Klarna Group plc (KLAR) Q2 2026 Earnings Report, Transcript and Summary

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.