Welcome to Qliro Q3 Presentation 2024. During the Question and Answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Christoffer Rutgersson and Interim CFO Mikael Rahm. Please go ahead.
Thank you, and welcome to our Q3 Presentation. I'm Christoffer Rutgersson, and with me today I have also our new CFO, Mikael Rahm, and we'll run through the presentation for today. So the agenda is, first, I will give you a strategic update and some highlights for the quarter, talk through the business model, then a financial update, talk a bit about the outlook, and then open up for questions. So jumping into the strategic update, so first of all, we are making a strategic shift to double down on our payments business with new growth investments. We brought in more than EUR 100 million in capital during the quarter and are now focusing on accelerating the business. Secondly, we already now see an accelerated growth momentum in our payments volume with more than 35% volume growth that is signed and expected to come live on the platform going forward.
We see also kind of a strong growth of merchants on the platform with more than 100% growth, 175% growth in the quarter versus last year, as we now have more than 200 merchants onboarded on the platform that is live and processing, and we also see good early results with our Norwegian launch, above expectations, and we have decided to launch in Finland in January, so we will go live in Q1 in 2025 also in Finland, and last but not least, we have launched several new products in the quarter, so we start to see good results from our investments in product development. First of all, with our new Qliro Checkout 0.0, we're setting a new standard for conversion.
We also broaden our offering to in-store, as well as kind of improving our consumer experience with a new product we call Loyalty Driver, where we can guide consumers back to the merchant. So I will talk this through, so we jump into the first point. So on our strategic shift from profit towards accelerated growth, we have, first of all, in the quarter, divested our loans business and kind of worked through that during the quarter. So now we are a pure payments company. Our ambition is to deliver a world-class experience for our merchants and their consumer journey. And within that, we felt that a loans business doesn't fit, so that's why we sold it. And so we can also focus fully on accelerating the payments business from here and forward. Secondly, we also see a great opportunity in the market right now.
There's a lot of merchants looking for new solutions, and we see a very good product-market fit with our new Qliro Checkout 0.0. So we have more interest than ever, and also fueled a bit by one of our main competitors divesting their checkout solution, which opened up a lot of new discussions. So we see that materialize both in new merchants and new pipeline and kind of signed volumes going forward. And third, we also have now a kind of accelerated growth focus. So we, during the quarter, brought in an equity raise of EUR 50 million, as well as raised kind of additional Tier 1 bond of EUR 55 million in order to kind of bring in capital to fuel the growth going forward and the new expansion plans.
The investments are primarily in scaling up sales and marketing, which we can also see in the cost in the quarter, but also kind of investing ahead of growth in new markets. We are launching up in. We're kind of setting up our office in Norway, started in August. We've now been live for three, four months. We see good early results. We'll come back to that. We also decided to launch in Finland, so we have a country manager assigned. With this, we have the ambition to become the market leader in the Nordics. We see good potential to get there, and we also have the longer vision of kind of expanding across Europe. With that said, we have more than 35% volume growth contracted so far.
We see this kind of stepping up in volume is kind of month- over- month over the last few months, which is good, and we expect that to materialize into kind of income growth also in the medium term, so we want to deliver a world-leading merchant experience and a world-leading experience for their customer journey, and that's where we said that, okay, digital banking services or a loan portfolio doesn't really fit into a consumer journey for a merchant. We have heard that feedback for years, and we already stopped selling the loans business or selling loans to new consumers for a while, and that led up to divesting the business during the summer, and that is now fully executed. We also see that this vision or mission is kind of setting Qliro apart from the competition.
No one else is doing what we do in respecting the consumer journey of the merchants. And we see that is also one kind of strategic reason for why many merchants are moving to Qliro as a new provider. So in terms of volume, in the quarter, we saw 6% growth in processed volumes, and a fairly weak summer, quite warm August, so kind of August was a bit down. But then we see kind of quick ramp up month- over- month, 11% growth in September, growing to 19% in October. And on top of that, we have signed contracts with new merchants that are not yet live on the platform with an additional at least 16%, taking us to an expected growth in payments volume going forward of more than 35%.
