Klarna (NYSE:KLAR) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.
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Summary
Klarna Group PLC reported strong financial performance with revenue up 27% and transaction margin dollars up 42% year-over-year, leading to a positive net income of $9 million.
The company highlighted significant growth in its Fair Financing product with an 82% increase, and its Klarna Membership reaching 2 million subscribers, contributing to a 600% increase in subscription revenue.
Strategic partnerships, such as the recent launch with J.P. Morgan Payments and a partnership with Apple for device leasing, are expected to drive future growth, particularly in the US market.
Guidance for 2026 was adjusted, reflecting a softer-than-expected German consumer market and FX changes, but transaction margin dollar outlook was raised due to improved economics.
Leadership transitions were announced, with plans for a new CFO based in New York, reflecting the company's focus on strengthening its presence in the US.
Full Transcript
OPERATOR
Hello everyone and welcome to Klarna Group PLC'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. During the question and answer portion of today's call, please limit yourself to one question. To join the queue, participants should dial pound key five on their telephone keypad.
Before we move to Q&A, we will begin with a brief presentation. Sebastian, please go ahead.
Sebastian, CEO
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 cost 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 cost 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 churn is 10 times 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 a fifth of Klarna's volume and in Sweden, our most mature market, it held 16 to 20% for a decade. So Fair Financing today, as a 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 times 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 a 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, eight times 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 nine months. Last week we launched new membership plans built on what consumers actually want: cashback and benefits. In May, we told you J.P. Morgan Payments would launch later this year. It went live on August 6th ahead of peak season. J.P. Morgan 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. 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, RPAC, and profitability, and consumer credit keeps performing better. Delinquencies improved again this quarter and provisions have declined as a 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.
Niklas will explain both. Second, in early '27 we will make two leadership transitions. Niklas Naglian, our CFO after six 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. Niklas remains CFO and will continue to lead the finance organization and investor engagement, supporting a transition into next year, including in his capacity as a board member.
The search for a New York-based CFO is underway. And David Sandstrom, our CMO for nine years, will also hand over during next year in the same planned way. In those nine years David built one of the most recognized brands in global finance and he hands it over the same way Niklas hands over the numbers, deliberately and from strength. Both Niklas 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. Niklas will take you through it.
UNKNOWN, CFO
Thanks, Sebastian. It's been an extraordinary six 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 Group PLC 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 $1,042,000,000, up 27% and ahead of volume growth of 18% as our mix continued to shift toward 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 to 395 million we guided in May. Our transaction margin dollars were 42.8% of revenue, up approximately 450 basis points from a year ago, with both the US and our Global ex US business expanding.
Non-transaction-related operating expenses were 490 million, up 16% as we invested ahead of peak season and ramped marketing around the World Cup. In the US, 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 the minus $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 US delivered GMV of $7.9 billion, up 27% year on year, and was the fastest growing large region. Global ex US 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. US share of GMV rose 2 percentage points year over year to 22%, while US transaction margin grew 9 percentage 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 Financing and the Card generate stronger transaction margin per dollar of GMV as they mature and, as you have seen, are a key reason for a 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 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 Financing in the second quarter of last year. Gain on sale was 69 million, driven by both the US forward flows and the German back book sales. US revenue grew 37% to $376 million, ahead of US volume growth of 27%. The higher take rate in the US reflects the contribution of interest income and gain on sale of originations from previous quarters where Fair Financing is most established.
Global ex US 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 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 US, transaction margin dollars were $88 million, up 126% year over year, more than three times the pace of revenue growth, which was 37%. That takes the US 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 our back book receivable sale in Q1 that we did not repeat. Global ex US transaction margin dollars were 358 million, up 30% and 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 US volume grew 15%, revenue 22%, and transaction margin 30%. Our most established markets run at approximately 6% 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 US delinquencies. The green dots represent our newest cohorts of origination from 1Q26. 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 delinquency 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 US book improved on the same basis, with recent cohorts down both quarter over quarter and year over year. You can find those metrics in our supplementary data pack. This is a short-duration, high-frequency credit, with the portfolio turning over 10 times 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 marginal 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 $149–151 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 US to be strong in the second half as we scale five significant integrations: JP Morgan, Adyen, Worldline, Worldpay, now part of Global Payments, and Fiserv's Clover, and we are excited about the launch of the Apple Upgrade program.
