The funding will be used to finance BNPL loans originated by Klarna, according to a report from The Wall Street Journal. The bond sale is being arranged by JP Morgan Chase and Atlas, a division of Apollo Global Management.
The development marks a shift for Pagaya, which has traditionally securitised unsecured personal and auto loans. Over the past year, the firm has issued approximately USD 5 billion in bonds, largely backed by these conventional lending products. The move into BNPL is part of a push to diversify Pagaya's asset base and enter a fast-growing segment of the consumer credit market.
Recent data shows that BNPL products are particularly popular among consumers with limited access to traditional credit. Around 40% of these borrowers have applied for BNPL financing, compared to just 27% of consumers with super-prime credit scores. This group is also more likely to seek out other non-traditional financing methods, such as payday loans and credit-builder products.
Although these options can be more accessible and carry lower rejection rates, they often include high interest rates and fees. Additionally, some of the firms offering these products do not report repayment data to major credit bureaus, limiting their effectiveness in helping borrowers build credit.
BNPL accounted for about 8% of retail purchases during the previous holiday season, underscoring its growing footprint in consumer finance. Pagaya's entrance into this space places it in closer competition with Affirm, a major player in the sector.
However, the two companies have taken different approaches to borrower risk. While Affirm typically lends to consumers with stronger credit profiles, Pagaya works with borrowers who fall just below the approval thresholds of companies such as Klarna.
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