Affirm had to halt a debt offering on Friday in a move blamed on rate market volatility, as confidence sinks in buy now, pay later in a rising rate environment.
Confidence in the buy now, pay later sector is evaporating as US operator Affirm halted a bond sale on Friday after an investor backed out, in a move blamed on growing levels of credit rate volatility.report, and is down 82 per cent since November. US-focused rivals and merger candidates Zip Co and Sezzle hit multi-year lows on the ASX on Monday and have cratered more than 80 per cent in 12 months.
Over first-half financial 2022, Zip’s net bad debts of $148.3 million reached 2.6 per cent of its total transaction volume, equal to 9.7 per cent of closing receivables owed by customers on an annualised basis. is the cautionary tale of how sub-prime lenders starred in the GFC by bundling together portfolios of loans at mismatched credit ratings.
In effect, the profits on the majority of loans could be used to cover the losses on the few, but the GFC showed this only works when macro-economic conditions are benign and credit cheap. In a broad downturn as interest rates rise, credit markets creak, and the cost of living soars, these asset backed securities can turn sour.
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