US volume assumptions are unchanged, and the US remains our fastest growing large region. On revenue, we expect $4.08 to $4.16 billion, down from above $4.34 billion previously guided. From the second half of 2026, we expect to manage a larger share of our US 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 rates are 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 to $1.62 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 an 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 and 50 million dollars of TMD for the year on lower volume. This change applies prospectively to new originations from 2H26; 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 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 four times 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 the transaction margin dollar growth of over 30%. We're investing to compound growth over the long term through the second half's 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 to 36 billion, revenue of 940 to 980 million, transaction margin dollars of 340 to 360 million, and an adjusted operating income of 5 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 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
Thank you, Sebastian and Nicholas. We will now move to questions from the analysts. A friendly reminder that to join the queue, participants should dial pound key five on their telephone keypad. And please limit yourself to one question. Your first question comes from Will Nance from Goldman Sachs. Please go ahead.
Will Nance, Analyst at Goldman Sachs
Hey guys, thank you for taking the question. 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, you know, that's been quite strong for the first half of the year. And then the guidance implies, you know, an exit rate kind of considerably lower than the first half of the year. You know, 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, you know, what seasonality is there some element of prudence in the guide and, you know, how are you thinking about kind of continued ramps and fair financing driving the overall transaction margin over time? Thank you.
UNKNOWN, CFO
Great, thanks. Hi, Will, it's Nicholas 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 1H26. 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 2Q25. We also have the FX, which we should not forget, and we had a, you know, an FX devaluation in the second half of this, the second half of this quarter and such.
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 in which we expect to see relative stability and a slight downward trend in the second half of the year. And so if you look at it in par, we're continuing to grow really strongly in the US. 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 US on the volume side. That's then really turning into strong TMD performance into second half as well, with a bit of headwinds on the FX from that.
OPERATOR
Your next question comes from Rob Wildhack from Autonomous Research, please go ahead.
Rob Wildhack, Analyst at Autonomous Research
Hi guys. 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 guid?
UNKNOWN, CFO
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 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 just compounds the trend, is the fact that we're seeing continuous 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.
Rob Wildhack, Analyst at Autonomous Research
Thanks. And if I could follow up on that. If Germany's basically pay later and pay now and less fair financing, those are lower margins versus fair financing which is higher margin. And that's the reason that the volume 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?
UNKNOWN, CFO
Yeah, 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 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 reval, but also at the same time we had a stronger growth in the second half of the year, particularly around fair financing in the US.
So I think this is really around the US growth more so than the softening of the German volumes with regards to TMD. Ultimately, if you look at it.
OPERATOR
We'll go to the line. Go ahead. Next we'll go to the line of Harshita Rawat from Bernstein. Please go ahead.
Harshita Rawat, Analyst at Bernstein
Hi. Good morning, Nicholas. We 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, US expansion and this leadership change? Thank you.
Sebastian, CEO
I'm sorry, can you repeat the second half of that question? I couldn't really hear. Sorry.
Harshita Rawat, Analyst at Bernstein
Yeah, no worries. So I think the second part of the question was should investors infer any change in Klarna Group PLC's approach to funding, capital allocation, investor engagement, US expansion from this leadership change. Thank you.
Sebastian, CEO
Got it. Well look, I think that 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 Nicholas and David have 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 the US.
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.
Harshita Rawat, Analyst at Bernstein
Thank you.
OPERATOR
Your next question comes from James Faucett from Morgan Stanley. Please go ahead. James. I don't think we can hear you.
James Faucett, Analyst at Morgan Stanley
Can you hear me now?
OPERATOR
Yes, now we can hear you, James.
James Faucett, Analyst at Morgan Stanley
Oh, 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.
UNKNOWN, CFO
Yes, 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. 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 two 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 1.9% of TMD in the guide. And if you back out the two basis points, we have 1.07% in TMD. That's an actual raise versus the 1.04. And it actually means that we're adding about 40 to $50 million more of true transaction margin dollars. That is, we're generating more transaction margin dollars for every dollar of volume that we bring in.
James Faucett, Analyst at Morgan Stanley
Great. Thank you very much. And you may have missed it, but Nicholas, thank you very much for all your contribution. Good luck.
UNKNOWN, CFO
Thank you.
