Financial systems
Who funds buy now, pay later loans?
Affirm, Klarna and Afterpay rely on different sources of funding. Follow the cash from deposits, warehouses and bond investors to the parties that absorb credit losses.
Affirm sells loans to institutional buyers and finances others through securitizations and warehouse lenders. Klarna also has a bank that can fund lending with deposits. At Block, secured warehouses help finance Afterpay receivables that stay within the consolidated group. The source of the cash and the party that absorbs a default can be different. Affirm FY2026 Form 10-K. Klarna June 2026 interim report, notes 8 and 10. Block FY2025 Form 10-K.
How the three platforms raise money
| Platform | How cash reaches the loan | Where losses can land |
|---|---|---|
| Affirm | A warehouse lender advances cash against loans, investors buy securitization notes, and institutions buy whole loans under ongoing purchase agreements. | Affirm holds some loans and can retain interests or share losses on some sold pools. Noteholders’ protection depends on the structure and their place in the payment order. |
| Klarna | The bank uses deposits alongside warehouse financing and sales to investors. It also issues instruments that transfer specified credit risk while the loans remain on its books. | Credit protection applies to specified layers. Klarna can also hold senior exposure to the vehicle that bought the loans. |
| Afterpay / Block | Consolidated warehouse entities use receivables as collateral. Block also retains certain installment products as loans held for investment. | A secured warehouse lender has first claim on specified assets. The group still bears exposure through its ownership of the entities and the loans it still holds. |
Affirm reported $5.3 billion of available funding debt capacity on June 30, 2026, excluding purchase commitments from whole-loan buyers. That describes capacity, not the amount of loans those lenders own. In the same annual report, $9.561 billion of recognized gross loans less a $563.3 million allowance gives $8.997 billion net. Those balances do not determine the share of a year’s new loans sold. Affirm FY2026 Form 10-K, notes on loans and debt.
At December 31, 2025, Block had drawn $1.4 billion on $1.7 billion of warehouse capacity. Its consolidated entities legally hold the pledged receivables. The balance sheet shows $2.670 billion of net consumer receivables. It also has a loans-held-for-investment line containing products beyond Afterpay. Combining the lines and calling the total Afterpay’s loan book would overstate what Block discloses. Block FY2025 Form 10-K, warehouse funding and consolidated balance sheet.
A sale can leave credit exposure behind
Klarna’s U.S. forward-flow agreement is a useful example. At June 30, 2026, it reported $279 million of senior financing provided to the loan purchaser under a $400 million commitment. The buyer acquires the receivables, and Klarna has a separate claim on the purchaser. Klarna’s synthetic securitization uses credit-linked notes to move a layer of losses without selling the underlying loans. Both arrangements raise a different question from who originated the loan. Klarna June 2026 interim report, note 10.
What an investor actually earns
A note coupon pays on outstanding principal under the deal’s terms. A return to the investor also depends on the price paid, the timing of repayments and any losses. Merchant fees, the borrower’s annual percentage rate and the platform’s financing cost each describe a different cash flow.
For example, Morningstar DBRS reported 0.72% cumulative net loss for Affirm’s 2022-Z1 pool at the April 2023 payment date, with 60.10% of original pool principal remaining. Its original base-case lifetime loss was 1.39%. The agency said the losses were running above its expected pace at that point and confirmed the ratings because it judged the available protection sufficient. A pool can be below a lifetime loss forecast and still be behind schedule. Morningstar DBRS’s May 2023 surveillance update.
Method and limits
The funding comparison uses dated company financial statements and transaction-specific rating surveillance. Amounts drawn, gross loans originated, loans sold and ending receivables have different reporting periods or units. Public filings identify some counterparties and note terms. A realized investor return requires the acquisition price and subsequent distributions, which these sources do not provide for every holder.
Sources
Supporting material
- Article table · How the three platforms raise money ↗The rows printed in this article as a CSV file.