A.[Reserved.]
B.Capitalization and Indebtedness.
Not applicable.
C.Reasons for the Offer and Use of Proceeds.
Not applicable.
Risk Factors
Investing in our ordinary shares involves a high degree of risk. You should consider carefully the risks
and uncertainties described below, together with all of the other information in this report. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are
unaware of or that we deem immaterial may also become important factors that adversely affect our
business. If any of the following risks actually occur, our business, results of operations, financial condition
and future prospects could be materially and adversely affected. In that event, the market price of our
ordinary shares could decline, and you could lose part or all of your investment. We have grouped our risks
and uncertainties under the following headings:
Risks related to our Business and Industry:
Risks Related to Our Regulatory Environment
Risks Related to Intellectual Property, Data Privacy and Cybersecurity
Risks Related to the Ownership of Our Ordinary Shares
Risks Related to Our Business and Industry
Our success depends on our ability to attract additional merchants, to retain and grow our relationships with our
existing merchants and to continue enabling merchant success.
Our success depends on our ability to expand our merchant base in a cost-effective manner, grow our
merchants’ revenue and continue enabling merchant success. As more merchants join our network,
consumers benefit from an increased selection across verticals, channels and geographies, and purchase
more frequently with Klarna, which in turn increases our GMV and revenue. Conversely, if we are not able
to retain current or attract additional merchants to our network, our consumers may stop using our
network, use it less frequently or use fewer of our solutions, products and services.
The attractiveness of our network to merchants depends on a number of factors, some of which are
beyond our control, including, but not limited to:
•the size of our consumer base;
•our brand and reputation;
•the amount of merchant fees that we charge;
•our ability to sustain our value proposition to merchants for consumer acquisition by
demonstrating higher conversion at checkout and helping merchants establish and maintain direct
relationships with consumers;
KLARNA GROUP PLC4
•the attractiveness of our technology and network to merchants;
•our global footprint;
•solutions, products and services offered by competitors; and
•our ability to perform under, and maintain, our merchant agreements.
Our agreements with merchants generally have terms that range from approximately 12 months to 60
months. The termination of one or more of our merchant agreements, particularly with merchants who are
global leaders in their category or who generate substantial portions of our merchant revenue, could result
in a material decrease in GMV or total revenue. As a result, if we fail to retain any of our larger merchants
or a substantial number of our smaller merchants, if we do not acquire new merchants, if we do not
continually expand our GMV and revenues from the merchants on our network or if we do not attract and
retain a diverse mix of merchants across different verticals, channels and geographies, our business,
results of operations, financial condition and future prospects could be adversely affected.
We may fail to grow our consumer base and retain and grow our relationships with our existing
consumers.
We generate merchant revenue when consumers transact on our network and consumer service
revenue from fees paid directly by our consumers. Accordingly, our success depends on our ability to
generate consumer activity and increased GMV from existing consumers and attracting new consumers to
our network. In addition, lower consumer engagement may make our network less attractive to merchants,
negatively affecting our GMV and revenue.
The attractiveness of our network to consumers depends on a number of factors, some of which are
beyond our control. Such factors include, among other things:
•the number and variety of merchants and the related selection of products across verticals,
channels and geographies;
•our brand and reputation;
•consumer experience and satisfaction;
•consumer trust and perception of our solutions, products and services;
•technological innovation; and
•solutions, products and services offered by competitors.
If we fail to retain our relationship with existing consumers, if we do not attract new consumers to our
network or if we do not continually increase usage and GMV from consumers on our network, our business,
results of operations, financial condition and future prospects could be adversely affected.
We may be found to be operating without necessary licenses or other regulatory authorizations, or
fail to comply with requirements of the authorizations that we hold.
Our network connects consumers and merchants, and we offer our products and services in numerous
jurisdictions, each with its own distinct legal and regulatory requirements. We must obtain and maintain
various licenses, registrations and permissions (collectively, “Authorizations”), including banking, electronic
money issuance, payment services, money transmission, credit brokering, servicing, collections and
lending Authorizations, to operate our network across geographies. Failure to obtain or maintain these
licenses, or to comply with their terms and applicable laws and regulations, could result in significant legal
and financial consequences.
KLARNA GROUP PLC5
The regulatory landscape for banking and financial services, especially in the financial technology
sector and regarding cryptocurrency, is complex and subject to change. We must continuously monitor
and adapt to new and changing regulations and licensing requirements in all markets in which we operate
or into which we provide products or services. If we fail to comply with these regulations or operate
without necessary Authorizations, we could face regulatory and/or governmental investigations,
enforcement actions, fines and other penalties, and the risk of our customer agreements being
unenforceable. Additionally, if our Authorizations are restricted, suspended or revoked, in particular our
banking license in the EU, or if we are found to be operating without necessary Authorizations, we could be
forced to cease or limit our operations, including the scope of consumer credit products and solutions
offered in certain geographies, including specific states in the United States, which could adversely affect
our business, results of operations, financial condition and future prospects. The application of country,
state and provincial licensing requirements to our business model is complex and may not always be clear.
While we believe that, as of the date of this report on Form 20-F, we are in compliance with material
applicable licensing, registration or other regulatory requirements, regulators may request or require that
we obtain (or we may independently determine that we should obtain) additional Authorizations in the
future. While we may at any given time actively pursue additional Authorizations, there can be no
assurance that we will be able to obtain them in a timely manner, if at all.
The risks associated with non-compliance are significant given the extensive scope of our operations
across various jurisdictions and the differences among the varying and complex regulatory environments
that we navigate. A material breach of licensing requirements and banking or financial services regulations
could not only result in legal penalties, including revocation or suspension of regulatory licenses or other
Authorizations, fines, orders to cease and desist, or regulatory proceedings, but also damage our
reputation, lead to a loss of consumer trust and impact our relationships with key business partners, in
particular card networks and financial institutions that are similarly subject to extensive regulations and
close regulatory scrutiny. Any of these consequences could adversely affect our ability to attract and
retain customers, merchants and partners and as such damage our business, results of operations,
financial condition and future prospects.
We partner with card networks, payment service providers (“PSPs”) and other participants in the payments
ecosystem to operate our network. We may not be able to maintain or expand our arrangements with such
participants and if our existing arrangements are suspended or terminated, we may be unable to establish
alternative arrangements on favorable terms, if at all.
We provide our merchants a number of channels through which they can use our network to accept
payments. For example, Klarna Payments allows merchants to add Klarna as a payment method to their
online checkout, on a website or an app, directly through our API or using their preferred platform, such as
a partner PSP. In operating our network, we also partner with a number of different PSPs. Several of these
PSPs, including Adyen and Stripe, serve as merchant of records (“MoRs”) for merchants offering their
products and services through our network. Given the MoRs’ direct relationship with these merchants, by
partnering with MoRs we are able to reach and bring to our network a substantial number of merchants
without the need to individually approach, engage, negotiate and integrate our network directly with the
infrastructure of such merchants. Another channel is the Klarna card, a Visa card that allows consumers to
access our various payment methods in any physical store or online setting without the need for merchant
integration to our network. We also contract with various banks in different geographies for payment
processing services to allow customers to pay for their purchases on our network. As a result, our
operations rely on establishing, maintaining and expanding effective working relationships with a wide
array of participants in the payments ecosystem. This is particularly important with respect to MoRs given
that we currently derive a substantial portion of our merchant revenue from merchants utilizing the MoRs
with which we partner. We also plan to continue to drive growth in GMV and revenue generated by
merchants brought to our network through MoRs.
These parties impose various operational, compliance and technical standards that we must follow in
order for such providers to continue facilitating payment processing for our customers. These standards,
KLARNA GROUP PLC6
including the Payment Card Industry Data Security Standard (“PCI-DSS”) applicable to the Klarna card,
govern a variety of areas, including how consumers may use their cards, the security features of cards,
security standards for processing, data security and allocation of liability for certain acts or omissions,
including liability in the event of a data breach or other cybersecurity incident.
These providers may change these rules and standards from time to time as they may determine in
their sole discretion and with or without advance notice. Such changes may be made for any number of
reasons, including as a result of changes in the regulatory environment, to maintain or attract new
payments ecosystem participants, or to serve the strategic initiatives of the providers, and may impose
additional costs and expenses on, or be disadvantageous to, certain participants, including Klarna. In
addition, participants in the payments ecosystem are subject to audit by the providers to ensure
compliance with applicable rules and standards. Failure to comply with the applicable requirements and
standards, whether due to operational lapses, regulatory changes or disagreements with these providers,
could result in monetary damages, fines, regulatory investigations, legal proceedings, suspension of our
ability to offer certain payment methods or the termination of our registration or other relationships with
these providers. For example, any removal from card networks’ lists of PCI-DSS-compliant service
providers would limit the number of payment channels that our customers could use through our network.
For certain transactions, we partially rely on PSPs and other third parties and, as a result, must pay a
fee for their services. From time to time, payment networks, such as Visa, may increase the interchange
fees that they charge for each transaction using one of their payment methods. Payment processors and
payment networks routinely update and modify their requirements. Any changes in such requirements,
including changes to risk management and collateral requirements, may impact our ongoing cost of doing
business, and we may not, in every circumstance, be able to pass through such costs to our customers, in
which event we would be required to absorb any such cost increases. Furthermore, if we do not comply
with payment processors’ or payment networks’ requirements, the ability to utilize such networks in our
business may be impaired, which could adversely affect our business, results of operations, financial
condition and future prospects.
The digital payments landscape is subject to rapid technological and regulatory changes. Our
continued compliance with the requirements of card networks, PSPs and other partners necessitates
ongoing investment in technology as well as our legal and compliance functions. These investments may
increase our operational costs and affect our margin profiles. Furthermore, any regulatory changes
affecting the broader payments industry could necessitate adjustments in our business practices,
including in our relationships with card networks, PSPs and other participants in the payments ecosystem.
Our network’s success depends on our ability to connect consumers and merchants with
comprehensive payment and innovative advertising solutions. We cannot guarantee that our current
arrangements with the various payments ecosystem participants needed to effectively operate our
network will continue or that, if needed, we will be able to establish adequate alternative arrangements on
terms favorable to us, if at all. We may also fail to successfully expand such arrangements in the future as
needed to facilitate our growth and execute on our strategy. Any disruption in our ability to maintain, grow
or replace, when needed, our relationship with MoRs, or more generally process payments in partnership
with card networks, PSPs and other participants in the payments ecosystem, could adversely affect our
business, results of operations, financial condition and future prospects.
We may fail to promote, protect and maintain our brand.
We believe that developing, protecting and maintaining awareness of our brand in a cost-effective
manner is critical to attracting new and retaining existing merchants and consumers on our network.
Successful promotion of our brand will depend largely on the experience of our merchants and
consumers, including high levels of consumer satisfaction and the effectiveness of our marketing efforts.
We strive to reimagine commerce by putting consumers at the heart of everything we do. If consumers
do not trust our network or do not have a positive experience with our network, they will not use Klarna at
KLARNA GROUP PLC7
all, use Klarna less frequently or use fewer of our products and services than they otherwise intended. We
have invested heavily in both the technology underlying our network and our support team to offer our
consumers seamless experiences throughout the entire consumer journey in order to drive their loyalty
and satisfaction. We have similarly incurred, and expect to continue to incur, significant expenses relating
to our various marketing efforts. Despite such expenditures, any brand promotion activities may not result
in increased revenue and, even if they do, any such increases may not offset the expenses incurred.
Additionally, the successful protection and maintenance of our brand will depend on our ability to obtain,
maintain, protect and enforce trademark and other intellectual property protection for our brand.
If we fail to successfully promote, protect and maintain our brand, including by not maintaining a
consistently high level of consumer service, or if we fail to do so in a cost-effective manner, we may lose
our existing merchants and consumers to our competitors or be unable to attract new merchants and
consumers. Any such loss of existing merchants or consumers, or inability to attract new merchants or
consumers, could have an adverse effect on our business, results of operations, financial condition and
future prospects.
We have a recent history of incurring losses and may not be successful in effectively balancing growth and
profitability in the future.
Since inception, we have strived to maintain a deliberate balance of growth and profitability. We
remained profitable for the first 14 years as we scaled our operations in Europe. In 2019, we strategically
decided to expand into additional geographies, with a particular focus on the United States, and in the
following three years expanded into 12 additional markets. While our expansion in the United States has
contributed to an increase in our GMV, it has also led to net losses in recent periods. In 2023, our operating
losses started to decline and we began generating positive transaction margin dollars in the United States.
At the same time, we incurred net losses in some of our recent fiscal periods. For example, while we
generated a net profit of $21 million in 2024, we incurred net losses of $273 million in 2025 and $244
million in 2023.
In the future, we may not be successful in delivering sustainable growth or may fail to achieve and
maintain profitability. In particular, there can be no assurance that our GMV, revenue and other key
metrics will continue to grow or not decline, and our growth rate may slow down or decline in future
periods. This, in turn, may prompt us to invest more in our network, adversely affecting our profitability, at
least in the near term. We may also increase our investments to take advantage of growth opportunities,
including by organically expanding into new geographies or growing our network through acquisitions.
Many factors may contribute to declines in our revenue, GMV and other growth rates or affect our
profitability generally, including, but not limited to:
•increased competition;
•slowing demand for our solutions, products and services from both consumers and merchants;
•geographic, product and channel and vertical mix;
•lower sales by our merchants, particularly those with whom we have significant relationships;
•general economic conditions, including interest rates and inflation and unemployment levels;
•a failure by us to continue capitalizing on growth opportunities;
•changes to our operating costs;
•changes in the regulatory environment; and
•the maturation of our business.
KLARNA GROUP PLC8
Our operating results, including take rates and transaction margin dollars, are particularly impacted by
geographical mix, product and channel mix as well as merchant vertical mix. These factors may impact
various line items of our operating results in different ways at any given point in time, which may result in
our operating results fluctuating materially from period to period despite our goal of driving sustainable
long-term growth with achieving and expanding profitability over time. For example, in the near term, while
our Transaction Margin Dollars may grow in absolute terms, our Transaction Margin may decrease,
including as a result of our U.S. operations continuing to grow faster than our more mature markets.
Consequently, you should not rely on our revenue or any other financial or operating metrics for any prior
quarterly or annual period as an indication of our future performance.
In addition, our future operational and financial performance will depend on a number of factors,
including, but not limited to:
•maintaining and developing relationships with existing merchants and consumers as well as
attracting additional merchants and consumers;
•increasing our advertising revenue;
•expanding within, and driving increased GMV and revenue from, our existing verticals, channels
and geographies;
•introducing new solutions, products and services, including in adjacent categories;
•entering into new verticals, channels and geographies;
•continuing to improve our proprietary underwriting model;
•continuing to develop, maintain, protect and scale our network;
•effectively using our personnel and technology resources, including by leveraging AI-powered
solutions to drive innovation and productivity;
•maintaining the security of our network and the confidentiality of the information, including
personal information, provided and utilized across our network;
•securing funding to finance our operations and future growth;
•maintaining adequate financial, business and risk controls;
•maintaining and developing relationships with partner banks, card networks, PSPs and other
partners necessary to support our network and operations;
•capitalizing on growth opportunities;
•implementing new or updated information and financial and risk controls and procedures;
•navigating complex and evolving regulatory and competitive environments, including with respect
to banking and financial services laws, data privacy, cybersecurity and the use of AI-powered solutions;
and
•attracting, integrating and retaining an appropriate number and technological skill level of qualified
employees.
We may not be able to manage our operations, profitability or growth effectively. Any failure to do so
could impair our ability to generate revenue and control our expenses, and, as a result, negatively affect
our business, results of operations, financial condition and future prospects.
KLARNA GROUP PLC9
We operate in an industry of substantial and increasingly intense competition and may be unable to
compete successfully.
The markets in which we operate are competitive and evolving rapidly, including with respect to
consumer preferences and regulatory landscape. Our network connects consumers and merchants with
comprehensive payment and advertising solutions across multiple markets in Europe, North America,
Australia and New Zealand. As a result, depending on the market and a particular product or solution, our
network may compete with any of the following:
•Alternative payment methods, such as credit and debit cards—including those provided by card
issuing banks such as J.P. Morgan Chase, Citibank, Bank of America, HSBC, BNP Paribas, Barclays, Credit
Agricole, Santander or American Express—and payment networks such as Affirm, Block or PayPal;
•Traditional credit card networks, such as Visa, Mastercard, American Express, Capital One or
Discover;
•Neobanks, such as Revolut or NuBank;
•“Buy now, pay later” solutions, such as AfterPay; and
•E-commerce platforms with merchant enablement solutions, including advertising solutions, and
integrated payment capabilities, such as Shopify, Amazon or Walmart.
We expect competition to intensify in the future, both as emerging technologies continue to enter the
markets in which we currently operate, or may operate in the future, and as large financial incumbents
increasingly seek to innovate services that may compete with our network.
Our competitive position is also affected by our ability to innovate, respond and adapt to changing
market demands and regulatory environments. The financial services and technology sectors are subject
to rapid changes in technology, shifts in consumer behavior and evolving regulatory requirements. To
remain competitive, we must successfully identify and anticipate such developments and formulate and
implement required changes to our network, operations, global licensing and Authorizations portfolio and
business plans and strategy to address them. Our failure to anticipate or respond effectively to these
changes, or to continually develop and enhance our network and products or solutions offered through it,
could result in a loss of market share and adversely affect the attractiveness of our network to both
consumers and merchants.
Technological advances and the continued growth of e-commerce activities and digitization of the
economy have increased consumers’ accessibility to products and services and led to the expansion of
competition in digital payment options. As a result, we face competition on many different fronts, including
with respect to:
•flexibility on payment options;
•duration, simplicity and transparency of payment terms;
•reliability and speed in processing applications;
•underwriting effectiveness;
•compliance and security;
•promotional offerings;
•fees;
•approval rates;
KLARNA GROUP PLC10
•ease of use;
•marketing expertise;
•service levels;
•products and services;
•technological capabilities and integration;
•customer service;
•brand and reputation; and
•consumer and merchant satisfaction.
Some of our competitors, particularly traditional credit-issuing banks as well as large internet
marketing providers, are substantially larger and more established than we are, which gives them
advantages over us and our network, such as a more diversified set of product offerings, a broader
consumer and merchant base, the ability to reach more consumers, the ability to cross-sell their products,
operational synergies, the ability to cross-subsidize their offerings through their other business lines, more
versatile technology networks, broad-based local distribution capabilities and lower-cost funding. Our
competitors may also have longer operating histories, more extensive and broader consumer and
merchant relationships and greater brand recognition and brand loyalty than we have, in particular in
markets that we entered later in our operating history, such as the United States, or with respect to
solutions that we introduced more recently, such as digital advertising. If we cannot compete successfully
against current and future competitors, our business, results of operations, financial condition and future
prospects could be negatively impacted.
Our business depends on our ability to attract and retain highly skilled employees.
In the evolving financial technology industry, our ability to maintain a competitive edge depends on our
ability to attract, train, nurture and retain a workforce comprising highly skilled professionals across all
areas of our organization, in particular, highly experienced engineers, data scientists, and marketing and
sales specialists. Competition for these types of highly skilled employees is extremely intense. Trained and
experienced personnel are in high demand and may be in short supply. Our continued growth and ability to
innovate and improve our network, products and solutions depend on our ability to recruit from this talent
pool effectively and to offer an engaging and supportive work environment that not only attracts but also
retains these professionals.
In addition, many of the companies with which we compete for experienced employees have greater
resources than we do or operate in jurisdictions, such as the United States, that enable them to offer more
attractive terms of employment, including more favorable share-based compensation packages. Further,
we invest significant time and expense in training our employees, which increases their value to
competitors that may seek to recruit them. Any loss of key personnel, including those in leadership
positions or those with specialized expertise, could disrupt our operations and significantly delay or hinder
our product development and strategic initiatives. Additionally, our ability to preserve our knowledge base
and maintain continuity in our strategic direction is at risk if we cannot effectively manage employee
turnover.
Furthermore, our performance and competitiveness as an employer are influenced by our ability to
comply with, anticipate and adapt to changes in employment and tax laws and regulations, including those
related to labor relations, health and safety standards, immigration policies and taxation of equity-based
compensation. For example, in Sweden and the U.K., social security payments on equity-based
compensation awards payable by the issuer and its employees are uncapped. This makes share-based
compensation offered by us to our employees in those jurisdictions less attractive than similar
compensation programs offered by companies in other jurisdictions, including the United States. We may
KLARNA GROUP PLC11
also become subject to additional social security and tax payments as a result of our multi-class share
capital structure. Depending on future changes in the price of our ordinary shares and the position taken
by applicable tax authorities, such obligations to make social security or tax payments by us could be
material. As a result, it may be more difficult or expensive for us to recruit and retain talent than our
competitors whose workforce is located primarily in jurisdictions with more favorable tax treatment of
equity-based compensation. Changes in such regulations could impose additional burdens on our
operations and limit our flexibility in effectively recruiting, maintaining and managing our workforce across
different geographies and during different business and economic cycles. If we are unable to attract and
retain a highly skilled workforce or are required to make material social security or tax payments in
connection with our equity-based compensation awards or our multi-class share capital structure, our
business, results of operations, financial condition and future prospects could be adversely affected.
The success and growth of our business depends upon our ability to keep up with rapid technological
developments and continuously innovate and develop new products, technologies and services.
Our network connects millions of consumers and hundreds of thousands of merchants at scale to
power global commerce. This network facilitates connections across the commerce ecosystem—from
PSPs and banks to credit bureaus and affiliate networks. In order to deliver a seamless commerce
experience to our customers and remain competitive, we must continuously innovate and improve our
network. Incorporating technological advancements into our network requires significant financial and
personnel resources and talent. Our development efforts with respect to these initiatives could distract
management from current operations and could divert capital and other resources from other initiatives
important to our business.
We may not be able to make technological improvements when expected by our consumers and
merchants. In addition, we may fail to effectively implement new technology-driven products and services
as quickly as our competitors or be successful in marketing these products and services to consumers
and merchants. For example, our competitors or other third parties may incorporate AI into their products
and services more quickly or more successfully than us, which could impair our ability to compete
effectively. If we are unable to successfully and timely innovate and continue to deliver a superior
merchant and consumer experience through our network, the demand for our products and solutions may
decrease and our business, results of operations, financial condition and future prospects could be
adversely affected.
In pursuit of our goal of becoming our consumer’s everyday spending and saving partner, we expect
that we will need to continue to introduce new products and solutions in our existing categories, while also
expanding our offerings into adjacent categories. For example, we have recently introduced and expanded
various offerings such as in-store and contactless payment capabilities, post-purchase financing solutions,
peer-to-peer payment features and digital wallet and cryptocurrency-related initiatives. The success of
new products or solutions in such adjacent categories could be hampered by a number of factors,
including our relative inexperience operating in such categories or the strength of our competitors. In
addition, new offerings and technologies are inherently risky, due to, among other things, risks associated
with the product or technology not performing at all, or not performing as expected, consumer and
merchant acceptance, technological outages or failures, applicable legal and regulatory requirements, and
failure to meet consumer and merchant expectations. As a result, we could experience increased claims,
reputational damage or other adverse effects, any of which could be material. The profile of potential
consumers using our new products, solutions and technologies also may not be as attractive as the profile
of the consumers that we currently serve, which may lead to higher levels of delinquencies or defaults
than we have historically experienced. Additionally, we can provide no assurance that we will be able to
develop, commercially market and achieve acceptance of any new products, solutions and technologies
and we may also fail to accurately predict the demand for, or growth of, such offerings in the future.
Finally, our investment of resources, including management attention and talent allocation, to develop new
products, solutions and technologies, or make related changes or updates to our network, may either be
insufficient or result in expenses or losses of alternative growth opportunities that exceed the revenue
actually generated from these new offerings. Our inability to successfully introduce new products,
KLARNA GROUP PLC12
technologies or solutions in our traditional or adjacent categories could limit our future growth and, as a
result, have an adverse effect on our business, results of operations, financial condition and future
prospects.
Our use and provision of AI-powered solutions could lead to operational or reputational damage, competitive
harm, legal and regulatory risk and additional costs.
We use AI in many aspects of our business, including integrating AI with products and services such as
our customer service chatbot and shopping assistant. We also utilize established ML techniques in real-
time fraud detection and prevention, AML and sanctions screening, product personalization and
generating marketing materials. In addition, we use ML techniques to enable our real-time underwriting
process. There are significant and evolving risks involved in utilizing AI and no assurance can be provided
that the usage of such AI tools, solutions and technologies will enhance our network or help our operations
become more effective, efficient or profitable. The models underlying our AI technologies may be
incorrectly designed or implemented. They may also be trained on, or otherwise use, biased, incomplete,
inaccurate or poor-quality data. We may also not have adequate rights to use the data on which our AI-
powered tools rely. Such technologies and tools may also be adversely impacted by unforeseen defects,
technical challenges, data breaches, cybersecurity threats or material performance issues. Accordingly,
our use of AI technologies and tools may inadvertently reduce our effectiveness and efficiency or cause
unintentional or unexpected outputs that are incorrect, do not match our business goals, standards and
values, do not comply with our policies or procedures, harm our brand and reputation, negatively impact
consumers or merchants or otherwise interfere with the performance of our business. We could incur
liability resulting from the violation of applicable laws and regulations as well as contracts to which we are
a party or civil claims. Additionally, if any of our employees, contractors, vendors or service providers input
our confidential information while using any third-party AI technology in connection with our business or
the products, solutions and services they provide to us, such practice may lead to the inadvertent
disclosure of our confidential information, which may impact our ability to realize the benefit of, or
adequately maintain, protect and enforce our intellectual property rights in, such confidential information
or otherwise harm our competitive position, reputation and business.
We have in the past used, are currently using and expect to continue using in the future, generative AI,
a relatively new and emerging technology in the early stages of commercial use, in certain aspects of our
business, including our customer service chatbot, which could expose us to additional risks. For example,
generative AI may create inaccurate, incomplete or misleading output, reflect unintended biases or
produce other discriminatory or unexpected results, errors or inadequacies, any of which may not be
easily detectable. While we have processes and controls in place designed to mitigate the risks associated
with using generative AI, including human involvement in the training and monitoring of our AI tools and the
alignment of our AI development policies and procedures with guidelines for secure development
practices, if the content, analyses or recommendations that generative AI assists in producing or our
products and services are, or are perceived to be, deficient, inaccurate, biased, unethical or otherwise
flawed, our reputation, competitive position and business may be adversely affected and we may incur
additional costs, including in the form of damages or fines.
To the extent that we do not have sufficient rights to use the data used in, or produced by, the AI tools
employed in our business and operations, we may be subject to litigation by the owners of the content or
other materials that comprise such data. Further, any content or other output created by us using AI-
powered tools may not be subject to copyright protection, which may adversely affect our ability to
enforce the intellectual property rights in such content. In addition, the use of AI by other companies has
resulted in, and our use of AI may in the future result in, data breaches and cybersecurity incidents that
implicate the personal information of users of AI-powered tools. Any of the foregoing could adversely
affect our reputation and expose us to legal liability or regulatory risks, including with respect to third-
party intellectual property, privacy, publicity, contractual or other rights.
Regulation of AI is rapidly evolving worldwide as legislation and regulators are increasingly focusing on
these emerging technologies. The cost to comply with such laws or regulations could be significant and
KLARNA GROUP PLC13
may increase our operating expenses. For example, the European Union’s Artificial Intelligence Act (the “AI
Act”), which entered into force on August 1, 2024, establishes, among other things, a risk-based
governance framework for regulating AI systems operating in the EU. This framework categorizes AI
systems, based on the risks associated with such AI systems’ intended purposes, as creating
unacceptable or high risks, with all other AI systems being considered limited or low risk. There is a risk
that our current or future AI-powered tools, such as our ML-based risk scoring model, may obligate us to
comply with the applicable requirements of the AI Act, which may impose additional costs on us, increase
our risk of liability and fines or otherwise adversely affect our business, results of operations, financial
condition and future prospects.
Further, in the EU and the U.K., we are subject to the EU GDPR and the U.K. GDPR, respectively, which
regulate our use of personal data for automated decision-making that results in a legal or similarly
significant effect on an individual, and provides rights to individuals in respect of that automated decision-
making. Recent case law from the Court of Justice of the European Union has taken an expansive view of
the scope of the EU GDPR’s requirements around automated decision-making and introduced uncertainty
in the interpretation of these rules. The legal obligations in this area may affect our use of AI (such as our
use of generative AI in customer support and ML in fraud prevention and AML/CFT screening) and our
ability to provide, improve or commercialize our solutions, products and services may require additional
compliance measures and changes to our operations and processes, and result in increased compliance
costs and potential increases in civil claims against us, any of which could adversely affect our business,
results of operations, financial condition and future prospects.
It is possible that new laws and regulations will be adopted in the United States and other jurisdictions,
or that existing laws and regulations may be interpreted in ways that could affect our use and provision of
AI in our products, services and business generally. We may not be able to adequately anticipate or
respond to these evolving laws and regulations, and we may need to expend additional resources to adjust
our products, solutions and services in certain geographies to such new requirements, in particular if
applicable legal frameworks are inconsistent across jurisdictions. Furthermore, the technologies
underlying AI are complex and rapidly developing and, as a result, it is not possible to predict all of the
legal, operational or technological risks related to our current or future use of AI.
Further, public and regulatory focus on ethical use and data privacy concerns regarding AI could lead
to reputational damage if we fail, or are perceived to fail, to align with societal expectations or regulatory
standards relating to the use of AI. Such scrutiny may result in financial or other penalties and may also
erode customer trust, which is crucial for our brand and long-term success. Although we have taken, and
continue to take, steps designed to mitigate the risks associated with the use of AI in our business,
including, among other things, engaging with regulatory bodies, investing in compliance infrastructure and
fostering transparent and ethical use of AI in our products, solutions and services, our use of AI may
present ethical, reputational, technical, operational, legal, competitive and regulatory risks, any of which
could adversely affect our business, financial condition, results of operations and future prospects.
