The bond sale is being arranged by JP Morgan Chase and Atlas, a division of Apollo Global Management.
This move marks a strategic shift for Pagaya, which has traditionally focused on securitizing unsecured personal and auto loans. Over the past year, the firm has issued approximately USD 5 billion in bonds, predominantly backed by these conventional lending products. By entering the BNPL market, Pagaya aims to diversify its asset base and capitalize on a fast-growing segment of the consumer credit industry.
BNPL Gains Popularity Among Limited Credit Borrowers
Recent data indicates that BNPL products are particularly favored by consumers with limited access to traditional credit. Approximately 40% of these borrowers have applied for BNPL financing, compared to just 27% of those with super-prime credit scores. These individuals are also more likely to explore alternative non-traditional financing methods such as payday loans and credit-builder products.
While these options can be more accessible with lower rejection rates, they often come with high interest rates and fees. Additionally, some firms offering these products do not report repayment data to major credit bureaus, which limits their ability to help borrowers build credit.
BNPL accounted for about 8% of retail purchases during the previous holiday season, highlighting its increasing importance in consumer finance. Pagaya’s entry into this space places it in direct competition with Affirm, a leading player in the sector.
However, both companies have different approaches to borrower risk assessment. While Affirm typically targets consumers with stronger credit profiles, Pagaya works with borrowers who fall just below the approval thresholds of firms such as Klarna.