Good morning, everyone. Welcome to the second session of our second day at Bernstein's 42nd annual Strategic Decisions Conference. I'm Harshita Rawat, U.S. payments analyst at Bernstein, and I'm delighted to be with me here today, Sebastian. I think I'll just call you Sebastian.
Don't worry about that.
Sebastian, thanks so much for joining us today.
Thank you for having me.
You've had a busy last 12 months with the IPO, PSP partnerships, the launch of the Klarna Card and agentic shopping experiences. Let's take a step back. How has the company evolved in the past few years, in your view?
Fantastically, in my view. I'm a pretty big shareholder myself, and I'm very optimistic about what I'm seeing. I think that the core strategy People may not be as familiar with this story in the U.S., but I've been running the company for 20 years, since we co-founded it back in 2005. I've seen what we do over multiple economic cycles. I've seen it in multiple markets and maturing. Out of that came all the learnings and the playbook when we are expanding in the U.S. market. For us, the key thing has been to establish ourselves with what we would call lifestyle spend, which is basically the kind of classical buy now, pay later or the charge card equivalent products. This is like Sephora, Macy's, where there is a fairly high frequency of spend, but the tickets are around $ 100, $200.
The focus of establishing there is because based on our experience from other markets in Europe, is once you've really nailed that, you can then expand into the financing segment, the big ticket spend, and you can also move into the everyday spend, groceries and so forth. Actually not that different than Amex's old strategy. If you go back to Amex trying to reach parity with Visa and Mastercard back in the '1990s and 2000s, where they also started in lifestyle spend then. For us, it's more fashion. For them, it was more travel and tickets and restaurants and so forth. Very similar in that. If I look at what we've done in the U.S., that's exactly what we want. We've clearly won market share and dominance in the buy now, pay later kind of lifestyle spend category.
More recently, we've entered into what we call Fair Financing or big ticket spend, which has, almost like as we also share with the market, almost surprised us how well received our products and services and the demand of our services have been, and how fast we've been growing market share in that segment. That has grown a lot. Ironically, I just say this as a fun detail, our growth in the everyday spend, in the debit, for example, our Pay Now product in the U.S., is growing in percentages almost faster than Fair Financing. Nobody talks about it because it doesn't have the same implications on the revenue. It's not as visible, but to us, it's a core part of our strategy as well. We're very excited about seeing that and the U.S. market in general growing at such a high rate.
Your business has changed quite a lot over the past couple of years. How do you define Klarna today, and what is your vision around what Klarna could be over the next several years?
I actually would argue that our vision and direction has been extremely consistent over my 20 years now. Sometimes media have reported or talked about, or we have talked about some things more or less, but it's actually been very similar, and it is exactly what I said, which is that there are basically three segments of spend that consumers have. There is their everyday spend, the groceries, the metro tickets, the Uber rides, all of that stuff. There is the kind of lifestyle spend, and then there is the occasional big-ticket spend. If you want to maximize your total addressable market, but also for profitability reasons, which I can come back to, but if you want to maximize your TAM, you need to be relevant in all three of those categories.
It's very important that you have an offering from a payments perspective that consumers can use you for everything, right? Which is exactly the same conclusion Amex had 20 years ago when they were like, "Uh-oh, not being in groceries, not being in gas stations is going to make our card less attractive than making sure that it's available everywhere." That is and has been a very consistent and core part of our strategy. If you look at those three segments, in the big ticket spend, the attractiveness is high revenue per transaction. You make more money. If you issue a big loan for a phone, you're going to make a lot of revenue, and you can make a lot of profit. In absolute terms, the size is just larger. That's what's attractive about that.
In everyday spend, the interesting thing is you generate deposits, and if you generate deposits and positive balances, you drop your funding costs, and you become even more competitive versus the traditional banks and incumbents. Each one of those three segments have, and the lifestyle spend to us is the one where we think it drives the most frequency, the most preference among the consumers. Each one of the three segments have their strengths and their attractiveness, and to us, it's been very vital to operate in all three of them because it maximizes the TAM and it has the biggest potential from a profitability perspective over the kind of full life cycle. I think that has been actually very consistent. People sometimes we talk about our banking products are more kind of everyday spend and save products, and then that has gotten more attention.
Sometimes there's more focus on our Fair Financing offer and what's going on there. People may sometimes misperceive that as like, "Oh, they're switching." The truth is, it's the exact same thing. We want to be relevant for our consumers for all of their spending. We know there's advantages to each three of these segments. I think it's more for us to consider from a communication perspective and kind of how we represent the company and so forth to show this and tell this story in a better and concise way.