We may be unable to maintain our funding model based on consumer deposits or otherwise maintain, renew
or replace our other funding arrangements.
We believe that one of our main competitive advantages is our stable, low-cost and flexible funding
base. As a fully licensed bank with an investment grade credit rating, we have the ability to access a variety
of forms of funding, including retail deposits, debt or equity securities, credit facilities and asset-backed
securities. At the same time, we aim to take a conservative, deposit-based approach to liquidity. For
example, in the year ended December 31, 2025, 90% of funding was through utilizing consumer deposits,
which equaled $13 billion as of December 31, 2025.
Notwithstanding our current capital and liquidity positions, we are not insulated from various risks
associated with liquidity and funding. These risks may be exacerbated by market volatility, shifts in
customer or investor sentiment, regulatory changes or economic downturns, potentially affecting our
ability to attract and retain deposits or maintain or obtain other sources of funding. In addition, because
KLARNA GROUP PLC14
we primarily rely on consumer deposits to fund our business and operations, our funding costs are largely
dependent on the current market rates that we may be required to pay on such deposits to remain
competitive with other interest-bearing or fixed income investment options available in the geographies in
which we take deposits. From 2023 to the year ended December 31, 2025, our funding costs increased
from $297 million to $667 million, or from 0.32% to 0.52% of our GMV and from 3.1% to 5.1% of our deposits
over the same period. Our highly competitive deposit savings platform and bank license provide us greater
operational flexibility and a relatively lower funding cost compared to wholesale funding models. For
example, in the year ended December 31, 2025, 90% of our lending activities were funded from our
consumer deposits, 58% of which are fixed and longer-term than the average duration of the consumer
loans that we funded through such deposits.
Further, our other existing funding arrangements may not be renewed or replaced. Through our
subsidiaries, we enter into credit facilities and issue commercial paper, regulatory capital notes as well as
other debt securities, including senior and subordinated notes under our Euro and Swedish Medium Term
Note Program, as more fully discussed in the section of this report on Form 20-F titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations―Liquidity and Capital
Resources―Indebtedness.” We also sell loans that are originated through our network in forward flow
transactions. If our funding counterparties become constrained or unwilling to offer necessary capital due
to, for example, adverse conditions in the capital and credit markets, the general availability of credit, the
volume of trading activities, the overall availability of credit toward the financial services industry, our
credit rating and credit capacity, as well as the possibility that consumers or lenders may develop a
negative perception of our long- or short-term financial prospects, our business, results of operations,
financial condition and future prospects could be adversely affected.
In our forward flow agreements, we make numerous representations and warranties concerning the
characteristics of the loans we transfer and/or sell (depending on the type of facility), including
representations and warranties that the loans meet certain eligibility requirements of those facilities and
investors. If those representations and warranties are incorrect, we may be required to repurchase certain
of the loans that we sold to third-party investors. Failure to repurchase so-called “ineligible loans” when
required could constitute an event of default under our financing agreements and lead to the potential
termination of the applicable facility. We can also provide no assurance that we would have adequate cash
or other qualifying assets available to make such repurchases. In addition, we utilize securitization
structures and forward flow agreements to effectively manage our regulatory capital adequacy
requirements by lowering the risk-weighted exposure amounts that we carry on our balance sheet.
Consequently, if such arrangements are scaled back, suspended or terminated for any reason, we may be
required to raise additional capital, potentially by issuing ordinary shares or equity-linked instruments, to
remain in compliance with applicable capital adequacy requirements and such capital may not be
available to use on favorable terms or at all.
Disruptions, uncertainty or volatility in capital and credit markets may also limit our access to capital.
As a result, we may be forced to delay raising capital, reduce, cancel or postpone interest payments on our
other securities, issue capital of different types or under different terms than we would otherwise, or incur
a higher cost of capital than in a more stable market environment, each of which could adversely affect
our business, results of operations, financial condition and future prospects.
The success of our business depends on our underwriting process and our ability to accurately price
consumer credit risk.
We believe that one of our core competitive advantages is our underwriting process, which is based on
our access to proprietary data, including third-party data. We provide Pay in Full, Pay Later and Fair
Financing payment options to our consumers. Pay in Full instantly settles purchases at the time of the
transaction. Pay Later enables consumers to purchase goods or services at the time of the transaction and
pay the full amount at a later date. Fair Financing allows consumers to pay for their purchase over a longer
duration. We have designed our short-term credit products to serve a wide range of consumers, including
those with varying credit histories and borrowing needs. Rather than targeting a specific credit segment,
KLARNA GROUP PLC15
our underwriting processes aim to responsibly provide our credit products across a broad customer base.
To that end, we provide a new, real-time underwriting decision for each transaction, leveraging our own
records, including Klarna history and purchase behavior of our active Klarna customers. We also leverage
merchant data, credit bureau reports and open banking data to understand the financial position of the
consumer at that point in time. Our underwriting process is fully automated, making decisions in real time,
and is designed to prevent potential fraud and abuse and to ensure compliance with applicable AML and
CTF laws and regulations while assessing the consumer’s creditworthiness against our own internal risk
appetite.
Numerous factors, many of which can be unexpected or beyond our control, can adversely affect a
consumer’s credit risk and therefore our exposure to it. There may be risks that exist, or that develop in
the future, including market risks, economic risks, including as a result of rising inflation or unemployment
rates or changes in international trade policies, such as imposition of new, or changes to existing, tariffs,
taxes and other restrictions on global trade, and other external events, that we have not appropriately
anticipated, identified or mitigated, such as risks from inadequate or failed processes, people or systems,
natural disasters, and compliance, reputational or legal matters, both as they relate directly to us as well as
that relate to third parties with whom we partner, contract or otherwise do business. We may update our
risk model for a number of reasons, including as new information becomes available to us, or to reflect our
corporate strategy and objectives. For example, in 2019, we strategically decided to expand our operating
model into additional geographies, with a particular focus on the United States, and in the following three
years expanded into 12 additional markets. As part of that growth strategy, we recalibrated our risk model
to reflect our higher risk appetite in those markets, which contributed to a rapid GMV growth and an
increase in the number of consumers and merchants on our network but also led to higher credit losses,
particularly in those new markets, and net losses on a consolidated basis. In mid-2022, while continuing to
enjoy rapid GMV growth, we decided to again adjust our underwriting process to reflect our strategic
recalibration to more balanced growth and shift towards profitability. Accordingly, we implemented a risk-
based down payment strategy to reduce transaction risk, introduced more stringent debt limit thresholds
and higher initial payments on higher-risk purchases, adopted a credit bureau-based derogatory remark
policy as part of our underwriting standards and accelerated the placement of overdue accounts with debt
collection agencies. These changes, together with our improved underwriting capabilities as we scaled and
matured our operations in the United States, led to a decrease in our provision for credit losses as a
percentage of GMV in that market from approximately 3.6% in 2021 to approximately 0.63% in 2025, all
while our GMV grew by approximately 213% over the same period.
There can be no assurance, however, that similar changes to our risk model and, by extension, our
underwriting process, will similarly lead to outcomes that align with our expectations and objectives. In
addition, changes to our risk model may be ineffective and the performance of our risk model may decline.
If our risk model does not effectively and accurately predict the credit risk of potential loans facilitated
through our network, greater than expected losses may result on such loans and, as a result, our business,
results of operations, financial condition and future prospects could be adversely affected.
In addition, if the risk model we use contains errors or is otherwise ineffective, our reputation and
relationships with customers, partners, including originating bank partners, and other funding sources
could be harmed, we may be subject to liability and our ability to access our funding sources may be
inhibited. Our ability to attract consumers to our network and to build trust in our network and products
and solutions depends on effectively evaluating consumer credit profiles and likelihood of consumer
default. If any of the credit risk or fraud models we use contain programming or other errors or are
ineffective or the data provided by consumers or third parties is incorrect or stale, or if we are unable to
obtain accurate data from consumers or third parties (such as credit reporting agencies), the loan pricing
and approval process through our network could be negatively affected, resulting in mispriced or
misclassified loans or incorrect approvals or denials of loans.
Additionally, if we make errors in the development, validation or implementation of any of the models
or tools used to underwrite loans that we subsequently securitize or sell to investors, those investors may
experience higher delinquencies and losses. We may also be subject to liability to those investors if we
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misrepresented the characteristics of the loans sold because of those errors. Consequently, errors in our
models or tools or an inability to effectively forecast loss rates could inhibit our ability to enter into forward
flow loan sale arrangements or securitization transactions, otherwise sell loans to investors or utilize our
funding arrangements, which could adversely affect our business, results of operations, financial condition
and future prospects.
We may fail to grow our advertising revenue.
We have built advertising solutions based on the relationship we maintain with our consumers and
merchants and the data they entrust to us. While we target additional growth in our advertising revenue
over time as we improve our ability to match consumers and merchants on our network and continue to
grow and scale our advertising revenue model, there is no assurance that such model will continue to be
successful or that we will generate increasing advertising revenue. In addition, the pace of expansion of
our advertising offerings may fluctuate, slow down or stop entirely. To increase our advertising revenue, we
must attract new advertising partners or encourage existing partners to maintain or increase their
advertising spend on our network. To do this, we must further penetrate our existing verticals, channels
and geographies as well as increase the number of verticals, channels and geographies where we offer
digital advertising, attract new merchants and expand our relationships with existing merchants, and
acquire new consumers and increase the engagement of existing ones, all while increasing the breadth
and functionality of our digital advertising products to create more value for our merchants and advertising
partners. This includes new advertising formats, new measurement tools, increased brand awareness and
other capabilities to deliver attractive return on investment to merchants.
Further, expenditures by merchants tend to be cyclical, reflecting overall economic conditions and
budgeting and buying patterns. Adverse macroeconomic conditions have affected in the past, and may in
the future affect, the demand for advertising and cause brands to reduce the amounts they spend on
advertising. For example, during times of economic uncertainty we have observed, and may observe in the
future, reduced demand for advertising from brands that are exercising caution with their spending
budgets and either slowing or reducing their campaigns due to, among other things, macroeconomic
uncertainty, including from inflation, rising interest or unemployment rates, tariffs, taxes and other
restrictions on global trade, global supply chain disruptions, labor shortages, including shortages resulting
from changes in immigration policies or enforcement practices or global migration patterns, geopolitical
events, including the war in Ukraine and the Middle East, and reduced consumer confidence. In addition,
our brand partners’ sales generated from digital marketing campaigns on Klarna may fail to meet their
expectations, which in turn may result in reductions in future brand partner digital marketing spend on our
network and related decreases in our advertising and other revenue in future periods.
Our advertising solutions compete with a number of products offered by various companies active in
the advertising industry, including large and established internet and technology companies, such as
Amazon, or large retail corporations, such as Walmart. With the introduction of new technologies and the
influx of new entrants to the advertising market, we expect competition to persist and intensify in the
future. Some of our existing competitors, in addition to having larger financial or operational resources or
longer operating history in the advertising industry, could also leverage their market position to make
changes to their web browsers, mobile operating systems, platforms, exchanges, networks or other
solutions or services, any of which could make it more difficult for our solutions to effectively compete
with the products offered by such companies.
Changes to our advertising policies and data privacy and cybersecurity practices, as well as our
contractual obligations and applicable laws, legislation or regulations, or the regulatory enforcement
thereof, may adversely affect the advertising solutions that we are able to provide to our merchants. For
example, we have in the past, and may in the future, be subject to regulatory enforcement action due to
breaches of marketing or financial promotions rules. In addition, actions by operating system network
providers or application stores such as Apple or Google may affect our offerings or services, including how
we collect, use, share and otherwise process data from end-user devices in connection with our
advertising offerings. For example, Apple implemented a requirement for applications using iOS, its mobile
KLARNA GROUP PLC17
operating system, to affirmatively (on an opt-in basis) obtain an end user’s permission to track user activity
across apps or websites or access users’ device advertising identifiers for advertising and advertising
measurement purposes, as well as other restrictions. In addition, in February 2022, Google announced its
Privacy Sandbox initiative for Android, a multiyear effort expected to restrict tracking activity and limit
advertisers’ ability to collect app and user data across Android devices, which Google began rolling out in
early 2024.
Our ability to achieve, sustain or increase profitability depends in part on our advertising revenue. If we
are unable or choose not to expand our advertising markets, verticals, channels and geographies, develop
or pursue innovative advertising offerings or expand our relationships with current or new advertising
partners, merchants and consumers, we may not be able to maintain or grow our digital advertising
revenue. Any failure to maintain or grow our advertising revenue could in turn harm our business, results of
operations, financial condition and future prospects.
If loans facilitated through our network do not perform, or significantly underperform, we may incur credit
losses.
Our consumers can use a number of payment methods to purchase products and services through our
network both online and offline. Our Pay Later and Fair Financing payment methods involve extending
consumer credit. As of December 31, 2025, our consumer lending credit exposure amounted to $15.2
billion, with $11.2 billion in consumer receivables and $4.0 billion of consumer loan commitments.
If the loans facilitated through our network do not perform as expected, we may be required to
increase our provisions for credit losses, which would negatively impact our profitability and financial
condition. This risk varies depending on our different lending products. For example, Fair Financing loans
are longer in duration than our other products and have higher take rates but also lead to higher
provisions for credit losses. In addition, our credit losses may also vary depending on the maturity of our
credit underwriting in a given market. For example, in the past we experienced higher credit losses in new
geographies in the first several years following our entry into such geography. As a result, if we decide to
expand into new markets, our credit losses may similarly increase. In addition, there can be no assurance
that our credit loss rates in the geographies in which we currently operate will not increase in the future.
Any significant increase in credit losses or underperformance of our loans could erode the confidence in
the soundness of our underwriting model and our business generally, potentially leading to increased
borrowing costs or reduced access to capital, any of which could have an adverse effect on our business,
results of operations, financial condition and future prospects.
Our collection efforts on loans may be ineffective or unsuccessful.
The financial and operational performance of our loan portfolio depends on our ability to effectively
manage and collect on our loans. In order to manage our credit risk, we seek to limit the concentration of
nonperforming loans and large single exposures in the consumer credit portfolio. This, together with the
dispersion of millions of consumers across multiple countries and continents and low AOV, makes our
consumer loan portfolio diversified.
At the same time, our collection efforts on loans that we have extended may be ineffective or
unsuccessful for a number of reasons, some of which may be beyond our control, including adverse
changes in economic conditions, increased unemployment or inflation levels, interest rates, declines in
property values, changes in consumer behavior, personal developments such as unemployment, change of
marital status, death, illness or personal bankruptcy, and legislative or regulatory interventions that restrict
our collection methods. Such ineffectiveness in collections could lead to higher than anticipated loan
losses and provisions for credit losses, adversely affecting our financial condition and results of
operations.
Moreover, our reputation may suffer if our collection practices are perceived as inadequate or overly
aggressive, potentially leading to increased regulatory scrutiny and legal challenges. The uncertain
economic outlook in many of our geographies, including fluctuations in unemployment or inflation rates,
KLARNA GROUP PLC18
consumer confidence and property values, adds to the challenges in predicting the effectiveness of our
loan collection efforts. A sustained period of economic downturn or a significant market event could
exacerbate the difficulties in collecting loans, leading to increased credit losses. Legislative or regulatory
changes could further limit our flexibility in managing delinquencies and collections, imposing additional
operational and financial burdens on our institution. Any significant underperformance in our collection
activities could materially impact our loan portfolio’s performance, leading to increased provisions for
credit losses, which could adversely affect our business, results of operations, financial condition and
future prospects.
Loans facilitated through our network are not secured, guaranteed, insured or backed by any governmental
authority.
Consumer credit products that we offer are not secured by any collateral, nor are they guaranteed or
insured by any third party nor backed by any governmental authority in any way. Consequently, the
financial risk associated with these loans is higher than compared to some other types of loans that
benefit from some or all of these features, for example, mortgages. If our consumers neglect their payment
obligations on loans facilitated through our network or choose not to repay their outstanding loan
obligations entirely, our business, results of operations, financial condition and future prospects could be
adversely affected.
We may fail to successfully implement, maintain and improve our risk management policies, procedures and
methods.
Our operations and financial stability are significantly affected by a wide array of risks, including, but
not limited to, economic and market conditions, credit risks, operational risks, funding and liquidity risks,
reliance on third parties and exposure to interest rate and currency risks. As a result, the management of
risk is an integral part of our activities. While we employ a broad and diversified set of risk monitoring and
risk mitigation techniques, they may not be fully effective, if at all, in mitigating our risk exposure in all
economic market environments or against all types of risk, including risks that we may fail to properly
identify or timely anticipate. The broader economic and market conditions in the markets we serve play a
significant role in our operations. Factors such as consumer and business confidence, fiscal policies,
unemployment levels, inflation, interest rates, international trade policies and the state of credit markets
directly impact our financial performance. Additionally, geopolitical tensions, such as the war in Ukraine
and conflicts elsewhere in the world, public health crises, such as the COVID-19 pandemic, or changes in
immigration policies or migration patterns may introduce additional uncertainties that can affect the global
economy and, consequently, our operations.
Credit risk, including the potential for consumer default and associated credit losses, poses one of the
most significant threats to our financial stability. Our reliance on a complex, ML-powered underwriting
process carries the risk of inaccuracies in predicting future impairments and credit losses, especially in
our less mature markets. Operational risks related to our IT systems, data privacy and cybersecurity, and
the dependency on key personnel, are inherent in our business model. The digital nature of financial
services and our reliance on sophisticated technology infrastructure expose us to tracking and system
failures, data breaches and other cybersecurity incidents. Our ability to fund operations and meet
obligations as they fall due is critical to our liquidity and overall financial health. Risks associated with
funding, access to capital markets, cost of funding and statutory liquidity requirements can materially
affect our financial position. Our reliance on third parties for critical business systems and consumer
services introduces operational risk. Failures by these partners to perform in accordance with our policies,
terms of service, other procedures and standards, compliance failures or various types of fraud could
disrupt our operations, damage our reputation and result in regulatory penalties. Moreover, our exposure
to interest rate and currency risks arises from mismatches in the interest rates of our assets and liabilities
and our operations in various currencies, which could significantly impact our financial position.
The effective management of these various risks across our global operations and various products,
services and solutions is critical to our continued growth and long-term success. Failure to adequately
KLARNA GROUP PLC19
implement, maintain and improve our risk management policies and procedures, including our credit risk
management system, could adversely affect our business, results of operations, financial condition and
future prospects.
Our results depend on prominent presentation, integration and support of our network by our merchants.
We are dependent on the depth of integration, presentation and active support of our network by our
merchants. Our network is designed to be embedded into the online and physical retail environments of
our merchants. Our contractual arrangements with merchants specify the nature and scope of
presentation of our network at the merchant’s online or offline locations, including at checkout.
Consequently, our success depends on our ability to both negotiate and enter into agreements with our
merchants providing for prominent presentation, integration and support of our network, in particular as
compared to other available payment methods accepted by such merchants, as well as to successfully
monitor and ensure compliance with such arrangements with our merchants. Our inability to negotiate and
enter into satisfactory agreements providing for such presentation, integration and support of our network,
or any failure by our merchants to effectively present, integrate and support our network in compliance
with their contractual obligations with us, could adversely affect our business, results of operations,
financial condition and future prospects.
If our merchants fail to fulfill their obligations to consumers or comply with applicable laws and regulations,
we may incur additional costs.
Our business model is intricately linked with the performance of our merchants and their success at
growing, retaining and monetizing their customer bases through our network. Our success and reputation
are similarly dependent on our merchants’ ability to fulfill their obligations to consumers, including the
timely delivery of goods and services, the quality of these goods and services and compliance with
applicable consumer agreements, terms of use, policies and consumer protection and other laws and
regulations.
Failure of our merchants to fulfill their obligations to consumers, including as a result of any financial
distress, bankruptcy, reorganization, receivership or similar proceedings, or their failure to comply with
applicable laws and regulations, could lead to consumer dissatisfaction, disputes and chargebacks. Under
our Buyers Protection Policy, we offer refunds to our consumers in a wide range of situations, including
when the goods they purchased using our network were never received or were damaged,
misrepresented, counterfeit or otherwise deficient. In addition, consumers may bring claims and defenses
against us directly or our originating bank partners under the Holder Rule or equivalent state laws. The
Holder Rule requires the inclusion of a specific notice in consumer credit contracts evidencing debts
arising from purchase money loan transactions. The notice provides that the holder of the consumer
credit contract is subject to all claims and defenses which the debtor could assert against the seller of
goods or services obtained with the proceeds of the consumer credit contract. In those cases, we may
decide that it is beneficial to remediate the situation, either through assisting the consumers to get a
refund, working with our originating bank partner to modify the terms of the loan or reducing the amount
due, making a payment to the consumer, or otherwise. In addition, consumers can bring private false-
advertising lawsuits, including class actions, against us, our merchants or advertising partners for any
material misrepresentations and/or deceptive or unsubstantiated claims (among other similar causes of
action) in promotional materials or other advertising presented on our network. Such events could result in
increased operational costs for us, including costs associated with handling disputes, issuing refunds and
managing chargebacks. Moreover, non-compliance with applicable laws and regulations by our merchants
could lead to regulatory investigations, sanctions and reputational damage, affecting our brand and
reputation and potentially leading to a loss of consumer trust and merchants.
We continually monitor our merchants to ensure compliance with their obligations to consumers and
applicable laws and regulations. However, despite such efforts, there can be no assurance that all our
merchants fulfill their obligations or remain compliant with all relevant laws and regulations. The failure of
KLARNA GROUP PLC20
a significant number of our merchants to meet their obligations or comply with laws could materially and
adversely affect our business, results of operations, financial condition and future prospects.
We rely on third parties and their systems for a variety of services, and these third parties’ failure to perform
these services adequately could materially and adversely affect our business.
We utilize numerous third-party service providers in our operations, including card networks, banks,
PSPs, affiliate networks, credit bureaus, advertising partners, back-office and business process support, IT
production and support, internet connections, network access and cloud computing. For example, we use
Amazon Web Services (“AWS”) as our primary third-party cloud infrastructure provider. We also partner
with Visa in issuing the Klarna card in select markets, with WebBank in offering our Fair Financing and
Klarna balance products in the United States, with Stripe in offering our payment methods across all of
Stripe’s merchants globally, and with WooCommerce in offering our payment methods across all
merchants on the WooCommerce platform. A failure by a third-party service provider could prevent us
from providing contractual services to our consumers and merchants in a timely manner. Additionally, if a
third-party service provider is unable to provide certain services, we may incur significant costs to either
internalize some or all of such services or to find a suitable alternative. Importantly, certain third-party
service providers, including Visa and AWS, are the sole source or one of a limited number of sources of the
services they provide for us. It could be difficult and disruptive for us to replace certain third-party
vendors in a timely manner if they became unwilling or unable to provide us with these services in the
future (as a result of their financial or business conditions or otherwise), and our business, results of
operations, financial condition and future prospects could be adversely affected.
The inability of our counterparties to meet their financial obligations or our inability to fully enforce our rights
against our counterparties could adversely affect our results.
In our business operations, we engage with a variety of counterparties, including financial institutions,
such as our bank partners, including originating bank partners, merchants and PSPs that are integral to the
seamless operation of our network. The financial health and operational reliability of these entities are
critical to us since their failure to meet their financial obligations towards us or our customers could lead
to financial losses. In particular, financial institutions and other participants in the payments ecosystem
are closely interrelated as a result of credit, trading, clearing, technology and other relationships.
Consequently, any significant adverse development (such as adverse regulatory changes or proceedings,
insolvency, bankruptcy or default) with respect to one of our counterparties may negatively affect other
participants in the market, including us and our other counterparties, thereby increasing the likelihood and
volume of our potential financial losses. Furthermore, our ability to enforce rights against these
counterparties in cases of noncompliance or disputes is influenced by legal and regulatory frameworks.
These frameworks vary across jurisdictions and are subject to change, making our recovery prospects
uncertain. The process of enforcing our contractual rights against our counterparties can be both time-
consuming and costly, and there is no guarantee of a favorable outcome. It may also attract public and
regulatory scrutiny, potentially affecting our reputation. Economic downturns, including as a result of rising
interest or unemployment rates, market volatility, including as a result of changes in international trade
agreements, practices or policies, geopolitical tensions and regulatory changes within the financial sector
heighten the risk of counterparty failures. These conditions can affect the creditworthiness and liquidity of
our counterparties, thereby increasing the likelihood of our financial losses.
To support our network and operations, we partner with banks in different geographies. Our arrangements
with them may be terminated and we may be unable to replace the commitments of our partner banks.
To support our network and operations, including offering certain products and solutions in some
jurisdictions, we have arrangements in place with partner banks in different geographies. Such
arrangements are generally for two primary reasons: to expand our credit offerings into jurisdictions in
which we currently do not have necessary Authorizations and to support our deposit-taking activities. For
example, we partner with WebBank to offer our Fair Financing products in the United States. Under our
agreement with WebBank, WebBank originates such consumer loans, which we then purchase and service.
KLARNA GROUP PLC21
We pay WebBank a volume-based and fixed fee under our agreement. In Germany, we have outsourced
administration of a portion of our retail deposits to a local partner bank for a volume-based fee. In Sweden,
we had an agreement with Avanza Bank Holding AB (“Avanza”), through which we raised retail deposits via
their platform until January 2025 and paid Avanza a fee based on the volume of the deposits raised. In
January 2025, we ceased collecting new deposits through Avanza as part of our decision to prioritize
raising deposits directly through our platform.
Our agreements with partner banks are generally renegotiated every three years. However, they may
be terminated early or not be renewed on terms favorable to us or at all. Our agreements with partner
banks do not prohibit them from working with our competitors, and they could decide to enter into an
exclusive or more favorable relationship with one or more of our competitors. They could also offer
solutions competing with ours. For example, WebBank currently offers loan programs through other
competing networks. In addition, our partner banks may not perform as expected under our agreements.
We could in the future have disagreements or disputes with our partner banks, which could negatively
impact or threaten our relationship with such banks or other banks with whom we may seek to partner.
Our partner banks are subject to oversight and supervision by regulatory bodies in various jurisdictions
and must comply with applicable rules and regulations and examination requirements. Certain of our
partner banks have in the past been, and may in the future be, subject to adverse regulatory orders. While
such orders were unrelated to, and had no impact on, our relationship with such banks, including any
consumer credit products originated through our network, any future adverse orders or regulatory
enforcement actions, even if unrelated to Klarna, could impose restrictions on, or prohibit or otherwise
make it infeasible for our partner banks to continue to support, our network and operations.
If our existing arrangements with partner banks were limited, suspended or terminated, if any of our
partner banks ceased operations, or if our relationship with them were to otherwise terminate for any
reason (including, but not limited to, due to its failure to comply with regulatory orders or other actions), we
would need to implement a substantially similar arrangement with another bank, obtain additional licenses
or limit our operations. If we need to enter into alternative arrangements with a different bank to replace
our existing arrangements, we may not be able to negotiate a comparable alternative arrangement in a
timely manner or at all. For example, if we are unable to enter into an alternative arrangement with
different banks to replace or supplement our existing relationship with WebBank, we would potentially
need to obtain additional state licenses to enable us to offer our Fair Financing products, as well as comply
with other state and federal laws, which could be costly and time-consuming. There can be no assurances
that any such licenses could be obtained in a timely manner or at all. In the event that our existing
relationships with our partner banks were terminated and we were not able to replace them with another
partner bank in a timely manner, on comparable or more favorable terms, or at all, our business, results of
operations, financial condition and future prospects could be adversely affected.
Our results may fluctuate significantly, due to, among others, strong seasonality trends, strategic
transactions and other corporate actions, and may not fully reflect the underlying performance of our business.
Our financial performance may fluctuate from period to period due to a number of factors, including
seasonality trends. For example, our results of operations are subject to variability based on seasonal
shopping patterns, exemplified by increased GMV and related revenue during holiday seasons, such as
Black Friday in late November and Christmas in late December, followed by periods of reduced activity.
Similarly, many advertisers devote a disproportionate amount of their advertising budgets to the fourth
quarter of the calendar year to coincide with such increased holiday purchasing, which may lead to
seasonal increases in our advertising revenue. In addition, other seasonal trends may develop, existing
seasonal trends may become more extreme and the existing seasonality and consumer and merchant
behavior that we experience may change or become more significant, which would contribute to
fluctuations in our results of operations. Our financial performance may also vary, or appear to vary, as a
result of strategic transactions and other corporate actions. For example, on October 1, 2024, we
completed the divestment of KCO, our online checkout solution, to a consortium of investors. As a result of
this disposition, our revenue and growth figures for the year ended December 31, 2025, or any period
KLARNA GROUP PLC22
thereof, may appear lower on a comparative basis as a result of this disposition. Accordingly, our results
may fluctuate significantly and our results in any given fiscal period may not fully reflect the underlying
performance of our business or be indicative of the results we may achieve in any other fiscal period.
Changes in market and general economic conditions could adversely affect the financial performance of our
merchants and decrease the demand for our solutions, products and services.
