SecProbe.io

CORRESP
 1
 filename1.htm

 Document Byron B. Rooney Davis Polk & Wardwell LLP CONFIDENTIAL  +1 212 450 4658 450 Lexington Avenue byron.rooney@davispolk.com New York, NY 10017 davispolk.com July 16, 2025 Re: Klarna Group plc Amendment No. 1 to Registration Statement on Form F-1 Filed May 21, 2025 File No. 333-285826 VIA EDGAR TRANSMISSION Division of Corporation Finance Office of Finance Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549-7561 Attention: Madeleine Joy Mateo Christian Windsor Lory Empie Michael Volley Ladies and Gentlemen: On behalf of our client, Klarna Group plc, a public company with limited liability incorporated pursuant to the laws of England and Wales (the “ Company ”), we are responding to the comments from the Staff (the “ Staff ”) of the Securities and Exchange Commission (the “ Commission ”) relating to Amendment No. 1 to the Company’s Registration Statement on Form F-1, filed with the Commission on May 21, 2025 (as may be revised from time to time, the “ Registration Statement ”) contained in the Staff’s letter dated May 30, 2025. Set forth below are the Company’s responses to the Staff’s comments. For convenience, the Staff’s comments are repeated below in italics , followed by the Company’s response to each comment as well as a summary of the responsive actions taken. As noted below, the Company plans to address certain of the Staff’s comments by revising the Registration Statement and filing Amendment No. 2 to the Registration Statement (“ Amendment No. 2 ”) at a later date. The Company currently expects to include in Amendment No. 2 the Company’s interim unaudited consolidated financial statements as of, and for the six months ended, June 30, 2025 and make related additions and updates throughout the Registration Statement. Amendment No. 1 to Form F-1 Key Business Metrics Number of Active Klarna Consumers, page 124 1. We note your response to prior comment 3 from our letter dated April 11, 2025, in which you state that active Klarna consumers is meaningful since you generate, at a minimum, ad revenue from customers who use your app. Please revise this section to explain your reasoning for using the metric as currently defined, consistent with your response. Please supplement that disclosure with an explanation of how many of the active Klarna customers have engaged with at least one of your financial services during the most recent period. Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that it will revise the definition of active Klarna consumers in Amendment No. 2 to include its reasoning for using the metric as currently defined. The Company also notes that, in addition to disclosing the number of active Klarna consumers, the Registration Statement also includes the number of consumers who use the Klarna app every month. The number of monthly active users has consistently grown in recent periods, from 31 million on average in 2023 to 47 million in the three months ended June 30, 2025. This continued expansion is driven by, and reflective of, the growth of the Company’s network and the increasing scope and variety of its offerings. As noted in various places in the Registration Statement, the Company offers through the app a wide array of non-payment-related products and services intended to enhance the overall consumer commerce experience. These include deposits, cashback rewards, search and price comparison tools, personalized shopping recommendations, order and return tracking, instant refunds, loyalty cards, and budgeting tools. Because of this breadth of its offerings and increasing number of merchants using Klarna, the Company enjoys compounding network effects and cross-product adoption. As its markets mature and consumers use the Company’s offerings for longer, on average, active Klarna consumers meaningfully increase their use of the Klarna app and other products and solutions, including payment products, across their commerce journey. Similarly, purchase frequency typically increases over time as consumers build trust in the Company’s brand and progressively discover the added value of its offerings. In light of the above, to further illustrate the scope of the Company’s user engagement and in response to the Staff’s comment, the Company plans to include in Amendment No. 2 information about the number of monthly Klarna users who made a purchase or a payment using Klarna in the most recent period. The number of such users in the three months ended June 30, 2025 reached on average 43 million. This figure illustrates a close correlation between the number of monthly Klarna app users (47 million in the same period) and the use of the Company’s payment products. The Company believes that the information relating to the number of active Klarna consumers, the number of monthly active Klarna app users and the number of monthly Klarna users who made a purchase or a payment in a recent period that will be included in Amendment No. 2 comprehensively reflect the breadth of consumer engagement across the Klarna network. As such, these metrics allow prospective investors to accurately evaluate the Company’s brand relevance and consumer retention as well as the monetization potential of its user base. Operating Leverage from Economies of Scale in Combination with Continued Deployment of AI, page 146 2. We note your disclosure, here and elsewhere in the registration statement, about your ongoing efforts to leverage AI in your credit granting and customer service activities. We also note an article in Forbes, published online May 9, 2025, in which your CEO described the results of some of your AI services to be of “ lower quality ” compared to human representatives. We note that the article went on to state that Klarna wanted to make sure that its customers always knew they could reach a human representative if they needed one. Revise your disclosure to discuss how your approach to leveraging AI has changed as you gain more experience operating with the technology. Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that the above-referenced excerpts from the Forbes article were based on an interview given by the Company’s chief executive officer to another media organization. In that interview, Mr. Siemiatkowski discussed a pilot program of engaging highly skilled freelance customer experience consultants to increase the quality of the Company’s human customer service. As such, the comments cited by the Staff did not relate to AI- 2 driven customer service quality issues and were misreported by Forbes . The Company further respectfully advises the Staff that it does not utilize generative AI techniques in its credit underwriting. Rather, as noted in the Registration Statement, it relies on established machine learning (ML) techniques to enable its real-time underwriting process. To clarify these points and provide prospective investors with additional details regarding the Company’s AI strategy, the Company intends to include the following additional disclosure (with new text shown in bold ) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations一Factors Affecting Our Performance一Operating Leverage from Economies of Scale in Combination with Continued Deployment of AI” in Amendment No. 2 in response: Operating Leverage from Economies of Scale in Combination with Continued Deployment of AI [...] These efficiencies have been driven by our increased scale. Additionally, we have prioritized a number of initiatives that improve our operating leverage, including implementing AI throughout our business to drive cost savings. We announced a partnership with OpenAI in 2023 and in February 2024 launched our AI assistant powered by OpenAI to improve customer support. Our AI assistant handled 66% of customer service chats in the twelve months ended March 31, 2025, according to our service chat log data, doing the work equivalent of over 700 full-time agents (estimated based on the average monthly reduction in chat and telephone conversations handled by full-time agents in 2024 following the launch of our AI assistant), and in 2024 delivered approximately $39 million in cost savings. Based on our service chat log data and consumer satisfaction surveys, AI-handled consumer chats rank on par with human agents in consumer satisfaction and demonstrate higher accuracy in errand resolution. Following the launch of our AI assistant, repeat inquiries dropped by 25% between December 2023 and January 2024. Additionally, AI-handled consumer chat resolutions averaged two minutes, compared to the 12-minute average for human agents in 2024. Our AI assistant has been trained to handle complex errands and assist consumers with a wide range of their queries. At the same time, appreciating that certain consumers may nevertheless prefer to interact with human representatives, we continue to offer all of our customers that option. This reflects our dual-track approach of combining broad and continuing implementation of scalable AI in our customer service with high-quality human support. We similarly continue to invest in AI in other aspects of our operations to drive innovation and efficiencies across Klarna. Recognizing the critical importance of human capital, we continue to focus on internal talent development and upskilling programs in AI, fostering a data-driven culture across our entire organization. We are actively monitoring emerging AI technologies and best practices. While we continue to utilize well-established ML techniques in our underwriting processes, we do not use generative AI for credit underwriting. As exemplified by our approach to customer service, we also continue to refine our processes throughout our business to maximize the benefits of AI while aiming to effectively manage associated risks and ensure the quality and reliability of our network, products and overall consumer experience. 