Ubiquity is important to you, right? Which is what is driving a lot of the PSP partnerships, which is what is driving a lot of your consumer initiatives.
Sorry, you said what is important?
Ubiquity.
Ubiquity. Yes, exactly.
Yes.
Yeah.
Before we talk more about the underlying business, any comments, Sebastian, on the current trends you're seeing across your businesses?
In general, I'm very optimistic when I see what's happening, and I already mentioned the strong growth in the U.S., the strong growth in both debit and in Fair Financing. In these two newer segments of ours, I would argue, in the U.S. I'm very excited about what I'm seeing.
I want to switch gears and talk about flexible payments as a whole.
Klarna's mission has been to reimagine how people spend. Flexible payments are a big part of that. There is a perception amongst investors that flexible payments or buy now, pay later, as some people may call it, are primarily used by consumers who don't have access to credit. Clearly, that's not the case. Consumers across a wide range of demographics use Klarna. Merchants are adding these payment options because they're seeing higher conversion. Tell us about why you see that's not the case. I have some follow-ups.
Well, I think it's definitely, first and foremost, we have introduced. It's not really a novel concept. We have brought back concepts that some of us remember from when they were younger, that banks abandoned. When I was working at Burger King as a 15-year-old, you would swipe your card, you would press one for debit and press two for credit. The banks removed that particular feature because as a consequence of it, your bill at the end of the month was smaller because you had put in some of your transactions on debit, and if the bill is smaller, you're less likely to revolve, and if you don't revolve, you're less likely to make the bank money. From a consumer protection perspective and consumer preference perspective, the concept of an active choice between debit and credit is very thoughtful and makes sense.
There's a fantastic McKinsey study from 2015 here in the U.S. that talks about a group of U.S. consumers called the self-aware avoiders. These are people that actually carry less debt, are more financially conscious than your typical group. Their income level is slightly higher than subprime, and they have tested credit cards, found it to be a bad product for them. They call it the product of the devil, to be honest. They find themselves suddenly carrying much more debt than they were intending to, and then they pay it off. They say, "I'm not touching that product anymore." They are looking for a 0% installment-based product so that they can occasionally use credit. That's our primary target group of users, and it turns out that that group is also better. They pay better.
They are less likely to find themselves in financial difficulties because they're thoughtful about their decision making. There's the perception, and then there's the reality in regards to this. The products that we've tried to introduce are coming back, so like debit. Then I think sometimes because the terminology is new, people argue like, "You know what? Oh, buy now, pay later has not seen economic cycle." I mean, I've been doing this company now for 20 years, I've seen a lot of economic cycles with the BNPL. First and foremost, if you need to tie it to something that you're familiar with historically, call it a charge card equivalent because that's what it is. It is a charge card equivalent product. It has short duration, you pay off very quickly, and you don't borrow a big amount.
That's why Amex has been talking about being spend-centric versus lend-centric, and that's why Klarna is talking about being spend-centric versus lend-centric because that is our primary product, and it carries much lower risk than the credit card products carry. There's other aspects as well, which is that because we're doing real-time underwriting, it means that we can adjust our underwriting in real time across the board. Because the durations on the buy now, pay later product are so short, it also means that if I change my underwriting, within 60 days, I refresh more than half of my balance sheet, which is unheard of for a traditional incumbent bank running a large credit card portfolio with an average outstanding debt of $4,000 and an inability to adjust with that agility, right? Now obviously we also have the Fair Financing.
Their durations are slightly longer, but that's also, it's not a novel concept. We call it Fair Financing because we try to price it more fairly. We try to offer it with more caution towards the consumer. It is point-of-sale installments. That has been around since, I think the first example was 1850s here in New York when you were financing sewing machines, right? Point-of-sale installments has been around for a long period of time, and that's what our Fair Financing product is. They're not necessarily new concepts in that sense. They are digitally native. They're presented, they're marketed in a new way, and consumers really pick up on them and find them more attractive because there's a lot of bad practices that credit card companies and kind of private label credit card practices have applied that consumers are rejecting.
They see benefit to coming to these products that are more fair, more easy to use, more transparent. Not that different than what you've seen in the carrier industry when people launched these new carrier phone companies that had simpler plans, simpler pricing, and we saw kind of a movement of the market in that direction in the younger generation. It's kind of the same thing, to be honest.
Let's talk a little bit about Klarna user base, the 119 million users growing 21% year-over-year. Is there some demographic differences between Northern and Western Europe and the U.S.?