Sebastian, CEO
He will continue being with us for more earnings calls. So you'll hear. It's friendly of you to say that, but there will be more opportunities.
James Faucett, Analyst at Morgan Stanley
Thanks, guys.
OPERATOR
Your next question comes from Brian Keene from Citigroup. Please go ahead.
Brian Keene, Analyst at Citigroup
Hi, guys. Thanks for taking the question. I guess just to go back, making sure I have the numbers just to quantify the Germany impact. How much, how much is that hitting the numbers versus, you know, the ramp of JP Morgan and some of the other PSP relationships. I would have thought that would have offset the weakness in Germany. Just try 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.
UNKNOWN, CFO
Yeah, 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 US 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 US 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, you know, 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 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.
Brian Keene, Analyst at Citigroup
Got it. Just in particular, Germany is going to grow negative or at least in the model. How do you model it out? The German business?
UNKNOWN, CFO
Yeah. So again, 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.
Brian Keene, Analyst at Citigroup
Thanks so much.
OPERATOR
Your next question comes from Connor Allen from JP Morgan. Please go ahead.
Connor Allen, Analyst at JP Morgan
Hi. Thanks for taking my question. 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 other details you might be able to provide about that partnership. Be great to hear. Thanks.
UNKNOWN, CFO
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 multi-year, similar to what many of our other partners have, where we start and we start ramping, which we will do this year and then, you know, continue to develop that over time.
Right. So like I said, we're very trend focused here with regards to running a larger portfolio. That Apple partnership is a fantastic partnership and I think can be very accretive over time. But we're focused now on the trend and where we have in the guide is where we are.
OPERATOR
Your next question comes from Jason Kupferberg from Wells Fargo. Please go ahead.
Jason Kupferberg, Analyst at Wells Fargo
Hi, good morning. Can you hear me? Great. Thank you for taking the question. 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 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, you know, as we made the guidance adjustment today.
UNKNOWN, CFO
Yeah, 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 US is continuing to really, really chug along on all engines. So we have very strong growth there. As you mentioned, we have a number of pipelines as well, a number of things in the pipeline 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 US but also particularly in the Nordics where we've launched fair financing and the card, we're seeing mid-teens growth in the Nordics. 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 built up to the guide.
OPERATOR
Your next question comes from Andrew Bao from BMO Capital Markets. Please go ahead.
UNKNOWN, CFO
Hi Andrew.
Andrew Bao, Analyst at BMO Capital Markets
Hey. Thanks for taking me to my question. Wanted to ask about subscriber monetization opportunities. You had the 2 million subs in the quarter, revenues 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?
Sebastian, CEO
I can start with the commercial aspect of the subscription, 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 card holders, or 6.5, sorry.
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 Group PLC.
So we believe there's more potential to grow it. For the exact financial targets, Nicholas, I'll hand over to you.
UNKNOWN, CFO
Yeah, 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. Reality is that these membership programs will allow us to accelerate the TMD continuously without having to add on more and more transactions 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 it is something that's going to be significant for us and it's a key pillar of the strategy from a monetization of giving value back to the consumer.
Andrew Bao, Analyst at BMO Capital Markets
Great, thank you. Nicholas,
OPERATOR
Your next question comes from Matthew O'Neill from Bank of America. Please go ahead.
UNKNOWN, CFO
Hi Matthew.
Matthew O'Neill, Analyst at Bank of America
Yeah, hi. Thanks so much. Congrats again, Nicholas. 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. Can you just give us an idea about 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, you know, who will effectively hold the residual value risk?
Apple, etc. If you just help us understand a little bit more about how this should impact things as it grows into the book. Thanks so much.
UNKNOWN, CFO
Great. Sure. So 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 the financing receivable.
Matthew O'Neill, Analyst at Bank of America
Okay, understood. And I guess we'll sort of wait to understand more as it comes. But with respect to the residual value.
UNKNOWN, CFO
Yeah, again as I said, if it's a financing receivable I carry the receivable of the loan on my book.
Matthew O'Neill, Analyst at Bank of America
Okay, perfect. Thank you so much. I'll jump back in.
OPERATOR
Your next question comes from Harry Bartlett from Rothschild and Co, Redburn. Please go ahead.