3 Results of Operations Consumer Credit Losses, page 152 3. We note your disclosure that despite the increase of consumer credit losses on an absolute basis, loan delinquency trends continued to improve, especially in the United States. Please revise to disclose and discuss credit risk metrics used by management for credit risk management purposes, including delinquency metrics, and discuss any material credit risk trends in MD&A. Response: The Company respectfully acknowledges the Staff’s comment and advises the Staff that it intends to include the additional disclosure below as a new subsection under “Management’s Discussion and Analysis of Financial Condition and Results of Operations一Factors Affecting Our Performance一Our Ability to Maintain Best-In-Class Underwriting Capabilities and Achieve Low Consumer Credit Losses” in Amendment No. 2 in response. Such disclosure will be supplemented in Amendment No. 2 as needed with relevant data for the recently completed fiscal quarter ended June 30, 2025, which is not currently available. Credit Risk Governance and Monitoring We evaluate the repayment ability of our consumers both at origination and post-origination through a structured governance and monitoring framework. On an operational level, our underwriting teams conduct daily and weekly cohort-level monitoring to flag delinquencies and payment deviations, which in turn trigger automated alarms. At the portfolio level, we maintain a dedicated consumer credit committee, comprising our chief financial officer, chief risk officer and chief product and design officer. The committee holds monthly reviews to assess several delinquency indicators, including early- and late-stage delinquencies, volume distributions and loan acceptance rates. Key findings from this review are summarized and escalated to the chief executive officer and our board of directors. This multi-tiered governance and monitoring framework provides early-warning signals and portfolio-level controls that enable timely risk adjustments. Key Credit Metrics We monitor several key credit-risk metrics, with a particular emphasis on (i) 60-day past due rates (“60+ DPD”), which measure outstanding principal over 60 days past due as a percentage of originated volume for a given cohort, and (ii) cumulative net charge-offs, which reflect the total value of loans deemed uncollectible after a set period. 4 60+ DPD rates Note: Reflects performance and delinquencies of all consumer loans extended by Klarna in the relevant period, regardless of whether such loans currently remain on Klarna’s balance sheet. For the fourth quarter 2024 Fair Financing cohort, 60+ DPD performance data is complete through November 2024. Performance for December 2024 has been estimated based on delinquency trends observed in prior months. The chart above presents our 60+ DPD rates on a consolidated basis separately for our Pay Later and Fair Financing products. Delinquency rates for both products generally followed similar trends, with notable declines through the third quarter of 2022, driven by continued improvement in our underwriting models. A small uptick was observed in the second half of 2023, corresponding to increasing transaction volumes during that period, reflective of our continued growth, and a higher share of the United States in our overall market mix, driven by our further expansion in that market. Our 60+ DPD rates have continued to decrease thereafter reflecting our continued improvements in underwriting capabilities. Any periodic increases were less pronounced for our Pay Later product, given its shorter duration and generally lower balances, which also drove generally lower delinquency rates than for our Fair Financing cohorts. Despite occasional increases, the overarching trend for both of our consumer credit products is clearly improving, with delinquency rates declining over time. This reflects the continuing improvement and maturation of our underwriting processes and resiliency of our loan portfolio in various economic environments. 5 Note: Reflects performance and delinquencies of all consumer loans extended by Klarna in the relevant period, regardless of whether such loans currently remain on Klarna’s balance sheet. For the fourth quarter 2024 Fair Financing cohort, 60+ DPD performance data is complete through November 2024. Performance for December 2024 has been estimated based on delinquency trends observed in prior months. As shown by the chart above, our delinquency rates in the United States follow similar trends as our rates on a consolidated basis. Our consistently improving performance in this market shows the quality of our underwriting process and our improved capabilities as we scaled and matured our U.S. operations. Cumulative net charge-offs Our cumulative net charge-offs have followed a similar trajectory. As discussed under “Selected Statistical Information一Allowance for Credit Losses,” our net charge-offs during the period to average loans outstanding have significantly improved since 2022 as a result of the increased maturity of our underwriting models, driven by the scaling up of our operations in newer markets, in particular the United States and the U.K. While we are continuously growing our GMV and the size of our loan portfolio, the amount of our net charge-offs remained broadly consistent across past periods. The improvements in our net charge-off rates are particularly apparent in the United States, as shown below. Cumulative Net Charge-off Rates (U.S. Pay Later) 6 Cumulative Net Charge-off Rates (U.S. Fair Financing) Note: Charts above reflect the performance of consumer loans extended by Klarna in the relevant period that remain on Klarna’s balance sheet. As illustrated above, for U.S. Pay Later, all 2024 cohorts are tracking below their 2023 counterparts. Loss curves across cohorts plateau around 1%. For our U.S. Fair Financing product, the 2024 cohorts remain broadly in lin