More Americans are turning to buy now, pay later apps to afford everyday necessities, but an increasing share of consumers aren’t making payments on time.
At Affirm, 2% of outstanding loan dollars held on the company’s balance sheet were 60 or more days late as of June, up from under 1% a year earlier. Charge-offs, loans that are at least 120 days late that the company doesn’t expect to be repaid for, have grown tremendously. For the company’s fiscal year ending in June, charge-offs totaled around $228 million, or 3.5 times as much as the prior year.
“It's more around monitoring against the calls we've already made versus, ‘Oh delinquencies are rising, we better do something.,” he said. To put this in perspective, credit card delinquencies have risen from last year but on a much smaller scale than buy now, pay later firms. Delinquencies in the second quarter of this year were 1.8%, compared to 1.6% a year earlier, according to Federal ReserveMichael Taiano, a senior analyst at Fitch Ratings, said the diverging delinquency growth rates are a reflection of buy now, pay later's focus on lending to subprime borrowers that credit card companies would turn down.
“One of the biggest things that corrupt profitability in the finance space is delinquencies,” said Tallents. “So they’re going to have to be more judicious about credit checks and approvals,” he said, adding that “otherwise they’re going to end up in a very dangerous circumstance.” Some of those fees could include a “repeat user fee” for people who use buy now, pay later loans multiple times a month, he predicted.
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