we saw on how you can see your purchase history and understand exactly what you purchase or make it easier for you to return.

So about 49 million monthly active users and 76% of the total have downloaded our app. So that's the next step. And then we say, hey, when in that app, beyond just seeing your purchase history, you can actually use it for shopping. We have our shopping browser. We have cash back. We have tons of things. And what you can start seeing happening now is there's about 10% of the population that uses these features. So it's much smaller, but look at what's happening on the average revenue per customer. It's going from $28 to $90 on that segment of audience.

And now here comes the card, which we're super excited. I'm going to show you some more amazing metrics on our card. And what's interesting here is only 3% so far has picked it up, but it's starting to pick up rapidly. And you can see that when people start using our Klarna card, then the average revenue per customer jumps to $130, which is actually 4x as much as the average active user. And in addition to that, we're also expanding the bank offer, the balances, to store a positive balance, to be able to use our savings products and so forth. And you can see there as well, the average revenue per customer is very, very different.

So each one of those are very early, but we can say the funnel is working. This channel is amazing. It brings in customers at a fraction of the cost that our competitors are spending to attract the same users. And we're now seeing that we are able to transform them into a richer relationship that gives consumers more value but also allows Klarna to generate more revenue per customer.

So first, what about the card? People ask me about why should I get the card? Well, first and foremost, the purpose of our card was to bring back the control of debit or credit. Some of you may remember when you were kids, at least when I was a kid, working at Burger King, you would swipe your card and press 1 for debit, press 2 for credit. People really loved that. But the problem was banks didn't love it because you weren't borrowing enough money when you did that. You weren't building up a balance. You weren't putting all of your purchases per month on a balance and then you were less likely to revolve, less likely to build up that balance.

So banks remove that, but we know there's a big segment of customers in the U.S., we call them the self-aware avoiders, which McKinsey has said is about 20% of the audience, we think it's even bigger. But the point is that, that's an audience who have tried those credit cards, who realize that they're a debt trap, realize that they're product of the devil as some of them call them, and that they're all about pushing into debt. So they really enjoy this control of press 1 for debit, press 2 for credit, and we're bringing that back, and we see tremendous demand for that.

But the most common thing I hear when I say that is people tell me, "Yes, that would be a nice feature. But what about my perks? What about my loyalty points? What about all the other perks that I get on my credit card?" And that's what you're seeing here is now not only have we launched the card with 1 for debit and 2 for credit. But in addition to that, we're now rolling out the debit card with credit card perks.

And the demand for this has been through the roof. We're very excited about this. It's just about to roll out and get launched, but I can give you a funny example. I tweeted about this and said that anyone who would produce these funny memes will actually give us -- will have an early access code. And it was just -- you should go to X and watch these memes. It's really, really funny. And then one of our customers suggested, look, if you personally cut my Amex, I'm there. And we said, fine, I'll do that. So we had almost 1,000 people who indicated that they wanted us to sign up to get their credit card cut by our -- by me personally.

So we think that's showing some very good promise to the demand of this product. And we're seeing across social media, there's tons of interest as we present these products to our audience.

So this objective #3, from payments to full neobank, what is the numbers? What is it looking like? Well, the fantastic thing is thanks to the success of the last quarter, we have now surpassed one of our main competitors in global active card users, hitting 3.2 million, which we're very excited about. And we can see that U.S. obviously has been a big contributor to that with going from virtually 0 to 1.4 million active cardholders in the U.S. market.

So it's starting to really, really work, and we're excited about trying to continue to accelerate this in additional markets. You should be aware here that Europe was a little bit later to the game. So U.S. was first, and we expect to see even more great success here in Europe as well. And that is also being seen in our card volumes. As you can see on a year-to-year basis, they're now growing almost at 100% rate.

And that also has contributed. So I would say, doubling the number of merchants offering financing has grown financing product a lot. You can see here what we have done through the card. And all of this is paying off in an acceleration of our revenue growth. So here again, what you can see now is for the U.S. that we are now actually this quarter reporting 51% growth year-on-year, which we're very excited, which means that we're far outpacing our local competitor in growth.

