Upstart and Affirm shares plunge as the “buy now, pay later” boom fades — now, rising rates could boost “BNPN”

Wednesday, May 11, 2022 by Robinhood Snacks |

Loanly, I'm Mr. Loanly... "Buy now, pay later" doesn’t sound as good as it used to. The days of near-zero interest rates and stimmy checks are gone, and it's hurting loan providers — from BNPL firms like Affirm to accessible lending platforms like Upstart.

  • Shares of Upstart tanked 56% yesterday, despite the company's better-than-expected earnings (revenue more than doubled and profit 3X'd).
  • The AI-driven platform connects people with less-than-stellar credit scores to lenders with favorable terms. Its mantra: "you are more than your credit score."
  • Problem: Upstart cut its revenue forecast for the year and predicts lower sales and zero profit for this quarter.

Pay in installments?... Maybe nah. Lending boomed during the pandemic as extra-low interest rates made borrowing cheap — from home buying to online clothes shopping. BNPL firms like Afterpay, Klarna, and Affirm thrived by letting you buy those $700 Gucci loafers now and pay in installments later. Last year, Americans spent more than $20B through BNPL. Almost a year ago, Klarna hit a $46B valuation, becoming the second-most-valuable private fintech. Now:

  • Interest rates are expected to keep rising as the Fed tightens its monetary belt to fight inflation. Cue: Affirm stock, down 81% this year.
  • Loan-default rates are rising after cruising at historic lows for the past year and a half. Lenders are demanding higher interest to make up for higher risk.

When rates rise, BNPN wins… That’s “buy now, pay now.” Rising rates make loans more expensive — from credit-card debt to car leases — so consumers might start taking out fewer loans (hence: why Upstart slashed its forecast). Now the BNPL sector is being repriced to reflect that, and debt-laden Gen Zers are starting to turn against the services whose growth they fueled.