Not really. What we see clearly is, compared to all the other fintechs that I have at least looked at closer, I would call the other fintechs as many times used by tech bros. They are tech bros products. They are crypto trading tech bro products for tech bros living in Silicon Valley. That's not Klarna. Klarna is not a tech bro product. Klarna skews more female than male, skews more towards, I wouldn't even say 20 to 30s. It's almost like 25 to 40s. I'm really happy because in our relationship with our merchants, everyone knows who's taking the economical decisions nowadays, and it's not the males anymore. I'm very happy that our target group is with the people actually taking those financial decisions, that's the clear thing. Obviously, that also comes from the fact that we are in lifestyle spend, right?
We are big in Macy's, Sephora, and so forth, where the target audience also skews more in that direction. That's really the target audience, and they're financially conscious people.
I want to ask about the other side of the network, the merchant. Your merchant count grew by 49% last year to 1 million. You have PSP partnerships with Stripe and Nexi. I understand Worldpay and JPMorgan will go live this year, along with your recently signed partnership with Worldline. Tell us about the importance of PSP partnerships for Klarna.
This comes back again to one of the key observations that we did, is that if you want to be truly a global network of payments, you are going to have to be relevant for every category of spend. If you're only big ticket, you're not going to be relevant. If you're only lifestyle spend, you're not going to be relevant. If you only are debit, you're also not going to be relevant. We needed to make sure that we have all of these three products. We call them Pay Now, Pay in 4, or buy now, pay later, and then the third, financing. Also that we have a significant geographical coverage. If you're only in one market, it's harder. Obviously, the U.S. is large, but even then it's harder. Having enough global coverage is relevant.
I remember fondly a conversation with IKEA back in the days where they told me that Klarna had graduated from being a local payment provider to a regional one, and I was just laughing and saying, "How do I get to the global spot?" I would say we're there now, and the benefit of that is then when we go to Stripe, Adyen, Worldpay, all these deals that we've signed, we, in order to reach parity with Visa and Mastercard as a network, just like Amex did back in the days, a decade ago or two, we needed all payment methods for all categories of spending, and we needed enough geographical coverage.
Once we've now achieved that, the benefit is we can go and say, "Let's do a default deal." A default deal means that not only are we available as alternative payment methods, there's a lot of alternative payment methods on Stripe, on JPMorgan Chase, on all these payments providers, but we want to be default. Default means a new merchant signs up, what do they get default? They get Visa, Mastercard, and now Klarna as part of the default sign-up. That makes a huge difference because it means that we don't need to go and convince people to add us on, to put us on. Even if it's a click of a button, it still is an additional sales activity. It's still an additional effort.
That's why you're seeing as more and more of these PSPs are putting us default, that's what you're now seeing suddenly accelerating our acceptance points or our number of merchants, which is growing at almost 50%. We are very happy that we've signed those deals with basically, I would say, the majority of the large global PSPs. As they integrate this and start putting us default, it sets really the foundation for a continuous long-term growth of Klarna and availability across all these markets, across each of these segments. Again, I think it's important to stress that you need to have a payment method that's also relevant for subscriptions. If you only have financing that's not relevant for subscriptions, you're not going to put your Netflix on a subscription, on an installment. It doesn't make sense. Klarna is actually very big in subscriptions.
We have Disney+. We have tons of subscriptions. Why is that important? Because if you want to have that kind of partnership with Stripe, a huge proportion of Stripe's volume is subscription merchants. If you don't have a payment product that's relevant for all the categories, Stripe are going to say, "Well, it sounds lovely to put you default, but we can't put you default because you're not relevant for all of our merchants." It still has to be on a merchant-by-merchant basis. That is the big delta in execution and success in our opinion. That's why that is a very, very critical part of our strategy.
That clearly drives network effects, right?
Yes.
Can you talk more about Stripe, and the learnings from being live with them? What percentage of Stripe's merchants are you now integrated with, and what has been the merchant feedback like?
No, I can't talk about those exact numbers because it's a single commercial relationship. We're very happy. They're happy. We're seeing that it has been well-received. I think for all of these PSPs, there are two things that they try to accomplish. One is that they want to see that the payments products that they introduce to their merchant base is driving conversion rate. If it's driving conversion rate, if it's adding additional sales, they know that by adding this, they're helping their merchant, and they're growing their own volume at the same time. It becomes a win-win, right? You would not have these partners lean into doing these partnership with us if they didn't have the business results.
The other thing is that the merchants need to see, the merchants also see that then in their growth of volume and growth of sales, it becomes a win-win. I think what I've been trying to also highlight to the PSPs is that they don't necessarily feel that the networks have been, what should I say to be nice? Competitive, or there has been enough competition in that space. They feel a little bit that they're looking for somebody to come in and create a little bit of competitive pressure on the incumbent networks. When I've been highlighting this to our partners, they have now tested that in conversation with the large networks, and they see that it's working.