And in addition to that, you can see that it's also picking up across the board in all markets and also the strong growth in the U.S. is contributing a lot to the growth overall of the company, meaning that we're now almost on par in global growth as well. We have picked up to 28%. And this is while increasing take rates, which is a strong sign of the preference and interest in our products.

So finally, a few words on operational efficiency. It's fantastic now that we're celebrating that we have underwritten $0.5 trillion since inception. And we've done that with south of 70 basis points of credit losses. And this is partly due to the fantastic short durations of our credit. That means that through the macroeconomical cycles that we have gone through over those 20 years, issuing all of this in over 26 markets, when macroeconomical swings happen, we can change our underwriting models. And in just about 60 days, we have -- more than half of our balance sheet is underwritten according to the new model.

That's a level of agility that none of the large banks can compete with. Most of them with their credit card portfolios and their mortgages and so forth will sit and try to refresh their balance sheet for years after economical changes have implications on how you should underwrite.

And we have also continued to transform Klarna's productivity. So you can see here that our revenue per employee, as we've been talking about previously, has continued to increase. We're now at $1.1 million per employee, and we hope to continue to do that acceleration. And part of that is due to AI and just a focus on operational efficiency, which not through layoffs, but through natural attrition as we haven't hired for a few years has now led to the number of employees to shrink by about 47%.

But we want to highlight here as well is that not all of that comes through on the total staff cost. And the reason for that is we have made a commitment to our employees that all of these efficiency gains and especially the applications of AI should also, to some degree, come back in their paychecks, so that they are fully aligned and -- they are incentivized, aligned with the investors to drive these changes through the company. And that's you're seeing as the compensation per employee has risen from $126 to $203 through that process, which gives us a perfect alignment between our employees and our investors in driving the financial goals of Klarna.

So we continue to see very demonstratable value from Klarna's AI assistant. This has been reported before. The update, as you can see, it used to do about 700 full-time jobs, now it's doing about 853 full-time jobs of a saving of $60 million. So we continue to invest in this. And you can see also that the focus on operational efficiency that we said in these AI times will be so important has led us to allow us to do about 108% revenue growth while keeping OpEx flat, which I think is pretty remarkable and unheard of as a number among businesses.

With that said, I'm going to hand over to Niclas for the financial update.

Thanks, Sebastian. As you mentioned, Q3 was a landmark quarter for Klarna, a quarter where our investments in growth, especially in the U.S. and fair financing started to compound exactly as we expected. I'll now take a few minutes to walk through the financial update.

Let's start at the top line. GMV grew to $32.7 billion, and the U.S. grew 43% year-over-year. Consequently, revenue grew to $903 million. And in the U.S., we saw revenue growth of 51%. The transaction margins came in at $281 million, reflecting a planned accounting lag from fair financing that I'll talk more about. Importantly, the lag is temporary. We're actually guiding to $109 million plus increase in Q4 on transaction margin dollars as those revenues start compounding.

So this slide really captures the story of the quarter, faster growth now with profitability accelerating right behind it. The foundations for our growth remain the same. It's the building blocks you see on the right, growing with our strategic partners, scaling with the large global merchants, ensuring consumers have the Klarna card and building out that full suite of Klarna's flexible payments at more merchants.

As we've already said, fair financing is a key contributor to Q3 '25 performance. In the U.S., it's up 244%. Fair financing is now available at 151,000 merchants, an increase of 3x over the last 2 years. Couple that with the new forward-flow agreement that we put in place, enables a very capital-efficient way for us to continue to expand this product. Overall, revenue growth is outpacing the market. We continue to see an acceleration based on the foundations of our building blocks, and we're coupling that with an increase in take rate in a very sustainable way.

This page is central to understanding the impact of our success in accelerating growth through the U.S. fair financing. It creates a short-term profitability lag in Q3 '25. On the left-hand side P&L, we show the transaction margin dollars based on realized losses increasing by 25% year-over-year.

You can see that correspondingly on the right-hand side chart, where you see $297 million going up by 25% to $371 million based on those realized losses. In fact, the $91 million of upfront provisioning is primarily driven by fair financing and drives the $280 million transaction margin dollars you see in Q3 '25.