The performance of our business is significantly influenced by general economic conditions in the
geographies where we operate. A downturn in the general economic environment or a slower pace of
economic growth, including as a result of changes in international trade policies, multilateral trade
agreements or imposition of new tariffs, taxes and other restrictions on global trade, or changes to
immigration policies or migration patterns, can lead to decreased consumer spending and adversely affect
the financial condition of our merchants. Factors such as changes in consumer trends, levels of
consumption, demographic patterns, consumer preferences and financial conditions all reflect the
broader macroeconomic climate in our geographies. Since our network relies heavily on consumer
engagement and transactions and the willingness of merchants to offer consumers the option to use our
financing products to pay for their products and services, any decrease in consumer confidence,
willingness to spend or a general deterioration in the macroeconomic environment could lead to a decline
in demand for our solutions, products and services. This could, in turn, negatively impact our business,
results of operations, financial condition and future prospects.
Further, high levels of unemployment, inflation and changes in interest rates in our markets could
reduce consumers’ disposable income and willingness to spend, affecting the utilization of our network.
Such economic factors could also influence the ability and willingness of consumers to repay their loans
provided by us, potentially leading to higher credit losses and adversely affecting our financial condition
and results of operations.
Our ability to generate revenue, in particular merchant and advertising revenue, depends on sales of
products and services by our merchants utilizing our network. Our merchants’ sales may decrease or fail
to increase as a result of factors outside of their or our control, such as the macroeconomic conditions
referenced above, or business conditions affecting a particular merchant, industry, vertical or geography.
Our merchants may face sharp and rapid decreases in their sales, including because of changes to
international trade policies, supply chain disruption, including inventory shortages, and other adverse
effects of macroeconomic conditions, which may force them to limit, suspend or terminate their use of our
network. We may not be successful in attracting new merchants to offset any such losses, particularly
amid adverse macroeconomic conditions, which could negatively impact our business, results of
operations, financial condition and future prospects.
Any acquisition, partnership, joint venture, disposition or other strategic transaction that we make or enter
into could disrupt and harm our business.
We have in the past engaged, and may in the future engage, in acquisitions, partnerships, joint
ventures, dispositions or other strategic transactions for various reasons, including in an effort to enhance
our network’s technological capabilities, expand our product and service offerings, enter new geographies
or simplify or optimize our operations. These strategic moves introduce significant risks, each of which
could adversely impact our business, results of operations, financial condition and future prospects. For
example, the process of integrating acquired companies and technologies or entering into partnerships
requires substantial financial investment and management attention, diverting resources from our existing
operations as well as other growth opportunities and strategic initiatives. Such endeavors may prove more
challenging and costly than anticipated, potentially leading to inefficiencies and disruptions. Moreover, we
may be unable to realize the expected benefits, synergies or developments that we initially anticipate from
such a strategic transaction for a number of potential reasons. Integration of new systems and business
processes may also expose us to potential data breaches and other cybersecurity incidents. Failure to
maintain data integrity and security during and after the integration could damage our brand and
reputation, erode consumer trust and result in significant financial liabilities. Additionally, combining
KLARNA GROUP PLC23
different corporate cultures and aligning management practices pose challenges that can impact
employee retention and undermine the anticipated synergies of such strategic moves. Moreover, these
strategic initiatives can significantly affect our liquidity and capital structure due to the substantial upfront
costs and possible assumption of debt. In connection with any such transaction, we may issue additional
equity securities that would dilute our shareholders, use cash that we may need in the future to operate
our business, incur debt on terms unfavorable to us or otherwise incur large charges or substantial
liabilities. In addition, we may also experience financial impairments related to goodwill and acquired
intangible assets or become subject to adverse tax consequences, substantial depreciation or deferred
compensation charges.
Furthermore, we may be unable to complete a proposed transaction if we or our shareholders are
unable to obtain required regulatory approvals in the various jurisdictions in which we or a potential
acquisition target or acquirer operate. Even if we and our shareholders (where applicable) are able to
obtain a required regulatory approval, such approval could be subject to various conditions, which could
prevent us from competing for certain customers or in certain lines of business. In addition, we may face
contingent liabilities in connection with our acquisitions and joint ventures, including, among others,
judicial or administrative proceedings or contingencies relating to the company, asset or business
acquired, including civil, regulatory, tax, labor, social security, environmental and intellectual property
proceedings or contingencies, and financial, reputational and technical issues, including with respect to
accounting practices, financial statement disclosures and internal controls, as well as other litigation or
regulatory or compliance matters, all of which we may not have identified as part of our due diligence
process and that may not be sufficiently indemnifiable under the relevant acquisition or joint venture
agreement. Finally, we have made in the past, and may in the future make, minority investments in other
companies, mostly in start-up companies or companies in their early stages of development. Such
investments entail inherently greater risks than investments in more established businesses and may
prove to be unsuccessful or not yield anticipated returns or any returns at all. If such investments are not
successful, we may be required to write down all or a portion of our equity investments in such companies,
which would result in financial losses.
Our success in these ventures may also rely on the performance and cooperation of third parties,
whose interests may not always align with ours. Disagreements or performance issues can adversely affect
the acquisition, joint venture, partnership or disposition outcomes. Given these considerations, there is no
guarantee that any future acquisition, partnership, joint venture, disposition or similar strategic transaction
will yield the expected benefits or enhance our competitive position. Failure to manage these risks
effectively could negatively impact our business, results of operations, financial condition and future
prospects.
Our expansion efforts may not be successful or may subject us to increased risks.
We have in the past expanded, and may in the future expand, our network by entering into new
geographies. We may also expand our operations in the jurisdictions in which we currently operate by
offering additional products and services. We may not be successful in our expansion efforts and our
products and services may not experience the same market adoption in such jurisdictions as we have
enjoyed in Sweden and our other more mature markets. Our expansion efforts could also materially alter
our product, merchant and market geographical mix, which, in turn, could impact our operating results,
including because of structural differences in each market, including regulatory environment, consumer
spending behaviors, take rates, consumer credit profiles, the maturity of our credit underwriting process
and varying processing costs.
Entering into new markets and geographies, or expanding our offerings in existing markets, increases
our exposure to regulatory and compliance risks, potentially requiring further investments or expenditures
to ensure compliance with applicable legal and regulatory requirements and standards, which could
increase our operational costs and negatively affect our operations. In particular, any new geographies
that we may enter in the future may have a distinct regulatory regime, including with respect to lending,
licensing, digital advertising, consumer protection, data privacy and AML/CFT. While we have established
KLARNA GROUP PLC24
policies and processes to ensure that our planned operations in new geographies, or introduction of
additional products and services in our existing ones, comply with applicable legal and regulatory
requirements, including by consulting with external legal counsel and with local authorities when
warranted, any failure or delay to comply with such laws and regulations can lead to penalties, suspension
of operations, legal challenges, regulatory scrutiny and reputational damage.
International expansion also brings additional distinct operational complexities. Efficiently managing
operations across various time zones, regulatory regimes, languages and cultural norms requires
significant investments in technology, human capital and building strong local partnerships. In addition, the
financial services industry in many geographies is characterized by intense competition from both local
players deeply entrenched in their markets and other global entities seeking to expand their presence into
such markets. Local competitors often possess a nuanced understanding of local consumer behavior,
regulatory requirements and market dynamics, potentially limiting our ability to capture or expand our
market share in such geographies. Failure to effectively navigate these complexities could obstruct our
expansion efforts and long-term success and adversely affect our business, results of operations, financial
condition and future prospects.
Interest rate volatility and other interest rate changes, or discontinuation of interest rate benchmarks, may
adversely affect us.
We are subject to risks associated with fluctuations in market interest rates, yield curves and spreads.
Any changes in prevailing interest rates may lead to mismatches in the pricing of our variable rate assets
and liabilities, in particular consumer deposits. At the same time, in order to remain competitive, we need
to offer attractive interest rates on our deposits and, to a lesser extent, on our financing products
reflective of the broader market. This is particularly important in geographies where consumers are
offered multiple alternatives to our deposits and payment options. Any such changes in the interest rates
that we offer may adversely affect our financial condition and results of operations. For example, we
generated interest income of $937 million, $675 million and $508 million in 2025, 2024 and 2023,
respectively, while incurring interest expense of $453 million, $421 million and $268 million, respectively,
mostly due to the increase in the European Central Bank’s deposit rate over that period.
Any increase in market interest rates may also increase the cost of our other funding sources,
including any variable rate debt securities that are currently outstanding or that we may issue in the future.
Increased interest rates may also adversely impact the spending levels of consumers and their ability and
willingness to borrow money, any of which could impact our consumers’ willingness and ability to use our
network and utilize our solutions, products and services. Higher interest rates often lead to higher
payment obligations, which may reduce the ability of consumers to remain current on their obligations
and, therefore, lead to increased delinquencies, defaults, consumer bankruptcies and charge-offs, and
decreasing recoveries, any of which could have an adverse effect on our business.
We have implemented and maintain an interest rate hedging program designed to reduce our
exposure to changes in prevailing interest rates. However, there can be no assurance that the program will
be successful in eliminating all or some interest rate risks discussed above. If we fail to effectively manage
this risk amidst competitive pressures and changing economic conditions, our business, results of
operations, financial condition and future prospects could be adversely affected.
In addition, borrowings under certain of our funding arrangements, including under medium-term note
programs, bear an interest rate calculated by reference to certain benchmarks, including the Stockholm
Interbank Offered Rate (“STIBOR”) and the Secured Overnight Financing Rate (“SOFR”). The
discontinuation, reform or replacement of STIBOR, SOFR or any other benchmark that we may use in our
funding arrangements could result in interest rate increases on our funding arrangements, which could
adversely affect our cash flows and operating results.
KLARNA GROUP PLC25
We are exposed to exchange rate fluctuations in the international markets in which we operate.
We operate in multiple international markets, including in Europe, North America and Australia, and
conduct and process transactions in various currencies such as SEK, EUR, USD, GBP, NOK and DKK. As a
result, we are subject to exchange rate fluctuations that can impact our financial performance and
position.
First, our revenues generated in foreign currencies need to be converted to the U.S. dollar, our
presentation currency. Significant fluctuations in exchange rates can result in substantial variations in the
U.S. dollar value of these revenues, even if the actual value in the original currency remains unchanged.
This introduces volatility into our financial results and may lead to increased fluctuations in our reported
financial performance. Second, our operating expenses, which are incurred in various currencies, may not
always be perfectly matched with our revenues in those currencies. This misalignment can lead to
exchange rate risk, where a depreciation of the revenue currency relative to the expense currency could
negatively impact our profitability. Furthermore, our financial assets and liabilities denominated in foreign
currencies are subject to revaluation, which can affect our balance sheet. For instance, monetary assets
and liabilities in foreign currencies are translated into U.S. dollars at the exchange rate at the end of the
reporting period. Any significant changes in exchange rates can thus impact our net financial position. Our
exposure to exchange rate fluctuations also arises from our lending operations in foreign currencies,
which have been increasing as we expand our global presence. This expansion accentuates our currency
risk, as we generate revenues and incur costs in an increasing number of currencies.
To manage these risks, we have in the past utilized, and may in the future utilize, financial derivatives
or currency hedging transactions. However, such measures may not fully, if at all, mitigate the impact of
exchange rate fluctuations and may introduce additional costs or counterparty risks. Furthermore, market
conditions or regulatory restrictions in certain jurisdictions may limit our ability to effectively hedge our
currency exposures, thereby increasing the potential impact of exchange rate volatility on our financial
performance.
We may fail to accurately detect and prevent fraud.
We are subject to the risk of fraudulent activity relating to the use of our network and our relationships
with customers, bank partners, PSPs and other third parties handling consumer information. Our network
is available in multiple markets and processes a large number of transactions involving millions of
customers every day. To support the operation of our network, we have built an underwriting process that
utilizes ML-based credit models to make credit decisions in a matter of seconds. The highly automated
nature of our network as well as the speed at which transactions facilitated through it take place and the
volume of such transactions make our network an attractive target for illegal or improper uses, including
fraudulent transactions involving identity theft, stolen or fabricated credit card or account numbers, or
other deceptive or malicious practices, all of which are becoming increasingly sophisticated. We have in
the past incurred, and may in the future incur, losses from various types of fraud. Our resources,
technologies and fraud prevention tools may be insufficient to accurately detect and prevent some or all
instances of fraud. We are obligated to repurchase the loans facilitated through our network in certain
cases, including in the case of identity theft. The level of fraud-related charge-offs on the loans facilitated
through our network could be adversely affected if fraudulent activity were to significantly increase.
We bear the risk of consumer fraud in a transaction involving us, a consumer and a merchant, and we
generally have no recourse to the merchant to collect the amount owed by the consumer. In addition, if a
transaction is made from a customer’s account at Klarna Bank as a result of fraudulent activity, Klarna
Bank may be obligated to reimburse the customer for any loss of funds. Significant amounts of fraudulent
transactions, cancellations or chargebacks could adversely affect our business or financial condition. We
are also exposed to potential merchant fraud, including resulting from sales of counterfeited, damaged or
otherwise deficient goods and services through our network. High-profile fraudulent activity or significant
increases in fraudulent activity could also lead to regulatory proceedings or investigations, negative
publicity and the erosion of trust from our consumers and merchants, and could materially and adversely
KLARNA GROUP PLC26
affect our business, results of operations, financial condition and future prospects. Although we have
implemented measures to detect and reduce the occurrence of fraudulent activities, including as part of
our underwriting model and our merchant onboarding procedures, prevent bad customer experiences and
increase customer satisfaction, there can be no assurance that these measures will be effective. Any
additional measures to address fraud that we may implement in the future may prove ineffective or could
negatively affect the attractiveness of our network to consumers, harming our ability to attract new
customers or continue to engage current customers, cause reputational damage or decrease our brand
value or customer trust.
Our business relies on the proper functioning of IT systems and networks, particularly at scale. Any failure of
these systems or networks, including actual or perceived software errors, failures, bugs, defects or outages,
could disrupt our business and impair our ability to effectively provide our services and products to consumers
and merchants.
Our success, continuous growth and operational efficiency depend on the reliability, security and
performance of our IT systems and networks. These systems and networks are necessary for us to
process a large number of complex payment transactions across different geographies and products in a
timely and efficient manner while maintaining high processing speeds, accurately evaluating credit risks
and applying our underwriting standards, implementing protective measures against fraud and delivering
high-quality customer service.
Our business model, which integrates complex AI-powered algorithms for real-time decision-making
and relies on the secure handling of large amounts of data, makes us susceptible to risks associated with
technological failures. Such failures could stem from internal software errors or bugs, natural
catastrophes, conversion errors due to system upgrades, data breaches or other cybersecurity incidents,
intentional bad acts, loss or corruption of data, hardware malfunctions, or external threats, including
sophisticated cyberattacks aimed at disrupting operations or cybersecurity, as well as the failure of
systems or networks of third parties upon which we rely for certain technology solutions and services,
such as credit and debit card transaction authorization providers, national financial system network
infrastructure providers, customer relationship management services, back-office and business process
support, IT production and support, internet and telephone connections providers, network access
providers, data center infrastructure services and cloud storage and computing services.
In addition, we source certain information from third parties. For example, our ML-powered
underwriting process incorporates certain information from third parties, including credit bureaus and
consumer reporting agencies. In the event that any third party from which we source information
experiences a service disruption, whether as a result of maintenance, natural disasters, terrorism or
security breaches, whether accidental or willful, or other factors, the ability to evaluate loan applications
through our network may be adversely impacted.
Any failure, attempted or successful data breach or other cybersecurity incident or significant
disruption in our IT infrastructure, or those of our third-party service providers, could lead to transaction
delays, compromised cybersecurity, inability to access critical services, and a failure to comply with the
applicable laws, regulations and standards governing financial transactions and cybersecurity. The
consequences of such disruptions could be severe, resulting in financial losses, loss of consumer trust,
regulatory fines, monetary damages or other penalties or fines, including revocation or suspension of
regulatory licenses or other Authorizations, as well as a tarnished reputation among customers, partners
and other third parties, any of which could adversely affect our business, results of operations, financial
condition and future prospects.
KLARNA GROUP PLC27
We depend on cloud computing networks, data centers operated by third parties and third-party internet
hosting providers. Any disruption to the operation of these facilities or networks or access to the internet would
adversely affect our network.
Our operations depend significantly on cloud computing networks, third-party data center hosting
facilities and third-party internet hosting providers. These networks and external facilities are crucial for
storing, managing and processing the large amounts of data essential for our operations, covering
customer transactions, data analytics and the delivery of our products and services, including our
advertising solutions, via continuous and uninterrupted access to the internet. The satisfactory
performance, reliability and availability of our technology and our underlying network and infrastructure
are critical to our operations and reputation and the ability of our network to attract new and retain
existing merchants and consumers.
Disruptions in the services provided by these third parties could arise from various causes, including
physical damage caused by natural disasters, data breaches and other cybersecurity incidents, viruses,
human or software errors, fraud, spikes in customer usage or operational failures. Such disruptions might
impede our ability to process transactions, manage data or conduct our business operations effectively
and without delays or interruptions. If our arrangement with a vendor is terminated, including because of
service disruptions, or if there is a lapse of service or damage to its systems or facilities, we could
experience interruptions in our ability to operate our network. We also may experience increased costs
and difficulties in replacing that vendor and replacement services may not be available on commercially
reasonable terms, on a timely basis or at all.
Our third-party cloud computing networks, data center hosting facilities and internet hosting providers
are ultimately responsible for maintaining their own network security and disaster recovery and system
management procedures, and such third parties do not guarantee that our customers’ access to our
solutions will be uninterrupted, error-free or secure. In particular, we do not control the operation of third-
party data center hosting facilities, and such facilities are vulnerable to damage or interruption from
human error, intentional bad acts, power loss, hardware failures, telecommunications failures, improper
operation, unauthorized entry, data loss, power loss, data breaches and other cybersecurity incidents,
fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes and natural disasters or similar
catastrophic events. Cloud computing is particularly dependent upon reliable access to electricity and an
internet connection in order to retrieve data. If a natural disaster, blackout or other unforeseen event were
to occur that disrupted the electrical grid or the ability to obtain an internet connection, we may
experience a slowdown, delay or other disruption in our operations. While we have business continuity and
disaster recovery plans in place, such preparations may be inadequate and may not effectively allow us to
continue operating in the event of any problems with respect to our systems and networks or those of our
third-party facilities. Further, our disaster recovery plan has not been tested under actual disaster
conditions, and we may not have sufficient capacity to recover all data and services in the event of an
outage. Additionally, the various insurance coverages that we maintain may not be sufficient to cover all
potential losses. Such an event could cause our operations to be impaired and our business, financial
condition and results of operations to be materially and adversely affected.
Furthermore, our reliance on third-party services exposes us to the risks associated with changes in
regulatory frameworks affecting the internet and cloud services, both regionally and globally. In addition,
the use of certain third-party services is subject to regulatory outsourcing rules. Any failure to comply with
such rules could result in legal sanctions, including financial penalties or revocation or suspension of
regulatory licenses or other authorizations. It could also damage our reputation, lead to a loss of consumer
trust and impact our relationships with key business partners. Regulatory changes could impose new
limitations on these services, affecting our operational capabilities. To the extent we use or are dependent
on any particular third-party data, technology or software, we may also be harmed if such data, technology
or software becomes non-compliant with existing regulations or industry standards, becomes subject to
third-party claims of intellectual property infringement, misappropriation or other violation, or
malfunctions or functions in a way we did not anticipate. Additionally, significant interruptions to the global
internet infrastructure, though beyond our direct control, could severely impact our service delivery.
KLARNA GROUP PLC28
Despite our efforts to mitigate these risks through various strategies and internal processes, we cannot
assure you that we will be successful in eliminating or adequately addressing all or any of such disruptions.
Any such failure may adversely affect our business, results of operations, financial condition and future
prospects.
Our use of email and other messaging services may be subject to restrictions or we may fail to timely deliver
such communications.
Our business is dependent upon email and other messaging services, such as SMS, “push”
communications and mobile notifications, for communicating to our customers. If we are unable to
successfully deliver emails or other messages to our customers, or if customers decline to open our emails
or other messages, our business may be negatively impacted. Changes in how webmail applications
organize and prioritize email may reduce the number of actual and potential customers opening our emails
and, as a result, using our network, solutions or products. For instance, Google’s Gmail service offers a
feature that organizes incoming emails into categories such as “Primary,” “Social” and “Promotions.” Such
categorization or similar inbox organizational features may result in our emails being delivered in a less
prominent location in our consumer’s inbox or viewed as “spam” by them, and may reduce the likelihood of
that customer opening our emails. In addition, actions by third parties to block, impose restrictions on or
charge for the delivery of emails or other messages could adversely impact our business. From time to
time, internet service providers or other third parties may block bulk email transmissions or otherwise
experience technical difficulties that result in our inability to successfully deliver emails or other messages
to third parties. Changes in the laws, rules or regulations that limit our ability to send such communications
or impose additional requirements upon us in connection with sending such communications could
materially adversely impact our business. Our use of email and other messaging services to send
communications about our sites or other matters may also result in legal claims against us, which may
cause us increased expenses and, if successful, might result in substantial fines and orders with costly
reporting and compliance obligations or might limit or prohibit our ability to send emails or other messages.
We may fail to integrate our solutions, products and services with a variety of operating systems, software
applications, networks and hardware that are developed by third parties. As a result, our solutions, products and
services may not operate effectively or become less marketable, less competitive or obsolete.
Our ability to attract customers and merchants to our network heavily relies on our capacity to
seamlessly integrate our solutions, products and services with a broad array of operating systems,
software applications, networks and hardware developed and maintained by third parties. As a result, we
must continuously modify and enhance our offerings to adapt to changes in hardware, software,
networking, browser, blockchains and database technologies. Failure to maintain continuous and effective
integration with such technologies can adversely affect our business, results of operations, financial
condition and future prospects.
Changes to our network and technology made in response to updates in existing or development of
new third-party operating systems, software applications, networks and hardware may be costly, time-
consuming and ultimately unsuccessful. Any operational disruptions resulting from such changes could
adversely affect the quality and functionality of our network and solutions, products and services offered
through it, negatively impacting consumer and merchant experience. This could render our network less
competitive or even obsolete in certain circumstances, particularly in comparison to those of our
competitors who successfully achieve broader or more effective integration of their solutions, products
and services with new technologies.
Furthermore, we have developed our technology network to easily integrate with third-party
applications through the interaction of APIs. In general, we rely on providers of such software systems to
allow us to access their APIs to enable such integrations. To date, we generally have not relied on long-
term written contracts to govern our relationships with these providers. Instead, we are subject to the
standard terms and conditions for consumers of services of such providers, which govern the distribution,
operation and fees of such software systems, and which are subject to change by such providers from
KLARNA GROUP PLC29
time to time. Our business could be harmed if any provider of such software or other technologies or
systems discontinues or limits our access to their APIs, modifies its terms of service or other related
policies, including fees, establishes more favorable or exclusive relationships with one or more of our
competitors, or develops competitive offerings to our solutions, products and services.
Although we actively monitor our providers of software or other technologies, we cannot prevent such
providers from changing the features of their APIs, discontinuing their support of such APIs, restricting our
access to their APIs or altering the terms governing their use in a manner that is adverse to our business. If
our providers were to take such actions, our capabilities that depend on such APIs would be impaired until
we are able to find a replacement provider or develop an in-house solution, which could significantly
diminish the value of our network and harm our business, results of operations, financial condition and
future prospects.
The loss of the services of our Co-Founder and Chief Executive Officer could materially and adversely affect
our business, results of operations, financial condition and future prospects.
Sebastian Siemiatkowski, our Co-Founder and Chief Executive Officer, has been the driving force
behind our success since Klarna’s inception. The unexpected loss of Sebastian could severely disrupt our
operations and significantly impact our ability to continue executing our business strategy with the same
level of effectiveness. We believe that his unique blend of entrepreneurial insight, deep understanding of
the financial technology landscape and ability to forge critical industry relationships is unparalleled.
Finding a successor with a comparable vision and capability to maintain the momentum and direction
Sebastian has established for us would present a substantial challenge. Furthermore, Sebastian’s
departure could lead to instability within Klarna, potentially affecting the morale and productivity of our
team, which has been crucial in our rapid growth and innovation. The potential uncertainty surrounding
such a leadership transition could also undermine confidence among our customers, partners and
investors as well as other stakeholders who are integral to our continued success and expansion. In the
highly competitive financial services industry, any perceived weakening of our leadership could be
exploited by our competitors. This could lead to a loss of market share and have a negative impact on our
financial performance. Given Sebastian’s instrumental role in shaping our strategic direction, fostering our
innovative culture and securing our position as a leader in the financial technology space, his loss could
materially and adversely affect our business, results of operations, financial condition and future
prospects.
We may be adversely affected by negative publicity about us, including our current or former directors,
executive officers or major shareholders, or our industry.
Negative publicity about us, including adverse publicity involving our current or former directors,
executive officers, employees or major shareholders, or negative perceptions of our industry, poses a
significant risk to our reputation and brand. This risk is particularly acute in the financial services industry,
where trust and consumer confidence are critical for maintaining and growing our consumer and merchant
base and partner relationships.
Sources of negative publicity for us could include, but are not limited to:
•the transparency, fairness, user experience, quality and reliability of our network or similar
networks in general;
•our ability to effectively manage and resolve complaints;
•effectiveness of our risk model;
•our capital adequacy, liquidity and general financial position and solvency;
•the impact, actual or perceived, of our financing products on our consumers’ credit score;
KLARNA GROUP PLC30
•our ability to effectively screen our merchants and monitor their compliance with our ethical
merchant guidelines;
•our data privacy and cybersecurity practices;
•any litigation, investigations, regulatory or other proceedings or enforcement actions, examinations
or inquiries into us, our competitors, partners or our industry in general;
•any misconduct, or allegations thereof, by our current or former directors, executive officers or
employees, funding sources, originating bank partners, service providers or others in our industry;
•any threatened, alleged or ongoing disputes or disagreements between us and our shareholders or
among our shareholders, including any related litigation or similar proceedings;
•our business practices, mission, environmental, social and governance (“ESG”), sustainability and
ethical goals, policies and standards and their perceived adequacy by our customers and other
stakeholders; and
•the use of loan proceeds by consumers that have obtained loans facilitated through our network
or other lending networks for unethical or illegal purposes,
any of which could adversely affect our reputation and the confidence in, and the use of, our network,
which could harm our reputation and cause disruptions to our operations. Any such reputational harm
could further affect the behavior of consumers, including their willingness to utilize solutions offered
through our network or to make payments on their loans. The potential impact of negative publicity,
whether founded or unfounded, is magnified in the digital age, where information spreads rapidly,
especially through social media and other online networks.
Increased scrutiny from regulators, investors and other stakeholders regarding our ESG or sustainability
responsibilities, strategy and related disclosures could result in additional costs or risks and adversely impact
our reputation, employee retention and willingness of consumers and merchants to use our network.
Regulators, investor advocacy groups, certain institutional investors, investment funds, shareholders,
consumers and other market participants, particularly in the United States and the EU, have focused
increasingly on ESG or sustainability practices of public companies. These parties have placed increased
importance on the implications of the social cost of their investments. We may incur additional costs and
require additional resources as we evolve our ESG strategy, practices and related disclosures. We could
also incur additional costs and require additional resources to monitor, report and comply with various
ESG practices and regulations, which could adversely affect our business, results of operations, financial
condition and future prospects. In Sweden, we publish our ESG report annually in accordance with the
Annual Accounts Act for Credit Institutions and Securities Companies. In addition, we are required to
disclose climate-related information pursuant to the EU’s Corporate Sustainability Reporting Directive,
which calls for the disclosure of information regarding a range of sustainability matters and expect that we
will be required to report on SEC rules relating to the disclosure of climate-related risks and California’s
climate-related disclosure laws. If we elect or are required to report ESG- or sustainability-related
information and regulators, investors, consumers, merchants or other stakeholders view this information
as generic, lagging or inadequate, we may experience reputational damages or become subject to
regulatory proceedings or similar actions, any of which could adversely affect our business. In addition,
under certain laws and regulations, statements we make regarding the sustainability or carbon footprint of
our operations or their impact on the environment may subject us to disclosure requirements or expose us
to the risk of claims that the statements constitute “greenwashing.” Certain nongovernmental
organizations and other private actors have filed lawsuits under various securities and consumer
protection laws alleging that certain ESG statements made by public companies in the United States with
respect to their goals or standards were misleading, false or otherwise deceptive. If our ESG strategy,
practices and related disclosures, including the impact of our business on climate change, do not meet (or
are viewed as not meeting) regulator, investor or other industry stakeholder expectations and standards,
KLARNA GROUP PLC31
which continue to evolve and may emphasize different priorities than the ones we choose to focus on, we
may similarly face increased litigation risks from private parties and governmental authorities and our
brand, reputation and employee retention may be negatively impacted.
In addition to any disclosure requirements, we have also set various internal ESG targets. Despite our
commitment to sustainability, we may not achieve these targets due to a number of factors, some of which
may be beyond our control, such as technological limitations or external economic conditions. In addition,
our ability to meet ESG expectations is also contingent on the actions of our partners and suppliers. We
rely on numerous third-party service providers for various aspects of our operations, including hosting our
cloud network, IT infrastructure and consumer service functions. Any failure—actual or perceived—by
these partners to adhere to our ESG standards or practices could adversely impact our reputation and
similarly expose us to litigation risks and potential regulatory sanctions.
We are subject to both natural and man-made events that may unexpectedly disrupt our operations and
adversely impact our business.
Our operations and business are exposed to a wide array of risks arising from both natural and man-
made events. Natural events such as earthquakes, floods, fires, hurricanes and other extreme weather
conditions, including those exacerbated by climate change, can cause significant disruptions to our
operations. These disruptions can result in property damage, loss of critical data, operational downtimes
and financial losses. For instance, the increasing severity and frequency of extreme weather events may
adversely affect our operations in various geographies as well as operations of our merchants. Disruptions
caused by such events can impact our ability to process transactions and maintain service continuity,
thereby adversely affecting our financial performance and results of operations and damaging customer
trust.
