SAN FRANCISCO–Even as buy now, pay later (BNPL) solutions grow in usage and volume—with Apple the latest to announce such an offering—the value of the loans being made have started to drop in value, at least at one company.
The BNPL loans, which can be among the riskiest, have been being packaged and sold to investors, similar to other loan securitization packages. But loan packages being sold by Affirm Holdings Inc., which offers the Affirm BNPL solution, have been falling in price for investors to buy while becoming more expensive to issue, after rising rates and a cost of living crisis cast a shadow over the sector, according to Bloomberg.
“Affirm has over 12.7 million customers and extended around $3.9 billion of loans in the first three months of 2022,” Bloomberg reported. “It was valued at $47 billion in September after a blockbuster listing on Nasdaq in January 2021, but its shares have fallen over 80% this year.”
One-Third of Business
According to Bloomberg, Affirm funds about a third of its business through securitizations – “an asset class that rose to prominence during the subprime mortgage crisis” -- bundling loans together and selling slices to investors.
“The model is relatively rare among BNPL companies, which tend to fund themselves through debt and, in Klarna’s case, customer deposits,” Bloomberg reported.
Harry Kohl, an analyst with Fitch Ratings who covers the asset-backed securities sector, told Bloomberg the ratings agency is “monitoring closely” Affirm’s securitizations after seeing a weakening in credit quality in its public disclosures.
As CUToday.info has been reporting, Bloomberg also added in its analysis, “The deterioration in Affirm’s securitization values also tells a wider story. Investors are starting to worry that the burgeoning BNPL sector, which commanded heady valuations and was hailed as one of the fastest growing fintech genres just a year ago, may be hit by a double whammy of rising rates and a squeeze on household incomes.”
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