Two rapidly growing sectors in finance—fintech and private credit—are joining forces in a significant new multibillion-dollar collaboration.
Affirm Holdings has secured its largest-ever capital commitment through a partnership with private credit firm Sixth Street, which plans to invest $4 billion in loans over three years.
The arrangement involves Sixth Street providing upfront capital for Affirm to issue short-term installment loans with repayment periods ranging between four and six months.
Once the loans are repaid, the funds will be recycled to finance additional loans, potentially resulting in more than $20 billion in loans over the partnership’s three-year duration. The deal includes a phased approach, with loan sales expected to begin in 2025, according to sources familiar with the agreement.
As the private credit market has seen tremendous growth in recent years, alternative asset managers are increasingly turning to fintech companies as nonbank platforms to deploy their capital. For fintech firms, partnerships like this offer a more flexible and scalable financing option, allowing them to adapt quickly to fluctuations in consumer demand.
Unlike traditional banks that primarily use deposits to fund loans, Affirm and its counterparts rely on diverse funding strategies, such as warehouse facilities, asset-backed securitizations, and forward flow agreements like the one it has now signed with Sixth Street.
In this specific arrangement, Sixth Street will acquire loans issued by Affirm to consumers purchasing items online through platforms like Amazon and Apple. A similar agreement was announced earlier this year between PayPal and KKR for European loans.
However, traditional banks are still indirectly involved in the financing process. Alongside private credit funds, banks contribute to these loan portfolios through their own balance sheets, supporting the growing demand for short-term installment loans and buy now, pay later (BNPL) products.
Affirm’s funding capacity reached $16.8 billion as of September 30, representing a 130% increase over three years. The company’s gross merchandise volume grew by 34% in the first nine months of this year—higher than last year’s figure but below the levels seen in 2022.
Affirm offers credit to consumers at annual percentage rates (APRs) ranging from 0% to 36%, depending on the item purchased, the merchant, and the assessed likelihood of the consumer repaying the loan.
Notably, Affirm does not charge late fees or additional penalties for missed payments, meaning there is no extra return for investors if borrowers fail to pay on time. As of September, Affirm reported a delinquency rate of 2.8% for loans overdue by more than 30 days, calculated as a percentage of active balances.
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