Man-made events, including data breaches and other cybersecurity incidents, terrorism, strikes and
geopolitical unrest, also present significant risks. Our reliance on the complex and interconnected
technology systems that power our network makes us vulnerable to data breaches and other
cybersecurity incidents that could lead to service interruptions and financial losses. An incident of
significant magnitude could severely impact our operations, leading to loss of customer data, reputational
damage and regulatory penalties. In addition, our business operations could be affected by pandemics and
other health crises, as evidenced by the COVID-19 pandemic, which necessitated a shift to remote work in
a number of markets and increased our dependency on digital infrastructure. This shift introduced
operational and managerial challenges such as maintaining team cohesiveness and operational efficiency,
both of which are critical for our success. Furthermore, interruptions in our supply chain or those of our
merchants due to natural or man-made events could affect our GMV and other key financial and operating
metrics.
The occurrence of any such events could adversely affect our business, financial condition, results of
operations and prospects. The extent of the impact is uncertain and depends on the nature, severity and
duration of the disruptions caused by these events. There is no guarantee that our business continuity and
disaster recovery plans that are designed to mitigate these risks will be effective in every scenario or at all.
In addition, the varied insurance coverage that we maintain may not be sufficient to cover all potential
losses. As we continue to expand our network and enhance our technological infrastructure, the
complexity and interdependency of our systems may increase, amplifying the potential impact of such
events on our business, results of operations, financial condition and future prospects.
The quantitative models or assumptions that we use may prove to be incorrect.
Klarna, like many financial institutions, relies heavily on quantitative models and assumptions to
understand and predict consumer behavior, a critical component in calculating market risks and
opportunities. The accuracy of our market calculations depends on the reliability of the underlying models
and assumptions. These models are constructed based on historical data, which, by its nature, may not be
fully indicative of future consumer behavior, especially in the face of unprecedented market conditions or
KLARNA GROUP PLC32
shifts in consumer preferences. An overreliance on historical data without adequate consideration for
potential future changes can lead to miscalculations, potentially impacting our ability to manage risks
effectively. Moreover, the quantitative models we employ are subject to the risk of oversimplification. In an
effort to make complex client behaviors comprehensible, we may inadvertently omit crucial variables or
interactions, leading to an incomplete understanding of market dynamics. This simplification, while
necessary for computational feasibility, increases the risk of significant discrepancies between model
predictions and actual outcomes.
Further, the assumptions underlying our models, particularly those related to client behavior, are
inherently speculative. These assumptions are influenced by a myriad of factors, including economic
conditions, regulation and competitive pressures, all of which are fluid and can evolve in unpredictable
ways. A failure to accurately anticipate or quickly adapt to these changes could render our models less
effective, which could adversely affect our business, results of operations, financial condition and future
prospects.
Finally, the potential for model failure or significant prediction errors poses a direct risk to our financial
stability. Any discrepancies between model forecasts and actual market outcomes can lead to unexpected
losses. Such situations could strain our financial resources, require us to obtain additional funding, which
may not be available on terms attractive to us, if at all, and negatively impact our ability to capitalize on
growth opportunities.
The estimates of market opportunity, total addressable market and forecasts of market growth and other
similar estimates or forecasts may prove to be inaccurate.
The estimates of market opportunity and forecasts of market growth included in this report on Form
20-F and our other filings with the SEC, for example, with respect to the total addressable market for
payments or digital advertising solutions, may prove to be inaccurate. Market opportunity estimates and
growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that
may not prove to be accurate, including as a result of any of the risks described elsewhere in this report on
Form 20-F.
The variables that go into the calculation of our market opportunity are subject to change over time,
and there is no guarantee that any particular number or percentage of addressable consumers covered by
our market opportunity estimates will use our network at all or generate any particular level of GMV or
revenue for us. In addition, our ability to expand into new verticals, channels and geographies as well as
adjacent categories depends on a number of factors, including the cost, performance and perceived value
associated with our solutions, products and services and those of our competitors. Even if the markets in
which we compete meet the size estimates and growth forecasted in this report on Form 20-F and our
other filings with the SEC, our business could fail to grow at similar rates, or at all. Our growth and operating
results, including take rates and transaction margin dollars, are impacted by geographical mix, product and
channel mix, and merchant vertical mix, each of which is subject to many risks and uncertainties.
Accordingly, the forecasts of market growth or other similar projections or forecasts included in this report
on Form 20-F and our other filings with the SEC should not be viewed as indicative of our future
performance.
Determining our allowance for credit losses requires many assumptions and complex analyses. If our
estimates prove incorrect, we may incur net charge-offs in excess of our reserves, or we may be required to
increase our provision for credit losses.
In the process of determining our allowance for credit losses, we employ a range of assumptions and
complex analyses that are inherently subject to uncertainties and contingencies, many of which are
beyond our control. These estimations and judgments affect the reported amounts of assets, liabilities,
revenues and expenses, as well as the disclosures of contingent assets and liabilities in our financial
statements. Consequently, if our estimates prove incorrect, we may incur net charge-offs in excess of our
KLARNA GROUP PLC33
reserves, or we may be required to increase our provision for credit losses, either of which could adversely
affect our business, results of operations, financial condition and future prospects.
Our credit loss allowance estimation process considers a wide array of factors, including historical loan
loss experience, current loan portfolio characteristics, observable data indicating the impact of current
economic and market conditions on our consumers’ ability to repay their loans and forecasts of future
economic conditions. Changes in any of these factors could significantly impact the level of future credit
losses and the necessary allowance for credit losses.
Moreover, our business model and operations subject us to various credit risks, including the risk of
default or fraudulent consumers using our payment services for shopping, as well as credit risks from
defaulting merchants, partners and financial institutions with which we cooperate. We utilize a self-
developed scoring model for credit assessments, which collects specific data and is adapted for each
country in which we operate, considering local regulations, accessibility to credit checks and consumer
behavior differences. However, there is a risk that estimates on which models for calculating future
potential impairments and credit losses are based are inaccurate, which could lead to increased credit
losses and impairments. This, in turn, would adversely affect our financial position.
The process of determining the allowance for credit losses is highly judgmental and subject to
significant uncertainties. Future changes in economic conditions, consumer behavior or regulatory
environment could necessitate adjustments to our allowance for credit losses. An increase in the
allowance for credit losses would result in a corresponding increase in our provision for credit losses,
negatively impacting our results of operations. Conversely, if our allowance for credit losses proves to be
excessive, it may result in an unnecessary allocation of financial resources that could have been utilized
more effectively elsewhere within our operations.
We previously identified a material weakness in our internal control over financial reporting, which our
management has concluded was remediated as of December 31, 2025. We can give no assurance that additional
material weaknesses will not be identified in the future.
Effective internal control over financial reporting and disclosure controls and procedures are critical to
our success as a public company. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with applicable accounting principles. Similarly,
disclosure controls and procedures are designed to ensure that information required to be disclosed by us
in reports filed under the Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management as appropriate to allow timely decisions regarding required
disclosure.
As previously disclosed in our registration statement on Form F-1, in connection with the preparation
of our consolidated financial statements, we previously identified a material weakness in our internal
control over financial reporting related to our IT general controls for information systems that are relevant
to the preparation of our consolidated financial statements, related to (i) user access controls, including
management of privileged access, (ii) change management with respect to monitoring segregation of
duties, and (iii) IT operations controls with respect to certain third-party service providers. We
implemented certain measures to address the material weakness which we have concluded is remediated
as of December 31, 2025.
We remain committed to maintaining and improving our internal control over financial reporting, but we
can give no assurance that the measures we have taken and plan to take in the future will remediate the
material weakness in our internal control over financial reporting or that they will prevent or avoid
potential future material weaknesses in our internal control over financial reporting. In addition, our
current internal control over financial reporting and disclosure controls and procedures, and any new
internal control over financial reporting and disclosure controls and procedures that we develop, may
KLARNA GROUP PLC34
become inadequate because of changes in our business, operations and other factors, some of which may
be beyond our control.
We are not required, pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), to furnish a
report by management on, among other things, the effectiveness of our internal control over financial
reporting until the year following our first annual report required to be filed with the SEC. This assessment
will need to include disclosure of any material weaknesses identified by our management in our internal
control over financial reporting. At that time, our management may conclude that our internal control over
financial reporting remains not effective. In addition, our independent registered public accounting firm will
be required to attest to the effectiveness of our internal control over financial reporting starting with our
second annual report required to be filed with the SEC. Even if our management concludes that our
internal control over financial reporting is effective, our independent registered public accounting firm,
after conducting its own independent testing, may disagree with our assessment and may issue a report
that contains an adverse opinion if, in their evaluation, there are deficiencies that, individually or in
combination, result in one or more material weaknesses.
Our compliance with Section 404 will require that we incur substantial expenses and expend
significant management efforts. During the course of implementing, documenting and testing our internal
control over financial reporting, in order to satisfy the requirements of Section 404, we may identify other
weaknesses and deficiencies in our internal control over financial reporting and disclosure controls and
procedures. Further, despite our efforts to implement and maintain effective internal control over financial
reporting and disclosure controls and procedures, we may not be able to detect or prevent all errors or
instances of fraud and additional weaknesses in our internal control over financial reporting may be
identified in the future. A material weakness in our internal control over financial reporting, failure to
maintain effective disclosure controls and procedures or any difficulties encountered in their
implementation or improvement could lead to errors in our financial statements or restatements of
previously issued financial statements, any of which could adversely affect our business, results of
operations, financial condition and future prospects. Such failures could also lead to a loss of investor
confidence in the accuracy and completeness of our financial reports, which in turn could have a negative
impact on the market price of our ordinary shares.
As a holding company, we are dependent for liquidity on payments from our subsidiaries, many of which are
subject to regulatory and other restrictions on their ability to pay dividends or transact with affiliates.
Klarna Group plc is a holding company and relies on distributions from its operating subsidiaries to
meet its financial obligations. Many of such subsidiaries are subject to extensive regulation, including
Klarna Bank, our banking subsidiary, and its branches. Various laws and regulations, as well as regulatory
expectations, may limit the amount of dividends that our banking or other regulated subsidiaries may pay.
These restrictions are designed to ensure that our regulated subsidiaries maintain adequate capital
buffers and are able to meet their obligations to creditors and consumers before distributing funds up the
corporate structure. For instance, Klarna Bank is required to maintain certain capital and liquidity ratios,
and any intercompany distributions, including to Klarna Group plc, may be prohibited in order to comply
with these regulatory requirements. In certain jurisdictions, regulatory approvals may be necessary before
any significant distributions can be made, adding another layer of complexity and potential delay to the
transfer of funds to Klarna Group plc.
Changes in regulation applicable to our regulated subsidiaries, in particular Klarna Bank, including, but
not limited to, more stringent capital requirements, can severely impact the ability of such subsidiaries to
distribute dividends to Klarna Group plc or otherwise transact with affiliates. Our failure to successfully
manage these risks could adversely affect our business, financial condition, results of operations and
future prospects.
KLARNA GROUP PLC35
We could be subject to additional tax liabilities due to changes in tax laws, tax audits or our growth, which
could affect our profitability and increase our effective tax rate.
We are subject to complex tax laws of multiple jurisdictions in which we operate, which are subject to
uncertain interpretation. Our interpretation and application of these laws and regulations as well as
compliance with specific tax filing requirements, payment obligations and transfer pricing regulations
require significant judgment and the use of assumptions and estimates. Our effective tax rate and tax
filings reflect our interpretation of such tax laws. As a result, we are exposed to the risk that tax authorities
in any of these jurisdictions could disagree with our interpretations of the applicable tax laws or our tax
calculations’ methodologies, including the classification of our revenues, the pricing of our intercompany
transactions or the determinations of the jurisdictions to which profits are attributed. For example, a tax
authority could challenge whether our supplies are taxable or exempt for VAT purposes, or could
challenge our input VAT recovery methodology. We, including certain of our material subsidiaries, are
subject to ongoing tax audits and other similar proceedings with tax authorities in a number of
jurisdictions. In certain cases, the applicable tax authority has challenged one or more tax positions that
we have taken. We are working to resolve each of these audits in an efficient manner, including, where
appropriate, through arbitration and/or court proceedings. These audits and other similar proceedings,
when resolved, could result in additional taxes, including interest and penalties, which could, in turn,
adversely affect our business, financial condition, results of operations and future prospects.
Furthermore, our effective tax rate could materially increase as a result of changes in tax law, tax
treaties or the interpretation thereof, such as those introducing a tax for credit institutions with liabilities
above certain thresholds. Moreover, changes to withholding tax rules, or how they apply to us, may impact
our ability to repatriate profits from our operating subsidiaries in various jurisdictions. Our tax liability may
also increase significantly if we are required to pay additional taxes (including “minimum” taxes, VAT, other
indirect taxes and employment taxes) in any jurisdiction as a result of a growth of our business. For
example, depending on the amount of income we generate in the United States and certain other factors,
we may be subject to the U.S. Base Erosion and Anti-Abuse Tax (BEAT) if certain payments we make to
related non-U.S. persons exceed applicable thresholds.
In addition, in response to an effort led by the Organization for Economic Co-Operation and
Development (“OECD”) and the G20 Group to reform the international tax system under a ‘two pillar’
system, many countries around the world have introduced new, and amended existing, tax laws applicable
to corporate multinationals, such as Klarna, and other countries may take similar steps. These new and
amended tax laws are designed to ensure that multinational companies that meet an annual revenue
threshold pay an effective minimum tax rate of 15% in all jurisdictions where they operate. We have
assessed the potential impact of these new and amended tax laws on us and we currently do not expect to
incur material tax liability as a result of such laws. If the existing tax laws are amended or clarified or new
tax laws are enacted, or if the relevant facts change, in one or more jurisdictions where we operate, we
may be required to pay additional taxes, which would increase our effective tax rate and adversely affect
our financial results. We will continue to assess the future impact of these tax laws. In particular, we will be
evaluating the Administrative Guidance published by the OECD on January 5, 2026, in relation to the ‘side-
by-side’ package (directed mainly at US-parented groups) and other matters, including a new permanent
safe harbor and a one-year extension of the transitional Country-by-Country Reporting safe harbor that
may be relevant to the Company. The Company continues to monitor these developments but does not
expect a material change to its Pillar Two liability. Additionally, on July 4, 2025, the bill referred to as the
One Big Beautiful Bill Act (the “OBBBA”) was enacted into law in the United States. The OBBBA resulted in
significant changes to the Code, including changes to the taxation of businesses. We continue to assess
the potential impact of the OBBBA on us.
In sum, any changes in tax laws or regulations, or in their interpretation by the relevant authorities, the
outcome of any tax audits or changes to our taxation as a result of any expansion or modification of our
network, operations or corporate structure, could adversely affect our business, financial condition,
results of operations and future prospects.
KLARNA GROUP PLC36
We may not be able to utilize our loss carryforwards, deferred interest deductions and other tax attributes.
We have significant carried forward losses, deferred interest expense and other similar tax attributes,
most of which are currently unrecognized within our consolidated financial statements, that arise under
the tax laws of the jurisdictions in which we operate, including Sweden, Germany, the United States and
Australia. It is possible that we will not generate sufficient taxable income in those jurisdictions or
otherwise will be unable to fully utilize these losses, deferred interest expense and other tax attributes. In
addition, the utilization of our tax attributes to reduce our taxable income may be subject to limitations
under the applicable laws of the jurisdictions in which we operate. For example, under U.S. federal income
tax laws, net operating losses arising in tax years beginning after 2017 generally can be carried forward
indefinitely, but their deductibility in any taxable year is limited to 80% of taxable income for that year, and
the utilization of all net operating losses, regardless of the year in which they arose, may be subject to
further limitations as a result of certain ownership changes, including future changes in the ownership of
our ordinary shares that may be outside our control.
For each accounting reporting period, we assess the likelihood of our carried forward losses, deferred
interest expense and other similar tax attributes offsetting future taxable income. We only recognize such
attributes as assets on our consolidated balance sheet if there is sufficient likelihood that these tax
attributes will be utilized by us in the foreseeable future. The assessment of the recoverability of carried
forward losses, deferred interest expense and other similar tax attributes, and therefore the level of
deferred tax asset recognition, requires us to exercise judgment based on facts and estimates that may
change over time. Accordingly, the value of tax attributes recognized on our consolidated balance sheets
for any fiscal period may change over time and may not be indicative of the actual amount of tax attributes
that we will be able to utilize in future periods to offset our taxable income. Any limitation on the use of, or
the changes to, our tax assets to offset taxable income, including as a result of changes in applicable tax
laws or our ownership changes, could result in increased tax liabilities and, as such, could adversely affect
our business, financial condition, results of operations and future prospects.
Some of our social security payroll taxes will fluctuate in the future by reference to our external share price.
We have in the past issued, and expect to issue in the future, RSUs, options and warrants to our
employees in various jurisdictions. Upon vesting of such RSUs and the exercise of options and warrants,
we are required to pay employer social security payroll taxes in many jurisdictions in which we operate.
For example, in the year ended December 31, 2025, we incurred $9 million in expenses related to employer
social security taxes in connection with such vesting of RSUs and exercises of our options and warrants. In
a number of jurisdictions, employer social security payroll taxes are uncapped and calculated by
reference to the fair market value of the shares received by the employee at the time of vesting of their
RSUs or exercise of their options or warrants. Consequently, our social security costs will fluctuate by
reference to the market price of our ordinary shares and may materially increase in future periods, which
could adversely affect our business, financial condition, results of operations and future prospects.
We may require additional capital in the future, which may not be available on acceptable terms or at all.
In the future, we may need to raise additional capital for a variety of reasons, including, but not limited
to, funding our ongoing operations, developing new or enhanced services or products or responding to
competitive pressures, complying with regulatory capital adequacy requirements or funding our expansion
into new verticals, channels and geographies or adjacent categories (organically or through strategic
acquisitions, joint ventures or partnerships). Such financing may not be available on terms favorable to us
or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able
to fund our operations, improve our network, develop new, or enhance our existing, products, services or
solutions, or respond to competitive pressures or take advantage of acquisition opportunities, each of
which could adversely affect our business, financial condition, results of operations and future prospects.
If we raise additional funds through the issuance of equity or convertible debt securities, our
shareholders will experience dilution and the securities that we issue may have rights, preferences and
KLARNA GROUP PLC37
privileges senior to those of our ordinary shares, and the market price of our ordinary shares could
decline. Depending on our credit ratings and general market conditions, any additional funds raised
through debt financing may require us to agree to observe restrictive covenants that impose operating and
financial restrictions on us, including restrictions on our ability to incur additional indebtedness, create
liens, make acquisitions, dispose of assets and make restricted payments, among others. In addition, such
indebtedness may require us to maintain certain financial ratios. These restrictions may limit our ability to
obtain future financings, to withstand a future downturn in our business or the economy in general or to
otherwise fund our operations and meet contractual obligations. A breach of any such covenant would
likely result in a default under the applicable credit agreement or debt instrument, which, if not waived,
could result in acceleration of the indebtedness outstanding.
We are involved in legal proceedings and disputes.
From time to time, we are involved in various legal, arbitration and administrative proceedings arising in
the ordinary course of our business or from extraordinary corporate, tax or regulatory events, involving our
current or former directors, executive officers, employees, shareholders, customers or suppliers, or
environmental, competition, tax or other regulatory matters. These may include supervisory matters,
commercial litigation matters, insurance matters, privacy and cybersecurity disputes, intellectual property
disputes, contract disputes, corporate governance matters, financial services matters, consumer
protection matters, antitrust matters, securities law matters and employment matters. Given the nature
and scope of our operations, we expect to continue to be involved in such proceedings and disputes in the
future. In addition, during market downturns, the volume of legal claims and amount of damages sought in
litigation and regulatory proceedings against financial services companies have historically increased. We
currently face and may continue to face in the future additional legal claims against us as a result of our
increased corporate profile following our initial public offering and additional regulatory regimes applicable
to us as a listed company in the United States. Finally, we may become party to, or otherwise become
involved in, disputes with or among our shareholders relating to, among others, our corporate governance
structure and practices, business strategy or long-term vision.
Given the inherent difficulty of predicting the outcome of any legal matter, particularly where the
claimants seek very large or indeterminate damages, or where the cases present novel legal theories,
involve a large number of parties or are in the early stages of investigation or discovery, we cannot provide
any assurances as to the outcome of any matter to which we currently are, or may in the future be, party.
An unfavorable resolution of any such matter may result in settlements, awards, injunctions, fines and
penalties and, as such, have a material adverse effect on our business, results of operations, financial
condition and future prospects. In addition, any insurance coverage that we may have may not cover all
claims that may be asserted against us or damages and other monetary awards awarded to the claimants.
Further, the amount of reserves in respect to these matters that we may take in any fiscal period may be
substantially less than our ultimate monetary liability, which, in turn, could adversely affect our results of
operations for that period and, as such, negatively impact the market price of our ordinary shares. Finally,
regardless of their outcome, any legal proceedings brought against us may require substantial
management attention, time and legal expenses or could cause us significant reputational harm.
Certain of our consumer agreements, including our terms of service that the consumers are required
to agree to use our network, contain arbitration provisions with class action waiver provisions that may
limit our exposure to consumer class action litigation. While in the past we have been successful in certain
jurisdictions in arguing that such arbitration provisions are valid and binding on our consumers, there can
be no assurance that we will be successful in enforcing these arbitration provisions, including the class
action waiver provisions, in the future or in any given case. Legislative, administrative or regulatory
developments may directly or indirectly prohibit or limit the use of pre-dispute arbitration clauses and
class action waiver provisions. Any such prohibitions or limitations on, or discontinuation of the use of,
such arbitration or class action waiver provisions could subject us to additional lawsuits, including
additional consumer class action litigation, and significantly limit our ability to avoid exposure from
consumer class action litigation.
KLARNA GROUP PLC38
Misconduct of our employees, consultants or third-party service providers could harm us by impairing our
ability to attract and retain customers and subjecting us to legal liability and reputational harm.
Misconduct, fraud or illegal activities by our employees, consultants or third-party service providers
could have severe consequences for us. Such behavior could include fraudulent actions, breaches of
applicable laws, rules and regulations or failure to adhere to our policies and procedures or those of our
partners and other counterparties, including unauthorized disclosure of confidential, privileged or
proprietary information. The financial services industry, particularly companies like Klarna that collect
sensitive financial information and processes or facilitate financial transactions, is highly susceptible to
the risks associated with employee or third-party misconduct. In addition, our reliance on third-party
service providers for various critical functions, including certain banking operations, technology
infrastructure and customer service, increases the risk of such misconduct. For example, we outsource
certain aspects of our deposit-taking business in various geographies, including Sweden and Germany,
which may expose us to additional risks of misconduct of our counterparties.
Any incident of misconduct, whether internal or involving third-party service providers, could result in
legal or regulatory actions or proceedings as well as monetary losses, fines and other penalties. Further,
our insurance premiums may increase and the cost of capital may rise as a result of damaged investor
confidence. In addition to financial and operational impacts, misconduct can have severe reputational
consequences. We believe that our brand is associated with trust, innovation and reliability. Any publicized
incident of misconduct can erode this trust, leading to consumer or merchant attrition, difficulty in
acquiring new consumers or merchants and strained relationships with our other partners. The
competitive nature of the financial services industry means that even isolated incidents of misconduct
may materially and adversely affect our business, financial condition, results of operations and future
prospects.
Our operations could be adversely affected by labor actions, disputes and other labor-related disruptions in
the countries in which we operate.
We are subject to various international, national, federal, state and municipal labor laws and
regulations of the countries in which we operate. Labor laws and regulations are complex, broad in scope
and often vague and differ vastly across states, countries and businesses and may require us to interpret
such laws and regulations, which may involve assumptions, estimates or judgments. Further, these laws
and regulations are subject to continuing and evolving interpretation by regulatory agencies,
administrative law judges and courts. New or different interpretations of existing requirements, new laws
or regulations or the enforcement of existing or new laws and regulations could subject our current
practices to allegations of impropriety or illegality, lead to labor actions and disputes with our employees,
or require us to make changes in our operations, facilities, equipment, personnel, compensation services
or operating expenses to comply with evolving requirements. We cannot guarantee that we will be able to
make any such changes in a cost-efficient manner or at all.
We have in the past, and may in the future, experience strikes, work stoppages and other forms of
labor disruption in various jurisdictions in which we have employees. In November 2023, in connection with
ongoing negotiations of a collective bargaining agreement, certain of our employees in Sweden threatened
to initiate a strike. Before the strike began, we reached an agreement with several trade unions regulating
certain rights of our employees in Sweden. In addition to Sweden, we also have other employees, mostly in
various European countries, who are covered by collective bargaining agreements. Any future strikes, work
stoppages or similar labor actions, including those initiated by labor unions or similar organizations or
otherwise related to collective bargaining agreement negotiations, could lead to additional costs, distract
management or otherwise harm our business, financial condition, results of operations and future
prospects.
KLARNA GROUP PLC39
Our insurance policies may not be sufficient to cover all claims.
As part of our risk management strategy, we maintain various insurance policies intended to protect
against significant losses from operational and other risks. These policies cover a range of potential
events, including, but not limited to, data breaches, operational failures, legal claims and other liabilities
inherent in our business operations. However, these insurance policies, by their nature, contain exclusions
and limitations on coverage. There is a risk that not all claims will be covered or that the amount of a claim
may exceed our policy limits.
Furthermore, the cost of securing adequate insurance coverage has been increasing, influenced by
the evolving risk landscape, particularly in the technology and financial services sectors. Such increases in
insurance costs could adversely affect our operating results and financial position. There is no guarantee
that we will be able to maintain our current coverage on favorable terms or at all. Additionally, as our
operations expand and evolve, we may be forced to pay significantly higher premiums or encounter
difficulties in obtaining sufficient insurance coverage for new risks on acceptable terms, if at all.
In the event of a significant loss or liability that is not fully covered by our insurance policies, or in
scenarios where insurance coverage is disputed by insurers, we may be exposed to substantial financial
losses. Such financial exposure could adversely affect our business, results of operations, financial
condition and future prospects. Moreover, the occurrence of a significant uninsured loss could damage
our reputation among customers, partners and current and prospective investors. It could also lead to
increased scrutiny from regulators and other stakeholders, further adversely impacting our business and
growth prospects.
While we endeavor to manage our risks effectively through a combination of insurance coverage and
operational risk management practices, there can be no assurance that our insurance policies will be
sufficient to protect us against all possible claims or losses. Any actual or potential inadequacy of
insurance coverage could adversely affect our business, financial condition, results of operations and
future prospects.
Risks Related to Our Regulatory Environment
Our business is subject to extensive, complex and changing laws and regulations and related supervision,
inquiries and examination.
We are subject to extensive regulation, supervision, inquiries and examination by multiple
governmental authorities in the United States, the EU, the U.K., Sweden and other jurisdictions in which we
operate under various and complex international, national, state and local laws and regulations. In
particular, as a licensed bank, Klarna Bank must comply with applicable international, EU and Swedish
banking regulations, including applicable capital adequacy and liquidity requirements, including, but not
limited to, the Capital Requirements Directive 2013/36/EU (as amended, “CRD IV”) and the Capital
Requirements Regulation (EU) 575/2013 (as amended, “CRR”); the Swedish Banking and Financing Business
Act (the “Swedish Banking Act”), which governs, among other aspects of our business, internal governance
and control, risk management, credit operations, banking secrecy, outsourcing, remunerations and
financial soundness; and the Swedish Payment Services Act (2010:751) (the “PSA”), which implemented
Directive 2015/2366/EU on payment services in the internal market (the “PSD2”), which governs Klarna
Bank’s provision of payment services, together with any supplementing regulations and recommendations
issued by the SFSA or other authorities as applicable over time. We are subject to similar laws governing
the issuance of electronic money and the provision of payment, money transmission, credit origination,
credit brokering and lending services in other jurisdictions in which we operate. Because we offer various
financial products and services to individual consumers through our network, we are also subject to
extensive consumer protection laws, including consumer lending laws. We are also required to comply with
economic sanctions imposed in the United States and in the other jurisdictions in which we operate,
including the EU and the U.K. Moreover, we are subject to the Foreign Corrupt Practices Act (the “FCPA”) in
the United States and similar laws in other countries that generally prohibit companies and those acting on
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their behalf from making improper payments to foreign government officials for the purpose of obtaining
or retaining business. We are also required to observe laws and regulations relating to the processing of
personal information, including personally identifiable information as well as the security of our network
and information systems supporting our operations, including Regulation 2022/2554/EU on digital
operational resilience for the financial sector (“DORA”). DORA establishes a harmonized and
comprehensive digital operational resilience framework across the whole EU financial sector by requiring a
wide range of financial institutions, including banks, to manage their ICT risks in a robust and effective way
through internal governance, control and risk frameworks. DORA also requires financial institutions to
report major ICT-related incidents to regulatory authorities and undertake digital operational resilience
testing.
