Buy now, pay later (BNPL) has been around in some format for a very long time, but the current version hit the financial scene somewhere around 2014 or so when Klarna and Affirm scooped up millennials and Gen Z customers happy to skip interest and make installment payments based on paycheck direct deposits.
But as BNPL ticket prices grow beyond $1,000 amid economic uncertainty and runaway inflation, the business model is getting deeper scrutiny — even as more players, like Apple, enter the industry.
Related: Apple Says Now Is the Time for Pay Later
In the first three months of this year, Affirm clocked more than 12.7 million customers and extended around $3.9 billion in BNPL loans. The Silicon Valley company launched in 2012, had a valuation of $47 billion in September and listed on Nasdaq in January 2021. On its first day of trading, shares rose as high as $97, according to Nasdaq data.
But that was then. Last year at this time its share price was almost $71; now it’s a skootch over $24. Despite the plunge, Affirm still holds the top position with Klarna in PYMNTS’ Provider Ranking of Buy Now, Pay Later Apps.
See also: Buy Now, Pay Later App Provider Ranking Sees Two Apps Far Ahead of the Rest of the Field
Regulators are taking a closer look at the entire BNPL space, and a House Subcommittee on Financial Services hearing titled “Buy Now, Pay More Later?” convened in November over the mounting consumer debt.
Nandan Sheth, CEO of Splitit, told PYMNTS’ Karen Webster that he anticipates that consumers will see changes as far as terms as BNPL lenders experience a tightening of underwriting standards that could limit their capacity to extend loans.
Read more: BNPL Rethinks Model as Trying Times Strain Customers’ Wallets
Affirm could be on shakier financial ground because securitizations account for roughly one-third of how it runs and funds its business, Bloomberg reported. Securitization was a thing during the subprime mortgage disaster from 2007 to 2010 and involves bundling loans and selling percentages to investors.
BNPL companies generally fund themselves through debt — or, like Klarna, rely on customer deposits. Australia’s Zip also uses securitization, but its ticket prices are smaller than Affirm’s loans.
“When you are originating to borrowers with low or thin credit — the younger demographic, essentially — that’s always a warning for us and something that could be an indicator of potential negative credit performance,” Harry Kohl, an analyst with Fitch Ratings who covers the asset-backed securities sector, told Bloomberg.
