Affirm, Afterpay and Klarna grew rapidly during the consumer-spending boom. Investors have concerns as outlook looks cloudier.
“Buy now, pay later” companies promised a credit revolution that would change the way people pay for things. Rising delinquencies and a slowing economy are clouding that outlook.
Payment plans that allow shoppers to split up the cost of things such as clothing, makeup and home appliances were all the rage last year. The companies behind the plans saw their valuations surge. Scores of retailers rushed to add them at checkout. Block Inc. SQ -6.40% (formerly Square Inc.) in August announced a roughly $29 billion all-stock deal for Afterpay, one of the biggest companies in the business.
But late payments or related losses are piling up for the industry’s biggest players— Affirm Holdings Inc., Afterpay and Zip Co. ZIP -4.79% Their borrowing costs, meanwhile, are rising. Buy-now-pay-later companies sometimes rely on credit lines whose rates rise and fall along with the Federal Reserve’s benchmark rate, which has risen 0.75 percentage point so far this year and is poised to go up even more.WSJ