Gabe Jones | Bloomberg | Getty Images
Two trendy areas in finance – fintech and private credit – are coming together in a new multi-billion dollar joint venture.
Confirm Holding It is getting its largest capital commitment ever through a new partnership from private credit firm Sixth Street, which is investing in $4 billion in loans over three years.
Sixth Street is committing upfront capital to Affirm to secure short-term installment loans, ranging from four to six months. Once repaid, the capital goes back into the pot to make more loans, amounting to more than $20 billion that can be extended over the three years of the partnership. The deal includes a ramp, and the sale of the loan won't begin until 2025, according to a person familiar with the terms.
With private credit on the rise in recent years, alternative asset managers are increasingly looking to non-banking and fintech companies to invest capital. FinTech companies choose what they consider to be more efficient sources of funding that can be scaled up or down based on demand from end users.
Unlike banks, which rely more on deposits to make loans, Affirm and many of its peers opt for a variety of financing models, including warehouse facilities, asset-backed securitization, and so-called forward flow agreements, like the one it signed with Sixth. street. What this means is that Sixth Street intends to purchase loans originated by Affirm for consumers as they purchase items online through platforms ranging from Amazon to Apple. PayPal Announce A similar deal this summer with KKR for loans originated in Europe.
But traditional banks are not completely outside the finance supply chain. They finance these loans indirectly, along with private credit funds, from the balance sheets of private banks.
Confirmation, since the beginning of the year
The entire ecosystem is financing a higher capacity to take out more short-term installment loans and buy products now, pay later in anticipation of demand growth. As of September 30, Affirm's financing capacity was $16.8 billion, resulting in 130% growth over the past three years. Total merchandise volume growth during the first nine months of the year was 34%, which is higher than last year but lower than 2022 levels.
Affirm provides credit to consumers at annual interest rates between 0% and 36%, depending on what is being purchased, the merchant, and the implied probability that the consumer will repay the loan. If a consumer is late or delinquent on a payment, he or she does not owe any additional amount, which means there is no additional return for investors if the loan is not repaid on time. The rate of more than 30 days delinquency as a percentage of active balances was 2.8 percent as of September.