The fact that Klarna is grabbing market share and growing its presence is now creating a way for them to push their partners a little bit. It's actually interesting. People don't know this. Back in the days, it's now pretty long back time, but still, for one or two years, Sweden was the only market in the world where the large networks saw a decline in online market share of payments because of Klarna's dominance and rise. That made the networks obviously wake up to the fact that there is competition here. It's just because we've been trying to offering a really great payment solution online, but now also offline. At the same point in time, we cooperate with networks. We have our own card and so forth.
I think that has been an important part for the big PSPs as well, that they feel that like, "Oh, finally somebody can come in and create a little bit of pressure on the networks.
You also work closely with them on product.
Yeah.
I think that's also something we hear very often from them. Tell us about how your merchant base has evolved, from this initial focus on clothing, accessories, to now you also have travel, leisure, food, and beverage.
Yeah. That goes exactly back to the strategy. In the U.S., we were very lifestyle spend centric, we were very focused on that segment of merchants where we took a very significant market share, we had another competitor of ours in that space that we were heads on in that space, really. I think now we have really won that market segment. Now we're expanding to the other two, which is more the financing side and the everyday spend. Even though the financing is the one that gets the most attention when we talk to investors and so forth, to me, the other one is as important. That also then means that we sign up merchants of other kinds. I would put travel into big ticket spend because it is what it is.
Even though there's variations, if you look at low-cost airlines, the buy now, pay later offering is actually more attractive. If you look at more cruises, charter, the longer vacation stays and so forth, you have financing is a more attractive type of payment method. Yeah, it's just, again, if you have a relevant product that is also really good for each of these three segments, then suddenly you have a bigger TAM, and you can go and sign more diverse type of merchants across the spectrum.
Sebastian, I want to go back to your earlier comments on Klarna being spend centric, not lend centric. This is somewhat different from some of your peers. How do we expect this focus to manifest in your product roadmap and your approach to growing your lending products?
No, I think it is very important. We turn around our books more than 10 times a year. We look at our peers, and they turn around their book two, three times a year. I think, if I remember correctly, sorry if I'm giving you the wrong number. I suspect Amex is at nine or eight. It's slightly below us in how much they turn around their books. To us, it's very important. I really think Amex is an interesting company because people don't necessarily think about it as a bank. They're the 10th largest bank in the U.S. They don't think about it as a bank. They think about it as a lifestyle brand customer service company with a card. I think it gives people a little bit of a challenge to put them in a box.
I think Klarna, to some degree, has that similar aspect to it that we think about ourselves like that. We think about us as a customer service company. We're driving additional volume. We have a marketing revenue business that is significant, where our user base of 120 million is very relevant to our merchants, so they want to market into our user base, just like people would pay Amex to market to their user base. The spend centric, what's important about it is that a big part of our volume and portfolio is so quick duration. It's really a charge card equivalent, I would call it. That has implications for your underwriting, that has impl ications for your risk, that has implications for how you fund it. It has tons of implications. I think it is a very attractive and interesting business.
I think that the balance between that one and the Fair Financing or point of sale installments is that if when I look back over our 20 years, the share between the debit business, the buy now, pay later business, and the financing business has always varied slightly. That just has to do with over different phases of the company, we focus more on this industry, or we focus more on these products, or we announce big partnerships, and they affect the share between the three. Now, for the first time, we published here in the U.S. in our latest numbers, you can actually look at how much payments volume there is per the three categories, both in the U.S. and in Europe. You can see that happening. If I look over my 20 years, I see that that's natural variations.
Over the time, you tend to move towards the consumer wallet. That's where you end up, which is like, okay, how much does the consumer spend on big-ticket items? How much do they spend on lifestyle? How much transactions do they have in everyday spend? That's where Klarna, over time, trends towards the same division between the three. Because our target is to be the one payment solution for our customers, both online and offline. Entering into the card business had the same purpose, was to grow our TAM, because we think that the card is the most efficient way to let our consumers spend with Klarna in offline as well, not only online, right? It's all about TAM, and then the proportion between the two. Those are variations over the quarters or even sometimes years.
Generally, long-term speaking, you're going to trend towards what are consumer spending, so to speak, where are consumer-based spending.
I want to turn to the U.S., where you are finding some of that equilibrium between the Fair Financing product and the Pay later products. Your U.S. expansion has driven significant growth for you, but has also introduced some volatility in your numbers because of how the accounting, et cetera, works. What have been the key learnings from scaling the U.S. business over the past few years? What aspects of the U.S. expansion have been surprising to you?