Some of these merchants will onboard here and now, but many of them are also waiting after high season, given that kind of Christmas sales are coming up. We expect most merchants to go live in Q1 or kind of early Q2. In terms of volumes, we also see more and more volumes being processed on our Unified Payments offering. Unified Payments is one of the reasons we're also winning a lot of new deals with merchants, because now we have a full Nordics offering. In the quarter, we also launched two new payment methods, Apple Pay and Vipps, in Unified Payments, which means we are now in a pole position for the Nordics, having the broadest offering of all the Nordics kind of payment providers in terms of payment methods easily integrated into our checkout.
We also launched new FX services, basically being able to optimize FX for the merchants, which is good for the merchants, is also good for Qliro in terms of the take rates going forward. So with that said, we have now almost 50% of existing volumes in Unified, and basically all new merchants are getting onboarded on Unified when they become in Qliro merchants. We see this as one of the factors that helps us both kind of sell and onboard new contracts much quicker than we could in the past. Next, we also see a good momentum in the market in terms of number of merchants, which is now taking off. As you know, we have for a while started to invest also in the SME segment. We're coming from the enterprise area.
We've been very good at composable solutions for large merchants, but we package that also for smaller merchants. And we see now a bigger uptake in merchants wanting to work with Qliro and getting live on the platform. So we have now more than 200 merchants live on the platform. And we also announced earlier that we have more than 200 merchants signed only this year. So we expect this number to increase going forward. So we may wonder kind of why is kind of leading merchants choosing Qliro? And if you look at this, it's both an impact of our focus on the merchant experience as well as the consumer experience that we focus on, which makes Qliro unique versus the competition. We have a leading conversion in the Nordics.
We also help the merchants with upsell, keeping orders open after the checkout, enabling them to add more consumers to add more products into the basket, helping the merchants to increase their gross margin. We also have a very modular solution and integration for kind of a modern e-commerce players, and that's what we call composable payments. We also have a very partner-focused approach and focus a lot on performance. I'm an old analytics manager myself, and we have invested a lot in kind of analytics to make sure we have the highest performance in the market. And here we work very closely with our largest merchants to make that happen. Fifth, we have invested a lot in our consumer experience. We launched a new app across the Nordics, where we also now kind of bringing all the functionality into Norway and Finland over time.
And we see this is increasing loyalty, more consumers coming back to our merchants. And last but not least, we have a positive business case for the merchants that are shifting to us, given all kinds of the additional benefits of conversion and upsell and kind of more consumers coming back to the merchants where they came from. And that's a big reason of kind of why kind of merchants are choosing Qliro. Fourth, looking at kind of geographical expansion, we are coming from having only a focus on Swedish merchants in the past, but we have over the last two years built up a successful sales team and marketing team in Sweden. And we have during this quarter also launched our sales office in Norway. So we now have a new country manager, Jens Rygg, that started up the office in August.
We have four sales reps now supporting him in the market, and we have so far signed contracts with more than SEK 300 million in Swedish Krona in volume, which is a very good start. Typically, sales processes are much longer, and we're just getting started, so this is a bit kind of above expectations. Only that is around 2.5% growth for us in volume in total, and based on kind of the early kind of success and kind of very good reception from merchants in Norway, we also decided to start up in Finland. So we have recruited a country manager that will start up in January, and we're now setting up all kind of the operations around that in terms of kind of hiring a team, setting up an office, and getting ready to make a bigger market launch into Finland as well.
This kind of expansion approach is also kind of fueled by our new product offerings that we soon will talk about. So that's applicable for all of the Nordics, and we want to capitalize on this investment as much as possible. We have also had our Pay Later offering within Qliro, who basically all of the Nordics, also including Denmark, for a long time, but previously not kind of capitalized on those investments. So we're already processing around 20% of our volume in Norway. We're processing around 7% of our volume in Finland. So the product is already there from a checkout perspective and from a Pay Later perspective and for kind of the whole consumer journey. But we had previously not sold to local merchants, which we're now opening up. Fifth, kind of talking about our products. So this is a big thing for us.
