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Fintech and private credit, two trendy areas of finance, are merging into a new multibillion-dollar joint venture.
Confirm holding The company will receive its largest ever capital commitment under a new partnership with private credit firm Sixth Street, which will see the company invest $4 billion worth of loans over three years.
Sixth Street is pre-funding Affirm to underwrite short-term installment loans — with terms ranging from four to six months. Once repaid, the capital is put back into the loans to make more loans – totaling more than $20 billion, which can be extended over the three years of the partnership. The deal includes a ramp-up, with loan sales not starting until 2025, according to a person familiar with the matter.
As private credit has exploded in recent years, alternative asset managers have increasingly turned to non-bank fintech companies to invest capital. Fintech companies are choosing what they believe to be more efficient sources of financing that can scale up or down based on end-user demand.
Unlike banks that rely more on deposits to make loans, Affirm and many of its peers have opted for a variety of funding models, including warehouse facilities, asset-backed securitizations and so-called forward flow agreements, such as the one with Sixth Street. This means that Sixth Street intends to purchase loans provided by Affirm to consumers to help them purchase goods online through platforms such as Amazon and Apple. PayPal declare A similar European loan deal was agreed with KKR this summer.
But traditional banks have not completely broken away from the financing supply chain. Together with private credit funds, they fund these loans indirectly through the banks’ own balance sheets.
Confirmed, year to date
The entire ecosystem is providing higher capacity for more short-term installment loans and “buy now, pay later” products in response to growing demand. As of September 30, Affirm’s financing capacity was US$16.8 billion, a 130% increase over the past three years. The growth rate of total merchandise volume in the first nine months of this year was 34%, which was higher than last year but lower than the level in 2022.
Affirm provides credit to consumers at annual interest rates between 0 and 36%, depending on the purchase, the merchant, and the consumer’s implied likelihood of repaying the loan. If consumers are late or miss a payment, they won’t owe any extra money, meaning investors don’t get extra money if the loan isn’t repaid on time. As of September, Affirm’s delinquency rate over 30 days as a percentage of active balances was 2.8%.
