Investing.com -- The short-selling firm Kerrisdale Capital released a blistering report on Affirm Holdings Inc (NASDAQ:AFRM) Wednesday morning, characterizing the "Buy Now, Pay Later" (BNPL) leader as a subprime lender in fintech clothing. Analysts at Kerrisdale argue that the company’s recent growth is an "illusion of resilience" built on aggressive credit extension to a financially fragile consumer base.
In response to the short, Affirm stock ticked slightly lower in Wednesday’s early trade, but quickly jumped 1.8%, as of 9:45 am ET.
The report highlights a significant shift in Affirm’s revenue model, noting that roughly half of its income now stems from interest on high-APR loans rather than merchant fees. "When a business shifts from financing Pelotons to installment plans for groceries, it is no longer ‘democratizing credit’ but rather levering the financially fragile," the firm stated in its analysis.
Affirm’s reliance on high-interest products faces a new existential threat from the shifting political landscape in Washington. President Trump’s recent call to cap credit card interest rates at 10% has placed Affirm’s average loan yield of 31% under immediate and intense scrutiny.
The firm notes that Affirm is a "poster child" for the high rates that Trump claimed have "festered unimpeded" and "ripped off" American consumers. Kerrisdale maintains that any legislative push to cap credit card APRs would inevitably collapse the distinction between cards and the functionally equivalent installment loans offered by Affirm.
Kerrisdale contends that Affirm’s business model is a "Rube Goldberg version of FinTech" that relies on a rent-a-bank structure to bypass state-level interest rate caps. The report suggests that the company’s thin capital buffers, with credit reserves at just 1% of gross merchandise volume, leave it with no margin for error as labor markets soften.
The short-seller warns that the company’s growth is increasingly driven by "extracting more borrowing from the same customers" rather than expanding its user base. According to the report, 96% of transactions in the most recent quarter came from repeat users, a trend Kerrisdale likens to late-cycle patterns seen in failed subprime lenders of the past.
As the U.S. labor market shows signs of fracturing, Affirm’s concentrated exposure to Millennial and Gen Z borrowers with subprime credit scores poses a direct threat to its valuation. Kerrisdale points to rising auto delinquencies and the end of student-loan forbearance as catalysts that will soon migrate onto Affirm’s balance sheet.
Experts cited in the report suggest that the "spending behavior of their customers has definitely changed and their delinquencies are up." With unemployment ticking higher, the firm predicts that the "illusion of resilience will fade," exposing a lender built for expansion rather than long-term endurance.
Kerrisdale has set a fair value estimate of $17 for Affirm, implying an 80% downside from current trading levels. The firm argues that the market currently values Affirm as a high-growth technology platform, ignoring its fundamental identity as a capital-intensive, unsecured consumer lender.
"Affirm has been dining out on easy credit and full employment," the report concludes, warning that "the bill is coming due." The short-seller expects a significant repricing toward book value as growth slows and the company is forced to rebuild its inadequate credit reserves.
The report further notes that Affirm’s product suite has become largely commoditized, with competition among BNPL providers described as "white hot." Analysts point to the loss of Affirm’s exclusive Walmart relationship to Klarna as evidence that merchant contracts are being won at increasingly thin or even negative margins.
Ultimately, Kerrisdale views Affirm as a balance-sheet lender that has only operated during an "unusually forgiving credit backdrop." As those tailwinds reverse, the firm believes the lack of structural operating leverage will be revealed as a central and potentially fatal flaw in the model.
Affirm’s executive team has consistently pushed back against "subprime" characterizations, framing their model as a more precise and humane evolution of consumer credit. Management argues that their system avoids the "debt traps" of traditional banking by eliminating the compounding interest and late fees that define the credit card industry.
Affirm’s Defense
Affirm’s primary defense rests on its "transaction-level" underwriting, which it claims is far more sophisticated than the static FICO-based models used by traditional lenders. In a January 2026 update, the company announced it had enhanced its underwriting to include "richer real-time signals like account balances and cash flow trends," specifically to ensure "more informed and responsible credit decisions" at the moment of purchase.
The company has stated that it "underwrites every single transaction" rather than granting a broad, revolving line of credit that a consumer might later abuse. This approach, Affirm argues, allows the company to pause use if payment is missed, a safeguard they claim results in around 98% of their lending being repaid successfully even among lower-FICO populations, according to the company’s November 2025 investor update.
On the threat of interest rate caps, Affirm leans on the "simple interest" nature of its loans as a point of distinction. They contend that their 30% APR is often more affordable than a lower credit card rate because Affirm’s interest never compounds and the total cost of the loan is disclosed upfront and never changes.
"Unlike most credit cards... we never charge any late or hidden fees," the company stated in its January 2026 shareholder materials, reinforcing its mission to "deliver honest financial products that improve lives."
In response to criticisms about financing necessities like groceries, Affirm positions itself as a tool for "financial inclusivity."
Affirm has not yet responded to Investing.com’s request for comment.