The substantial costs and uncertainties related to complying with applicable laws and regulations
continue to increase, and changes to our network, introduction of new products or services, expansion of
our business in certain jurisdictions or subindustries, acquisitions of other businesses that operate in
similar regulated spaces or other actions that we may take may subject us to additional laws, regulations
or other government or regulatory scrutiny. New laws or regulations could also require us to raise
additional capital, which may not be available to us on favorable terms, if at all, and incur significant
expenses and devote significant management attention and internal resources to establish, implement and
monitor policies and procedures necessary to ensure compliance. The application of various regulatory
requirements to our business model is not always clear, and government authorities may challenge our
interpretation of applicable legal regimes and, as a result, request or require that we obtain additional
regulatory licenses or other authorizations in the future, which may subject our business to new
restrictions or requirements and result in additional costs and expenses. For example, we are currently
closely monitoring in multiple jurisdictions proposed and upcoming changes in the regulation of “buy now,
pay later” or similar products. In particular, we expect new legislation to be enacted in the coming years,
with changes expected to be enacted in the U.K., Australia and New Zealand, which may represent a
significant change in the regulatory treatment of certain of our payment options and, as such, may require
us to obtain additional licenses and comply with additional regulatory requirements. In addition, we may
independently determine that we should obtain additional regulatory licenses or other Authorizations in
the future, which may result in greater regulatory scrutiny of our past operations and actions, potentially
leading to regulatory and/or governmental investigations, enforcement actions, fines and other penalties.
Further, we may not be able to respond quickly or effectively to regulatory, legislative and other
developments, particularly as compared to our competitors, which may adversely affect our market
position. For example, it is uncertain how recent changes in the U.S. government’s policies and priorities
may impact our business going forward. These include the impact of tariffs, immigration reform and
changes at the agencies that regulate us or our banking partners, including the modification, rescission,
withdrawal or changes to the approach and enforcement of, rules and guidance relating to business
models like ours. While we have developed policies and procedures designed to assist in maintaining
compliance with applicable laws and regulations, no assurance can be given that such policies and
procedures will be effective or adequate, particularly if relevant laws and regulations evolve or become
construed or applied in a new manner. Any failure to comply, or to ensure that our employees, partners
and third-party service providers comply, with these laws or regulations may result in increased
supervisory and public scrutiny, loss of consumer trust, litigation or enforcement actions, which may in
turn lead to suspension or revocation of our licenses and other regulatory Authorizations, regulatory
inquiries or enforcement actions for non-compliance, fines and other monetary penalties as well as civil
and criminal liability. We may also be required to implement changes to our operations and the terms of
our financing solutions and other products and services, which, in turn, may lead to reduced repayments
from our consumers (for example, due to an inability of us or our originating bank partners (as defined
herein) to export interest rates across national or state lines), permanent forgiveness of some or all of their
indebtedness, or our inability to, directly or indirectly, collect all or a part of the principal of or interest on
the loans originated through our network, any of which could adversely affect our business, results of
operations, financial condition and future prospects.
KLARNA GROUP PLC41
We are similarly subject to extensive regulatory supervision, inquiry and examination in the
geographies in which we operate. Klarna Bank, including certain of its branches, is subject to supervision
by the SFSA in Sweden. In Germany, Klarna Bank, German Branch is subject to supervision by the German
Federal Financial Supervisory Authority (“BaFin”). Klarna Bank also has branches in France, Ireland, Italy
and Denmark, which are under the supervision of the relevant local governmental authority, and operates
in Switzerland on a cross-border basis using its Swedish banking license. KFSUK, our U.K. subsidiary,
operates as an electronic money institution with payment services permissions and a consumer credit firm
under the supervision of the U.K. Financial Conduct Authority (the “FCA”). In the United States, our
operating subsidiary holds primarily money transmission, collection and lending licenses on the state and
territorial levels and, as such, is subject to supervision in each of the states and territories where it has a
license. As a facilitator, servicer, originator or acquirer of consumer credit and provider of other consumer
credit financial services, we are subject to the regulatory and enforcement authority of the CFPB as well as
other governmental and regulatory bodies. We are also regulated by many international, national and state
governmental and regulatory authorities through licensing and other supervisory or enforcement
authorities, which includes regular examination by international and U.S. federal, state and local
governmental authorities on a variety of topics, including our compliance with laws and regulations
concerning AML/CFT or financial disclosures. We also hold regional licenses to offer consumer credit
services in certain regions in Canada, and we are in the process of registering as a retail payment activity
PSP under the new Retail Payment Activities Act. Finally, we are also currently pursuing, and expect to
continue to pursue in the future, additional licenses and other Authorizations in multiple jurisdictions, as a
result of which we could become subject to regulation, supervision or enforcement by additional national
and local authorities.
We have been in the past, are currently, and may in the future be, subject to regulatory inspections,
examinations, inquiries or investigations in the jurisdictions in which we operate or into which we provide
our services. Any such regulatory engagement could involve substantial time and expense to review and
respond to and divert management’s attention and other resources from operating our business. It may
also result in the identification of matters that may require remediation activities on our part and lead to
public enforcement actions or lawsuits, result in fines, penalties, injunctive relief, consumer remediation or
increased compliance costs, limit our ability to offer certain products or services or engage in certain
business practices or result in the need to obtain additional licenses that we do not currently possess, and
there can be no assurance that future adverse findings (or any associated remediation work required to be
performed by us to address them) will not materially impact our business and operations. Further, in some
cases, regardless of the substantive defenses or arguments that may be available to us, it may be less
time-consuming or costly to settle such matters rather than litigate them to the fullest extent possible or
pursue alternative resolutions. Our involvement in such matters, whether tangential or otherwise, even if
the matters are ultimately determined in our favor, could also cause significant harm to our reputation,
lead to additional investigations and enforcement actions from other agencies or litigants and further
divert management attention and resources from the operation of our business, any of which could
adversely affect our business, results of operations, financial condition and future prospects.
Changes to capital adequacy, liquidity and similar regulatory requirements may adversely affect us.
We are subject to extensive capital adequacy and liquidity requirements, including, among others, the
Basel III framework (including its recent reforms known as “Basel IV”), CRD IV and CRR. CRD IV and CRR are
supplemented and complemented by a set of binding technical standards developed by the European
Banking Authority (the “EBA”). The capital adequacy framework specifies minimum amounts and types of
capital, including common equity tier 1 (“CET1”) capital, additional tier 1 (“AT1”) capital and tier 2 capital,
that we need to maintain. In addition to the mandatory capital requirements that apply under Pillar I of the
Basel III framework, we may be subject to binding Pillar II capital requirements and leverage ratio
requirements. CRD IV also provides for further capital buffer requirements that are required to be satisfied
with CET1 capital. Additional capital buffers may be applicable to us as determined by the SFSA. We are
also subject to liquidity requirements as a credit institution supervised by the SFSA, including a statutory
requirement to maintain sufficient liquidity to meet our financial obligations as they become due.
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Capital adequacy, liquidity and similar regulatory requirements applicable to us are subject to change,
both as a result of potential amendments to, or implementation of, applicable laws and regulations,
including the Basel III framework and related EU and Swedish law regulations, and changes to our business
practices and the scope of our operations. For example, if we are designated as a systemically important
financial institution (Sw. systemviktig bank) by the SFSA or the Swedish National Debt Office (Sw.
Riksgäldskontoret) following an assessment by the SFSA that, due to the size of our operations and their
importance to the banking system in Sweden, we would become subject to additional and more stringent
capital adequacy and liquidity requirements, as well as additional rules regarding resolution under the
Swedish Resolution Act (2015:1016) (the “Resolution Act”). In addition, if some or all of our existing
securitization and forward flow arrangements are amended, suspended or terminated, we may become
subject to more stringent capital adequacy requirements resulting from an increase in the risk profile of
our assets.
Any failure, particularly a serious or continuing one, to meet applicable capital adequacy or liquidity
requirements could result in one or more of our regulators placing limitations or conditions on our
operations or growth initiatives, including any acquisitions, partnerships or joint ventures, or restricting the
commencement of new activities, including introduction of new products or services, or could affect our
brand and reputation and customer and investor confidence, increase our funding costs, limit the ability of
our regulated subsidiaries to distribute funds to us or our ability to pay dividends in the future on our
ordinary shares. We may not be able to raise required additional capital in the future on terms favorable to
us, if at all, for a number of reasons, some of which may be beyond our control, including our financial
condition, results of operations, any necessary government or regulatory approvals, regulatory changes or
general market conditions for capital raising activities, which could adversely affect our business, results
of operations, financial condition and future prospects.
We are subject to various consumer protection laws.
We must comply with various consumer protection laws and regulatory requirements in the
jurisdictions in which we operate or into which we provide our solutions or services, including
requirements applicable to consumer credit transactions. In the EU, we are subject to complex consumer
protection and payment services regimes established by numerous EU regulations that are directly
applicable across the EU as well as EU directives that are implemented in each EU member state through
local legislation. Under these regimes, consumer protection offices, bureaus or agencies, such as the
Swedish Consumer Agency (Sw. Konsumentverket) (the “SCA”), supervise many aspects of our network
and operations, including marketing and selling practices, advertising, general terms of business and
collection operations. For example, the SCA has conducted an ongoing investigation relating to marketing
requirements and our compliance with the Swedish Marketing Act (2008:486) (the “SMA”). The
investigation was completed without any further action in May 2025. In the United States, we are subject to
complex consumer protection and consumer financial services regimes established by numerous federal,
state and local regulations that are applicable across various United States jurisdictions. We must comply
with various U.S. federal, state and local consumer protection regimes, both as a counterparty or a service
provider to our bank partners, including our originating bank partners, and as a loan originator with respect
to loans we may originate directly, as well as a provider of other consumer financial services. We are also
subject to the regulatory and enforcement authority of the CFPB as a facilitator, servicer, originator or
acquirer of consumer credit and provider of other consumer financial services. As such, the CFPB has in
the past requested and may in the future request reports or other information concerning our
organization, business conduct, markets and activities. Further, the CFPB and other governmental and
regulatory authorities may also initiate inquiries and consultations relating to our industry. For example, in
2022, we voluntarily participated in the CFPB-initiated consultations addressed to providers of “buy now,
pay later” products and solutions in the United States. In addition, depending on future regulatory changes
and further development of our network and the products and services that we offer through it, the CFPB
or other prudential regulators may begin to supervise us in the future. This supervision would allow
regulators to, among other things, conduct comprehensive and rigorous examinations to assess our
compliance with consumer financial protection laws, which could result in investigations, enforcement
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actions, regulatory fines and mandated changes to our network, operations, products and services,
policies and procedures. In addition, state attorneys general have indicated that they will take a more
active role in enforcing consumer protection laws, including by relying on the Dodd-Frank Act provisions
that authorize state attorneys general to enforce certain provisions of federal consumer financial laws and
obtain civil money penalties and other relief available to the CFPB.
Participants in the consumer finance industry have been the subject of putative class action lawsuits
and federal and state regulatory and enforcement actions, including actions relating to alleged unfair,
deceptive or abusive acts or practices, violations of state lending laws and interest rate limits, actions
alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases, and allegations of
noncompliance with various state and federal laws and regulations relating to origination and servicing
consumer loans. We cannot assure you that we will not become subject to such actions or similar actions,
and there is no assurance that these regulatory matters or other factors will not affect how we conduct
our business and, in turn, adversely affect our business. In particular, legal proceedings and enforcement
actions brought under state consumer protection statutes or under several of the various federal
consumer financial services statutes subject to the jurisdiction of the CFPB and FTC may result in a
separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could
result in damages in excess of the amounts we earned from the underlying activities.
International and supranational bodies, national governments, states and provinces may pass new laws
or regulations, or amend or change their interpretation or application of existing ones, to further regulate
the consumer finance industry or products or solutions of the type provided through our network, or to
reduce the finance charges or other fees that may be imposed with respect to consumer financing
products, which could adversely affect our business, results of operations, financial condition and future
prospects. One example is the amended PSA, which took effect in July 2020. Since then, the PSA has
required PSPs to ensure adequate presentation of available payment methods for online transactions at
checkout. Although the amendments to the PSA have been in force for some time, there are still
uncertainties as to how the PSA should be interpreted in some cases, including with respect to the
application of its provisions in light of the SMA governing undue market practices. Another example of
consumer protection law changes that may affect our operations is Directive 2023/2225/EU on credit
agreements for consumers (“CCD2”). CCD2 establishes strict rules governing the marketing and advertising
of credit products to consumers, policies and procedures safeguarding consumer understanding of credit
products, sound underwriting and creditworthiness assessments and other consumer protection
measures, including forbearance mechanisms and interest rate caps. The extent and complexity of the
new rules, and their impact on our operations, remain uncertain as it will largely depend on the
implementation of CCD2 into the national legal systems of the EU member states in which we operate, in
particular Sweden and Germany.
While we have developed policies, processes and procedures designed to assist in compliance with
applicable consumer protection laws and regulations, no assurance can be given that our compliance
policies and procedures will be effective and we have in the past been, and may in the future be, subject
to findings of breach of consumer protection requirements. For example, while we have adapted the
Consumer Duty across our regulated products in the U.K. and put in place procedures to ensure
compliance with applicable FCA requirements, given the broad principles-based nature of the regime, no
assurance can be given that such procedures will be deemed adequate or will not require future revision.
Failure to comply with these laws and regulatory requirements applicable to our network, products and
services, including our consumer financing products, could make it impossible or more difficult for us to
enforce contractual terms or collect debts owed to us, or subject us to damages, revocation or suspension
of licenses and other Authorizations, class action lawsuits, administrative enforcement actions, loss of
customer trust, reputational damage and civil and criminal liability, any of which could adversely affect our
business, results of operations, financial condition and future prospects.
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We are required to comply with AML/CFT laws and regulations.
Our global operations are subject to various AML/CFT laws and regulations. In the EU, we are required
to implement measures against money laundering and terrorist financing under Directive 2015/849/EU on
the prevention of the use of the financial system for the purpose of money laundering and terrorist
financing (as amended, “4AMLD”) and its implementing national legislation, including the Swedish Money
Laundering and Terrorist Financing (Prevention) Act (2017:630) (the “Swedish AML Act”), the Swedish Anti-
Money Laundering and Terrorist Financing Prevention Regulation (2009:92), the SFSA’s regulation
regarding measures against money laundering and terrorist financing (2017:11), the Swedish Act on
Registration of Beneficial Owners (2017:631), and the German Anti-Money Laundering Act
(Geldwäschegesetz or the “GwG”) together with any applicable regulation issued by the SFSA or other
authorities, as applicable over time. Further, we are required to comply with Regulation 2015/847/EU on
information accompanying transfers of funds (the “Wire Transfer Regulation”), which establishes
information requirements with respect to payers and payees for the purpose of preventing, detecting and
investigating money laundering and terrorist financing. In addition, in the United States, we are subject to
the Bank Secrecy Act of 1970 (as amended from time to time, the “BSA”), as amended, and its
implementing regulations, and the FCPA. In addition, we are subject to the Bribery Act 2010 in the U.K.
We maintain an enterprise-wide program designed to ensure compliance with applicable AML/CFT
laws and regulations, as well as various sanctions regimes (the “AML/CFT compliance program”). The AML/
CFT compliance program is based on Swedish AML/CFT standards (which are largely aligned with
European AML/CFT standards and The Financial Action Task Force (FATF) rules) and supplemented by
local adjustments where required by local laws or regulations. Our AML/CFT compliance program includes
policies, procedures, processes and other internal controls designed to identify, monitor, manage and
mitigate money laundering, terrorist financing and other illicit financial crimes risks. In particular, our AML/
CFT compliance program includes procedures and processes that govern the detection and reporting of
potentially suspicious transactions; identification, verification and ongoing due diligence on customers;
customer risk scoring methods; diligence on merchants’ ownership structures; sanctions screening;
responses to requests from law enforcement; termination and blocking of consumers; and ongoing
transaction monitoring, recordkeeping and reporting. We cannot provide any assurance that our AML/CFT
compliance program will be effective in ensuring compliance with all applicable AML/CFT laws and
regulations. Any failure to comply with AML/CFT laws and regulations could result in public enforcement
actions or lawsuits, fines, penalties, including revocation or suspension of regulatory licenses or other
Authorizations, increased compliance costs or a breach or termination of our existing arrangements with
our bank partners, any of which could adversely affect our business, results of operations, financial
condition and future prospects. In December 2024, we received a remark (Sw. anmärkning) and were fined
SEK 500 million (approximately $47 million) by the SFSA following an investigation (the “SFSA
investigation”) relating to Klarna Bank’s compliance with applicable AML/CFT regulations. The investigation
did not identify any transactions conducted on our network that were in violation of applicable AML/CFT
regulations, but concluded that our methods and thresholds for know-your-customer (“KYC”) and
customer due diligence (“CDD”) checks, our risk classification procedures and policies, distribution
channel risk considerations, analysis of suspicious activity reports and model risk management, as well as
our AML/CFT process, were nevertheless insufficient in light of the requirements of the Swedish AML Act.
In response to the investigation and its conclusions, we began integrating additional information, including
data from our internal Suspicious Activity Reports (“SARs”) and additional information relating to our
relationships with MoRs, into our AML/CFT risk assessment process. We also began utilizing an expanded
definition of “business relationships” for the purposes of our KYC procedures, as prescribed by the SFSA,
and are in the process of expanding our CDD checks to cover additional transactions transacted on our
network. Finally, to enhance our AML processes, we established an AML model validation routine aimed to
ensure that our AML models are appropriately defined and evaluated as well as that they operate as
designed. These enhancements will be further reviewed by our internal audit team and while we believe
that these actions appropriately address the issues observed by the SFSA or self-identified by us in
connection with the SFSA investigation, the SFSA may as part of its routine supervisory activities review
these enhancements and may disagree with our conclusions and the actions taken by us. We could
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therefore become subject to additional investigative or enforcement actions or be found in violation of
other AML/CFT regulations. We could also become subject to additional investigative or enforcement
actions or be found in violation of other AML/CFT regulations in the future that are unrelated to the SFSA
investigation. Any of the foregoing could adversely affect our business, results of operations, financial
condition and future prospects.
We are subject to regulatory requirements to facilitate the orderly resolution of large financial institutions,
which may negatively affect our operations, the value of our outstanding debt securities and the value of your
investment in our ordinary shares.
We are subject to the EU special resolution regime for credit institutions established by the Bank
Recovery and Resolution Directive (as amended, “BRRD”). BRRD requires EU credit institutions, including
Klarna Bank, to prepare and maintain recovery plans specifying steps to be taken to restore the long-term
viability of the credit institution in the event of a material deterioration of its financial condition. Credit
institutions are also required under BRRD to meet a capital requirement for own funds and eligible
liabilities (the “MREL Requirement”) determined by the relevant resolution authority, which in Sweden is
the Swedish National Debt Office (Sw. Riksgäldskontoret), acting in accordance with the Resolution Act.
BRRD also contains several resolution tools and powers which may be used by the applicable
resolution authority under certain conditions. Such tools and powers (which may be used alone or in
combination with others) include, among others, a general power to write down all or a portion of the
principal amount of, or interest on, certain eligible liabilities, whether subordinated or unsubordinated, of
the institution in resolution and/or to convert certain unsecured debt claims, including senior and
subordinated notes, into other securities, which could then also be subject to the general bail-in
provisions.
As a resolution tool, bail-in provisions permit the applicable resolution authority to recapitalize EU
credit institutions (such as Klarna Bank) and financial holding companies (such as Klarna Holding) that
meet the conditions for resolution to ensure it can continue to operate by writing-down debts or
converting debt securities into equity. The purpose of the bail-in tool is to ensure that the losses of failing
EU credit institutions and financial holding companies are borne principally by their shareholders and
creditors. Through our subsidiaries, we issue commercial paper, regulatory capital notes as well as other
debt securities, including senior and subordinated notes under our Euro and Swedish Medium Term Note
Programs, as more fully discussed in the section of this report on Form 20-F titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations―Liquidity and Capital
Resources―Indebtedness.” Accordingly, our debt securities, including those issued under our Euro and
Swedish Medium Term Note Programs, may be subject to write-down or conversion into equity following
any application of the bail-in tool, which may result in holders of our debt securities losing some or all of
their investment.
In addition, the resolution authority has the power to take control of the credit institution in distress
and, for example, facilitate its sale to private investors or to a publicly controlled entity pending a private
sector arrangement. Such actions of the relevant resolution authority can be taken without any prior
shareholder (or other) approval. It is not possible to predict exactly which of the powers and tools granted
to the Swedish National Debt Office by BRRD and the Resolution Act may be used in particular instances of
our financial distress. Accordingly, it is possible that you may lose a part of or all of your investment in our
ordinary shares as a result of the application of the BRRD regime, including the bail-in provisions, to us.
If our originating bank partner model is successfully challenged or deemed impermissible, we could be found
to be in violation of licensing, interest rate limit, lending and similar brokering laws.
In the United States, a portion of the loans facilitated through our network are originated through
WebBank and we rely on our originating bank partner model to comply with various federal and state laws.
If the legal structure underlying our relationship with WebBank or any future originating bank partners
(together, our “originating bank partners”) was successfully challenged, we may be found to be in violation
KLARNA GROUP PLC46
of state licensing requirements and state laws regulating interest rates and other aspects of consumer
lending. In the event of such a challenge or if our arrangements with our originating bank partners were to
change or terminate for any reason, we would need to rely on an alternative bank relationship or on our
existing licenses, obtain new state licenses, pursue a federal or state bank charter and/or be subject to
the interest rate limitations and loan product requirement limitations of certain states. There are three
examples of claims that have been raised in the United States that could each, separately or jointly, result
in this outcome in some or all states. The first of these is a challenge to whether an interest rate that was
“valid when made,” i.e., valid on the date of origination in light of the location of the originating bank, will
remain applicable to the loan if such loan changes ownership. The second and third challenges relate to
determining which entity is the “true lender” for a loan and the location in which a loan is made, both of
which have bearing on what state or local laws apply to the terms of the loan or the conduct of the lender.
Any litigation or enforcement action with respect to a loan facilitated through our network, whether
based on a challenge to the true lender, the legal interest rate or another theory, against us, any successor
servicer, prior owners or subsequent transferees of such loans, including our originating bank partners,
could subject them to claims for damages, disgorgement or other penalties or remedies. The potential
consequences of an adverse determination could include the inability to collect loans at the interest rates
contracted for, licensing violations, the loans being found to be unenforceable or void, or the reduction of
interest or principal, or other penalties or damages. Third-party purchasers of loans facilitated through our
network also may be subject to scrutiny or similar litigation, whether based upon the inability to rely upon
the “valid when made” doctrine or because a party other than the originating bank is deemed the true
lender.
In addition, certain states have adopted, or are considering adopting, laws that subject us to the state’s
lending licensing regime, maximum interest rate requirements and other lending laws if we have a
predominant economic interest in the loan or other material relationship with the borrower or loan, even if
such loans are originated by our originating bank partners. In such circumstances, we would be required to
comply with applicable state licensing requirements, interest rate limitations and other lending laws with
respect to those loans, which may result in significant operational and compliance costs and may prevent
us from providing certain products and services. There can be no assurance that these regulatory matters
or other factors will not affect how we operate our network, which, in turn, could have an adverse effect on
our business, results of operations, financial condition and future prospects.
Loans extended by us under our licenses may be found to violate applicable interest rate limits or other
provisions of applicable lending and other laws.
The loans originated by our originating bank partners may not be subject in certain jurisdictions,
including in the United States, to licensing and interest rate restrictions. However, the loans we may
originate through our network pursuant to our existing licenses are subject to licensing and interest rate
restrictions, as well as numerous state requirements regarding consumer protection, interest rate,
disclosure, prohibitions on certain activities and loan term lengths. If the loans we originate pursuant to our
licenses were deemed to be in violation of certain consumer finance or other laws, we could be subject to
fines, damages, injunctive relief (including required modification or discontinuation of our business in
certain areas), other penalties, private or public litigation and other negative consequences, and the loans
could be rendered void or unenforceable in whole or in part, any of which could have an adverse effect on
our business, results of operations, financial condition and future prospects.
Our relationships with bank partners in the United States may subject us and our partners to additional
regulatory scrutiny.
Prudential banking regulators in the United States, including the FDIC, have recently increased their
scrutiny of bank partnerships with third-party financial service providers through the release of
statements, requests for information and proposed regulations. For example, on July 25, 2024 the Federal
Reserve Board, the OCC and FDIC (collectively, the “Federal Banking Agencies”) issued a joint statement
that discussed their view on the risks faced by banks arising from their partnerships with financial
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technology companies (“bank-fintech arrangements”). In particular, the statement noted that bank-fintech
arrangements may create heightened or novel risks for banks relative to the risks associated with more
traditional third-party vendor relationships. The key risks outlined by the Federal Banking Agencies include
increased balance sheet growth for bank partners, compliance issues that may arise when banks rely on
third parties to conduct compliance functions, misrepresentation of when deposit pass-through insurance
coverage applies, monitoring third-party governance and risk management systems, and operational and
compliance risks. The Federal Banking Agencies also issued a request for information (the “RFI”) on the
nature of partnerships between banks and financial technology companies, such as Klarna, and effective
risk management practices associated with such partnerships. The Federal Banking Agencies also
indicated that they were considering whether additional steps, such as enhancements to supervisory
guidance, could help ensure that banks effectively manage risks associated with various types of bank-
fintech arrangements. While to date the RFI has not led to any proposed regulatory changes by any of the
Federal Banking Agencies, the RFI and related statements suggest that the Federal Banking Agencies may
expect financial institutions involved in such arrangements, including our partner banks, to change their
risk management and compliance practices in order to ensure compliance with applicable laws and
regulations. These releases, including the RFI, coincided with a significant increase in the number of
enforcement actions relating to banks’ third-party arrangements. These and other regulatory initiatives by
U.S. federal or state prudential banking regulators may constrain the operations of our partner banks in
the United States, including those with which we may partner in the future either in addition to or in lieu of
our existing arrangements. Such banks may be prohibited from partnering with us, or may terminate our
relationship once established, as a result of increased regulatory scrutiny or changes to applicable laws
and regulations.
Our relationship with partner banks may also subject us to additional regulatory scrutiny, requirements
and supervision. For example, we are a service provider to WebBank, and as such, we are subject to audit
by WebBank in accordance with FDIC guidance related to management of vendors. We are also subject to
the examination authority of the FDIC under the Bank Service Company Act as a result of our relationship
with WebBank. To the extent that we enter into similar relationships with other partner banks, either in lieu
of or in addition to our relationship with WebBank, we may become subject to additional regulatory
requirements imposed indirectly by the partner bank or directly by U.S. federal or state prudential banking
regulators. Additional regulatory requirements may adversely affect us or our bank partners, including our
originating bank partners, and, therefore, our business, results of operations, financial condition and future
prospects.
The highly regulated environment in which our bank partners operate may indirectly impact our business
relationships.
Our bank partners, including our originating bank partners, are, like us, subject to extensive supervision
and regulation. Banking laws, along with tax and accounting laws, regulations, rules and standards, may
limit their operations significantly and control the methods by which they conduct business. In addition,
compliance with laws and regulations can be difficult and costly, and changes to laws and regulations can
impose additional compliance requirements. Regulatory requirements affect our bank partners’ lending
and investment practices, among other aspects of their businesses, and restrict transactions between us
and our bank partners. These requirements may constrain the operations of our bank partners, and the
adoption of new laws and changes to, or repeal of, existing laws may have a further impact on our
business.
In choosing whether and how to conduct business with us, current and prospective bank partners may
take into account the legal, regulatory and supervisory regime that applies to them, including potential
changes in the application or interpretation of regulatory standards, licensing requirements or supervisory
expectations. Regulators may elect to alter the standards, or their interpretation of them, used to measure
regulatory compliance or to determine the adequacy of liquidity, certain risk management or other
operational practices for financial services companies in a manner that may adversely impact our current
and prospective bank partners. Furthermore, regulatory agencies have extremely broad discretion in their
interpretation of applicable laws and regulations as well as the quality of our bank partners’ loan portfolios
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and other assets. If any regulatory agency’s assessment of the quality of our bank partners’ assets,
operations, lending practices, investment practices or other aspects of their business changes, it may
reduce our bank partners’ earnings and capital ratios and, as a result, negatively affect their operations
and limit, prohibit or otherwise make infeasible, their ability to partner with us. Bank holding companies,
banks and other financial institutions are extensively regulated and currently face an uncertain regulatory
environment. Applicable laws, regulations, interpretations, including licensing laws and regulations,
enforcement policies and accounting principles, have been in the past, and may be in the future, subject
to significant changes. We cannot predict with any degree of certainty the substance or effect of pending
or future legislation or regulation or the application of laws and regulations to our current and prospective
bank partners. Future changes may adversely affect our bank partners, including our originating bank
partners, and, therefore, our business, results of operations, financial condition and future prospects.
Our use of vendors and our other ongoing third-party relationships are subject to increasing regulatory
requirements and attention.
We regularly use vendors and subcontractors as part of our business to ensure smooth and seamless
operation of our network. We also depend on our substantial ongoing business relationships with our
merchants, bank partners and other third parties. These types of third-party relationships, particularly with
our originating bank partners, are subject to increasingly demanding regulatory requirements and
oversight by bank regulators (such as the SFSA in Sweden or the Federal Reserve Board, OCC and FDIC in
the United States) and consumer protection authorities. In the United States, the CFPB has enforcement
authority with respect to the conduct of third parties that provide services to financial institutions. The
CFPB has made it clear that it expects non-bank entities to maintain an effective process for managing
risks associated with vendor relationships, including compliance-related risks. In connection with this
vendor risk management process, we are expected to perform due diligence reviews of potential vendors,
review their policies and procedures and internal training materials to confirm their focus on compliance
matters, include enforceable consequences in our agreements with vendors governing failures to comply
with consumer protection requirements and take prompt action, including terminating the relationship, if
our vendors fail to meet our expectations or applicable legal or contractual requirements.