I think that the key learning. Well, if I look at the swings that you're referring to in the U.S., and I look at my historical experience in Europe, it's exactly the same. Same playbook as always. You sign some new merchants, you get some swings back and forth. Long-term, that turned out to be a very good decision. Now, the difference this time around, we're a public company. Back then it was private. You would go to the board and you would say, "Hey, we had a little bit of a swing here. We had some more Fair Financing business. It has some short-term quarterly implications on our numbers. We all know what the long-term strategy is, right?" That was the end of the conversation.
Now, obviously, we see that we are going to have to be more thoughtful in both planning, and we already are, in both communication around this, sharing the split between these businesses. We've also increased transparency around the splits and also help share with the market what's going on in that regard. Longer term, however, if anything, I would say we were a very successful buy now, pay later lifestyle spend charge card equivalent business in the U.S. We decided to move into the territory of big-ticket spend for real. Seriously. We had a little bit of a business there already earlier, but really go all in on that one. Yes, we were a little bit surprised how fast we got market share, that there was so much demand for the product that we actually could be so competitive and we could take market share.
We were a little bit surprised with that. That also had implications when we reported that. We're very excited about it. To us, it's a confirmation of our product, of our services, of our underwriting technologies, of how good we are in underwriting. I would also add to that something that's underreported is the tremendous structural advantage that we have from a funding cost perspective because we raise deposits in Europe, which are fixed-term deposits. They're also 12 months deposits. They're very stable and they're very cheap. From a funding cost perspective, when we compare it to some of our U.S. competitors, we have a quite large delta in funding cost, similar to what traditionally people would say incumbent banks have over fintechs.
This means that we can actually also, even on a deal, we can be more competitively priced, both for the merchant pricing and the consumer pricing on the interest rates, and earn the same returns or better than some of our competitors can because of that funding cost advantage and because of our ability to use a European-based raise deposits for funding our U.S. business. All of these things obviously have played into what you've seen. Still, as I look at these quarters, I'm quite excited as an investor shareholder when I see the performance and the success of our business in the U.S.
I want to follow up on the U.S. Fair Financing business. Can you remind us how credit metrics, delinquencies are trending as these cohorts mature? Your recent disclosure suggested slightly higher delinquencies in the 2025 Fair Financing cohorts. Anything to call out there?
No. It's very stable. It's according to plan. You're always going to have some small minor deviations. I think the important thing that hasn't been understood well enough, that we should have emphasized more is one of the benefit of starting with the buy now, pay later lifestyle spend is you get to know the customers. You know them, you have seen them pay back and their payback ratios on $100 loans. You've issued $100 to them multiple times and you've seen their payback rates. You go and start issuing a $1,000 financing loan. The vast majority of the consumers that we have now issued Fair Financing to are people that we've seen on buy now, pay later. There's a very small fraction of that that is new customers.
This means that you have an existing cohort of people that we know, that we've tracked and seen for a longer period of time, that we're then issuing a bigger financing thing. I would also argue that even then, people sometimes forget that. Yes, our Fair Financing business in the U.S. is growing, et cetera, but we are still far off from the $4,000 average outstanding dollar value of a credit card. Right? Even if you're looking at that and you're saying, okay, they used to do $100 on average outstanding, they're maybe going to $400 or $500, it's still far off from the $4,000. It's still very cautious lending, in my opinion, compared to the traditional incumbent banks and so forth in that regards.
Your U.S. transaction margins at 27% is quite a bit lower than your international margins, as you showed in your recent disclosures, which is at 46%. I know some of that is just simply maturity of the market, and then there is some accounting related to Fair Financing. Maybe talk about the path to bringing U.S. transaction margins higher, because it has such a high flow through to your bottom line.
I think one of the maybe most or biggest unknowns or biggest misunderstandings of Klarna is if you ask what is the biggest cost that we have above transaction margin dollars, it is now almost every quarter payments fees, not credit losses. I think everyone thinks that it's credit losses when in fact it's payments fees. I think that's a huge difference. It surprises me that this is not more well talked about, and I think we need to do better work to talk about this. If I look at my buy now, pay later product and I compare it between the U.S. and my mature markets, to your point, again, it depends if you look at Fair Financing, the debit, the Pay Now product.
If you look at buy now, pay later as an example, to your point, the gross margin, as we would call the transaction margin of it, would be in the 20s, 30s in the U.S. It would be in the 50s, 60s in countries like Sweden and our more mature European markets. What's the delta? The delta as share of revenue is almost entirely payments fees. Basically, losses per revenue of that product in our mature European markets and the U.S. are almost identical. The whole delta is just payments fees. In order to fix payments fees, what do you do? How do you get it to the same level as in Europe? There are precedents of that.
