Can Visa pull off a BNPL overhaul?

Visa announced that it’s added a BNPL option to its “Visa Ready” program. Unlike traditional BNPL solutions, Visa’s product also lets consumers opt into BNPL installments at point-of-sale through virtual cards, not just online.

Why should we care?
It’s worth looking at Affirm’s current financial state before approving of Visa’s hybrid online/offline BNPL expansion. Beyond its 89% decline in the stock market since a high in November 2021, Affirm has seen payment delinquency more than double in the past two years. According to the Financial Times, Affirm has now resorted to securitizations, or bundling loans to sell as bonds, as a way to make money; more than half of its income now comes from these securitizations as well as interest on its assets and the sale of loans to entities like insurance companies. Affirm’s turn to securitizations gives it money it needs at the moment, but a downturn could seriously affect the company’s balance sheet. “Every time a group of internet-based lenders tries to convince the market that they have a better model to assess creditworthiness, they’re simply extending credit to people they shouldn’t be,” said Jim Chanos of hedge fund Kynikos Associates. “And we won’t see this until you go through a downturn in the credit cycle.” Visa’s program does let costumers use their existing credit card accounts to qualify for installment loans, which arguably buffers Visa and its partner issuers from some of the creditworthiness uncertainty facing BNPL players like Affirm. Visa’s launch comes at a crossroads: Are we on the precipice of a recession and a tidal wave of loan defaults, or can recent market corrections help bring prices back to “normal” levels? The answer will determine issuers’ appetite for Visa’s BNPL push—as well as its viability.