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Lending Briefing: 2021 BNPL results, C&I lending picking up again

  • US BNPL players are pursuing aggressive growth strategies, but doesn’t necessarily mean healthy growth - underlying performances are beginning to surface some concerns in the market.
  • In commercial and industrial lending, volumes are picking up for the third consecutive quarter since the onset of the pandemic.

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Lending Briefing: 2021 BNPL results, C&I lending picking up again

2021 BNPL results: What’s really going on under the hood?

Buy Now, Pay Later is undoubtedly growing as the preferred e-commerce payment mode, and so is the appetite for more growth from the fintechs in the sector. 

The BNPL market is expected to grow by 181% and account for 13% of all global e-commerce payments by 2024, according to the 2021 Global Payments Report by Worldpay from FIS. By 2025, BNPL leaders such as Afterpay, Affirm, Klarna and PayPal are expected to process $650 billion to $1 trillion in transactions.

But aggressive growth doesn’t necessarily mean healthy growth, and investors are closely monitoring the underlying performance of these businesses. 

Recent results disclosures revealed potential warning signs for the future, signaling that confidence in the BNPL sector might be dwindling. So what’s been going on?


The latest to take the headlines was Affirm, announcing on Monday an upward adjustment of fiscal Q3 2022 earnings released back in February from a previously calculated high of $335 million in revenue to “at least” $335 million for the quarter, and “at least” $1.3 billion for fiscal year 2022. Not game changing, but positive.

However, this announcement comes on the back of a Bloomberg news report late Friday saying that Affirm delayed a proposed bond sale as a major investor backed out at the last minute “due to general market volatility that may have led to wider risk premiums than the company wanted,” citing multiple unnamed sources. 

Affirm responded that it took the decision to temporarily hold off on issuing this particular transaction.

All these factors resulted in the fintech’s stock dropping by 28% since the Friday news to close at $26.22 on Monday - a fraction compared to the $100 it closed last year at. 

This signals that markets are worried about consumer debt due to rising volatility, on the back of high inflation paired with rising interest rates. The strong credit performance during the pandemic might prove unsustainable considering current macroeconomic conditions.

But management remains confident. 

“We are seeing exactly the repayment and the delinquency defaults, all metrics that we track very, very carefully, perform to our models as predicted,” CEO Max Levchin told CNBC.


Klarna’s 2021 results also triggered some questions on the quality of credit it’s taking on. 

Growth numbers were strong - the company’s active customer base spiked 70% year-on-year to a total of 147 million, adding 46 million new customers in 2021. Revenues were up 31% in Q4, and 38% for the year. 

But underlying credit loss figures were… confusing. Klarna said that credit loss rates have reduced by over 30% since 2019, but this was calculated applying 2021 credit loss rates to 2019 merchandise volume. I’m no expert, but this feels like strange math.

The absolute value of defaults increased, with total net credit losses up from ~$260 million in 2020 to ~$480 million in 2021. More than a third of these came in the fourth quarter, which CEO Sebastian Siemiatkowski said reflected variances in provisioning for loan losses and seasonal growth during the holiday period.

And looking at defaults as a percentage of volume, which reveals the quality of underwriting, the 2021 metric was 0.67% – up from 0.56% in 2019. 

Around $300 million of the increase in loss figures was a result of growth in new markets, where “loss levels are initially higher” according to Klarna. 

The US remains its fastest growing key market, soon to be its largest. Klarna said it reduced its credit losses there by 60% since 2019, but now I’m skeptical over how they calculated that.

In any case, losses are not bad for a growing company, but the trick here seems to be balancing growth while retaining underwriting quality. And every BNPL player out there is competing for the same pool of quality customers, especially in the US. 


Australia’s leading BNPL fintech Zip is also in a little bit of a pickle after its results revealed a 400% rise in reported bad debts and expected credit losses to $148 million in its cost of sales segment.

Moreover, its H2 2021 revenue margin stood at 6.7% of total transaction volumes (TTV), below the 7.1% recorded over the same period a year before, as well as the 6.9% posted in the first half of 2021.

Looking ahead, Zip said that in the medium term it expects to deliver a margin of 6.5% to 7%.

The company recently announced its $491 million takeover of US BNPL Sezzle, which is expected to result in 8.8 million customers and 60,500 merchants in the US on a pro forma basis. This would take Zip’s US TTV to approximately 60% of its total, up from 48% at the end of 2021.

But the US also brings an increasing battle for market share, aka transaction volumes, as well as retailer pushback for lower costs.

Source: CB Insights 

Plus, the BNPL wave is also eating into traditional banks’ revenues, taking advantage of their slow reaction to changes in the POS financing ecosystem. But banks have their eyes set on this as well, with Monzo, Revolut, Virgin Money and Barclays either trialing or rolling out credit by installment products this year. 

This means that while BNPL is flourishing as a market, it’s also about to get even more crowded than it already is. With traditional card issuers and processors adding BNPL to cards at POS this year, pure players will be seeing more competition in US markets. 

Klarna’s Siemiatkowski compared these efforts from retail banks to retailers entering e-commerce: “If they really go for it full-heartedly and make necessary changes, some will be able to succeed,” he said.

Chart of the week

US banks’ commercial and industrial (C&I) loan balances continued their rising trend in the fourth quarter of 2021. 

Looking at the 25 banks with the largest C&I loan portfolios, their books totalled $2.3 trillion at the end of Q4, up 3.1% from the previous quarter but down 5.2% year-on-year, according to an analysis by S&P Global Market Intelligence. 

Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and PNC, are the top 5 US banks by C&I loans in the fourth quarter of 2021, all with portfolios north of $100 billion. 

Source: S&P Global Market Intelligence

Bank of America had the largest C&I loan portfolio - $298 million, up 2.4% from a year ago and 9% versus the previous quarter, citing broad-based growth across all segments of commercial lending. 

"We saw improvement in both new loans as well as improving utilization from existing clients," Chairman, CEO and President Brian Moynihan said on a Jan. 19 earnings call.

What we’re reading 

  • Dollar General moves into BNPL (Finextra)
  • Upgrade is the fastest growing US credit card (Fintech Finance)
  • Whatever happened to peer-to-peer lending? (Kiplinger)
  • Santander launches loans backed by tokenized commodities (CoinDesk)
  • TransUnion’s new tools protect lenders while helping users improve their credit scores (Finovate)
  • The coming boom in metaverse lending for banks (Forbes)

What we’re writing

  • Incumbents are changing their overdraft policies – what does it mean for the industry?
  • ​​Fast approval fertile for stolen and synthetic identities: BNPL’s fraud problem
  • Decentraland: The financial activities happening in the Ethereum-based metaverse
  • Fraud is becoming the biggest headache in financial services
  • Behind the new card partnership: Five questions with GM and Marcus by Goldman Sachs 
  • Quick take: How the pandemic changed commercial banking

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