Summary

• Unique bridge: PGY orchestrates lender “second-look” flow to institutional ABS buyers, embedding itself between origination and capital markets.
• Why we want to believe: surging demand for consumer credit yield, forward-flow capital (Blue Owl/Castlelake), and attractive ~FCF/EBITDA multiples even after +200% YTD.
• What went wrong: 2024 impairments exposed oversized first-loss exposure via the Opportunity Fund and weak transparency/governance. Many red flags highlighted by Iceberg Research.
• Why it may be in the past: 1H25 impairments fell sharply, fee quality tracked ABS issuance, cash conversion improved, and funding shifted toward whole-loan buyers.
• What to watch: add more legacy banks, keep impairments low, sustain FRLPC discipline, and better governance/disclosure transparency.

Executive Summary

Pagaya (PGY) sits in one of the most intriguing corners of fintech — a potential trailblazer in AI-driven credit underwriting that bridges traditional lenders and structured-credit investors. Its model creates a symbiotic network between banks seeking balance-sheet relief and institutions hunting for yield, embedding itself at the intersection of origination and the ABS market. At just ~2.5x EV/S, 6.0x EV/GP, and 18x EV/FCF, PGY’s valuation screens as highly attractive for a company operating in such a large and underpenetrated TAM.

However, this is a name that investors want to believe in — and that very desire demands caution. While Pagaya markets itself as an AI-native credit infrastructure provider, there is limited evidence that its underwriting models go meaningfully beyond what partner lenders already use. Unlike Upstart, which openly details its machine learning architecture and expands into richer datasets like payroll, education, and behavioral signals, Pagaya’s disclosures are sparse. Its “AI” advantage may stem more from scale and network effects than from genuine technical superiority.

Equally important is where Pagaya operates in the credit funnel. Many of its lending partners are not conservative legacy banks but fintechs that are already aggressive in underwriting as they compete for market share. Providing a “second look” on loans that even these fintechs have declined raises natural questions about how much incremental risk Pagaya is assuming — or passing through — via its ABS structures.

That risk has historically been magnified by Pagaya’s large retained first-loss exposure through its Opportunity Fund, which goes well beyond Dodd-Frank’s 5% minimum. This structure amplifies returns in benign credit conditions but exposes Pagaya sharply when delinquencies rise — as seen in 2024, when impairments reached nearly 45% of fund value. Encouragingly, credit-related losses have since fallen markedly through 1H25, reflecting a shift toward newer vintages and long-term forward-flow funding agreements with institutional investors such as Blue Owl and Castlelake. The timing also aligns with a broader reawakening of appetite among major credit allocators for unsecured consumer exposure, providing a more favorable backdrop for Pagaya’s model.

Investor demand for Pagaya-originated assets has surged roughly 23x since 1Q20, though it remains debatable whether this reflects genuine end-demand for consumer credit or opportunistic behavior by large private-credit investors who recognize that Pagaya is fully absorbing first-loss risk. However, the recent forward-flow agreements with Blue Owl and Castlelake — where these investors are taking ownership of entire loan pools rather than relying on Pagaya’s equity retention — suggest the dynamic is now evolving in Pagaya’s favor.

Despite positive signs thus far in 2025, governance and transparency remain weak spots. The backgrounds of key executives, allegations of opaque Opportunity Fund practices, and concerns raised by Iceberg Research continue to cast a shadow over the company’s credibility.

Ultimately, Pagaya is the kind of company investors hope is legitimate — because its market position, improving fundamentals, and valuation are exceptional. But until its technology, governance, and disclosure practices inspire greater confidence, the story remains one of high potential entangled with equally high uncertainty.

How Pagaya Sits Between Banks and Bond Markets

Pagaya Technologies (PGY) emerged on our radar following our recent deep dive into Upstart (UPST). Both companies use AI-driven underwriting to help lenders assess consumer credit risk with greater precision, but they occupy different points in the lending funnel.

UPST sources borrowers directly, runs its credit models, and then offers approved loans to partner banks. PGY, by contrast, integrates directly into banks’ origination systems. When a bank declines an application, it can pass it to PGY for a “second look”, and this is what PGY has coined "decline monetization". With data flowing from 31 lending partners, PGY’s models can identify loans that appear too risky to one bank but are actually acceptable when viewed across a broader dataset.

Just like UPST, PGY does not fund loans itself (well, it's not its core business). The core difference is that UPST is "giving" consumer loan applications to the lender, while PGY is "taking" consumer loan applications from the lender. PGY operates as a two-sided marketplace connecting lenders with over 150 institutional ABS investors who have varying risk appetites. Sometimes PGY’s model prices risk lower than the lender, making a rejected loan investable for an external buyer. Other times, the lender may view a bunch of loan applications as satisfying their risk requirements but cannot originate the loans due to capital adequacy restraints. There are other times where PGY identifies riskier-than-expected loans but matches them with investors specifically positioned to absorb that risk. The platform’s value lies in orchestrating this matching process at scale.

Pagaya generates revenue primarily through fees tied to this orchestration process. Its Fee Revenue combines AI integration fees paid by lending partners for embedding Pagaya’s models into their origination systems, capital-markets execution (placement) fees earned for structuring and distributing ABS deals to institutional investors, and contract or servicing fees for administering ongoing loan and securitization management. This model enables PGY to scale revenue with network volume without taking material balance-sheet risk from the underlying loans.