We expect that regulators will hold us responsible for deficiencies in our oversight and control of third-
party relationships and in the performance of the parties with which we have these relationships, including
where our arrangements with service providers constitute regulated outsourcing, which may be subject to
prescriptive regulatory requirements. As a result, if our regulators conclude that we have not exercised
adequate oversight and control over vendors and subcontractors or other ongoing third-party business
relationships or that such third parties have not performed appropriately, we could be subject to
enforcement actions, including civil money penalties or other administrative or judicial penalties or fines,
as well as be required to compensate our customers for any losses they incurred as a result of our
oversight, any of which could adversely affect our business, results of operations, financial condition and
future prospects.
Regulatory agencies and consumer advocacy groups are increasingly focused on potential discrimination
resulting from the use of ML and “black-box” algorithms.
One or more variables included in our credit underwriting model may be deemed a proxy for a
protected characteristic such as race, ethnicity or sex in violation of the Equal Credit Opportunity Act (the
“ECOA”) or other anti-discrimination and equal credit opportunity laws. As a result, we may be required to
make changes to our underwriting process, which could result in lower approval rates or affect our ability
to effectively navigate credit risks or evaluate credit losses. We may also be required to support the
variables used in our loan decisioning model with documented, legitimate business justifications in the
event the model results in a disproportionate effect on applicants or consumers of certain demographic
groups or to refute claims that the model is a “black box” that is inconsistent with our obligations under the
ECOA and similar state and local laws. In addition, our use of ML in our underwriting model could
inadvertently result in a “disparate impact” on protected groups, which could require an extensive, costly
and time-consuming review and revision of the model’s underlying data and algorithms. While we may
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review our underwriting model and process for potential disparate impact (including review of selected
variables by our Legal and Compliance teams and post-implementation testing to identify and mitigate any
potentially discriminatory impacts), we may be unable to identify and eliminate all practices or variables
causing the disparate impact, resulting in risks of violating applicable fair lending and other laws and
regulations.
Risks Related to Intellectual Property, Data Privacy and Cybersecurity
We may fail to comply with our obligations under license and technology agreements.
Our business and network rely on intellectual property and proprietary rights and technology that we
license from, or that are otherwise made available to us by, third parties. The agreements governing these
licenses and technologies typically impose various obligations on us, such as the maintenance of the
confidentiality of the licensed technology, and adherence to the terms and conditions of use.
If we breach or otherwise fail to meet these obligations, the licensors of the technology or intellectual
property may have the right to terminate these licenses. This could lead to legal disputes and potentially
significant financial damages, which may adversely affect our financial position and operations.
Additionally, the loss of any of such licenses could impair our ability to continue to operate our network
and provide our services, hinder our product development, or force us to obtain alternative technologies,
which may not be available to us on commercially reasonable terms or at all. Further, our business may
suffer if the licensors or other counterparties fail to abide by the terms of the license or other applicable
agreement, if the licensed intellectual property rights are found to be invalid or unenforceable, or if we are
unable to enter into necessary licenses or otherwise receive grants of adequate rights on acceptable
terms.
Although we maintain certain critical IT systems, conduct diligence on key licensors and have
agreements requiring third-party service providers to meet specific standards and requirements, our
reliance on these technologies exposes us to risks related to their quality and reliability. Additionally, we
may have limited control over the maintenance and support of these technologies.
Our strategic growth initiatives, including the development of new products, services or solutions,
could be jeopardized by the loss of certain licensed technologies. In addition, if we decide to expand our
network into additional geographies, we may face increased risks associated with compliance with diverse
and evolving regulatory environments that govern the use of technology and intellectual property in such
jurisdictions. These regulations can vary significantly by jurisdiction, and noncompliance could result in
substantial fines and penalties. In sum, any failure to comply with our obligations under the agreements
governing our use of third-party intellectual property and technology, or any loss of rights to use these
technologies, could adversely affect our business, results of operations, financial condition and future
prospects.
Some aspects of the technology supporting our network include open source software.
Certain key components of our technology that supports our network, including certain of our AI
models, are developed using open source software and, as a result, we are subject to the terms of open
source licenses. These licenses may contain requirements that, if not complied with, could lead to legal
actions or require us to publicly release our proprietary software, which could undermine our competitive
advantage. The terms of various open source licenses have not been interpreted by U.S. courts and, as
such, there is a risk that such licenses could be construed in a manner that imposes unanticipated
conditions or restrictions on our network. In such an event, we could be required to reengineer all or a
portion of our technologies, seek licenses from third parties in order to continue offering our solutions,
products and services, discontinue the use or the offering of our products, services, solutions or related
technologies in the event reengineering cannot be accomplished, or otherwise be limited in the licensing
of our technologies, each of which could reduce the value of our network to our consumers or merchants.
If portions of our proprietary software or AI models are determined to be subject to an open source
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license, we could also be required to, under certain circumstances, publicly release or license, at no cost,
our products, services or solutions that incorporate the open source software or the affected portions of
our source code, which could allow our competitors or other third parties to create similar products,
services or solutions with lower development effort, time and costs, and could ultimately result in a loss of
GMV and revenue for us. While we have open source usage policies and procedures in place, we cannot
ensure that these policies and procedures will prove effective in all instances, if at all, and that we have
not incorporated open source software in our software or AI models in a manner that is inconsistent with
the terms of the applicable license or our current policies, and we may inadvertently use open source
software in a manner that we do not intend or that could expose us to claims for breach of contract or
intellectual property infringement, misappropriation or other violation. If we fail to comply, or are alleged to
have failed to comply, with the terms and conditions of our open source licenses, we could be required to
incur significant legal expenses defending such allegations, be subject to significant financial liabilities, be
enjoined from the sale of our products and services, and be required to comply with onerous conditions or
restrictions on our solutions, products and services, any of which could be disruptive to our business.
In addition to risks related to license requirements, use of open source software can lead to greater
risks than use of third-party commercial software because open source licensors generally do not provide
warranties or other contractual protections regarding infringement, misappropriation or other legal,
regulatory or contractual violations, the quality of code or the origin of the software. Many of the risks
associated with the use of open source software cannot be eliminated and could adversely affect our
business, results of operations, financial condition and future prospects. For instance, open source
software is often developed by different groups of programmers that collaborate with each other on
projects and are beyond our control. As a result, open source software may have security vulnerabilities,
defects or errors of which we may not be aware. While we have open source usage policies and
procedures in place designed to mitigate such security vulnerabilities, defects or errors, we cannot ensure
that these policies and procedures will prove effective in all instances. Even if we become aware of any
security vulnerabilities, defects or errors, it may take a significant amount of time for either us or the
programmers who developed the open source software to address such vulnerabilities, defects or errors.
Such a delay could negatively impact our solutions, products and services, including by adversely affecting
the market’s perception of our solutions, products and services, impairing their functionality, delaying the
launch of new products, services and solutions, or resulting in their failure, any of which could result in
liability to us, our vendors and service providers.
We may be unable to sufficiently obtain, maintain, protect or enforce our intellectual property and other
proprietary rights.
Our success depends in part on our ability to obtain, maintain, protect and enforce our intellectual
property and other proprietary rights, including those in our proprietary technology powering our solutions,
products and services. We rely on a combination of patent, trademark, copyright, trade secret and other
intellectual property laws in the United States and certain foreign jurisdictions as well as contractual
arrangements, to establish and safeguard these rights. While it is our policy to protect and defend our
rights to our intellectual property, we cannot predict with certainty whether the steps we take will be
adequate to prevent infringement, misappropriation or other violation of our intellectual property rights, or
that we will be able to successfully enforce our rights. Our failure to obtain or maintain adequate
protection of our intellectual property rights for any reason could adversely affect our business, results of
operations, financial condition and future prospects.
We may not be able to obtain adequate protection for all of our intellectual property in the
geographies in which we operate. For example, it is possible that third parties, including our competitors,
may obtain patents relating to technologies that overlap or compete with our technology. If third parties
obtain patent protection with respect to such technologies, they may assert that our technology infringes
their patents and seek to charge us a licensing fee or otherwise preclude the use of our technology.
Further, despite our efforts, unauthorized third parties, including competitors, may duplicate, mimic,
reverse engineer, access, obtain or use the proprietary aspects of our technology, processes, products or
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services without our permission. Our competitors and other third parties may also design around or
independently develop similar technology, or otherwise duplicate or mimic our services or products, such
that we may not be able to successfully assert our intellectual property or other proprietary rights against
them. While we take steps designed to enforce our intellectual property rights, we cannot guarantee that
others will not independently develop technology with the same or similar functions to any proprietary
technology we rely on to conduct our business and differentiate ourselves from our competitors.
We cannot assure that any future patents or trademark or service mark registrations will be issued for
our pending or future applications, or that any of our current or future patents, copyrights, trademarks or
service marks (whether registered or unregistered) will be valid, enforceable or sufficiently broad in scope,
provide adequate protection of our intellectual property or other proprietary rights, or provide us with any
competitive advantage.
Our trademarks, trade names and service marks have significant value, and our brand is an important
factor in the marketing of our products and services to consumers and merchants. We rely on both
registrations and common law protections for our trademarks. However, we may be unable to prevent
competitors or other third parties from acquiring or using trademarks, service marks, or other intellectual
property or proprietary rights that are similar to, infringe upon, misappropriate, dilute or otherwise violate
or diminish the value of our trademarks and service marks and our other intellectual property and
proprietary rights. The value of our intellectual property and other proprietary rights could diminish if
others assert rights in or ownership of our intellectual property or other proprietary rights or in trademarks
or service marks that are similar to ours, which could harm our corporate or brand identity and lead to
customer confusion. There is a risk that our trademarks and other intellectual property rights may not be
adequate to protect our brand or proprietary technology, or may conflict with the registered trademarks or
other intellectual property rights of other companies. This could require us to rebrand our solutions,
products and services (which could result in loss of goodwill and brand recognition and require additional
advertising and marketing expenditures), obtain costly licenses, defend against third-party claims, or
substantially change our products, services or solutions. If such risks manifest, we may not be able to
compete effectively and may be required to expend considerable resources, including by diverting the
attention of our management, any of which could adversely affect our business, results of operations,
financial condition and future prospects.
While our software and other proprietary works of authorship may be protected under copyright laws,
we have not registered any copyrights in these works. While registration is not necessary to benefit from
copyright protection, registration provides additional benefits in certain jurisdictions, and is required to
bring a copyright infringement lawsuit in the United States. Accordingly, the remedies and damages
available to us for unauthorized use of our software may be limited in certain jurisdictions.
We rely in part on trade secrets, proprietary know-how and other confidential information to maintain
our competitive position. We require our employees and third parties who develop intellectual property on
our behalf to enter into confidentiality and invention assignment agreements and third parties with whom
we share confidential or proprietary information to enter into nondisclosure and confidentiality
agreements or to be bound by professional, fiduciary or other contractual obligations requiring the
applicable third party to protect our trade secrets, proprietary know-how and other confidential or
proprietary information, including those related to our material proprietary AI models. However, we cannot
guarantee that we have entered into agreements containing such obligations with each party that has
been involved in the development of intellectual property for us or that has, or may have had, access to
trade secrets, proprietary know-how and other confidential or proprietary information. Our contractual
arrangements may be breached or may otherwise not effectively prevent disclosure of, or control access
to, our trade secrets, proprietary know-how and other confidential information, or may fail to provide an
adequate remedy in the event of an unauthorized disclosure or misuse of such information. Any
unauthorized disclosure or use of our trade secrets, proprietary know-how or other confidential or
proprietary information could make it more expensive to operate our network, erode any competitive
advantage we have and result in a pricing pressure on our solutions, products and services, any of which
could adversely affect our business, results of operations, financial condition and future prospects.
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The measures we have put in place may not prevent misappropriation, infringement or other violations
of our intellectual property or other proprietary rights or information, and any resulting loss of competitive
advantage. We may be required to litigate to protect our intellectual property or other proprietary rights or
information from misappropriation, infringement or other violations by others, which is expensive, could
cause a diversion of financial, managerial, operational and other resources, and may not be successful
even when our rights have been infringed, misappropriated or otherwise violated. Our efforts to enforce
our intellectual property and other proprietary rights may be met with defenses, counterclaims and
countersuits attacking the validity and enforceability of our intellectual property and other proprietary
rights. If such defenses, counterclaims or countersuits are successful, it could diminish or we could
otherwise lose valuable intellectual property and other proprietary rights. Due to the significant amount of
discovery required in connection with intellectual property litigation, our confidential information could
also be compromised by disclosure during litigation.
In addition, while in some cases a third party may have agreed to indemnify us for costs associated
with intellectual property-related litigation, such indemnifying third party may refuse or be unable to
uphold its contractual obligations. In other cases, our insurance may not cover potential claims of this type
adequately or at all, and we may be required to pay monetary damages, which may be significant.
Changes in the law or adverse court rulings may also negatively affect our ability to prevent others
from using our technology. In addition, changes in the law or adverse court rulings in countries where we
conduct research and development may affect our intellectual property rights, including with respect to
ownership, distribution and use of such intellectual property, or increase the costs of protecting or
defending our intellectual property rights. Further, the laws of some foreign countries may not be as
protective of intellectual property and other proprietary rights as those in the EU or the United States, and
the mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate.
Any of the foregoing could adversely affect our business, results of operations, financial condition and
future prospects.
Third parties may claim that we infringe, misappropriate or otherwise violate their intellectual property
rights.
Our success depends in part on our ability to develop and commercialize our solutions, products and
services without infringing, misappropriating or otherwise violating the intellectual property or other
proprietary rights of third parties. Third parties have from time to time alleged, and may allege in the
future, that our products and services infringe, misappropriate or otherwise violate third-party intellectual
property or other proprietary rights. We may also, from time to time, become involved in disputes, including
actual or threatened litigation, concerning these rights. Relatedly, competitors or other third parties may
allege that service providers or other third parties retained or indemnified by us infringe on,
misappropriate or otherwise violate such competitors’ or other third parties’ intellectual property or other
proprietary rights. In addition, to the extent we hire personnel from competitors, we may be subject to
allegations that such personnel have divulged proprietary or other confidential information to us.
Claims of infringement, misappropriation or other violation may be extremely broad, and it may not be
possible for us to operate our network and conduct our operations in such a way as to avoid all such
alleged violations of such intellectual property or other proprietary rights. We also may be unaware of
third-party intellectual property or other proprietary rights that cover or otherwise relate to some or all of
our products and services.
Any claims of intellectual property infringement, misappropriation or other violation against us,
regardless of merit, may:
•require us to spend significant amounts of time and other resources to defend against the claim
(even if we ultimately prevail);
•result in significant monetary damages, loss of revenue or the payment of substantial royalty or
license fees, settlement payments or other damages;
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•require us to indemnify our customers or third-party service providers;
•result in the loss of access to, and use of, relevant systems, processes, technologies or other
intellectual property, temporarily or permanently;
•require us to cease offering certain products, services or solutions;
•require us to obtain additional licenses, which may not be available on commercially reasonable
terms or at all; or
•require us to redesign or reengineer aspects of our network, products, services, solutions or
functionality therein,
any of which could be costly, time-consuming or not technically or economically feasible.
Moreover, the volume of intellectual property-related claims and the mere specter of threatened
litigation could distract our management from the daily operations of our business. Some of the
aforementioned risks of infringement, misappropriation or other violation, in particular with respect to
patents, are potentially heightened due to the nature of our business, industry and intellectual property
portfolio. For instance, it has become common in recent years for certain third parties in the United States
to purchase patents or other intellectual property assets for the sole purpose of making claims of
infringement, misappropriation or other violation in an attempt to extract settlements from companies
such as ours. Relatedly, we do not currently have a large patent portfolio, which could otherwise assist us
in deterring patent infringement claims from third parties through our ability to bring patent infringement
counterclaims using our own patent portfolio. In addition to the previously mentioned impacts of
intellectual property-related litigation, while in some cases a third party may have agreed to indemnify us
for costs associated with intellectual property-related litigation, such indemnifying third party may refuse
or be unable to uphold its contractual obligations. In other cases, our insurance may not cover potential
claims of this type adequately or at all, and we may be required to pay monetary damages, which may be
significant.
We are subject to complex and evolving laws, regulations, rules, standards, contractual obligations and other
requirements regarding data privacy and cybersecurity.
In connection with the operation of our business, we collect, use, store, disclose, transfer and
otherwise process information that relates to individuals and/or constitutes “personal data,” “personal
information,” “personally identifiable information” or similar terms under applicable data privacy laws,
including from and about actual and prospective customers, as well as our employees and business
partners. We also depend on a number of third-party vendors in relation to the operation of our business, a
number of which process personal information on our behalf. The complexity of the evolving data privacy
and cybersecurity regulatory environment presents various material risks to our operations, as more fully
described below.
We and our vendors operate in a complex and evolving regulatory environment with regard to data
privacy and cybersecurity and are subject to a variety of data privacy and cybersecurity laws, rules,
regulations, standards and other requirements, including those that apply generally to the handling of
personal information and those that are specific to certain industries, sectors, contexts or locations. These
requirements, and their application, interpretation and amendment, are constantly evolving. Failure to
comply with the laws, regulations, rules, standards, contractual obligations and other requirements to
which we are subject could expose us to liability and/or reputational damage. Compliance with these laws,
regulations, rules and standards, as well as any new laws, regulations, rules and standards and other
requirements or amendments to or changes in interpretations of existing laws, regulations, rules and
standards and other requirements, may, from time to time, require us to update our policies, procedures
and technology for data privacy and cybersecurity, which could, among other things, make us vulnerable
to operational failures and to monetary penalties for breach of such laws, regulations, rules and standards.
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For example, we are subject to the EU GDPR, the U.K. GDPR, the California Consumer Privacy Act, as
amended by the California Privacy Rights Act (collectively, the “CCPA”), the Gramm-Leach Bliley Act (the
“GLBA”) and the PCI-DSS. In addition to the various data privacy and cybersecurity laws and regulations
already in place, many jurisdictions are increasingly adopting laws and regulations adopting
comprehensive data privacy and cybersecurity obligations, which may be more stringent, broader in scope
or offer greater individual rights with respect to personal information than existing laws and regulations,
and such laws and regulations may differ from each other, which may complicate compliance efforts and
increase compliance costs.
In addition, federal, state and international governmental authorities continue to evaluate the data
privacy and cybersecurity implications inherent in the use of third-party “cookies” and other methods of
online tracking for behavioral advertising and other purposes. In the United States, we are subject to
evolving privacy laws, regulations and standards covering cookies, tracking technologies and e-marketing.
Numerous class-action suits under federal and state laws have been filed recently against companies that
utilize third-party tracking technologies, alleging violations of consumer protection laws and invasions of
privacy due to lack of adequate notice and/or consent prior to use of such technologies. In the EU and
U.K., informed consent is required for the placement of certain cookies or similar tracking technologies on
an individual’s device and for direct electronic marketing. The EU GDPR and U.K. GDPR impose conditions
on obtaining valid consent for cookies, including a prohibition on pre-checked consents and a requirement
to obtain separate consents for each type of cookie or similar technology. Recent European court and
regulator decisions are driving increased attention to cookies and similar tracking technologies. As a
result, we may have to develop alternative means to determine our customers’ behavior, customize their
online experience or efficiently market to them if customers block cookies or if additional barriers to
collecting data via cookies or other tracking technologies are introduced via laws, regulations, or providers
of consumer devices or web browsers. The regulation of the use of these cookies and other current online
tracking and advertising practices or a loss in our ability to make effective use of services that employ
such technologies could increase our costs of operations and limit our ability to acquire new customers on
cost-effective terms and, consequently, adversely affect our business, financial condition, results of
operations and future prospects.
The implementation of these laws and regulations requires continuous updates to our data
management practices, systems and processes to ensure compliance and, as a result, we may not at all
times be fully and technically compliant with such regulations. We have in the past, and may in the future,
receive complaints or notifications from third parties alleging that we have violated applicable data privacy
and cybersecurity laws and regulations. Noncompliance, or perceived noncompliance, with these laws has
in the past, and may in the future, lead to regulatory investigations, legal actions and proceedings against
us by governmental entities, consumers, data subjects or others, penalties and reputational damage. For
example, in 2025, we received 33 reprimands from the Swedish Data Protection Authority in relation to our
failure to handle data subject rights requests and ensure security of personal data in accordance with EU
GDPR requirements, and in 2022, we were fined SEK 7.5 million ($0.7 million) by the Swedish Data
Protection Authority for inadequacies in our privacy notice, which allegedly resulted in violations of data
subjects’ right to information under the EU GDPR. In addition, we are presently subject to two ongoing
investigations by the Swedish Data Protection Authority relating to, in one case, our processes for verifying
an individual’s identity when a data subject access request is submitted and, in the other case, our use of
tracking technologies to pre-fill forms for returning customers. As a result of these ongoing investigations,
we may be subject to reputational harm, regulatory fines or other penalties, or orders to cease or change
our data processing activities in a manner that would be adverse to our business or require us to incur
substantial costs.
As our network and operations continue to expand, we must adapt to a diverse array of data privacy
and cybersecurity laws and regulations, each with its own requirements and enforcement practices. This
diversity leads to increased compliance costs and operational risks, as well as potential consumer
confusion and reluctance to provide necessary data. In addition, compliance with obligations imposed by
data privacy and cybersecurity legislation requires investment in appropriate technical or organizational
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measures designed to safeguard the rights and freedoms of data subjects. Such investment may result in
significant costs to our business and may require us to modify certain of our business practices. Moreover,
enforcement actions, investigations and the imposition of substantial fines and penalties by regulatory
authorities as a result of data privacy and cybersecurity violations have increased over the past several
years. For instance, violations of the EU GDPR or U.K. GDPR can result in fines up to €20.0 million/£17.5
million or 4% of annual global revenue, whichever is higher. Since we are under the supervision of relevant
data protection authorities in both the EEA and the U.K., we may be fined under both the EU GDPR and U.K.
GDPR for the same violation. In addition to fines, a breach of the EU GDPR or U.K. GDPR may result in
regulatory investigations, reputational damage, orders to cease or change our data processing activities,
enforcement notices, assessment notices for a compulsory audit and/or civil claims, including class
actions.
While we strive to publish and prominently display privacy policies that are accurate and
comprehensive, and enter into data processing agreements with all third-party providers who process
personal information on our behalf in compliance with applicable laws, regulations, rules and standards,
these laws, regulations, rules and standards are in some cases relatively new and the interpretation and
application of these laws, regulations, rules and standards are uncertain, and we cannot ensure that our
privacy policies, data processing agreements and other statements regarding our practices will be
sufficient to protect us from claims, proceedings, liability or adverse publicity relating to data privacy or
cybersecurity. In addition, although we endeavor to comply with our privacy policies and ensure that our
third-party providers comply with our data processing agreements, as applicable, we may at times fail to
do so or be alleged to have failed to do so. The publication of our privacy policies and other
documentation that provide promises and assurances about data privacy and cybersecurity can subject
us to potential government or legal action if they are found to be deceptive, unfair or not representative of
our actual practices. Any concerns about our data privacy and cybersecurity practices, even if unfounded,
could damage our reputation and adversely affect our business.
Any failure or perceived failure by us or our third-party providers to comply with our privacy policies,
or applicable data privacy and cybersecurity laws, regulations, rules, standards or contractual obligations,
or any compromise of security that results in unauthorized access to, or unauthorized loss, destruction,
use, modification, acquisition, disclosure, release or transfer of personal information, may result in
requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time
and other resources, proceedings or actions against us, legal liability, governmental investigations,
enforcement actions, claims, fines, judgments, awards, penalties, sanctions and costly litigation, including
class actions. Any of the foregoing could harm our reputation, distract our management and technical
personnel, increase our costs of doing business, adversely affect the demand for our solutions, products
and services, cause the loss of customer trust and result in legal liability, any of which could adversely
affect our business, financial condition, results of operations and future prospects.
We or our third-party providers may fail to protect confidential information, including personal information,
and/or experience data breaches and other cybersecurity incidents.
We rely on computer systems, hardware, software, technology infrastructure and online sites and
networks for both internal and external operations that are critical to our business (collectively, “IT
Systems”). We own and manage some of these IT Systems but also rely on third parties for a range of IT
Systems and related products and services. We and certain of our third-party providers engage in the
collection, storage, transmission and other processing of customers’ personal information, including
names, addresses, identification numbers, account numbers, account balances and loan positions, as well
as proprietary information belonging to our business, such as trade secrets (collectively, “Confidential
Information”). Although we devote considerable efforts, time and resources to our cybersecurity program,
including adhering to industry-recognized frameworks and standards, employing regular IT Systems
monitoring and audits and providing training to our employees, we cannot eliminate all risks from data
breaches and other cybersecurity incidents or provide assurances that we have not experienced in the
past, or will not experience in the future, an undetected data breach or other cybersecurity incident.
KLARNA GROUP PLC56
We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and
availability of our IT Systems and Confidential Information. Our IT Systems have in the past been, and in
the future may be, vulnerable to data breaches and other cybersecurity incidents, and third parties may
be able to access our customers’ Confidential Information, including card data, that is stored on or
accessible through those systems. These data breaches and cybersecurity incidents have included, or
may in the future include, among other things: viruses, malware or other malicious code, ransomware,
software bugs, deceptive social engineering campaigns (also known as “phishing” or “spoofing”), credential
stuffing, account takeovers, loss or theft of assets, employee errors or malfeasance, third-party errors or
malfeasance, as well as system and network failures and other similar cybersecurity events, which could
result in the loss of, unauthorized access to or disclosure of, or the misuse or misappropriation of,
Confidential Information. In addition, our security measures have in the past been breached, and may in
the future be breached, due to human error, accidental technological failures, system errors or
vulnerabilities or other irregularities. Further, many of our employees regularly work remotely or in
coworking shared spaces, which has caused, and may cause in the future, heightened vulnerability to data
breaches and other cybersecurity incidents. Additionally, integration of AI in our or any of our service
providers’ operations, products, services or solutions is expected to pose new or unknown cybersecurity
risks and challenges. If our or our third-party providers’ protection efforts are unsuccessful and our
systems or product, services or solutions are compromised, our business, financial condition and results of
operations may be adversely affected. Because our solutions, products and services may be integrated
with our customers’ systems and processes, circumvention or failure of our cybersecurity defenses or
measures could compromise the confidentiality, integrity and availability of our customers’ own IT Systems
and/or our customers’ Confidential Information.
An increasing number of organizations, including large customers and businesses, other large financial
technology companies and financial and government institutions, have disclosed data breaches and other
cybersecurity incidents, some of which have involved sophisticated and highly targeted attacks, including
on portions of their websites, networks or infrastructure, or those of third parties who provide services to
them. Cybersecurity risks for financial and technology companies such as ours have significantly
increased recently, in part because of new technologies, the use of the internet and telecommunications
technologies (including mobile devices) to conduct financial and other business transactions, and the
increased sophistication and activities of organized crime, hackers, terrorists and other external parties,
including foreign state and state-supported actors.
The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our
customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be
difficult to detect quickly and often are not recognized until launched against a target. Such threats may
see their frequency increased and effectiveness enhanced by the use of AI. Unauthorized parties may
attempt to gain access to our systems or facilities through various means, including, among others,
hacking into our systems or those of our customers, partners or vendors, attempting to fraudulently induce
our employees, customers, partners, vendors or other users of our systems to disclose usernames,
passwords, payment card information or other sensitive information, which may in turn be used to access
our IT Systems, or installing malicious software. Certain efforts may be supported by significant financial
and technological resources, making them even more sophisticated and difficult to detect. As a result, we
may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid an
adverse impact to our IT Systems, Confidential Information or business. Further, these risks may be
heightened in connection with ongoing global conflicts such as Russia’s invasion of Ukraine or the conflict
in Israel and the Gaza Strip. As these threats continually evolve, we may be required to devote substantial
additional resources to modify or enhance our operational or security systems and networks and our
cybersecurity program. We believe that we are likely to continue to be a target of such threats and attacks.
For example, we have been subject to incidents relating to human errors that have resulted in the
accidental disclosure of personal information to third parties, and third-party cyberattacks on our and our
vendor IT Systems. Although these incidents have not materially impacted our reputation, business,
financial condition or results of operations, we cannot guarantee that such a cyberattack or incident will
not occur in the future and have a material impact on our business. Due to the size and complexity of our
KLARNA GROUP PLC57
technology network and services, the amount of personal information and other data that we store and the
number of customers, merchants, partners, employees and third-party providers with access to personal
information and other data, we may be the target of a variety of intentional and inadvertent cybersecurity
incidents and threats, which could adversely affect our reputation, business, financial condition, results of
operations and future prospects.
We have developed systems and processes that are designed to protect our networks, applications,
accounts and the confidentiality, integrity and availability of data and our IT Systems and to prevent data
loss and other cybersecurity incidents and we expect to continue to expend significant additional
resources to bolster these protections. At the same time, these security measures cannot provide
absolute security and there can be no assurance that our safety and security measures (and those of our
third-party providers) will detect or prevent a data breach, other cybersecurity incident or other instances
of unauthorized disclosure of confidential information, or be effective in protecting our IT Systems and
Confidential Information.
Any actual or perceived data breaches, other cybersecurity incidents or similar incidents of
unauthorized disclosure of confidential information experienced by us or our third-party service providers
could interrupt our operations, result in our systems or services being unavailable, result in the loss,
compromise corruption or improper disclosure of data, including personal information, subject us to
regulatory or administrative investigations and orders, litigation (including class actions), disputes,
sanctions, indemnity obligations, damages for contract breach or penalties for violation of applicable laws
or regulations including restoration or remediation costs, impair our ability to provide our solutions and
meet our customers’ requirements, materially harm our reputation and brand, result in significant legal and
financial exposure (including customer claims), lead to loss of customer confidence in, or decreased use
of, our products and services, and adversely affect our business, financial condition and results of
operations. In addition, data breaches and other cybersecurity incidents at our customers, merchants,
partners or third-party service providers (including data center and cloud computing providers) could have
similar negative effects. We could be forced to expend significant financial and operational resources in
response to a cybersecurity incident, including repairing system damage, increasing security protection
costs by deploying additional personnel and modifying or enhancing our protection technologies,
investigating and remediating any information security vulnerabilities and defending against and resolving
legal and regulatory claims, all of which could divert resources and the attention of our management and
key personnel and materially and adversely affect our business, financial condition, results of operations
and future prospects.
