Underlying logic is bi-sorted first order logic with identity, added to it the primitive symbol of set membership $\in$ and of binary relation strict smaller than $<$. Where $\in$ is a relation from first sort objects (represented by lower cases standing for naturals) to second sort objects (represented by upper cases denoting sets of naturals), while < relation is a binary relation restricted to first sort objects. The identity relation is un-restricted.
Sorting axioms:
Disjointedness: $\forall x,Y (x \neq Y)$
Existence: $\exists x (x=x)$
Extra-logical axioms:
Well ordering axiom:
Asymmetric: $ x < y \to \neg (y < x) $
Transitive: $ x < y \land y < z \to x < z$
Connective: $ x \neq y \leftrightarrow (x < y \lor y < x)$
Well founded: $\exists n \in X \to \exists n \in X \forall m \in X (n \leq m)$
Finiteness: $\exists n \in X \to \exists n \in X \forall m \in X (m \leq n)$
Potential Infinity: $\forall x \exists y (x < y)$
Extensionality: $\forall X \forall Y [\forall z (z \in X \leftrightarrow z \in Y) \to X=Y]$
Set formation: if $\phi(m)$ is a formula in which $m$ is free, but $X$ not free, then all closures of: $$\forall n \exists X \forall m (m \in X \leftrightarrow m < n \land \phi(m))$$, are axioms.
Is this theory a conservative extension of $\sf PA$?
The idea is that this theory can easily define the arithmetical primitives: $0$ is provable from axioms of existence and well ordering axiom, both the successor and predecessor functions are provable from axioms of well foundedness and finiteness and axiom of potential infinity. Induction principle is provable from set formation and well ordering axiom. Now "<" being a well founded relation over first sort object would support recursive definitions, since they'd have a solution, so we'll use this property to define a counting recursive function $\#$ on sets and numbers, the idea is for that function to count the numbers, so for any set K the first element in $K$ (with respect to $<$ relation) would be sent by this counting function to $1$, the next bigger element in $K$ would be sent to number $2$ and so on, the counting function is recursive it sends each element of $K$ to the the successor of the value of that function on the preceding element in $K$ till we reach min(k) which would be assigned number $1$. Using this counting function then the value assigned to the maximal element in $K$ would be the cardinality of $K$, i.e. the number of elements in $K$. Then we can easily define summation of naturals in the usual set theoretic manner as the size of the union of disjoint sets having their cardinalities being the arguments of summation. Multiplication is a little bit more complex, but it uses partitioning sets which has equal intervals between its elements, and it is easy to get multiplication using that function. Here is the formal workup:
Define recursively: $\#^K (x) = n \leftrightarrow [x=min(K) \land n=1] \lor [x \in K \land x > min(K) \land n= S[\#^K(P^K(x))]$
Where $P^K(x) = y \leftrightarrow x \in K \land y \in K \land y < x \land \not \exists z \in K (y < z < x)] $
Define Successor as: $x=S(y) \iff y < x \land \not \exists z (y < z < x)$
Define: $|K|=n \iff [K \text { is non empty } \land n= \#^K(max(K))] \lor [K \text { is empty } \land n=0]$.
Define: $x + y = z \iff \exists X,Y,Z (X \text { disjoint } Y \land Z= X \cup Y \land |X|=x \land |Y|=y \land |Z|= z )$
Define: $X \text { is d partitioning set } \iff \forall L (\exists a,b \in X (a=P^X (b) \land L=\{n|a < n \leq b\}) \lor L=\{n| 0< n \leq min(X)\} \to |L|=d )$
Define: $X^*=\{n| \exists m \in X (0< n \leq m) \}$
Define: $x \times y = z \iff \exists X (X \text { is x partitioning set } \land |X|=y \land z= |X^*|) \lor [x=0 \land y \neq 0 \land z=0]$