In a significant partnership that highlights the growing convergence of fintech and private credit, Affirm Holdings has secured a $4 billion loan deal with private-credit firm Sixth Street, CNBC reports.
The agreement represents Affirm’s largest-ever capital commitment and marks a major step forward for the company’s “buy now, pay later” (BNPL) business model.
Under the terms of the deal, Sixth Street will provide upfront capital for Affirm to underwrite short-term installment loans, typically lasting four to six months. Once borrowers repay these loans, the funds will be recycled to issue new loans, potentially allowing for more than $20 billion in loans to be originated over the three-year partnership. Loan sales are set to begin in 2025 after an initial ramp-up period, according to a source familiar with the terms.
This partnership highlights the growing trend of private credit firms working directly with fintech companies, which are increasingly looking for flexible, scalable sources of capital. Unlike traditional banks, which rely on customer deposits to make loans, companies like Affirm use various funding strategies, including warehouse credit facilities, asset-backed securitizations, and forward flow agreements like the one it just signed with Sixth Street.
In essence, Sixth Street will purchase loans originated by Affirm as consumers use its installment payment service to shop on platforms such as Amazon and Apple. This approach mirrors a similar deal announced by PayPal earlier this year, which partnered with private equity firm KKR to fund loans in Europe.
The Affirm-Sixth Street deal is part of a broader shift in the global credit landscape. Private credit funds, which manage capital outside of the traditional banking system, have seen explosive growth in recent years as investors seek higher yields in a low-interest-rate environment. These funds have become an essential source of liquidity for fintech companies, which rely on them to fund loans as demand for BNPL services grows.
While traditional banks aren’t completely out of the picture, they now play an indirect role. Banks provide financing to private-credit funds, which in turn offer funding to fintech companies like Affirm. This layered financing structure allows fintech firms to scale lending capacity while avoiding the regulatory and capital constraints faced by banks.
As of September 30, Affirm’s total funding capacity stood at $16.8 billion, a 130% increase over the past three years. The new deal with Sixth Street significantly expands Affirm’s ability to meet rising demand for short-term installment loans.
The timing of the deal comes as Affirm positions itself for growing demand for BNPL services. The company’s gross merchandise volume (GMV), which measures the total value of transactions on its platform, grew by 34% in the first nine months of the year. While this growth is higher than last year, it remains below the levels seen in 2022, reflecting the normalization of spending habits after the pandemic-driven surge in e-commerce.
BNPL services like Affirm offer consumers the ability to divide payments into smaller, interest-free or low-interest installments. Affirm charges APRs ranging from 0% to 36%, depending on factors like the type of purchase, the merchant, and the borrower’s credit profile. Unlike traditional credit cards, Affirm does not charge late fees. However, this feature limits the return for investors if borrowers delay payments.
Affirm’s ability to manage loan risk is crucial as it expands its lending capacity. The company’s delinquency rate — the percentage of balances more than 30 days past due — stood at 2.8% as of September, which is within industry norms for short-term installment loans. As private credit firms like Sixth Street step in to fund these loans, they are betting on Affirm’s ability to maintain this level of performance.
The Affirm-Sixth Street partnership is part of a broader shift toward private credit financing in the BNPL sector. The deal underscores the rising importance of private credit firms as essential backers of fintechs, enabling them to scale their lending operations without relying solely on traditional banking channels.
This trend has been bolstered by rising consumer demand for alternative payment methods, as more shoppers opt for BNPL services instead of credit cards. At the same time, private credit firms are seizing opportunities in the fintech sector, where new lending models offer higher yields than more traditional investments.
The announcement had a positive impact on Affirm’s stock price. Shares of Affirm rose 3.23% to $70.99 in after-hours trading following the news, reflecting investor optimism about the company’s expanded lending capacity and its ability to meet growing demand for installment loans. Affirm’s stock has seen volatility over the past year but remains a key player in the competitive BNPL sector.