Specifically, because we leverage third-party providers, including cloud, software, data center and
other critical technology vendors to deliver our solutions to our customers, we rely heavily on the
cybersecurity technology practices and policies adopted by these third-party providers. Such third-party
providers have access to personal information and other data about our customers and employees, and
some of these providers in turn subcontract with other third-party providers. While we generally perform
cybersecurity diligence on our key third-party providers, we do not control our third-party providers, and
our ability to monitor their cybersecurity measures is limited. Some of our third-party providers may store
or have access to our data and may not have effective controls, processes, or practices to protect our
information from data breaches or other cybersecurity incidents. A vulnerability in a third-party provider’s
software or systems, a failure of our third-party providers’ safeguards, policies or procedures, or a breach
of a third-party provider’s software or systems could result in the compromise of the confidentiality,
integrity or availability of our systems or the data housed in our third-party solutions. Due to applicable
laws and regulations or contractual obligations, we may be held responsible for data breaches or other
cybersecurity incidents attributed to our service providers as they relate to the information we share with
them.
Many jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities
and others of cybersecurity incidents involving certain types of data or IT systems or of other instances of
unauthorized or inadvertent disclosure of confidential information, including personal information.
Assessing our notification obligations following such incidents may require costly investigative resources
KLARNA GROUP PLC58
and complicated decision-making based on incomplete information, often within limited periods of time.
We experienced in the past, and may experience in the future, cybersecurity incidents or other instances
of unauthorized or inadvertent disclosure of confidential information after which we notified affected
individuals, regulatory authorities or other authorities based on the information available at the time.
Although we strive to comply with our notification obligations following such incidents, we may fail, or be
alleged to have failed, to do so in the prescribed manner and/or timeframe, or at all. Any such actual or
alleged failure may expose us to increased liability or negative publicity. Cybersecurity incidents or other
instances of unauthorized or inadvertent disclosure of confidential information experienced by us, our
customers, third-party service providers or other companies in our industry may similarly lead to public
disclosures and widespread negative publicity, which, in turn, could erode customer confidence in the
effectiveness of our security measures or those employed by our counterparties or our industry in general.
This, in turn, could negatively impact our ability to attract new customers, cause existing customers to
elect not to renew or expand their use of our network, services and products or subject us to third-party
lawsuits, regulatory fines or other actions or liabilities, any of which could adversely affect our business,
financial condition, results of operations and future prospects.
Likewise, agreements with our bank partners, service providers and other third parties may require us
to notify them in the event of a cybersecurity incident. Such mandatory disclosures are costly, could lead
to negative publicity, may cause our customers to lose confidence in the effectiveness of our security
measures and require us to expend significant capital and other resources to respond to and alleviate
problems caused by the actual or perceived cybersecurity incident. Further, a data breach or other
cybersecurity incident impacting us or one of our critical vendors, or system unavailability or damage due
to other circumstances, may give rise to a merchants’, partners’ and other third parties’ right to terminate
their contract with us. In these circumstances, it may be difficult or impossible to cure such a breach in
order to prevent third parties from potentially terminating their contracts with us. Furthermore, although
our third-party contracts typically include limitations on our potential liability, we cannot guarantee that
such limitations of liability would be adequate or enforceable.
Additionally, although we maintain insurance policies covering cybersecurity incidents, such policies
may not be adequate to reimburse us for losses caused by cybersecurity incidents, and we may not be
able to collect fully, if at all, under these policies. We cannot ensure that such insurance will continue to be
available to us on commercially reasonable terms, or at all, or that our insurers will not deny coverage with
respect to any particular incident. The successful assertion of one or more large claims against us that
exceed available insurance coverage, or the occurrence of changes in our insurance policies, including
premium increases in or the imposition of large deductible or coinsurance requirements, could adversely
affect our business, financial condition, results of operations and future prospects.
Risks Related to the Ownership of Our Ordinary Shares
An active trading market for our ordinary shares may not be sustained.
It is possible that an active trading market for our ordinary shares will not be sustained, which would
make it difficult for you to sell your ordinary shares at an attractive price or at all.
The market price of our ordinary shares may be volatile.
The market price of our ordinary shares may be highly volatile and could be subject to wide
fluctuations. In addition, the trading volume in our ordinary shares may fluctuate and cause significant
price variations to occur. Securities markets worldwide experience significant price and volume
fluctuations. Such market volatility, as well as general economic, market and political conditions, and/or
the short selling of our stock could reduce the market price of our ordinary shares in spite of our operating
performance. In addition, our results of operations could be below the expectations of public market
analysts and investors due to a number of potential factors, including variations in our results of
operations, additions or departures of key management personnel, the loss of key funding sources or
merchants and changes in our earnings estimates (if provided). Also, the publication of research reports
KLARNA GROUP PLC59
about our industry, litigation and government investigations, changes or proposed changes in laws or
regulations or differing interpretations or enforcement thereof affecting our business, adverse market
reaction to any indebtedness we may incur or securities we may issue in the future, changes in market
valuations of similar companies or speculation in the press or the investment community with respect to
us or our industry, adverse announcements by us or others and developments affecting us,
announcements by our competitors of significant contracts, acquisitions, dispositions, strategic
partnerships, joint ventures or capital commitments, actions by institutional shareholders and increases in
market interest rates that may lead investors in our ordinary shares to demand a higher yield could result
in the significant decrease of the market price of our ordinary shares. As a result, you may be unable to
resell your ordinary shares at or above the price you paid for them or at all.
These broad market and industry factors may decrease the market price of our ordinary shares,
regardless of our actual operating performance. The stock market in general has, from time to time,
experienced extreme price and volume fluctuations. In addition, following periods of volatility in the overall
market and the market price of our ordinary shares, securities class action litigation has been instituted
against us, and may in the future be instituted against us. Such litigation could result in substantial costs
and a diversion of our management’s attention and resources.
The multi-class structure of our share capital has the effect of concentrating voting control with those
shareholders who held our share capital immediately prior to the Company’s initial public offering, including our
Co-Founder and Chief Executive Officer, which will limit your ability to influence the outcome of matters
submitted to our shareholders for approval, may result in additional future dilution of your voting and economic
power and may adversely affect the value of your ordinary shares.
Each ordinary share is entitled to one vote per share and to ratably participate in dividends that we
may pay in the future as well as our assets remaining upon our liquidation, dissolution or winding up. Each
Class B share is entitled to ten votes per share but has no dividend or other effective economic rights. We
may also issue Class C shares to Sebastian Siemiatkowski, our Co-Founder and Chief Executive Officer,
and to certain related and affiliated persons of Mr. Siemiatkowski, their respective nominees and a
depositary service. Each Class C share will be entitled to ten votes per share and to ratably participate in
dividends and our assets remaining upon our liquidation, dissolution or winding up but only to half the
extent of one ordinary share (on a per share basis). We will not issue any Class C shares in the number that
would make the voting rights corresponding to all such Class C shares outstanding at any time exceed 15%
of the voting rights corresponding to all of our shares outstanding immediately prior to our initial public
offering. Our Class C shares cannot be transferred, other than in specified circumstances to certain
related and affiliated persons of Mr. Siemiatkowski, their respective nominees and a depositary service.
Class C shares can also be issued upon the exercise of Class C options that have been, and may in the
future be, granted to Mr. Siemiatkowski. Mr. Siemiatkowski may elect to acquire, in his discretion, either
ordinary shares or Class C shares upon the exercise of such Class C options.
In addition, Class C shares will be redesignated into ordinary shares and deferred shares: (i) at the
election of the holder; (ii) if they are transferred (other than in permitted circumstances); (iii) if Mr.
Siemiatkowski and his related or affiliated persons cease to beneficially own the relevant Class C shares;
(iv) if Mr. Siemiatkowski ceases to provide services to us; and (v) in other specified circumstances. All Class
C shares will also automatically redesignate after 20 years from the Company’s initial public offering. In
each case, every two Class C shares will redesignate into one ordinary share and one deferred share.
As of December 31, 2025, the Company has a multi-class share capital structure consisting of ordinary
shares and Class B shares. The Class B shares carry ten votes per share, while the ordinary shares carry
one vote per share. As a result of this voting structure, holders of Class B shares exercise a
disproportionate level of voting control relative to their economic ownership.
As of December 31, 2025, the Company’s shareholders holding Class B shares collectively represent
approximately 98.65% of the combined voting power of the Company’s outstanding ordinary shares and
Class B shares. In addition, the Company’s directors, executive officers, and holders of 5% or more of any
KLARNA GROUP PLC60
class of the Company’s voting securities, together with their respective affiliates, collectively hold
approximately 51.22% of the combined voting power of the Company’s outstanding ordinary shares and
Class B shares. The release from lock-up of Klarna’s ordinary shares on March 9, 2026 may result in a
significant portion of B shares being redesignated, thereby increasing the relative control of the remaining
shareholders holding B shares.
Due to the ten-to-one voting ratio between the Class B shares and the ordinary shares, holders of
Class B shares are able to control a majority of the combined voting power of the Company’s share capital
and therefore have the ability to control the outcome of matters submitted to shareholders for approval,
including the election of directors and significant corporate transactions.
Based on the number of ordinary shares and Class B shares outstanding as of December 31, 2025, and
assuming no issuances of additional ordinary shares or Class C shares after that date, approximately
90.4% of the ordinary shares currently held by shareholders who also hold Class B shares would need to
be sold or otherwise transferred in transactions that result in the corresponding forfeiture of Class B
shares for such shareholders to collectively cease to hold a majority of the Company’s voting power.
In addition, future issuances of Class C shares (including following the exercise of Class C options) to
Mr. Siemiatkowski and his related and affiliated parties may further concentrate control in the hands of
shareholders who held our shares prior to the Company’s initial public offering. This concentrated control
may limit or preclude your ability to influence corporate matters for the foreseeable future, including the
election of our directors, amendments of our organizational documents, and any merger, consolidation,
sale of all or substantially all of our assets or other major corporate transaction requiring shareholder
approval. In addition, our multi-class share capital structure may prevent or discourage unsolicited
acquisition proposals or offers for our share capital that you may feel are in your best interests as one of
our shareholders.
Certain transfers of interests in our ordinary shares by holders of our Class B shares or their affiliates
will result in a related number of Class B shares converting to deferred shares with no voting or effective
economic rights, subject to limited exceptions noted above and set forth in our amended and restated
articles of association. The conversion of our Class B shares to deferred shares will have the effect, over
time, of increasing the relative voting power of those holders of our Class B shares who retain their
ordinary shares in the long term. Consequently, it is possible that one or more of the persons or entities
holding our Class B shares could gain significant voting control as other holders of our Class B shares sell
their ordinary shares. In addition, future issuances of Class C shares (including following the exercise of
options to acquire Class C shares) to Mr. Siemiatkowski and his related and affiliated parties would further
increase his relative voting power, in particular following the redesignation of Class B shares held by our
other shareholders. Any concentrated control in the hands of one or several of our shareholders, including
Mr. Siemiatkowski, may have the effect of delaying, preventing or deterring a change in control of our
company, could deprive our shareholders of an opportunity to receive a premium for their ordinary shares
as part of our sale and might ultimately affect the market price of our ordinary shares. Further, the
separation between voting power and economic interests could cause conflicts of interest between our
pre-IPO shareholders, including Mr. Siemiatkowski, and our other shareholders, which, subject to
applicable law, may result in our pre-IPO shareholders undertaking, or causing us to undertake, actions
that would be desirable for them but would not be desirable for our other shareholders. Finally, future
issuances of Class C shares, including following the exercise of Class C options, would also dilute the
economic and voting rights of our then-existing shareholders.
As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S.
issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer, we are subject to different disclosure and other requirements than
domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in
the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant
under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q
KLARNA GROUP PLC61
or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules
applicable to domestic U.S. registrants under Section 14 of the Exchange Act or short-swing profit rules
applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely
on exemptions from certain U.S. rules which will permit us to follow U.K. legal requirements rather than
certain of the requirements that are applicable to U.S. domestic registrants.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120
days after the end of each fiscal year, while U.S. domestic issuers that are large accelerated filers are
required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign
private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making
selective disclosures of material information. As a result of the above, even though we are required to file
reports on Form 6-K disclosing the limited information which we have made or are required to make public
pursuant to English law, or are required to distribute to shareholders generally, and that is material to us,
you may not receive information of the same type or amount that is required to be disclosed to
shareholders of a U.S. company.
Moreover, we are not required to file periodic reports and financial statements with the SEC as
frequently or within the same timeframes as U.S. companies with securities registered under the Exchange
Act. We currently prepare our financial statements in accordance with IFRS. We will not be required to file
financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial
statements are prepared in accordance with IFRS as issued by the IASB. We cannot predict if investors will
find our ordinary shares less attractive because we will rely on these exemptions. If some investors find
our ordinary shares less attractive as a result, the market for our ordinary shares may be less active or
more volatile.
We are subject to various change-in-control or similar regimes, which may require investors or us to
obtain certain regulatory approvals prior to completing changes in our shareholdings, control or corporate
structure.
Investors may be required to obtain various regulatory consents or permissions, or comply with
additional requirements and procedures, before acquiring significant interest in, or control over, directly or
indirectly, certain of our regulated subsidiaries, including Klarna Bank. It is generally expected that any
investor proposing to acquire more than 9.99% of our ordinary shares or voting power, directly or
indirectly, or proposing to increase its existing holdings above any of the thresholds of 10%, 20%, 30% or
50%, would likely be required, by virtue of us controlling a number of regulated entities, to obtain approval
from multiple regulators in different jurisdictions, including from regulators that may not currently
supervise us or any of our subsidiaries (as a result of, for example, changes in applicable laws and
regulations, internal reorganization, our future expansion into additional geographies or offerings, or
acquisitions of new regulated entities). For example, the Financial Services and Markets Act of 2000
generally provides that prior approval from the FCA must be obtained in connection with any transaction
resulting in a person or an entity holding, directly or indirectly, 10% or more of the equity or voting power of
a U.K. authorized person or the parent of a U.K. authorized person. Therefore, for so long as we remain the
parent entity of KFSUK, our U.K. authorized subsidiary subject to the FCA supervision, any person wanting
to acquire 10% or more of our shares will need to first obtain authorization from the FCA. Any failure to do
so could subject the acquirer to various penalties, including criminal ones. Similar restrictions and
limitations also apply to us because we control a number of licensed entities in the United States and in
the EEA that are subject to regulatory oversight and supervision by various regulatory agencies in such
jurisdictions. At the same time, the restrictions discussed above may limit our flexibility in managing our
corporate structure, including with respect to disposition of our regulated subsidiaries, which could
adversely affect our business, financial condition, results of operations and future prospects.
KLARNA GROUP PLC62
We may lose our foreign private issuer status, which would then require us to comply with the Exchange
Act’s domestic reporting regime and cause us to incur additional legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (a) more than 50% of the
voting power of all our outstanding classes of voting securities (on a combined basis) must be either
directly or indirectly owned of record by nonresidents of the United States or (b)(1) a majority of our
executive officers or directors must not be U.S. citizens or residents, (2) more than 50% of our assets
cannot be located in the United States and (3) our business must be administered principally outside the
United States. In addition, the SEC has recently undertaken a review and consultation regarding the
definition of “foreign private issuer” and the regulatory framework applicable to such issuers. As part of
this review, the SEC has indicated that it is evaluating whether the current eligibility criteria appropriately
reflect the characteristics of issuers that qualify for foreign private issuer status and whether
modifications to the definition or related requirements may be warranted. Any changes to the applicable
rules or interpretive guidance, including changes that narrow the availability of foreign private issuer status
or impose additional conditions on eligibility, could result in our loss of such status, even if our current
ownership, governance and operational profile were to remain substantially unchanged. If we lose this
status, we would be required to comply with the Exchange Act reporting and other requirements
applicable to U.S. domestic issuers, which are more extensive than the requirements for foreign private
issuers. We may also be required to make changes in our corporate governance practices in accordance
with various SEC and NYSE rules. The regulatory and compliance costs to us under U.S. securities laws if
we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be
significantly higher than the costs we will incur as a foreign private issuer. These costs will relate to, among
other things, the obligation to present our financial information in accordance with U.S. GAAP in the future.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S.
corporation.
We are incorporated under the laws of England and Wales. The rights of holders of our ordinary shares
are governed by English law, including the provisions of the Companies Act, and by our articles of
association. As a result, the rights of our shareholders and the responsibilities of members of our board of
directors may be different from the rights of shareholders and responsibilities of directors in companies
governed by the laws of U.S. jurisdictions.
As an English public limited company, certain capital structure decisions will require shareholder approval,
which may limit our flexibility to manage our capital structure.
We are a public limited company incorporated under the laws of England and Wales. English law
provides that, subject to certain exceptions (including the allotment of shares, or the grant of rights to
subscribe for or convert any security into shares, in pursuance of an employees’ share scheme), a board
of directors of a public limited company may only allot shares (or grant rights to subscribe for or convert
any security into shares) with the prior authorization of shareholders, such authorization stating the
aggregate nominal amount of shares that it covers and being valid for a maximum period of five years,
each as specified in the articles of association or relevant ordinary shareholder resolution passed by
shareholders at a general meeting.
English law also generally provides shareholders with preemptive rights when new shares are issued
for cash, except that such rights do not apply to the allotment of equity securities that would, apart from
any renunciation or assignment of the right to their allotment, be held under or allotted or transferred
pursuant to an employees’ share scheme. However, it is possible for the articles of association, or for
shareholders to pass a special resolution at a general meeting, being a resolution passed by at least 75% of
the votes cast, to disapply preemptive rights. Such a disapplication of preemptive rights may be for a
maximum period of up to five years from the date of adoption of the articles of association if the
disapplication is contained in the articles of association, or from the date of the shareholder special
resolution, if the disapplication is by shareholder special resolution, but not longer than the duration of the
authority to allot shares to which the disapplication relates. In either case, this disapplication would need
KLARNA GROUP PLC63
to be renewed by our shareholders upon its expiration (i.e., at least every five years). We have obtained
authority from our shareholders to disapply preemptive rights for a period expiring on at the conclusion of
our annual general meeting to be held in 2026 (or, if earlier, on June 30, 2026), which disapplication will
need to be renewed upon expiration, but may be sought more frequently for additional five-year terms (or
for any shorter period). English law also generally prohibits a public company from repurchasing its own
shares without the prior approval of shareholders by ordinary resolution, being a resolution passed by a
simple majority of votes cast and other formalities. Such approval may be for a maximum period of up to
five years.
As a foreign private issuer we are permitted under New York Stock Exchange listing standards to follow
certain English home-country corporate governance practices in lieu of certain requirements applicable to
U.S. domestic issuers, which may result in our shareholders not receiving the same governance
protections as shareholders of companies subject to all NYSE corporate governance requirements.
The corporate governance rules of the NYSE require listed companies to have, among other things, a
majority of independent directors and independent director oversight of executive compensation,
nomination of directors and corporate governance matters. As a foreign private issuer, we are permitted to
follow home country practice in lieu of the above requirements. For as long as we choose to rely on the
foreign private issuer exemption to certain of the NYSE corporate governance standards, our board of
directors’ approach to governance may be different from that of a board of directors of a U.S. domestic
company, and, as a result, the management oversight of our company may be more limited than if we were
subject to all of the NYSE corporate governance standards. While a majority of the directors on our board
of directors are independent directors, as long as we rely on the foreign private issuer exemption to
certain of the NYSE corporate governance standards, a majority of the directors on our board of directors
may not be required to be independent directors.
In addition, while we expect to voluntarily follow most NYSE corporate governance rules, we intend to
take advantage of certain exemptions, including, but not limited to, exemptions from:
•the requirement to obtain shareholder approval for certain issuances of securities, including
shareholder approval of equity compensation or purchase plans or other equity compensation
arrangements. We will follow English law with respect to any requirement to obtain shareholder approval in
connection with such issuances;
•the requirement that there be regularly scheduled meetings of only the independent directors at
least twice a year. There is no similar requirement under English law. As a result, our independent directors
may choose to meet in executive session at their discretion;
•the requirement to disclose within four business days any determination to grant a waiver of the
Code of Conduct (as defined herein) to directors and officers. While we intend to disclose any
amendments to our Code of Conduct, or waivers of its requirements, on our website or in public filings
under the Exchange Act, English law does not prescribe a specific timeline for such disclosure; and
•the quorum requirements applicable to meetings of shareholders. Such quorum requirements are
not prescribed by English law. In accordance with generally accepted business practice, our amended and
restated articles of association and the Companies Act provide alternative quorum requirements that are
generally applicable to meetings of shareholders.
We may utilize these exemptions for as long as we continue to qualify as a foreign private issuer.
Accordingly, our shareholders do not have the same protection afforded to shareholders of companies
that are subject to all of the NYSE corporate governance standards, and the ability of our independent
directors to influence our business policies and affairs may be reduced.
KLARNA GROUP PLC64
Forum selection provisions included in our articles of association could limit investors’ ability to obtain a
favorable judicial forum for disputes with us or impose additional litigation costs on our shareholders.
Our articles of association provide that the courts of England and Wales are the exclusive forum for
resolving all shareholder complaints other than shareholder complaints asserting a cause of action arising
under the Securities Act and the Exchange Act, and that the U.S. federal district courts are the exclusive
forum for resolving any shareholder complaint asserting a cause of action arising under the Securities Act
and the Exchange Act. Any person or entity purchasing or otherwise acquiring or holding any interest in
any of our securities shall be deemed to have notice of and consented to these provisions. However,
shareholders will not be deemed to have waived our compliance with U.S. federal securities laws and the
rules and regulations thereunder. These choice of forum provisions may limit a shareholder’s ability to
bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits. In particular, the courts of England and Wales and U.S.
federal district courts may also reach different judgments or results than would other courts, including
courts where a shareholder considering bringing a claim may be located or would otherwise choose to
bring the claim, and such judgments may be more or less favorable to us than our shareholders.
At the same time, similar forum provisions in other companies’ organizational documents have been
challenged in legal proceedings and there is uncertainty as to whether courts would enforce the exclusive
forum provisions in our amended and restated articles of association. If a court were to find either choice
of forum provision contained in our articles of association to be inapplicable or unenforceable in an action,
we may incur additional costs associated with resolving such action in other jurisdictions, which could
adversely affect our business, financial condition, results of operations and future prospects.
It may be difficult for you to obtain or enforce judgments or bring original actions against us or the members
of our board of directors in the United States.
The ability of holders of our ordinary shares to bring an action against us or the members of our board
of directors may be limited under law. We are a public limited company incorporated in England and Wales.
The rights of holders of our ordinary shares are governed by English law and by our articles of association.
The rights of holders of our ordinary shares differ from the rights of shareholders in typical U.S.
corporations and some other non-U.K. companies. In particular, English law currently significantly limits the
circumstances under which the shareholders of English companies may bring derivative actions. Under
English law, in most cases, only the company may be the proper plaintiff for the purposes of maintaining
proceedings in respect of wrongful acts committed against it and, generally, neither an individual
shareholder, nor any group of shareholders, has any right of action in such circumstances. English law
does not afford appraisal rights to dissenting shareholders in the form typically available to shareholders
in a U.S. company. In addition, it may not be possible for holders of the ordinary shares outside the United
Kingdom to enforce any judgments in civil or commercial matters or any judgments in securities laws of
countries other than the United Kingdom against some or all of our directors or executive officers who are
resident in the United Kingdom or countries other than those in which judgment is made.
In addition, most of our assets are not located in the United States. If proceedings are brought in the
courts of England or Wales seeking to enforce our obligations in respect of our ordinary shares, we may
not be required to discharge our obligations in a currency other than pounds. Under England and Wales
change control laws, an obligation in England and Wales to pay amounts denominated in a currency other
than pounds may only be satisfied in England and Wales currency at the exchange rate in effect on the
date the judgment is obtained, and such amounts are then typically adjusted to reflect exchange rate
variations and monetary restatements through the effective payment date. The then-prevailing exchange
rate may not afford non-English or non-Welsh investors with full compensation for any claim arising out of
or related to our obligations under our ordinary shares.
KLARNA GROUP PLC65
Substantial future sales of our ordinary shares in the public market could cause the trading price of our
ordinary shares to fall.
Sales of a substantial number of our ordinary shares in the public market, or the perception in the
market that the holders of a large number of ordinary shares intend to sell their ordinary shares, could
decrease the market price of our ordinary shares and could impair our ability to raise capital through the
sale of additional equity securities. As of the date of this annual report, we have 377,507,910 ordinary
shares outstanding. 335,521,212 ordinary shares are currently restricted as a result of securities laws or
lock-up agreements but will become eligible to be sold on or after March 9, 2026.
All ordinary shares that have been issued since our initial public offering under our equity
compensation plans are registered under a registration statement on Form S-8. They can be freely sold in
the public market upon issuance, subject to volume limitations applicable to affiliates and any the lock-up
agreements.
All of the potential sales described above could cause the trading price of our ordinary shares to fall
and make it more difficult for you to sell ordinary shares.
The issuance by us of additional equity securities, including Class C shares, may dilute your ownership and
adversely affect the market price of our ordinary shares.
Our articles of association authorize us to issue ordinary shares and rights relating to our ordinary
shares for the consideration and on the terms and conditions established by our board of directors in its
sole discretion, whether in connection with acquisitions, partnership agreements with merchants, or
otherwise. In addition, for five years following our initial public offering, we may issue to Mr. Siemiatkowski
(and his related and affiliated parties) Class C shares, including as a result of the exercise of Class C
options pursuant to which he can elect to acquire, in his discretion, either ordinary shares or Class C
shares upon the exercise of such Class C options. Any ordinary shares or Class C shares that we issue,
including under any equity incentive plans that we may adopt in the future, would dilute the percentage
ownership held by other investors.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing
additional ordinary shares or securities convertible into our ordinary shares or offering debt or other
securities. We could also issue our ordinary shares or securities convertible into our ordinary shares or
debt or other securities in connection with acquisitions or other strategic transactions. Issuing additional
ordinary shares, Class C shares or securities convertible into our ordinary shares or debt or other
securities may dilute the economic and voting rights of our then-existing shareholders and would likely
reduce the market price of our ordinary shares. Upon liquidation, holders of debt securities and preferred
shares, if issued, and lenders with respect to other borrowings would receive a distribution on our
distributable assets prior to the holders of our ordinary shares. Debt securities convertible into equity
securities could be subject to adjustments in the conversion ratio pursuant to which certain events may
increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have
a preference with respect to liquidating distribution or preferences with respect to dividend payments that
could limit our ability to pay dividends to the holders of our ordinary shares. Our decision to issue
securities in any future offering will depend on market conditions and other factors beyond our control,
which may adversely affect the amount, timing and nature of our future offerings. As a result, holders of
our ordinary shares bear the risk that our future offerings may reduce the market price of our ordinary
shares and dilute their shareholdings in us.
Furthermore, if any of our outstanding warrants are exercised or outstanding RSUs are vested, if we
issue awards to our employees under our equity incentive plans, or if we otherwise issue additional
ordinary shares, you could experience further dilution.
KLARNA GROUP PLC66
We may not pay any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our capital shares. Under current English law, a
company’s accumulated realized profits, so far as not previously utilized by distribution or capitalization,
must exceed its accumulated realized losses so far as not previously written off in a reduction or
reorganization of capital duly made (on a nonconsolidated basis), before dividends can be paid. Therefore,
we must have distributable profits before issuing a dividend. In the future, our board of directors may
decide, in its discretion, whether dividends may be declared and paid. As a result, capital appreciation, if
any, on our ordinary shares may be your sole source of gains, and you will suffer a loss on your investment
if you are unable to sell your ordinary shares at or above the price paid when acquiring them. We currently
intend to retain any future earnings to finance the operation and expansion of our business, and we do not
expect to declare or pay any dividends for the foreseeable future.
Requirements associated with being a public company in the United States will require significant resources
and management attention.
As a public company in the United States, we have incurred, and expect to continue to incur,
significant legal, accounting, reporting and other expenses that we have not incurred to date, including
costs associated with public company reporting requirements. We also have incurred, and will continue to
incur, costs associated with compliance with the rules and regulations of the SEC, the listing requirements
of the NYSE and various other costs of a public company. The expenses generally incurred by public
companies for reporting and corporate governance purposes have been increasing. These rules and
regulations may increase our legal and financial compliance costs and make some activities more time-
consuming and costly, although we are currently unable to estimate these costs with any degree of
certainty. Our management will need to devote a substantial amount of time to ensure that we comply with
all of these requirements. These laws and regulations also could make it more difficult and costly for us to
obtain certain types of insurance, including director and officer liability insurance, and we may be forced
to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. These laws and regulations could also make it more difficult to attract and retain
qualified persons to serve on our board of directors and board committees and serve as executive
officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject
to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil
litigation.
The multi-class structure of our share capital may adversely affect the trading market for our ordinary
shares.