While that is the case, we're guiding towards a Q4 '25 of $390 million to $400 million of transaction margin dollars driven by the fact of -- that revenue from the success of the fair financing compounding over time. So let's just recap how accounting for fair financing works.

Here's an illustrative example of a consumer who has a 6-month loan. We provision for the potential credit losses upfront, while we actually earn revenue over time as the consumer pays us back. As planned, our numbers reflect the growth in fair financing and the associated accounting processes. You can see that in the chart below. The gray parts of the bars show the upfront provisioning from the success of our fair financing product. While we can see the realized losses, the actual losses that we have recorded are actually very stable and coming down by 1 bp in Q3 '25 based on that continued improved underwriting.

In fact, when you look at fair financing, you can see delinquencies falling 5% year-over-year, while GMV has been growing at 139%. Similarly, U.S. charge-offs remain stable within expected ranges.

In summary, we have strong top line growth with GMV and revenue driven by an acceleration in the U.S. and in fair financing. That's driven a planned profitability lag in Q3 '25, and we're guiding towards an acceleration in transaction margin dollars in Q4, driven by us being able to continue to compound the revenue that we've seen from the success of our growth.

Thanks, Niclas. We'll go to the investor questions first, and I will read three questions from say.com.

The first question from [ Salem ] is, how can Klarna stay competitive against traditional credit card companies that offer buy now, pay later options?

Yes. I think Klarna -- I've gotten the competitive question ever since 20 years back when it was us versus PayPal in Sweden and then it was us versus PayPal in Germany and then it was us versus payments companies in the U.K. and the U.S.

I think that like -- I mean, in essence, how do you compete? You stay customer obsessed, you make sure that you build -- you listen to your customers, and you build the features that they want. You make sure that you are operationally efficient and don't waste money. And then you just keep on grinding and grinding.

I think that, obviously, you could argue that when Klarna was still a small company, the prerequisite -- a small company may be grinding as much as they want, it's still hard to scale it into a large-scale company. But Klarna is at scale now with 114 million users globally, we are one of the largest banks in the world with a number of customers. And now we're exploring and looking into how we add additional value to those customers. And we're seeing that, that is accelerating in the numbers.

So I feel we are very well situated to compete against the traditional companies who, most of them, I would say, expose complacency, lack of customer obsession and rely on high barriers of entry and low -- and high switching costs for their competitiveness rather than operational excellence and customer obsession.

Thanks. The second question is from Benjamin, who asks, does Klarna have any plans to pay dividends to shareholders?

No, we have no such current plans or ambitions. But I mean, obviously, we hope that Klarna will continue to improve its profitability and so forth. So in the future, nobody knows what's going to happen.

And the third question is, how do you intend to improve profits on your current business model?

There are a multitude of things. I mean, as you saw here Niclas explain, spent some time on is the profitability lag that is created through the high growth of fair financing as a product, which is fantastic accomplishments and really primarily stems from the fact that we've doubled the number of merchants that offer this product. But as you can see, that's still only 20% of the portfolio, and we hope to achieve 100%. So we would expect these products to continue to grow.

Over time, in most markets, Klarna has on a, what we call, transaction margin. Am I using the right term, Niclas? Yes? Good. The transaction margin has been somewhere around 50%, 60% over a longer period of time in these markets. And a lot of that comes back to maturity, on like having enough repetitive customers, maturing your underwriting models for that specific geography and so forth. And we believe that, that's very achievable in all of our markets.

The U.S. is a slight different, which is worth highlighting. And many times, people ask us about credit losses, but what we focus primarily in the U.S. right now is payments fees. Payments fees are actually the same size as losses in the U.S. market. And this is because of the settlement costs that are -- and the nonregulated credit card markets that we see in the U.S. So you may remember that in Europe, there's a regulation, credit cards cost 20, 40 bps. In the U.S., they may cost 150 to 200.

So similar as we've seen other companies, some of you have been in payments and fintech for a long time will remember PayPal and how they basically sought to increase the difference between their funding cost and their payment fees. And this is exactly the same thing we're going through. We have tons of initiatives to drive down the payments cost, which should allow the U.S. market that is currently running at positive gross -- transaction margins, but not as high as in some of the more mature European markets. And I think that's the biggest, biggest one that's going to have the biggest implication on the transaction margin.