During the quarter, we launched our new Qliro Checkout 0.0, where we're setting a new standard for conversion, and conversion is very important for merchants, because it's basically a metric of how many consumers do you get through in terms of kind of the volume, so higher conversion leads to higher sales for the merchants, and it's one of their kind of most important metrics, and we have done significant technology investments improving the whole UX and UI data connections, as well as kind of how we handle the kind of consumer data and the kind of flows in the checkout. We're also now leading, as I mentioned, in terms of payment methods in the checkout, so we were first of all the Nordic providers who launched Apple Pay in the checkout.
We have all the payments within Unified Payments, which means it's very easy to sign a contract with us and get onboarded. So we are now in the kind of pole position for kind of winning the Nordic market with the performance we see. And that's why we're also pushing a bit on growth and letting go of the profitability in the short term to really kind of make the most of the opportunity with the market momentum that we see in front of us. We have also, in terms of performance on the checkout, this is an example where we're looking at the performance of the new checkout versus our former solution. We are improving conversion around 10% in Sweden, but we also see good improvements in the other Nordic markets. And this leads to more sales for our merchants, which is positive for everyone.
It's basically driven by kind of working through all the steps in the consumer journey, improving and make sure that kind of consumers don't drop off kind of along the way. We have also launched Qliro In-store recently, and this is a solution where we enable merchants to load our checkout within a physical environment in a store. We can enable primarily our Pay Later products, but all our payment methods are available, but it's primarily to enable the kind of Pay Later products in a kind of physical store as well. This is broadening our addressable market. We become a very good solution for omnichannel retailers. More and more e-commerce players are also launching physical stores. We also see most of kind of physical stores today also have some kind of e-commerce that they are investing in.
This puts us in a position where we kind of are well positioned to cater for the business from omnichannel retailers. Last but not least, we're also improving our app for consumers, where they pay kind of a Qliro invoice or Qliro part payment. It's an app we had for a long time. We always had a kind of a good consumer experience, but we revamped the kind of experience during the last year. With that, we're now also enabling merchants to, with personalized campaigns, take over some of the areas or kind of surfaces within our app to guide the consumers back to where they come from. We do this very differently from competitors. We will have no marketplace. There's no cashback. There's no price comparative. There's no deals kind of between merchants.
For a consumer paying an invoice from a specific merchant, we let that merchant drive those consumers back to where they come from. We see this will kind of drive volume for our merchants and increase loyalty, which is good for everyone. This is quite unique in our approach of handling the consumer journey. We'll continue to build on this kind of strategy going forward. It's also one of the reasons we see that merchants that are today using a provider that are focusing maybe more on kind of marketplaces or cashbacks and kind of driving the consumers to the competition of the merchant, which no merchant likes. We see this is a big differentiation, helping kind of the consumers to come back to where they come from. With that said, to summarize the quarter, we are now doubling down on our payments transformation.
We already now see significant commercial momentum with more than 35% in volume growth that is signed and expected to go live kind of going forward. We also already now see a strong merchant base growth, which is laying the foundation for kind of our long-term growth and profitability and also showing the interest in the market kind of around Qliro right now. We see very good momentum with a lot of discussions and also kind of increasing pipeline for new merchants. We see an uplift in processed volumes in Q4, as I mentioned. We're up to 90% in October, and we have kind of enhanced our product offering with industry-leading capabilities for conversion and the consumer experience, and I think this will help us kind of fuel our growth momentum going forward. We have an ongoing Nordic expansion.
We have launched in Norway, and we are now launching in Finland. And that's the first step on kind of growing the kind of company outside Sweden for real. I think this is a great opportunity for us to kind of also learn kind of how do we sell internationally. And the way we do this internally is even if we're launching in Norway, even if we're launching in Finland, we're building for Europe and trying to make this into a repeatable model that we can scale going forward. With that said, I hand over to Mike to run through the financials and our business model. Thank you.