Certain stock index providers have excluded companies with multiple classes of shares from being
added to their stock indices. Accordingly, the multi-class structure of share capital would make us
ineligible for inclusion in indices with such restrictions and, as a result, mutual funds, exchange-traded
funds and other investment vehicles that attempt to passively track those indices may not invest in our
ordinary shares. In addition, several stockholder advisory firms and large institutional investors have been
critical of the use of multi-class structures. Such advisory firms may publish negative commentary about
our corporate governance practices or our capital structure, which may dissuade large institutional
investors from purchasing our ordinary shares. These actions could make our ordinary shares less
attractive to other investors and may adversely affect the market for our ordinary shares, including their
price.
If securities and industry analysts do not publish research or publish inaccurate or unfavorable research
about our business, the price and trading volume of our ordinary shares could decline.
The trading market for our ordinary shares depends, in part, on the research and reports that
securities and industry analysts publish about us and our business. While we are currently covered by
several securities and industry analysts, they may cease to do so in the future . If securities and industry
analysts do not cover our company, the price of our ordinary shares would likely be negatively impacted. In
KLARNA GROUP PLC67
the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us
downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the
price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our
company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which
might cause the price and trading volume of our ordinary shares to decline.
There can be no assurance that we will not be a passive foreign investment company for U.S. federal income
tax purposes (“PFIC”) for the current or any future taxable year, which could subject U.S. investors in our
ordinary shares to significant adverse U.S. federal income tax consequences.
We will be a PFIC for any taxable year in which (i) 75% or more of our gross income consists of passive
income or (ii) 50% or more of the value of our assets (generally determined on a quarterly average basis)
consists of assets that produce, or are held for the production of, passive income. For purposes of these
tests, passive income generally includes dividends, interest (including interest-equivalent income or other
amounts treated as interest), gains from the sale or exchange of investment property and certain rents and
royalties. Cash and cash equivalents are generally passive assets for these purposes. In addition, for
purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by
value of the shares of another corporation is treated as holding its proportionate share of the assets, and
receiving directly its proportionate share of the income, of such other corporation.
Based upon the estimated value of our assets, the nature and composition of our income and assets
and the application of an exception applicable to certain banks (under which interest, income equivalent
to interest and certain other types of income earned by certain banks are treated as active for purposes of
the PFIC rules), we do not believe we were a PFIC with respect to our taxable year ended December 31,
2025. However, our PFIC status for any taxable year is an annual determination that cannot be made until
after the end of that year and will depend on the composition of our income and assets and the value of
our assets from time to time, as well as our qualification for the active banks exception described above,
which is pursuant to proposed Treasury regulations. Although under current IRS guidance these proposed
Treasury regulations can be relied upon prior to their finalization, there is no assurance that such
proposed Treasury regulations will be finalized in their current form. In addition, the qualification of certain
of our income and assets as active under the active banks exception is not entirely clear, and there is no
assurance that the IRS will agree with our classification of such items as active, in which case we may be
treated as a PFIC. Furthermore, we may be a PFIC if in the future we generate a significant amount of
interest income, or other income treated as interest for U.S. federal income tax purposes, other than
through Klarna Bank. Moreover, the total value of our assets (including goodwill and other intangibles) may
be determined, in part, by reference to the market price of our ordinary shares from time to time, which
may fluctuate. Accordingly, if our market capitalization declines while we hold a substantial amount of
cash, cash equivalents or other passive assets for any taxable year, we may be a PFIC for that taxable
year. The extent to which the value of our goodwill and other intangible assets should be treated as active
is also not entirely clear. For these reasons, we can give no assurance that we will not be a PFIC for our
current or any future taxable year. Due to the factual nature of the determination of our PFIC status, our
U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year.
If we are a PFIC for any taxable year during which a U.S. investor owns our ordinary shares, the U.S.
investor may be subject to adverse tax consequences (even if we cease to be a PFIC in subsequent
taxable years), including an increased tax liability on dispositions of our ordinary shares or receipt of
certain distributions, as well as additional reporting requirements. For a more detailed discussion of the tax
consequences of a PFIC classification to U.S. investors, see the section of this annual report titled
"Material U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company
Rules."
KLARNA GROUP PLC68
If our ordinary shares are not eligible for deposit and clearing within the facilities of DTC, then transactions in
our ordinary shares may be disrupted.
The facilities of DTC are a widely used mechanism that allow for rapid electronic transfers of securities
between the participants in the DTC system, which include many large banks and brokerage firms. While
our ordinary shares are eligible for deposit and clearing within the DTC system, DTC has discretion to
cease to act as a depository and clearing agency for the ordinary shares, including to the extent that any
changes in U.K. tax law change the stamp duty or stamp duty reserve tax (“SDRT”) position in relation to
our ordinary shares. If DTC determined that the ordinary shares were not eligible for continued deposit
and clearance within its facilities, then our ordinary shares may not be eligible for continued listing on a
U.S. securities exchange and trading in the ordinary shares would be disrupted. While we would pursue
alternative arrangements to preserve our listing and maintain trading, any such disruption could adversely
affect the market price of our ordinary shares and our access to the capital markets.
Transfers of our ordinary shares outside DTC may be subject to stamp duty or SDRT, in the United Kingdom,
which would increase the cost of dealing in our ordinary shares.
Our ordinary shares admitted for trading on the exchange are held by a nominee for DTC, and
corresponding book-entry interests credited in the facilities of DTC. Trading of our shares on the exchange
takes place through the transfer of book-entry interests in the shares. Under current law, no charges to
U.K. stamp duty or SDRT are expected to arise on transfers of book-entry interests in ordinary shares
within DTC’s facilities.
However, a transfer of title in our ordinary shares from within the DTC system to a purchaser out of
DTC (for example, if a purchaser wished to purchase the shares in certificated form) and any subsequent
transfers that occur entirely outside the DTC system will generally result in a charge to stamp duty at a
rate of 0.5% (rounded up to the nearest £5) of any consideration, which is payable by the transferee of the
ordinary shares. Any such duty must be paid, and the relevant transfer document, if any, confirmed as duly
stamped by HMRC, before the transfer can be registered in our books. However, if those ordinary shares
are redeposited into DTC, the redeposit will generally attract stamp duty or SDRT at the prevailing rate
(currently, 1.5%) to be paid by the transferor, subject to any applicable exemptions or reliefs.
We have put in place arrangements to require that any of our ordinary shares held outside the DTC
system cannot be transferred into the DTC system (for example, in connection with a redeposit into DTC
described above) until the transferor has first delivered the ordinary shares to a depositary specified by us
so that stamp duty (and/or SDRT), if applicable, may be collected in connection with the initial delivery to
the depositary. Before the transfer can be registered in our books, the transferor will also be required to
put funds in the depositary to settle the resultant liability to stamp duty (and/or SDRT), which will be
charged at a rate of 1.5% of the value of our ordinary shares.
KLARNA GROUP PLC69
MATERIAL TAX CONSIDERATIONS
Material U.K. Tax Considerations for U.K. Holders
The following is intended as a general guide to material U.K. tax considerations relevant to U.K. Holders
(as defined below) based on current U.K. tax law and HMRC practice applying as at the date of this report
(both of which are subject to change at any time, possibly with retrospective effect) relating to the holding
of ordinary shares. It does not constitute legal or tax advice and does not purport to be a complete
analysis of all U.K. tax considerations relating to the holding of ordinary shares, or all of the circumstances
in which holders of ordinary shares may benefit from an exemption or relief from U.K. taxation. It is written
on the basis that the company does not (and will not) directly or indirectly derive 75% or more of its
qualifying asset value from U.K. land, and that the company is and remains solely resident in the U.K. for
tax purposes and will therefore be subject to the U.K. tax regime and not the U.S. tax regime save as set
out below under “—Material U.S. Federal Income Tax Considerations for U.S. Holders.” The rates and
allowances stated in this section reflect the current law or, if different, announcements made by the U.K.
Government in the Autumn Budget 2025 published on November 26, 2025.
Except to the extent that the position of non-U.K. resident persons is expressly referred to, this guide
relates only to persons who are resident for tax purposes solely in the U.K. and to whom split year
treatment does not apply and who do not have a permanent establishment, branch, agency (or equivalent)
or fixed base in any other jurisdiction with which the holding of the ordinary shares is connected (“U.K.
Holders”), who are absolute beneficial owners of the ordinary shares (where the ordinary shares are not
held through an Individual Savings Account or a Self-Invested Personal Pension) and who hold the ordinary
shares as investments. The statements in this guide do not apply to any Holder who either directly or
indirectly holds or controls 10% or more of the company’s share capital (or class thereof), voting power or
profits.
This guide may not relate to certain classes of U.K. Holders, such as (but not limited to):
•persons who are connected with the company;
•financial institutions;
•insurance companies;
•charities or tax-exempt organizations;
•collective investment schemes;
•pension schemes;
•market makers, intermediaries, brokers or dealers in securities; and
•persons who have (or are deemed to have) acquired their ordinary shares by virtue of an office or
employment or who are or have been officers or employees of the company or any of its affiliates.
THESE PARAGRAPHS ARE A SUMMARY OF CERTAIN U.K. TAX CONSIDERATIONS AND ARE INTENDED AS A
GENERAL GUIDE ONLY. IT IS RECOMMENDED THAT ALL HOLDERS OF ORDINARY SHARES OBTAIN ADVICE AS TO
THE CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSAL OF THE ORDINARY SHARES IN THEIR OWN
SPECIFIC CIRCUMSTANCES FROM THEIR OWN TAX ADVISORS. IN PARTICULAR, NON-U.K. RESIDENT PERSONS ARE
ADVISED TO CONSIDER THE POTENTIAL IMPACT OF ANY RELEVANT DOUBLE TAXATION AGREEMENTS.
KLARNA GROUP PLC70
Dividends
Withholding tax
Dividends paid by the Company will not be subject to any withholding or deduction for or on account of
U.K. tax.
Income tax
An individual U.K. Holder may, depending on their particular circumstances, be subject to U.K. tax on
dividends received from the Company. An individual holder of ordinary shares who is not resident for tax
purposes in the U.K. should not be chargeable to U.K. income tax on dividends received from the Company
unless they carry on (whether solely or in partnership) a trade, profession or vocation in the United
Kingdom through a branch or agency to which the ordinary shares are attributable. There are certain
exceptions for trading in the U.K. through independent agents, such as some brokers and investment
managers.
All dividends received by an individual U.K. Holder from us or from other sources will form part of that
U.K. Holder’s total income for income tax purposes and will constitute the top slice of that income. A nil
rate of income tax will apply to the first £500 of taxable dividend income received by the individual U.K.
Holder in the 2025/26 and 2026/27 tax years (the “Nil Rate Band”). Income within the Nil Rate Band will be
taken into account in determining whether income in excess of the Nil Rate Band falls within the basic rate,
higher rate or additional rate tax bands. Dividend income in excess of the Nil Rate Band will (subject to the
availability of any income tax personal allowance) be taxed at 8.75% (10.75% in the 2026/27 tax year) to the
extent that the excess amount falls within the basic rate tax band, 33.75% (35.75% in the 2026/27 tax year)
to the extent that the excess amount falls within the higher rate tax band and 39.35% (no change in the
2026/27 tax year) to the extent that the excess amount falls within the additional rate tax band.
Corporation tax
A corporate holder of ordinary shares who is not resident for tax purposes in the United Kingdom
should not be chargeable to U.K. corporation tax on dividends received from the company unless it carries
on (whether solely or in partnership) a trade in the U.K. through a permanent establishment to which the
ordinary shares are attributable.
Corporate U.K. Holders should not be subject to U.K. corporation tax on any dividend received from the
company so long as the dividends qualify for exemption, which should generally be the case, although
certain conditions must be met. If the conditions for the exemption are not satisfied, or such U.K. Holder
elects for an otherwise exempt dividend to be taxable, U.K. corporation tax will be chargeable on the
amount of any dividends (currently, the main rate of corporation tax is 25%).
Chargeable Gains
A disposal or deemed disposal of ordinary shares by a U.K. Holder may, depending on the U.K. Holder’s
circumstances and subject to any available exemptions or reliefs (such as the annual exemption for
individuals), give rise to a chargeable gain or an allowable loss for the purposes of U.K. capital gains tax and
corporation tax on chargeable gains.
If an individual U.K. Holder who is subject to U.K. income tax at either the higher or the additional rate is
liable to U.K. capital gains tax on the disposal of ordinary shares, the current applicable rate in the 2025/26
and 2026/27 tax years will be 24%. For an individual U.K. Holder who is subject to U.K. income tax at the
basic rate and liable to U.K. capital gains tax on such disposal, the applicable rate in the 2025/26 and
2026/27 tax years would be 18%, save to the extent that any capital gains when aggregated with the U.K.
Holder’s other taxable income and gains in the relevant tax year exceed the unused basic rate tax band. In
that case, the rate applicable to the excess in the 2025/26 and 2026/27 tax years would be 24%.
KLARNA GROUP PLC71
If a corporate U.K. Holder becomes liable to U.K. corporation tax on the disposal (or deemed disposal)
of ordinary shares, U.K. corporation tax at the applicable rate (currently the main rate is 25%) would apply.
A holder of ordinary shares that is not resident for tax purposes in the U.K. should not normally be
liable to U.K. capital gains tax or corporation tax on chargeable gains on a disposal (or deemed disposal) of
ordinary shares unless the person is carrying on (whether solely or in partnership) a trade, profession or
vocation in the U.K. through a branch or agency (or, in the case of a corporate holder of ordinary shares, a
trade through a permanent establishment) to which the ordinary shares are used in or for the purposes of
such trade, profession or vocation (or, in the case of a corporate holder of ordinary shares, used, held or
acquired for the purposes of the permanent establishment). However, an individual holder of ordinary
shares who has ceased to be resident for tax purposes in the U.K. for a period of less than five years and
who disposes of ordinary shares during that period may be liable on their return to the U.K. to U.K. tax on
any capital gain realized (subject to any available exemption or relief).
Stamp Duty and Stamp Duty Reserve Tax
The discussion below relates to the holders of our ordinary shares wherever resident; however, it
should be noted that special rules may apply to certain persons such as market makers, brokers, dealers
or intermediaries. UK stamp duty is charged on documents and in particular instruments for the transfer of
registered ownership of ordinary shares. SDRT arises when there is an agreement to transfer shares in UK
companies “for consideration in money or money’s worth”, and so an agreement to transfer ordinary
shares for money or other consideration may give rise to a charge to SDRT at the rate of 0.5% (rounded up
to the nearest penny).
Certain of our existing ordinary shares are held by Cede & Co, as nominee for DTC, and eligible for
trading on the exchange via the transfer of book-entry interests in the shares through the DTC system.
Our remaining shares are subject to a lock-up agreement implemented in connection with the
company’s IPO and are currently held by a nominee for Computershare, an issuer of depository receipts,
and must be transferred into the DTC system before being eligible for trading on the exchange.
The discussion below covers the stamp duty and SDRT treatment of the issuance of new ordinary
shares, the transfer of our shares outside and into DTC, and the transfer of book-entry interest in our
ordinary shares, and share buybacks by us.
Issue of shares
There is generally no liability to stamp duty or SDRT payable on the issue of new ordinary shares in the
Company.
Transfers of shares outside DTC
An unconditional agreement to transfer ordinary shares outside the facilities of DTC will normally give
rise to a charge to SDRT at the rate of 0.5% of the amount or value of the consideration payable for the
transfer. The purchaser of the shares is liable for the SDRT. Transfers of ordinary shares in certificated
form are generally also subject to stamp duty at the rate of 0.5% of the amount or value of the
consideration given for the transfer (rounded up to the next £5). Stamp duty is normally paid by the
purchaser. There is an exemption where the consideration for a transfer is £1,000 or less and that transfer
does not form part of a larger transaction or series of transactions where the combined consideration
exceeds £1,000 and this is certified on the instrument of transfer. The charge to SDRT will be canceled or,
if already paid, repaid (generally with interest and upon claim), where a transfer instrument has been duly
stamped within six years of the charge arising (either by paying the stamp duty or by claiming an
appropriate relief) or if the instrument is otherwise exempt from stamp duty.
KLARNA GROUP PLC72
Transfers into (or between) depositary receipt issuers and clearance services
Subject to the following, an unconditional agreement to transfer ordinary shares to, or to a nominee or
agent for, a person whose business is or includes the issue of depositary receipts or the provision of
clearance services (a “depositary receipt issuer” and a “clearance service,” respectively) will prima facie
be subject to SDRT (or, where the transfer is effected by a written instrument, stamp duty) at a higher rate
of 1.5% of the amount or value of the consideration given for the transfer or, in certain circumstances, the
value of the shares (rounded up to the next multiple of £5 in the case of stamp duty) unless (in respect of
transfers to clearance services) the clearance service has made and maintained an election under section
97A of the United Kingdom Finance Act 1986 (a “section 97A election”). Any stamp duty or SDRT payable
on a transfer of ordinary shares to a depositary receipt issuer or a clearance service will in practice
generally be paid by the participants in the clearance service or depositary receipt system. No charge to
stamp duty or SDRT should arise on the issuance of new ordinary shares to a depositary receipt issuer or a
clearance service. However, such transfers to the depository or to certain persons providing a clearance
service (or their nominees or agents) will not attract stamp duty or SDRT where they satisfy the conditions
of an exemption, including exemptions which can apply to certain capital raising or qualifying listing
arrangements. Specific professional advice should be sought before paying the 1.5% SDRT or stamp duty
charge in any circumstances.
Transfers of shares from a depositary receipt issuer to a clearance service are generally outside of the
charge to U.K. stamp duty and SDRT (assuming that the clearance service has not entered into a section
97A election) and, as such, a transfer of our ordinary shares from the nominee for Computershare, as
depositary receipt issuer, to the nominee for DTC should not give rise to a liability to U.K. stamp duty or
SDRT. It is understood that HMRC regards the facilities of DTC as a clearance service for these purposes,
and we are not aware of any section 97A election having been made by DTC.
Transfers of book-entry interests in our shares
No stamp duty or SDRT should be required to be paid on a transfer of book-entry interests in our
ordinary shares through the clearance service facilities of DTC, provided that no section 97A election has
been made by DTC and (in the case of stamp duty only) provided that no written instrument of transfer is
entered into in respect of the transfer.
Share buybacks
A share buyback of our ordinary shares will give rise to stamp duty at the rate of 0.5% of the
consideration payable by us for such ordinary shares. This stamp duty will be paid by us.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following are material U.S. federal income tax consequences to U.S. Holders (as defined below) of
owning and disposing of our ordinary shares, but it does not purport to be a comprehensive description of
all tax considerations that may be relevant to a particular person’s decision to acquire our ordinary shares.
This discussion applies only to a U.S. Holder that holds those ordinary shares as capital assets for U.S.
federal income tax purposes (generally, property held for investment). This discussion does not address
any aspect of the Medicare contribution tax on “net investment income,” any applicable minimum tax, any
state, local or non-U.S. tax considerations, or any U.S. federal tax (such as estate or gift tax) other than U.S.
federal income tax. In addition, this discussion does not describe all aspects of U.S. federal income
taxation that may be relevant to U.S. Holders subject to special rules, including:
•banks and certain financial institutions;
•insurance companies;
•real estate investment trusts or regulated investment companies;
KLARNA GROUP PLC73
•dealers or traders in securities that use a mark-to-market method of tax accounting;
•persons holding our ordinary shares as part of a straddle, wash sale, hedging transaction,
conversion transaction or other integrated transaction or entering into a constructive sale with respect to
our ordinary shares;
•persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
•tax-exempt entities, governmental organizations, “individual retirement accounts” or “Roth IRAs”;
•persons that own or are deemed to own 10% or more of our shares (by vote or value);
•persons owning our ordinary shares in connection with a trade or business conducted outside the
United States; or
•entities or arrangements classified as partnerships for U.S. federal income tax purposes.
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes
holds our ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. Partnerships holding our ordinary shares and
partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax
considerations of owning and disposing of our ordinary shares.
This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”),
administrative pronouncements, judicial decisions, and final, temporary and proposed U.S. Treasury
regulations, all as of the date hereof, any of which is subject to change or differing interpretations, possibly
with retroactive effect. We have not sought and will not seek any rulings from the IRS regarding any matter
discussed herein. There can be no assurance that the IRS will not assert, or that a court will not sustain, a
position contrary to any of those set forth below.
A “U.S. Holder” is a person that, for U.S. federal income tax purposes, is a beneficial owner of the
ordinary shares and:
•a citizen or individual resident of the United States;
•a corporation, or other entity taxable as a corporation, created or organized in or under the laws of
the United States, any state therein or the District of Columbia; or
•an estate or trust the income of which is subject to U.S. federal income taxation regardless of its
source.
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax
consequences of owning and disposing of our ordinary shares in their particular circumstances.
Taxation of Distributions
The following is subject to the discussion under “—Passive Foreign Investment Company Rules” below.
Any distributions paid on our ordinary shares, other than certain pro rata distributions of our ordinary
shares, will be treated as dividends for U.S. federal income tax purposes to the extent paid out of our
current or accumulated earnings and profits (as determined under U.S. federal income tax principles).
Because we do not intend to maintain calculations of our earnings and profits under U.S. federal income
tax principles, we expect that distributions will generally be reported to U.S. Holders as dividends.
Dividends received by non-corporate U.S. Holders may be “qualified dividend income,” which is taxed at
the lower applicable capital gains rate, provided that (1) we are eligible for the benefits of the tax treaty
between the United States and the United Kingdom (the “Treaty”), (2) we are not a PFIC (as discussed
below) (or treated as a PFIC with respect to a U.S. Holder) for either the taxable year in which the dividend
KLARNA GROUP PLC74
was paid or the preceding taxable year and (3) the U.S. Holder satisfies certain holding period and other
requirements. U.S. Holders should consult their tax advisors regarding the availability of the lower rate for
dividends paid with respect to our ordinary shares. The amount of any dividend will generally be treated as
foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received
deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S.
Holder’s income on the date of the U.S. Holder’s receipt of the dividend.
Sale or Other Disposition of Our Ordinary Shares
The following is subject to the discussion under “—Passive Foreign Investment Company Rules” below.
Any gain or loss realized on the sale or other disposition of our ordinary shares will be capital gain or
loss, and will be long-term capital gain or loss if a U.S. Holder has held the ordinary shares for more than
one year. Long-term capital gains of individuals and other noncorporate U.S. Holders are eligible for
reduced rates of taxation. The amount of the gain or loss will equal the difference between a U.S. Holder’s
tax basis in our ordinary shares disposed of and the amount realized on the disposition, in each case as
determined in U.S. dollars. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit
purposes. The deductibility of capital losses is subject to various limitations. Any U.K. stamp duty or SDRT
(as discussed above under “—Material U.K. Tax Considerations for U.K. Holders”) imposed upon transfers of
our ordinary shares will not be creditable for U.S. federal income tax purposes. U.S. Holders should consult
their tax advisers regarding whether any such U.K. stamp duty or SDRT may be deductible or reduce the
amount of gain (or increase the amount of loss) recognized upon a sale or other disposition of our ordinary
shares.
Passive Foreign Investment Company Rules
We will be a PFIC for any taxable year in which (i) 75% or more of our gross income consists of passive
income or (ii) 50% or more of the value of our assets (generally determined on a quarterly average basis)
consists of assets that produce, or are held for the production of, passive income. For purposes of these
tests, passive income generally includes dividends, interest, gains from the sale or exchange of investment
property and certain rents and royalties. Cash and cash equivalents are generally passive assets for these
purposes. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or
indirectly owns at least 25% by value of the shares of another corporation is treated as holding its
proportionate share of the assets, and receiving directly its proportionate share of the income, of such
other corporation.
Based upon the estimated value of our assets, the nature and composition of our income and assets
and the application of an exception applicable to certain banks (under which interest, income equivalent
to interest and certain other types of income earned by certain banks are treated as active for purposes of
the PFIC rules), we do not believe we were a PFIC with respect to our taxable year ended December 31,
2025. However, our PFIC status for any taxable year is an annual determination that cannot be made until
after the end of that year and will depend on the composition of our income and assets and the value of
our assets from time to time, as well as our qualification for the active banks exception described above,
which is pursuant to proposed Treasury regulations. Although under current IRS guidance these proposed
Treasury regulations can be relied upon prior to their finalization, there is no assurance that such
proposed Treasury regulations will be finalized in their current form. In addition, the qualification of certain
of our income and assets as active under the active banks exception is not entirely clear, and there is no
assurance that the IRS will agree with our classification of such items as active, in which case we may be
treated as a PFIC. Furthermore, we may be a PFIC if in the future we generate a significant amount of
interest income, or other income treated as interest for U.S. federal income tax purposes, other than
through Klarna Bank. Moreover, the total value of our assets (including goodwill and other intangibles) may
be determined, in part, by reference to the market price of our ordinary shares from time to time, which
may fluctuate. Accordingly, if our market capitalization declines while we hold a substantial amount of
cash, cash equivalents or other passive assets for any taxable year, we may be a PFIC for that taxable
year. The extent to which the value of our goodwill and other intangible assets should be treated as active
KLARNA GROUP PLC75
is also not entirely clear. For these reasons, we can give no assurance that we will not be a PFIC for our
current or any future taxable year. Due to the factual nature of the determination of our PFIC status, our
U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year.
If we were a PFIC for any taxable year and any of our subsidiaries or other companies in which we
owned or were treated as owning equity interests were also a PFIC (any such entity, a “Lower-tier PFIC”), a
U.S. Holder would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier
PFIC and would be subject to U.S. federal income tax according to the rules described in the subsequent
paragraph on (i) certain distributions to us by a Lower-tier PFIC and (ii) our disposition of shares of Lower-
tier PFICs, in each case as if such holder held such shares directly, even though such holder may not have
received the proceeds of those distributions or dispositions.
If we were a PFIC for any taxable year during which a U.S. Holder held our ordinary shares, absent
making certain elections (as described below), such holder would generally be subject to adverse tax
consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a
pledge) of our ordinary shares by such U.S. Holder would be allocated ratably over such U.S. Holder’s
holding period for our ordinary shares. The amounts allocated to the taxable year of the sale or other
disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount
allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable
year for individuals or corporations, as applicable, and an interest charge would be imposed on the
resulting tax liability. Further, to the extent any distributions received in a taxable year in respect of our
ordinary shares exceeded 125% of the average of the annual distributions on our ordinary shares received
by the U.S. Holder during the preceding three taxable years or its holding period, whichever was shorter,
that distribution would be subject to taxation in the same manner as gain, described immediately above. If
we were a PFIC for any taxable year during which a U.S. Holder owned our ordinary shares, we would
continue to be treated as a PFIC with respect to such U.S. Holder for subsequent taxable years, unless we
ceased to be a PFIC and the U.S. Holder made a “deemed sale” election. U.S. Holders should consult their
tax advisers regarding the consequences of making this election, if relevant.
Alternatively, if we were a PFIC and if our ordinary shares were “regularly traded” on a “qualified
exchange,” a U.S. Holder would be eligible to make a mark-to-market election that would result in tax
treatment different from the general tax treatment for PFICs described above. Once made, the election
cannot be revoked without the consent of the IRS unless our ordinary shares cease to be marketable. If a
U.S. Holder makes the mark-to-market election, the U.S. Holder will generally recognize as ordinary income
any excess of the fair market value of such U.S. Holder’s ordinary shares at the end of each taxable year
over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted
tax basis of our ordinary shares over their fair market value at the end of the taxable year (but only to the
extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S.
Holder makes the election, the U.S. Holder’s tax basis in our ordinary shares will be adjusted to reflect
these income or loss amounts. Any gain recognized on the sale or other disposition of our ordinary shares
in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary
loss (but only to the extent of the net amount of income previously included as a result of the mark-to-
market election, with any excess loss treated as a capital loss). This election can be filed only with respect
to shares that are regularly traded on a qualified exchange. Accordingly, a U.S. Holder may continue to be
subject to tax under the PFIC excess distribution regime with respect to any Lower-tier PFICs
notwithstanding a mark-to-market election for our ordinary shares.
We do not intend to provide the information necessary for a U.S. Holder to make a qualified electing
fund election.
In addition, if we were a PFIC (or treated as a PFIC with respect to a U.S. Holder) for the taxable year in
which we paid a dividend or for the prior taxable year, the favorable qualified dividend tax rates discussed
above with respect to dividends paid to noncorporate U.S. Holders would not apply.
KLARNA GROUP PLC76
If a U.S. Holder owns our ordinary shares during any year in which we are a PFIC, such holder must
generally file annual reports containing such information as the U.S. Treasury may require on IRS Form
8621 (or any successor form) with respect to us, generally with such U.S. Holder’s federal income tax return
for that year. A failure to file one or more of these forms as required may toll the running of the statute of
limitations in respect of each of the U.S. Holder’s taxable years for which such form is required to be filed.
U.S. Holders should consult their tax advisers regarding the potential application of the PFIC rules,
including whether the elections discussed above would be available and, if so, what the consequences of
the alternative treatments would be in their particular circumstances.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain
U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to
backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient (and if required
establishes its exempt recipient status) or (ii) in the case of backup withholding, the U.S. Holder provides a
correct taxpayer identification number and certifies that the U.S. Holder is not subject to backup
withholding.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to
the U.S. Holder will be allowed as a refund or credit against the U.S. Holder’s U.S. federal income tax
liability and may entitle the U.S. Holder to a refund, provided that the required information is timely
furnished to the IRS.
Information with Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals (and certain entities) may be required to report information on
their U.S. federal income tax returns relating to an interest in our ordinary shares, subject to certain
exceptions (including an exception for our ordinary shares held in accounts maintained by certain U.S.
financial institutions). U.S. Holders should consult their tax advisers regarding the effect, if any, of this
requirement on their ownership and disposition of our ordinary shares.
KLARNA GROUP PLC77