As you can see, below transaction margin, the operating costs, we have no plans whatsoever to increase any spending there currently because of the efficiency gains that we're seeing from AI. We don't believe that hiring is the right approach at this point in time. It could be small hiring here and there, but not anything that will have implications on the net. Yes.

Great. Thanks, Sebastian. So I have asked the analysts to e-mail me the questions so I can pass them on to management. So I will go ahead and do that.

So the first question comes from Tim Chiodo at UBS. And it's about Apple Pay in store. Now they estimate that U.S. Apple Pay could be approaching $1 trillion of volume by 2027, meaning that even if 1% was via BNPL, Klarna would have a reasonable share of that business. Can you talk about how the Klarna team sizes up the potential opportunity associated with the Apple Pay channel even more broadly, including the online experience traction you've already seen?

And as a follow-up, Affirm counts Apple Pay-related volumes, which are carded, as Affirm card volumes. Will the recognition be the same here, so we can use for comparability purposes?

I'll leave the second one to you, Niclas. But I think on the first one, I can answer that. Hopefully, you noted the slide where we were talking about objective one, which is to reach the same amount of acceptance points as the big networks like Visa and Mastercard.

Some of you will remember Amex 20 years ago was not accepted widely. You could maybe use it in a restaurant or an airport but not everywhere. And Amex did a fantastic work to roll it out and make it available everywhere. Klarna is going through that process right now, and that is the objective one that we're referring to. And we have already a few years back, identified that this is not going to happen by us signing every merchant ourselves. In order for us to reach that scale, we need to work more closely with our distribution partners. So that's number one.

Second, companies like Stripe, like Apple Pay and others who have acceptance everywhere, who can drive that rollout of Klarna, making Klarna more available. So with that said, however, we had worked with some of these partners for many years, but we had never worked as we've always been an alternative payment method, something that merchant would have to go in, post-signing up with a Stripe or Worldpay, et cetera, and then add on. And that as well was clear to us was not going to make us into millions and millions of acceptance points.

So we went for our holy grail that has been to become default, meaning that when you sign up with these partners, we should be default and we should be available. And that we're seeing tremendous success with already. You saw some of the ones in the slide. You can see that it is having a very positive impact on the growth of number of merchants.

When it comes to Apple Pay, it is slightly different because the acceptance is already there, and it's more about customer adoption. So we have teams that are focusing internally using that customer obsession methodology that we showcase you where we are looking and interviewing customers using that product, looking at customer interactions and then making sure that all the minor glitches and things that can be improved are weeded out and that works really, really well. And we see a lot of scale and growth in that portfolio.

But in addition to that, obviously, then the second part is just education, marketing and educating our consumers about the availability. And we have some interesting upcoming things that are going to happen there as well. I don't want to get ahead of myself, but like there's some interesting stuff that's going to come there to make it even more attractive and grow the awareness.

As you saw in that slide, becoming a neobank, everything with Klarna is we have so many tons -- great features and many of these features drive additional revenue per customer as well. And a lot of -- but we have 114 million users, right? So there's -- a lot of it right now, the focus is really how do we make sure that all these users actually use us and use all these features. And so that's where a lot of the effort is, and that is true for Apple Pay as well.

When we -- regarding reporting, I'll hand -- glad -- over to Niclas on that topic.

Thanks, Sebastian. So yes, so today, we don't actually include Apple Pay in our card volumes. This is what you're seeing today where we're announcing things around the card, it doesn't include Apple Pay. Apple Pay is growing really strongly. So is Google Pay. And I think globally, we're seeing really, really strong adoption for Apple Pay as well, particularly in the U.K.

All right. Thanks. So the next question comes from Sanjay at KBW. And he asks, the 4 million Klarna card sign-ups in 4 months seems really strong. What are you seeing in terms of usage and uplift in GMV from consumers who are signing up for the card? What's the ARPAC from a card customer versus one that doesn't have a card?

I will gladly leave that to you, Niclas.

Sure. So I think we had some of this on the slides, right? But what we're seeing from the card, ARPAC is around about $130. Now that's obviously only 3% today of active card users. So you can see where that's going in comparison to the $28 that we have on average on our 114 million active users. So we'll continue to see, I think, strong performance on that overall.