PayPal, back, everyone will remember if you're in the fintechs, you remember how PayPal was kind of balancing between ACH and partnerships with Visa and Mastercard to drive that cost down. There's a very well-known playbook in the U.S. to drive down your payments fees. It's called ACH. We now have the initiative of the FedNow. There's tons of ways. Again, this is why being present in the everyday spend category and everyday save category is so important, because what we've seen in Europe is if we have a debit base, if people store money with Klarna, then they use that money for their next purchase, which means that we never go externally and have to hit the payment rails for those transactions.
To us, getting more money to stay within the system, having relevant products in the everyday spend and saving products is actually very, very critical because that is what then allows you to drive down the payments fees in combination with ACH practices and so forth. I think that I understand that generally speaking, there's a sentiment of like, okay. Obviously, we focus a lot and we continuously develop, and AI is accelerating our abilities from a underwriting perspective and the underwriting technology and the loss management, but there's very stable performance. The way we see it's all according to plan. The big objective for me right now is to close that gap on payments fees because that has a potential of releasing a significant amount of profit and transaction margin dollars for us.
Let's talk more about the everyday spend.
Yeah.
Talk about the Klarna Card in that context. It has reached 5 million users. Tell us about what happens when a user enrolls with a Klarna Card. How does it change their purchase frequency in Klarna, and how does Klarna differentiate itself versus the other card offerings?
Yeah. I'm very happy to see what I've seen with it. It has a number of features. It kind of brings back that press one for debit and two for credit experience. It allows consumers to actively choose on a per transaction basis whether they're going to use it on debit and credit, which something that is in big demand from the consumer base. In addition to that, what I'm happy to see is that I wanted to avoid to make sure that it isn't purely like a Fair Financing card, that it's not just used by the consumer to fund a particular purchase and that's it. I wanted to make sure it actually becomes part of their everyday spend.
The debit proportion on the card is I'm very happy by what we're seeing already, that there is meaningful debit demand there, and that we're getting meaningful spend on the debit side. Generally speaking, if you look at our revenue per user, which personally I actually think sometimes is a better metric than transaction margin dollars. I think risk-adjusted revenue per user is probably the optimal metric for Klarna. If you look at it has been around $30 for quite some period of time. Why is it then not improving? Well, it is actually improving a lot. What's happened is on the 2022 cohort, it's gone up. It's almost in the $50s now. The new cohorts, they start at like $18 and $20.
What's happened is because our user base has been growing at such a high pace. The new cohorts kind of pushed down the average number for the total, that's why it stayed stable at $30. In addition to that, we acquired a business called Stocard, which had extremely low revenue per user, but brought in 40 million active users on their app, and then we've transformed them now into the Klarna users. These two things have kind of kept that $30, but now I'm starting to see that $30 come up. When you get somebody on the card, you can get the revenue per user in the $ 100, $150. It increases transaction frequency, it drives up revenue per user. It has all the benefits of that.
I think why it's so important to me as well is because sometimes I feel people get misled to look too much at take rates when they look at a company like us, and that's a mistake because if you were Amex in the late '1990s, your take rates were higher. In order to get into groceries and gas and gas stations and all that stuff, you had to accept that you were not going to be able to charge the same take rates. What you did at the same point of time is you massively increased revenue per user because you became relevant for all of the spending of your user base. What Klarna is doing right now is focusing on that revenue per user, and it's the right long-term strategy.
As a consequence of that, you can see a little bit of swings on the take rate because sometimes we tap into, for example, debit transactions, which may have a different take rate. They may be much lower. In U.S., the take rate is not regulated because the interchange is not regulated. In Europe, it's much lower. You will see these mix effects going on between the countries, between the different payments mix. If you focus too much on that take rate, you might be misled into what's going on in the underlying company.
To me, what's much more important is to look at the revenue per user or the risk-adjusted revenue per user if you want that, because that allows you to really see that if that's growing and it's improving, which it is, then you're doing the right long-term thing for the company, and it's going to have a very good effect on transaction margin dollar and so forth.
Also creates habituation and stickiness for-
Exactly.
more transactions.
Close relationship. Yeah.
I want to switch gears and talk about agentic commerce.
Sure.
It's still early, but it's an important trend to watch. You recently launched the Klarna shopping app on ChatGPT, and you're integrated, I believe, with Google Search and Gemini. How do you see agentic commerce evolving, and how could it change Klarna's value proposition for its customers?
Well, first, I would say that the most important thing to me was already many years ago when Apple Pay launched, I looked at a big competitor of ours, a big wallet, and I said, "This is a risk because partially our competitor is being used because of the one-click experience that they provide. If Apple Pay comes along, it will make them less competitive or less attractive for the consumer." Then obviously, I thought that was going to happen in two years, and I think I read in the news yesterday that Apple Pay is larger than that competitor in share of checkout now. It takes a little bit longer than you might sometimes expect it to do.
