Coverage: weekly note · Information to 20 February 2026
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TGB Weekly Research Note · 20 February 2026
Point-of-sale lenders grew far faster than US revolving credit in 2025, as the UK, the EU and Australia pulled buy now, pay later inside consumer-credit rules.
The desk view
Klarna reported gross merchandise volume (GMV) of $38.7bn for the fourth quarter 2025, up 32% year on year, and its first $1bn revenue quarter. PayPal said its buy now, pay later (BNPL) volume exceeded $40bn in 2025, up more than 20%. US revolving consumer credit grew 3.4% over the same year. Outside the US, rules are converging: the FCA published final rules on 11 February 2026 for regulation from 15 July 2026, and the EU's revised Consumer Credit Directive applies from 20 November 2026. Our view is that banks now meet these platforms both as competitors for unsecured credit and as partners in distribution.
Checkout credit is compounding faster than card balances
Klarna's GMV of $38.7bn in the fourth quarter 2025 was 32% higher than a year earlier, and US GMV rose 43%. Revenue rose 38% to $1.082bn. The fastest-growing line was Fair Financing, a longer-duration product on which interest income accrues over the life of the loan: its GMV rose 165% to $4.5bn in the quarter. Klarna describes this as taking market share from revolving credit, a company claim that aggregate data cannot test directly.
Klarna's gross consumer receivables rose from $8,473m at the end of 2024 to $10,951m at the end of 2025, an increase of 29.2%. Fair Financing receivables grew 49.2% to $4,604m and Pay Later receivables 17.8% to $6,347m. PayPal said its BNPL volume passed $40bn in 2025, up more than 20%.
The bank-dominated comparator moved far more slowly. US consumer credit rose 2.4% in 2025 and revolving credit 3.4%, reaching $1,328.6bn in December 2025. Revolving credit held by depository institutions rose from $1,193.0bn to $1,224.0bn, or 2.6%. Platform balances remain small beside US card books, so the shift is happening at the margin, but the gap in growth rates is wide.
Growth in outstanding credit, 2025, %
Source: Klarna Group plc, Fourth Quarter 2025 Results (earnings release and shareholder letter), 19 February 2026; Board of Governors of the Federal Reserve System, Consumer Credit - G.19, December 2025, 6 February 2026.
A bank model with an originate-to-sell loop
The label "non-bank" fits these platforms only loosely. Klarna's prospectus said it has been a licensed bank in the European Economic Area since 2017 and funded 95% of its lending in the twelve months to 30 June 2025 with deposits. Consumer deposits rose from $9,510m to $13,003m during 2025, an increase of 36.7%. Klarna said users of its banking services, such as the card or savings, doubled to 15.8 million and generate $107 of revenue each, against $30 for the average consumer.
The other half of the model is risk transfer. Klarna said it increasingly uses forward-flow agreements to sell receivables to institutional investors; in the fourth quarter it offloaded $1.6bn of Fair Financing receivables and recorded a $73m gain on sale. For Pay Later, it keeps the merchant fee and sells the consumer receivable below originated value, which cost $78m in funding costs in the quarter. PayPal likewise originates BNPL receivables as held for sale and then sells them.
Klarna's provision for credit losses was 0.65% of GMV in the fourth quarter, down from 0.72% in the third but above 0.53% a year earlier. This suggests that a growing share of the credit risk created at the checkout sits with investors that buy the loans, rather than on the platform's balance sheet.
Regulators converge, except in the US
The UK has the nearest deadline. On 14 July 2025 the government made legislation bringing deferred payment credit (DPC) into FCA regulation from 15 July 2026, and the FCA published final rules on 11 February 2026. DPC is interest-free credit repayable in 12 or fewer instalments within 12 months, and lenders will need a proportionate creditworthiness assessment before each agreement. The FCA says the market grew from £0.06bn in 2017 to over £13bn in 2024, that 20% of UK consumers (10.9 million adults) used DPC in the 12 months to May 2024, and that the three largest firms hold over 90% of the market by volume.
In the EU, Directive (EU) 2023/2225 brings BNPL schemes into scope; member states had to adopt national measures by 20 November 2025 and apply them from 20 November 2026. Australia moved earlier: since 10 June 2025, BNPL contracts have been regulated as credit and providers must hold an Australian credit licence. US federal policy went the other way, with the Consumer Financial Protection Bureau withdrawing its 2024 BNPL interpretive rule on 12 May 2025.
BNPL regulation in selected markets
| Market | Measure | Status |
|---|---|---|
| United States | CFPB 2024 BNPL interpretive rule | Withdrawn 12 May 2025 |
| Australia | BNPL regulated under the National Credit Act | In force from 10 June 2025 |
| United Kingdom | FCA rules for deferred payment credit (PS26/1) | Regulation from 15 July 2026 |
| European Union | Directive (EU) 2023/2225 | Applies from 20 November 2026 |
Source: Consumer Financial Protection Bureau, Buy Now, Pay Later (BNPL) products (compliance resources page), 1 July 2025; Australian Securities and Investments Commission, Regulatory Guide 281: Low cost credit contracts, 8 May 2025; Financial Conduct Authority, PS26/1: Regulation of Deferred Payment Credit (unregulated Buy Now Pay Later): Feedback to CP25/23 and final rules, 11 February 2026; European Parliament and Council of the European Union (Official Journal of the European Union), Directive (EU) 2023/2225 of 18 October 2023 on credit agreements for consumers and repealing Directive 2008/48/EC, 30 October 2023.
What it means for banks
Banks are being drawn in as distributors. Klarna said integrations with Worldpay, JPMorgan Payments and Clover were progressing and that it expects to launch default-on partnerships with Worldpay and JPMorgan Payments. For card issuers, the exposure is a gradual migration of planned purchases away from revolving balances, on which US banks' card plans charged 22.30% on accounts assessed interest in the fourth quarter of 2025. Compliance demands on platforms will rise in the UK and EU but not, for now, at US federal level. Our reading is that banks should treat checkout credit as three things at once: an acquiring opportunity, a source of loans to buy, and a slow drain on card revenue.
What to watch
- 26 February 2026: Klarna publishes its full annual financial statements.
- 15 July 2026: deferred payment credit comes under FCA regulation in the UK.
- 20 November 2026: EU member states apply the revised Consumer Credit Directive.
Primary sources: Klarna Group plc, Fourth Quarter 2025 Results (earnings release and shareholder letter), 19 February 2026; Board of Governors of the Federal Reserve System, Consumer Credit - G.19, December 2025, 6 February 2026; Financial Conduct Authority, PS26/1: Regulation of Deferred Payment Credit (unregulated Buy Now Pay Later): Feedback to CP25/23 and final rules, 11 February 2026; European Parliament and Council of the European Union (Official Journal of the European Union), Directive (EU) 2023/2225 of 18 October 2023 on credit agreements for consumers and repealing Directive 2008/48/EC, 30 October 2023; PayPal Holdings, Inc., IR Newsletter: PayPal 4Q 2025 earnings, 3 February 2026; Australian Securities and Investments Commission, Regulatory Guide 281: Low cost credit contracts, 8 May 2025; Klarna Group plc, Klarna accelerates U.S. growth and delivers $1bn revenue driven by rapid banking service adoption (Q4 2025 press release), 19 February 2026; Klarna Group plc, Prospectus (Form 424B4) filed with the US Securities and Exchange Commission, 9 September 2025; PayPal Holdings, Inc., PayPal Reports Fourth Quarter and Full Year 2025 Results (earnings release), 3 February 2026; Consumer Financial Protection Bureau, Buy Now, Pay Later (BNPL) products (compliance resources page), 1 July 2025.