Great. The next question comes from Jason from Wells Fargo, and he asks, the credit beta looks good in Q3. But are you seeing any signals in your data suggesting that you may have to tighten the credit box in any of your major geographies, especially as we head into the holidays and consumers potentially lean in more on BNPL?

Look, I think, again, the key message that we've been trying to get out and that I feel very -- that I really myself think a lot about is the fact that the audience using Klarna is what we refer to as the self-aware avoiders. These are users who usually have used credit cards historically, found them to be not aligned with their best interest or even as I would quote some customers, the product of the devil. And the point is that like you end up racking up debt of $4,000, $5,000, you're paying high interest on that and you're revolving for eternity. Buy now, pay later, $100 average order value, the fixed installments, 0 interest. Obviously, our fair financing products are very affordable as well.

So I would argue that the Klarna customer is a more conscious customer. It's one that is a little bit more thoughtful in how to spend on debit, how to spend on credit. And this is partially why we've seen after underwriting $0.5 trillion over 20 years, these below 70 bps losses over time.

And the other thing that we highlighted was the agility of the model, right? So because we underwrite in real time, it allows us, when we see macroeconomical shifts, to adjust those models. And in just 40 days, more than 50% of our balance sheet is underwritten according to the new standards. And that gives you an agility.

So the question then is, I would say, have we any reason currently to make any adjustments? And the honest answer is no. We have not seen anything in our data or in our spending that suggests that there should be currently any changes. What we have communicated, and I've said on some interviews is that in the midterm, I am keeping a close eye on whether we may see what is the inverse of credit underwriting in my 20 years, which would be that generally speaking, normally in lower -- in more worse performing macroeconomical scenarios, you would see implications for low-income household, blue-collar jobs, et cetera.

With AI, it might very well be that the implications are the inverse, that it's actually going to affect high-income households and white-collar jobs to a larger degree. And that's what we're keeping an eye on to see if we want to make an adjustment. But so far, nothing has -- but I'm keeping a close eye and we're keeping a close eye on the unemployment numbers and particularly trying to understand in those unemployment jobs or numbers, what is -- how is the split between these professions and what are the implications for that. So it's one to keep a close eye on, but nothing that we have acted on so far.

All right. Thank you. So operator, please go ahead and open the lines for the analysts.

[Operator Instructions] Your first question comes from the line of James Faucette of Morgan Stanley.

I wanted to ask about your partnership with Walmart and OnePay that was highlighted in your prepared remarks and slides. But wondering if you can give us any insight on how that's developing so far in terms of adoption, credit quality, even if just directionally?

So to answer your question, the OnePay, Walmart relationship is really going well. I think we are firing on all engines. External data, you can see that we've basically taken up the vast majority of volume with that relationship. And so we're moving forward really nicely. Generally speaking, it's going to plan with regards to the type of consumers we're seeing. And I think we're just seeing many, many opportunities, James, for us to continue to develop that relationship with OnePay and Walmart.

Our next question comes from the line of Jason Kupferberg of Wells Fargo.

I know you asked one of mine already. But let me ask you this, just on the fair financing side, I think you said you're now at 18% of your merchants. And I was wondering what percent of your total GMV those merchants represent? And then just any targets, where does that 18% penetration rate go to potentially over the next year or 2? Because obviously, that should ultimately be pretty accretive to the TM line.

Yes. Great. Thanks for the question. I don't have an exact figure with regards to the percentage of volume overarchingly. But I can say is that as we're continuing to work, to Sebastian's point, with the partnerships, we're going to see this continue to expand, obviously, to the suitable places. But ultimately, we're seeing that we're continuing with the partnerships to be in default in more places, allowing us then to have all of our full features or product sets with each of these merchants, right?

So I would expect that to continue to become a very significant number, right? Obviously, with respect to certain verticals, you would have less opportunity for that, right, with a very small ticket, high frequency. But generally speaking, we would expect most of our merchants to be able to have that product set as well. And so it's all about just working through the integrations, working through the partnerships that we have and continuously doing that throughout our 26 markets and beyond.

Your next question comes from the line of Darrin Peller of Wolfe Research.