Thanks, Christoffer. And hi, everyone. I want to start this part by taking a few minutes to walk through our business model. Starting on the left, we partner with both enterprise and SME merchants, which have obviously different business profiles.
In terms of sales process, SMEs normally have shorter decision processes to upgrade to us, whereas enterprise obviously takes a longer time, and they also often have longer contracts that sort of extend 24-36 months, which naturally extends the sales cycle. Once signed, onboarding can take up to a year for large merchants, but normally faster, but it can take up to a year due to technical onboarding, but also individual considerations, such as they want to gradually onboard or they need to take peak season into account and so forth. So that normally sort of extends that time, but once onboarded, transactions are then processed, and we start generating interest and fees, but with different timing, so pay now, that has an instant impact on our revenues, whereas Pay Later sort of builds up the loan portfolio over time.
That causes a natural delay between volumes and profit. Normally, we see that 50%-60% of the sort of full potential is reached within the year, and then 85%-90% after two years, and then 100% during the third year on average. But the key thing here is that higher payment volumes generate higher profit over time with reliability. Then once we grow, we also have a scalable sort of technical and operative platform that enables fast profit growth. We estimate that if you increase volumes by 100%, that would only increase cost by about 30%. Moving on to Q3 performance, as Christoffer said, with a new strategic focus on payments, we're now short-term shifting focus from profit to growth.
And as a result, our adjusted operating profit decreased to about -SEK 12 million in the quarter, primarily due to increased focus on growth and geographic expansion. Our operating income grew by 2.3%, primarily driven, obviously, a few pluses and minuses, but fundamentally driven by continued increased interest in our payment product. Adjusted operating expenses increased by SEK 4.6 million. I'll go through that a bit later in this presentation. Credit losses increased to SEK 27 million, about 1.1 percentage points relative to total payments volume compared to Q3 last year, mainly due to continued changes in the product mix towards longer durations, plus a temporary elevation that we see due to improvements in our Dunning chain with improved communication to consumers. If we move on to looking at non-financial KPIs, total payment volume increased by 6% to SEK 2.9 billion.
This is mainly driven by Pay Now, which increased by 26% to SEK 1.7 billion, mainly as domestic payment methods such as Swish, Vipps, and MobilePay continued to grow. On the BNPL volume side, it decreased by 3%, while total Pay Later volume decreased by 14%, and this is as a result of continued lower invoice volumes. Looking at our cost base, as I said, cost increased by SEK 4.6 million during the quarter. This is a deliberate shift and increased investments in growth and geographic expansion, so we increased sales and marketing expenses by SEK 6.4 million compared to Q3 last year. In addition to that, depreciation increased by SEK 1.1 million, so other operating expenses actually declined by SEK 3 million . In addition to this, these numbers are excluding items affecting comparability. In addition, we incurred SEK 5.6 million in restructuring expenses classified as IAC.
This is relating to severance in order to further optimize our cost base as we now have divested our banking services loan portfolio. Then moving to the capital side, we continue to show solid capital and liquidity position, both to regulatory levels and also including Pillar Two guidance. The new capital raised in October has further strengthened our position. As I mentioned, as we mentioned earlier, during Q3, we divested our personal loans, and this freed up capital requirements, which enabled us to repay our Tier 2 bond. Good. Moving back to Christoffer.
Thanks, Mike. Talking about the outlook looking ahead, we will continue to accelerate our SME and enterprise sales engine that we now built up and expanded in more markets. We are prioritizing growth to capitalize on the current opportunities, which means we will continue to take cost for capital quarters.
We will continue to invest also in our new kind of payment capabilities. We see very good results from our recent product launches. And we will expand our kind of addressable market by also kind of our launch in Finland, which represents more than kind of 50% in addition of our addressable market versus only being in Sweden. We will also continue to optimize our onboarding. We see a kind of a big inflow, and we're working hard to get merchants live as quickly and smooth as possible. And we also kind of investing in kind of digitalizing that even further.
