What: The current financial context should be a real issue for BNPL, but actually, this is exactly the contrary.

Why it is important: BNPL remain useful tools to recruit and keep clients captive.

Despite expectations that higher interest rates would slow down the growth of buy now, pay later (BNPL) lenders like Affirm, these companies are experiencing unexpected benefits. Unlike banks, which rely on deposits, BNPL firms fund loans from market sources and are theoretically more vulnerable to rising interest rates. However, banks are facing instability in their deposits and increased capital requirements, leading them to reduce consumer lending.

Affirm, in particular, is attracting investors, including pension funds, with its high-yield credit offerings. This demand is boosting not only BNPL firms but also alternative asset managers who are seeking non-traditional credit options. Affirm reported a gross merchandise volume of USD 5.6 billion in its recent quarter, surpassing expectations and increasing its revenue net of transaction costs. Its total net revenue grew by 37% year over year to USD 497 million, and its stock value has seen significant growth.

The appeal of BNPL credits lies in their short-term nature and the ability of firms like Affirm to increase yields through higher lending rates. Affirm has maintained stable credit performance, with a low delinquency rate. Despite not reaching the disruptive potential anticipated in 2021 and still working towards profitability, Affirm's current trajectory is garnering renewed investor interest.

Why high interest rates are supporting buy now pay later schemes