What that taught me is I said to myself, "Okay, what this means is the single most important thing is that you have consumer preference and that you have availability." Right? We concluded that the right strategy was to create maximum distribution. That is through the PSPs, as we already talked about, which is the global distribution, but it's also being integrated into Apple Pay, being integrated into Chrome Pay and Google Pay, making sure that we have a partnership with everyone that provides some kind of checkout capability and so forth because that is the best strategy. It will make sure that if agentic happens through Apple or if it happens through Google, or if it happens through ChatGPT or through Stripe, whatever, it's kind of irrelevant in a way because Klarna is there. See?
That is like the foundation that you build on, to me, and that was a very important strategic objective of ours, to make sure that we would strike those partnerships. This is also why we did decide to not offer our own PSP. Some of our competitors are offering both on the issuing side and being present there, but they're also doing merchant acquisition offering, and they're competing with Stripe and Adyen and the others. We decided not to do that for that distinct reason, because our distributors don't want us to compete with them, right? They're not going to distribute us if we compete with them at the same point of time. If we want to be globally present everywhere, we can't compete in that space, which is why we sold off that business and left that business, and now we're 100% focused on our distributors.
That's the foundation. On top of that, at the same point of time, you obviously want to experiment with, can we contribute to agentic commerce? Can we offer additional agentic commerce experiences to our consumer base? Is that interesting? Can you do shopping in the app? Could that be relevant? In addition to what we're doing, we're also signing these partnership deals, like with Gemini and so forth, to find new venues and new abilities. What people, for example, are less aware about is that in Europe, we acquired the largest comparison shopping network, one of the largest in Europe that existed, which means that we, different than other companies, have inventory. We know what product is available in what store at what point of time. That's an asset that is actually All of you have tried already to go to ChatGPT or Anthropic to investigate a product.
You will get good product advice, but then you have no clue where it is, and then you have to go still and search the old way to find that. The data that we have there is extremely valuable to be able to provide that next one-click experience post that, to go and understand where the inventory is and so forth. There's tremendous other interesting opportunities. We don't talk about them as much anymore because, in this big business that Klarna is, this is a smaller business. It's an exciting business that's growing, but it's obviously more on the margin than the core business of payments that we offer our consumers.
There is some debate with respect to agents around, on one hand, they can abstract away a brand, a financial services brand, but on the other hand, they can also do a better job in transparency for the consumers.
How do you think about that debate and where does Klarna sit within that?
I think, again, after doing this business for 20 years, I said, "Is anyone worried about Amex and the implications on Adyen e-commerce on them?" No. Why? Because there's preference. There is an audience that likes the product and uses it. Our ambition for the last 20 years is to build that preference with our user. If you have that preference, I see it, especially sometimes we have exclusive deals with merchants, sometimes we're not exclusive, and you will see Klarna next to other buy now, pay later providers and so forth. I actually like being side by side because it forces us to truly ask ourselves, is there preference for us over the other brands that exist, right? If you rely on exclusivity, you don't really know as much if it's just because you're there or because you're really preferred.
What we've seen is on the merchants that offer us side by side by a lot of other options, we get the highest share of checkout now in the U.S., we have the highest preference. That to me is a sentiment that you build that, right? That I think is the core. AI can help you increase quality, efficiency, become more profitable, but the core focus always has to be that, am I growing preference? I think the other thing that is critical is do you have a brand? I think that also we have invested so much in being a differentiated brand in a very boring industry. Color, pink is one versus everyone else's blue. Also just how we speak, our campaigns with Lady Gaga, with Snoop Dogg, how we rate with consumers.
It's such an important distinction that doesn't get spoken about a lot. When I talk to the big merchants, when I talk to the Nikes or the Sephoras of the world, why do they want to work with Klarna? Brand. It's like, yeah, all the other features and everything is great, but brand is the number one thing. We have a distinct brand, and if you talk to our consumers, they love the brand. Brand is such an important thing. Even in an AI world, where agentic whatever, brand becomes an extremely big moat and an asset to have because it grows that consumer preference and relationship with the consumer.
Sebastian, I want to switch gears and talk about another topic, which is always top of mind for investors, which is the sensitivity of your business to adverse macroeconomic conditions, both in terms of user spending and credit performance. How do you think about this? I understand your loan book turns over very quickly. You talked about, and you use transaction-level underwriting, which is also very unique compared to the traditional players, which are both positives, but at the same time, your Fair Financing business is also growing quickly.