All right. Congrats on your first quarter out of the gate being a good quarter. It's nice to see the U.S. GMV growth continuing to accelerate during the quarter. So if you could just touch on the key drivers here again. I know fair financing is one of the main contributors, but anywhere else you're seeing the momentum? And what's the sustainability of that?

And I'll just ask my two together. Just one more is on PSP default partnerships. I know that was clearly an exciting opportunity in terms of TAM. So how are the partnerships ramping in line? Are they in line with your expectations? Just a little update there.

I think that the -- when it comes to the partnerships, as we said, like we concluded a few years back that like growing merchant-by-merchant is just not going to scale. You're going to have to work with PSPs. You look at the Stripes, the Worldpays of the world, JPMorgan Chase, all these guys, they have trillions of dollars of volume, right? So finding out ways to work with them, finding good partnerships and then also not just becoming an alternative that has a small 1 percentage of the volume, but actually coming default is super critical.

I think one of the things that actually doesn't get enough attention here is the Stripe Link partnership, which in itself is like many of you now using Stripe will notice that you have this one-click experience, not that dissimilar to what Shopify does and others. And the benefit now is that Klarna is the main provider of that, which means that everyone getting a Stripe Link gets the option to use our buy now, pay later, which becomes an even faster way to reach all of the Stripe merchants that offer that already.

So all of this is just like different ways of distribution of Klarna. Another one in Europe, which is actually important is this Vipps announcement. It might sound small, but it means it's opening up for third-party partnerships with local schemas, with local payment schemas and so forth.

So all of these things are going to -- but the difference with this kind of growth is obviously, it's not like you launch and then go live and everything. These are like long-term strategic relationships, you need to sign the contracts, you need to find the reasons for them to do it. You need to set up the technical integrations. And as you will be familiar with, some of these companies are M&As. So they will have different tech platforms for different subsets of the volumes. So you need to integrate on all these platforms.

But what we're happy about this is we think it's like setting a foundation for long-term growth of the company. And we can see that clearly now is the ones that already are live like the Stripe you saw on the slide or the Apple Pay and so forth, that is actually starting to really be visible in the growth of both number of merchants and volume. So we think this is nice because it sets the foundation and will continue. And there's really no reason why we would -- this would stop or anything. We're on a good trajectory here and things is going to continue. I think that's been very important for the U.S.

The other one is making sure that we actually then offer all payment methods, not just one, as you saw. And then the third one, which we're super excited about, is that card growth that has already outcompeted globally -- on a global level, one of our competitors there. But also even on the U.S. level, we think fairly soon, we'll be able to catch up. So I think that the -- there's good belief to be optimistic about the opportunities in the U.S. in the short and midterm.

I would just add there, if you don't mind, like basically, if you think of it, there's $7 trillion worth of volume flow through these PSPs that we've signed, right? We're going to start ramping -- we started ramping up with Stripe and a few others that Sebastian mentioned. And over the coming quarters, we will continue to do so. But when we talk about something being live, yes, it's live, but there's still multiyear worth of growth here to Sebastian's point, right, which is really, I think, important to point out and highlight.

And with regards to your other question, just around verticals, I was looking through kind of -- we're actually seeing a very broad-based growth across all of our types of verticals, which just shows how we're more and more becoming an everyday spending partner.

I think it's worth highlighting as well is that in Europe, we are used to being 20% share of checkout. In the U.K., as an example, not uncommon for Klarna to be 20% share of checkout, on par with PayPal. In other European markets, we could see 40%, 50%, even 60% share of checkouts. In the U.S., it's predominantly still 5% to 10%. This is entirely natural. This is exactly the same that we've seen over the years in every market we come in. We're at about 5%, and we start growing 10%, 15% and so forth.

So also like as a share of checkout, there's tremendous opportunity to grow in that regards we believe. And then people will have argumentations like is the same going to happen in the U.S. and in Europe, et cetera, et cetera. But from our point of perspective, there's no reason to believe that we could not achieve that, and we're going to definitely work hard to make it happen.

Your next question comes from the line of Mihir Bhatia of Bank of America.

