Why Higher Yields Hurt Affirm More Than Klarna or PayPal

Affirm shares fell 10% after a hotter-than-expected inflation report pushed long-term Treasury yields higher, a much larger decline than the moves in Klarna or PayPal. The gap reflects different funding models, not just a change in market mood.

Affirm finances installment loans through warehouse facilities, asset-backed securities and forward-flow sales to institutional buyers. When market yields rise, the cost of that capital can increase and compress the spread between what Affirm earns from borrowers and what it pays to fund the loans.

Recent progress now faces a rate test

Affirm’s fiscal third-quarter 2026 revenue rose 32.6% to $1.04 billion as gross merchandise volume increased 35% to $11.6 billion, according to the source. The company also said its average annualized cost of funds reached the lowest level in three and a half years.

That improvement helped unit economics. A sustained rise in yields could reverse part of it, especially if Affirm cannot reprice loans quickly without reducing merchant or consumer demand.

Credit risk matters at the same time. Delinquencies of 30 days or more rose 29 basis points year over year to 2.8%. The company said part of the increase reflected seasonal denominator effects, but investors still need to watch whether higher borrowing costs and household pressure push losses up.

Why peers reacted differently

Klarna funds much of its lending with consumer deposits, which can be cheaper and more stable than wholesale markets. PayPal relies more heavily on transaction fees across branded checkout, Venmo and Braintree, making lending spreads a smaller part of its economics.

Those differences do not make either peer immune to a weaker consumer. They explain why the same yield shock can hit valuations differently.

Affirm’s net cash position provides a buffer, while strong card growth and revenue guidance support the operating case. The next test is whether revenue less transaction costs holds up as funding markets reprice. If yields stay high, Affirm must protect margins without sacrificing loan growth or credit quality.