Two prominent sectors in the financial world — fintech and private credit — are converging in a significant multibillion-dollar partnership.
Affirm Holdings has secured its largest-ever capital commitment through a new collaboration with private credit firm Sixth Street. This partnership involves a $4 billion investment in loans to be made over the next three years.
Sixth Street is fronting the funds for Affirm to issue short-term installment loans with durations ranging between four and six months. Once these loans are repaid, the capital will be recycled into new loans, potentially enabling more than $20 billion in lending throughout the three-year agreement. The deal includes a phased approach, with loan sales beginning in 2025, as reported by a source familiar with the terms.
The rise of private credit has prompted alternative asset managers to explore investments in nonbank fintech companies, which are viewed as scalable and flexible funding avenues. These fintech firms, in turn, are leveraging private credit as a more efficient financing source that adjusts to their users' demands.
Unlike traditional banks that rely heavily on deposits to issue loans, Affirm and its fintech counterparts utilize diverse funding models. These include warehouse credit facilities, asset-backed securitizations, and forward flow agreements like the one Affirm has signed with Sixth Street.
Under this agreement, Sixth Street will acquire consumer loans originated by Affirm. These loans allow consumers to make purchases online via platforms like Amazon and Apple. Notably, PayPal entered into a similar partnership with KKR earlier this year to finance loans in Europe.
However, traditional banks remain part of the financing chain. They indirectly fund these loans alongside private credit funds, often drawing on their balance sheets.
This interconnected system is enabling greater capacity for short-term installment loans and buy now, pay later (BNPL) products, which are expected to see growing demand. As of September 30, Affirm’s funding capacity reached $16.8 billion, marking a 130% increase over the past three years. Meanwhile, the gross merchandise volume for the first nine months of the year grew by 34%, surpassing last year’s performance but remaining below 2022 levels.
Affirm offers consumer credit with annual percentage rates (APRs) ranging from 0% to 36%, depending on factors such as the type of purchase, the merchant, and the consumer’s repayment likelihood.
Importantly, Affirm does not charge late fees or penalties if payments are missed, meaning investors do not earn additional returns from overdue loans. As of September, Affirm reported a delinquency rate of 2.8% for loans overdue by more than 30 days as a share of active balances.
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