We have a target to reach over kind of the 35% of growth already by Q2, given that we are expecting to kind of onboard the live volume and kind of the volume we have now signed by kind of during Q1 or kind of at the latest early Q2. So our focus is to continue to deliver a market-leading experience for our merchants and their customer journey. And with that said, I open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ermin Keric from Carnegie. Please go ahead.
Hey, good morning, gents. And thanks for taking my questions and for the presentation. So the first one would be on the volume growth.
As you say, you target to be north of 35% by Q2. How should we think about that? Is that like a peak, or is that something you think can be more sustainably at around those kind of growth figures now that you've gotten the momentum in signing new merchants up?
In terms of absolute growth or kind of absolute numbers, of course, we kind of expect those levels to continue at that level, and with that said, we are continuing at kind of current velocity in sales. We see that increasing. We have a bigger pipeline now than before, so I think we could expect that to kind of continue to increase,
and then very helpful with the slide kind of showing how there's a delay before all of that turns into income.
But could you give us an indication when you expect income growth to be around 35% as well? Is that then with like one and a half years delay, or how should we think about that?
It's around that level, as you say. Kind of as Mike explained, we have roughly from new contracts or new volume, 50%-60% kind of materialize into kind of income kind of during the first year and then up to kind of 80%-90% during the second year. So to talk about around 18 months, I think that's a kind of a fair assumption.
But quarter- over- quarter, quarter- over- quarter, you'll see that sooner.
Yeah, of course.
Okay, thanks.
Then I think in the report, you mentioned that there is a little bit of a mismatch on the kind of lending rates coming down versus funding rates coming down now, when we see market rates trending downwards. Could you just give us a little bit more color on that and when you expect that mismatch to kind of converge?
I mean, as you know, we kind of are funded primarily by kind of consumer deposits. Some of that is kind of on kind of flexible terms. Some of that is on six and 12-month terms. On average, we have it around kind of 80-day duration.
But we see that kind of the market on kind of interest rates for consumer deposits or savings accounts have not come down as quickly as and immediate as kind of the public kind of interest rates, which means that there will be some lag. Looking at our kind of portfolio, that may be a lag up to six months. And I think before kind of we see kind of the deposit rate are kind of reaching the rates from the kind of the official numbers.
But once the policy rates are sort of stabilizing, this will cease.
Okay, got it. Then another thing is, as you mentioned, I think it's probably a positive long term, but on the commission income, it's a bit slower because of lower late fees.
Is this something that we should think about going forward as well, that commission growth will be lower than NII growth?
We see during the quarter that we have reduced reminder rates around 20% on our kind of BNPL product, which is very good from a kind of consumer experience perspective. And I think that benefits the merchants and our returning consumers going forward. We also expect that kind of will impact kind of credit losses in the midterm. But yes, it impacts kind of operating income in the short term.
Great, then just on cost as well. So you mentioned that you are increasing investment kind of for modernization. You're doing the geographical expansion. The SEK 81 million we're seeing now this quarter on an adjusted basis, is that a good level to start from?
And then we have the 30% cost growth for 100% volume kind of relation to think about, or is there any other underlying fixed cost investment we should also think of from this base now?
I mean, we are now expanding in two new markets where we're not kind of fully live yet. So we will take cost before revenue in order to build up kind of our sales and marketing capabilities also in Norway and Finland. But with that said, kind of if you look at it over time, definitely I think we will not be kind of need to increase our kind of fixed cost more than the 30% if we double the volume to 100%. And kind of looking at the growth rates, we may be there kind of sooner rather than later.
Excellent. Thank you, that's all for me.
Thank you, Ermin.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. We're now in pole position to win the race for the kind of the Nordic e-commerce business. So we will continue to accelerate from here. Thank you very much, and look forward to discuss during the next quarter.