Buy Now Pay Later (BNPL) has been around in a certain format for a very long time, but the current version hit the financial scene around 2014 or so when Klarna and Affirm picked up Millennials and Gen Z customers happy to jump in. interest and make installment payments based on direct paycheck deposits.
But as BNPL ticket prices surge above $1,000 amid economic uncertainty and runaway inflation, the business model is coming under greater scrutiny, even as more players , like Apple, are entering the industry.
Related: Apple Says It’s Time to Pay Later
In the first three months of this year, Affirm registered more than 12.7 million customers and issued approximately $3.9 billion in BNPL loans. The Silicon Valley company launched in 2012, had a valuation of $47 billion in September and was listed on Nasdaq in January 2021. On the first day of trading, shares hit $97, according to Nasdaq data.
But that was then. This time last year, its stock price was nearly $71; now it’s just over $24. Despite the dip, Affirm still holds the top spot along with Klarna in PYMNTS’ Buy Now, Pay Later app provider rankings.
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 Financial Services Subcommittee hearing titled “Buy Now, Pay Later?” met in November on rising consumer debt.
Nandan Sheth, CEO of Splitit, told PYMNTS’ Karen Webster that he expects consumers to see changes on terms as BNPL lenders experience tightening underwriting standards that could limit their ability to lend.
Read more: BNPL rethinks its model as tough times strain client portfolios
Affirm could be on a more fragile financial footing as securitizations make up about a third of how it manages and funds its business, Bloomberg reported. Securitization was a thing during the subprime mortgage disaster of 2007-2010 and involved bundling loans and selling percentages to investors.
BNPL companies typically finance themselves through debt – or, like Klarna, rely on customer deposits. Australia’s Zip also uses securitization, but its ticket prices are lower than Affirm’s loans.
“When you source borrowers with weak or thin credit – the younger demographic, basically – that’s always a warning sign for us and something that could be an indicator of a credit performance. potential negative,” Harry Kohl, an analyst at Fitch Ratings who covers the asset-backed securities industry, told Bloomberg.