Yeah. As I said, I think key to me is that when you grow your Fair Financing business quickly, which I've done before in other markets, make sure you do it to a base that you know, one that you have a relationship with and you've seen the payments history with. Very key that we're doing. We have, over the 20 years, invested so much in our underwriting. I sometimes feel like we don't talk enough about the sophistication of our underwriting. The reason for that is just it's definitely something we have to do more, but it's just that we've been building this company for 20 years, it's like that was so much the foundation and it is the foundation of we do.
You end up talking about the new stuff and the other stuff that you're doing, and you forget to emphasize and focus on it. My master's thesis in university was predictive analytics in using behavioral data to predict credit and fraud losses, right?
You're using it well.
Yeah, exactly. That's where the whole company's coming from, and that's obviously been a very core asset of ours for a long period of time. In addition to that, I think the other things that are important, when it comes to macroeconomic swings and so forth, is also I find it extremely valuable and important, which I'm happy about, is to be deposit-funded. The fact that we are doing offloading our balance sheet and so forth, and especially since private credit markets have matured in the last 10, 20 years, so they are more stable, more available, and probably are going to be more resistant towards economic cycles. I really like the fact that the bank is predominantly deposit-funded because that is a secure, safe way of funding that is less prone to sentiment shifts in the investor community over different macroeconomic cycles.
That makes me very, very strong. Then also, even more importantly, these are not over day withdrawal deposits. These are fixed term 12 months. The durations of our deposit base is longer than the durations of our balance sheet and the other side of it. I think that is a key asset to have. Again, because I've run the company for 20 years, I've seen it over the economic cycles, and we've built a foundation that is extremely well resistant and extremely well-positioned for any economic cycle. Currently, it looks very well. Our Klarna U.S. consumer is in a very good place. The spending patterns look very good. The repaying patterns look very good. We're very happy with what we're seeing in the numbers as well.
It's fascinating, right? Like unlike credit cards, you don't spend so much on customer acquisition. Your customer acquisition comes from the merchants, you don't have to do this big open line of credit for your customers. You do transaction-level underwriting. You can obviously switch your underwriting.
You're so spot on. It's funny you say that because I Again, sorry, I feel like sometimes I'm becoming the old grandpa here. I remember when the hottest thing in fintech was the idea that somebody was going to use Facebook data to underwrite consumers. I remember talking to Nigel Morris, the founder of Capital One, who was on my board back then, and he said, "Well, look, if you bring a new underwriting model to somebody like Cap One, it's like, 'Nice. Thank you for improving my margin by five basis points.'" It doesn't change the market. It's not going to be a disruptive force. It is obviously helpful and can be thoughtful, whatever. The key thing if you want to challenge the incumbent banks and incumbent card products is customer acquisition cost.
A big bank in the U.S. may pay $100, $200 to acquire a new customer. If it's a prime customer, it may cost $400. The key innovation, in my opinion, of Klarna, is the fact that we have this massive network of merchants who are every day when consumers are coming to their checkout saying, "Hey, instead of using your card or whatever you used before, have you tried Klarna? It's really nice, 0% interest for installments, et cetera." It's driving in 120 million consumers to the brand with basically zero customer acquisition cost. That to me was the insight that like, okay, if we want to disrupt the traditional incumbents in the credit card industry and the banks, we have to find a model that allows us to basically have zero CAC. That's pretty much it.
I even use this sometimes the equivalent of like imagine you would go down to Macy's in the physical store and you say, "Hey, I want to pay for this." They say, like, "Do you want to use Klarna?" You say, "Well, I don't have it." The clerk would say, "Now you do." That's how easy it should be, right? In that way, you're not going to stand in the airports and bug people when they're running to the flights to sign up for a credit card. You're not going to mail them. You're not going to call them.
It's at the point of purchase that the idea of trying a new form of payment, if it is as simple as clicking a button to start using it, and you can get the same underwriting data and so forth, which you have online because you have name and address and everything you need, then that is a tremendous advantage and opportunity from a customer acquisition perspective.
Sebastian, we're almost out of time. My last question for you. You've been public for almost nine months, and fintech as a sector has been quite volatile during that time. What do you think public market investors often underappreciate about Klarna?
I think we covered most of these things. I'm a big shareholder. I'm a long-term shareholder. I bought a lot of stock myself at $37. We bought for over $100 million back then. I'm a big believer in Klarna's long-term objectives and opportunities. We obviously also have seen how the markets have developed, and for us, it's important to improve our communications, improve how we present and communicate the company and tell the story so that more people get the opportunity to see it through our eyes and why I'm such a big believer in our long-term opportunities.
That's wonderful. Thanks, Sebastian. I learned a lot.
Thank you.