I wanted to just maybe talk a little bit about the provision line item. And I appreciate the detail you guys went into in the prepared remarks. But maybe just to put a little finer point on it, the provisions for credit losses, they're up 17 bps quarter-over-quarter. And I was just wondering if you could talk about the drivers of that. How much of that was new loans versus changes for the loans on balance sheet? Because just given the credit performance, it seems like a pretty big jump. Any color on how we should think about that going forward?

Yes. So I mean, obviously, we are scaling the book quite quickly, right? And so given that the vast majority is really on -- is really with the new cohort of growth that we're seeing, right? I would expect that to kind of move -- over time, start normalizing, right? But I think given the speed and the size and the opportunity and the fact that we can continue to compound with so many new merchants through the partnerships that we have, I think it will take a multi-quarter view for us to fully kind of get into a more normalized mix, if that makes sense, Mihir.

Well, we think it's very good. It's very healthy. It's like a subscription business. You should take the marketing cost upfront and you have revenue over the lifetime of the customer. And that's the same thing we're doing here. I mean the dominant impact on that line is because we're taking the cost upfront while the revenue is coming in over time. And so that makes a lot of sense.

Obviously, some of our competitors, when they sell more of what they generate, they book both the cost and the income immediately. But we also know and you -- many of you will be aware that, that is also less affordable. It is actually more profitable to do what we're doing and putting it on our balance sheet.

So it's a trade-off between how much we sell off and so forth. But from an accounting perspective, this makes a lot of sense. This is diligence. This is smart and thoughtful to do it this way. And for us that have been -- myself been with Klarna for 20 years as an investor, a shareholder, I've seen us go through these cycles. And as you start growing fast because of the number of merchants that we've added on financing has doubled, then you're going to see these short-term profitability lags' implications on the P&L.

Understood. If I could ask a follow-up just on Southern Europe, pretty strong growth there. Anything in particular -- anything to call out there on what's driving that growth?

Yes. I think that the -- thank you for highlighting that. We actually -- we spent, I would say, 2022 and '23, Sykes, our Head of Commercial, spent a lot of time on really setting the foundation in Italy, in Spain, in France, in these large markets that at that point in time, we hadn't really been as successful in, and we hadn't yet outcompeted the local competitors that existed. And it's really nice to see that pay off.

I think one thing that's underappreciated about Klarna is global coverage. And the point is if you're talking to retailers across the world, if you're talking to Sephora that's operating obviously in all these markets, it just has such a tremendous value to be able to work with one provider as Klarna across all these markets. I remember clearly being in a meeting with IKEA and they once said to me like many years ago, "You moved from the local payment method to the regional one." And I was like, "Yes, but here's global with PayPal. How do I get in that quadrant?" And now we are, right?

And what's helpful about that, obviously, we also have salespeople on the ground across the world, right? So we have people in Barcelona, we have people in Tokyo, we have people in Portland, next to Nike. We have across the world, over 40 locations. They sit close and work with these retailers. These are long-term relationships, and we make sure that we're live with these merchants across all markets.

So we're getting a lot of value of that in these markets like France and Spain, Italy because they just roll us out. And that allows us to be very competitive on a local level as well. And I think that's being seen. But we actually think there's more potential there. There's more work to be done on improving the quality of the product and so forth. So we think there's a good potential to continue growing in these markets as well. But very helpful to have this global distribution partnership with people like Stripe and others who are going to automatically turn us on in all these local markets.

Next question comes from the line of Nate Svensson of Deutsche Bank.

Congrats on getting out there with the first quarter. I wanted to ask on the Elliott partnership that we saw the news come across this morning. Maybe you could talk a little bit more about the process to bring them on board? What they saw in Klarna to get them comfortable? Why you decided they were the right partner?

And then I guess we saw that $6.5 billion number there. Does that give you enough runway to meet your ambitions for U.S. fair financing? Or do you think you're going to have to additional partners?

And then sorry for making it a three-parter, but just on the revenue recognition, there. It sounds like you will be selling some of the back book over. Should we assume the entirety of the front book will be sold to Elliott? Sebastian, I think you had mentioned making this decision between how much to keep on, how much to sell. So just more details on the revenue recognition from that partnership would be helpful.