Harry Bartlett, Analyst at Rothschild & Co, Redburn
Hi guys. Thanks for the question. I just wanted to touch on the competitive environment. Maybe you could just, you know, give us some color on what you're seeing in Europe and the US and maybe just, you know, in the German market is do you think there's, you know, any intensification of competition there that's maybe causing any of the weakness or is it just purely macro?
Sebastian, CEO
Thank you, thank you. 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 general questions on the competitive environment, Klarna Group PLC has the aspiration and ambition to offer products and services that are relevant for consumers and all of our consumers' 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.
When we established ourselves in the U.S. we were particularly focused on first establishing us within the buy now, pay later lifestyle spend area because it gives us a unique opportunity to grow a 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, partially 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 as you know, it's this quarter growing 84% where the 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 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, we have both 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, what we have said here about Germany is that we are seeing a softer than expected consumer sentiment in that market. Yep,
Harry Bartlett, Analyst at Rothschild & Co, Redburn
Got it. Very helpful, thank you.
OPERATOR
Your next question comes from Kyle Peterson from Needham. Please go ahead.
Kyle Peterson, Analyst at Needham
Thank you for taking the question. I just wanted to touch on the guide a little bit. So 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 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 surrounding Germany?
UNKNOWN, CFO
Hi. 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 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 the 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 generally speaking there's good growth in southern Europe. There are a little bit of certain countries that might be growing a little bit slower than what we had expected. Ultimately the larger point here is 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.
Kyle Peterson, Analyst at Needham
Got it. Thank you very much.
OPERATOR
Your next question comes from Thomas Nielsen from Nordea. Please go ahead.
Thomas Nielsen, Analyst at Nordea
Thanks for taking my question. Q2 showed significant operating leverage with transaction margin dollars growing 42% against much slower cost growth. So looking ahead, if transaction margin dollars can 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
UNKNOWN, CFO
So, if you look at it, you're right — we're growing really strongly if you look at it overarchingly for the full year. Right. We're growing our adjusted transaction margin dollars at around about 32% and our adjusted operating opex by about 15%. We're seeing very strong growth in the US, as we see here, both on the volume side — the revenue — 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 specific dates, but I think we have the right traction in transaction margin dollars, the key metric that we're really focused on both in the US but also in global ex-US. 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 the 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.
OPERATOR
Your next question comes from Moshe Orenbuch from TD Cowen. Please go ahead.
Moshe Orenbuch, Analyst at TD Cowen
Great, thanks. Was hoping to talk just a little bit about the financing. You mentioned the growth in merchants and whether — wonder whether — 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?
Sebastian, CEO
Sure. I will start and hand over the second part to Niklas. 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 a 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 — 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, Niklas.
UNKNOWN, CFO
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 part of the product as people use it for everyday spending. What you're seeing in some of the less mature markets that are also growing is really that they act exactly with the card as they do online and with the merchant.
Right. So you're seeing much more of an equal split. So, you know, 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 US pay-in-full, albeit on a very low base, is growing significantly faster now, which just 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.
Moshe Orenbuch, Analyst at TD Cowen
Great, thank you.
OPERATOR
Your next question comes from Giuliano Bologna from Compass Point. Please go ahead.
Giuliano Bologna, Analyst at Compass Point
Good morning. Just checking 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 the 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 a lot of balance sheet growth and capital consumption over time?
UNKNOWN, CFO
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 makes sense with regards to the Apple leasing product. Right. But ultimately we look at this as a portfolio as a whole and, as such, 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.
Giuliano Bologna, Analyst at Compass Point
Yeah, that's helpful. And then maybe think about just the current balance sheet composition. I noticed there's a takedown 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?
UNKNOWN, CFO
So, yes. So it's going to be seasonality. Right. Our savings deposits are basically what consumers come and bring with us. We will alternate our rates depending on the needs as well. And 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.
Giuliano Bologna, Analyst at Compass Point
That's very helpful. I appreciate the time and I'll jump back in the queue.
OPERATOR
Thank you. And your final question comes from Lamar Clark from Freedom Capital Markets. Please go ahead.
Lamar Clark, Analyst at Freedom Capital Markets
Hey guys, thanks for taking the question. 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 as the deceleration you saw exiting June stabilized, continued at that pace, or stepped down further in July and into August? Thank you.
UNKNOWN, CFO
Sure. Generally speaking, we're seeing roughly the same kind of 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, you know, 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, you know, 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, you know, 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.
OPERATOR
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.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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