Sure. Great. So yes, I mean, Elliott is a great partner, and we work with them on a number of other transactions as well. I think generally speaking, it's always going to be a balance for us between profitability, ensuring that we can continue to grow and ensuring that we don't dilute our shareholders in that growth through the capital given that we're a bank, right? So those are really the three vectors that we think about. And I think this is a great partnership. Elliott is a strong partner. They understand us. They know us well. We've done other transactions with them in the past. And from our perspective, this one is a really, really good partnership.

I do believe the runway that we have with our growth potential that we've just spoken about here will give us an opportunity to continue to do more of these things over time, right? And again, thinking about those three balances of profitability, ensuring that we minimize dilution to shareholders, grow the best return on tangible equity while also growing the business in the size and ensuring that we can do that. So I think that's really the economics around it.

Thanks, Niclas. I'm going to take, again, since some of the analysts sort of just ended up sending us the e-mails.

So Will Nance from Goldman Sachs is asking, could you talk about your engagement with merchants around advertising into the holidays? Where are you now? And where do you aspire to be in terms of merchants viewing Klarna as a way to drive sales and engagement with consumers?

Yes. So I think that this is actually one of the things I'm very proud and happy about, and I think has made a big difference in this -- we were talking about this customer obsession work. You saw me presenting a little bit on how we do it. You saw those customer interviews that we do and we review all the experience and so forth. And a big part of that is obviously feeding actionable insights, not only for us, but also for our partners.

So what we do out of that process, we come and we recognize like how could we help Sephora grow their business? How could we help Etsy grow their business? How could we help eBay grow their business? And this generates like very, very concrete advice and suggestions of changes, of improvements, marketing campaigns, to your point, and so forth. And that's what our sales teams are then interacting with.

And we've seen a fantastic uptick in trust and people wanting to listen because I think maybe more like every other traditional company, we used to come and say, "Hey, we have this idea, and this could have this impact, and it could be like something more complex." But now we're coming with like super concrete, real well-explained, very, very high-impact changes that can be fixed, and we're seeing that having a very dramatic effect. So -- and marketing activities is obviously a big part of that. There's tons of things we can do like how we position the payment method, how we show it on the website.

And obviously, 0% financing, fantastic opportunity, one of the things that I think Klarna has underinvested in, and we are now really ramping up and making sure that we're offering. I think 0% financing is such a fantastic opportunity. A lot of merchants and a lot of brands want to offer affordability without lowering their prices. And also, what we see is that 0% financing is driving a fantastic audience to Klarna because it attracts a more broad spectra of FICO scores. So it is fantastic in many, many ways. And that's going to be a continuous focus with our partners. You're going to see us do a lot of things in 0% financing.

Fantastic. And I think we have time for just one more. It comes from Rob Wildhack at Autonomous. And the question is, wonder if you could talk about the transaction margin by product. What kind of transaction margins are you seeing on the U.S. fair financing volume? And how should we expect them to -- the mix to impact the overall transaction margin as you grow that product? Where does that transaction margin settle out at steady state?

Yes. Good question. I mean, look, there's a lot of different products that we're launching, right, and that we're working and building that are new, whether it be through the card and otherwise. But let's talk about fair finance because you mentioned that one.

So generally, we target between 3% and 4% transaction margin dollars. I think that's a fair approach. And as we continue to ramp, that obviously will be accretive to the overall portfolio. But again, at the same time, we're also, to Sebastian's point, building out the pay in full elements and such, right? So we are going to have variations to that.

I think the key thing for us is really can we serve as much of the customer share of wallet as possible and are we relevant in every single time that they want to make a payment as an everyday spending partner. That's what we really need to focus on. Then as you know, we've spoken about this before, it's all about having a very trend-based focused model, where we look at how we're developing over time, given the fact that we are growing in 26 markets across -- with 114 million users or consumers and with so many merchants, right, and across so many vectors.

So we're going to continue to kind of do that. And as we guide, we'll guide towards the transaction margin dollar growth basis on a volume view rather than trying to just nail down a particular unit economics on one or another.

All right. Thank you so much. And with this, we conclude the call. We thank everyone for joining, for putting up with our technical issues. And with this, we conclude the call. Thank you.

Thank you so much.

Thanks, everybody.