Ultimately the idea of Pagaya is to deliver triple wins: 1) a win for the loan applicant as they receive finance and from their persepctive they are borrowing from their trusted bank, 2) a win for the lender who may want the borrower relationship but is constrained from taking on the risk, and 3) a win for institutional credit investors seeking options to invest in consumer credit.

Source: Pagaya investor relations

For loans that banks prefer to keep off their balance sheets, PGY goes a step further than merely finding a buyer - the company structures and executes the securitization. It creates the deal documentation, ensures regulatory compliance, and works with agencies to obtain credit ratings. This relieves both lenders and investors from a complex, resource-intensive process while allowing banks to recycle capital efficiently.

From a bank’s perspective, access to the ABS market through PGY is a strategic win. Selling loans into securitizations transfers credit risk, generates upfront liquidity, and preserves customer relationships, thus allowing for future profit capture. It also improves the capital adequacy ratio (CAR), defined as:

CAR = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets

By moving loans off the balance sheet, banks reduce risk-weighted assets (RWA) — improving regulatory ratios while retaining lending capacity.

ABS investors benefit just as much. Traditionally, before even deciding whether to take a deal, they would have to source loans from multiple lenders, perform extensive credit analyses, design securitizations, obtain credit ratings, and ensure compliance — all before determining if the economics made sense. On top of that, they would still need to manage servicing oversight and ongoing performance monitoring. PGY collapses this entire front-loaded burden into a single platform: it curates and scores loan pools, structures tranches, handles compliance, secures ratings, and delivers standardized risk/reward profiles. This allows investors to evaluate opportunities with far less friction, make faster allocation decisions, and scale exposure to consumer credit without building the infrastructure themselves.

In essence, PGY has built an AI-powered bridge between lending institutions seeking capital relief and investors searching for structured yield — a symbiotic position that is embedding it deeply into the credit ecosystem.

Pagaya’s Distinct Role in the Fintech Ecosystem

What stands out about Pagaya (PGY) is how singular its position is across the modern fintech value chain. As the diagram illustrates, most fintech models are either consumer-facing or lender-facing:

• Consumer credit marketplaces (e.g., LendingTree, Credit Karma, NerdWallet) connect borrowers to lenders offering personal loans.
• Auto finance marketplaces (e.g., Car.com, myAutoLoan) link consumers and dealerships (e.g., Carvana) with auto loan providers such as Ally Financial and Westlake Financial.
• In the merchant channel, BNPL lenders like Affirm, Klarna, and Sezzle embed credit directly at the point of sale.

Source: Convequity

Each of these segments has multiple well-defined players — but none bridge the capital markets and lending origination sides the way Pagaya does.

Whereas BNPL and personal loan platforms typically act as originators or distribution partners for credit, Pagaya functions as an investor–lender marketplace. It connects banks and digital lenders that reject or wish to offload loans with institutional ABS investors seeking yield, orchestrating the transaction between both sides.

This makes Pagaya effectively the connective tissue between the origination layer (banks and fintech lenders) and the funding layer (structured-credit investors like Blue Owl, Castlelake, Oaktree, Apollo, and KKR Credit). It’s not just another loan marketplace — it’s a capital flow network that prices, packages, and transfers consumer credit risk at scale.

While BNPL providers such as Affirm can securitize their own loan pools and sell them directly to ABS investors, these are one-off, vertically integrated transactions — investors get access only to that single lender’s paper, risk profile, and consumer segment. By contrast, Pagaya acts as a diversified credit marketplace spanning multiple lenders, asset types, and vintages. ABS investors can “shop” across a range of deals that fit their preferred yield, duration, or risk appetite, without being confined to the economics of a single originator.

To illustrate the scale: in 2025 YTD Pagaya has closed at least 13 ABS deals across its PAID (personal loans) programme and achieved approximately $1.7 billion of auto-loan ABS issuance through five deals. These figures exemplify how the platform offers far greater flexibility and access. For investors, this diversity, standardization, and transparency make Pagaya a more flexible and efficient way to deploy capital into consumer credit than negotiating directly with individual BNPL or personal-loan lenders.

The following overview highlights the major companies across Pagaya’s broader value chain — from loan originators and consumer marketplaces to institutional ABS investors. Together, they illustrate the fragmented nature of the fintech credit ecosystem and the structural “white space” that Pagaya fills by linking origination and capital markets through a unified platform.

These institutional investors represent the structural demand side of Pagaya’s marketplace — large credit allocators seeking diversified consumer exposure without building direct origination infrastructure.

Blue Owl Capital

Blue Owl Capital is a leading alternative asset manager (~$280bn AUM) best known for private credit lending to PE-backed companies and GP capital solutions, leveraging a deep origination network in middle-market direct lending. Building on that core, Blue Owl has broadened into consumer and structured credit, anchored by its 2024 acquisition of Kuvare Asset Management (KAM), which brings insurance general-account and annuity capital. Insurance-linked capital is inherently long-duration and liability-matched, allowing Blue Owl to commit to multi-year, programmatic forward-flows with lower refinancing and liquidity risk; this stands in contrast to shorter-tenor funding like warehouse lines (typically 12–24 months with mark-to-market and covenant risk), ABCP/ABS conduits (subject to rollover and dealer balance-sheet limits), and term ABS issuance (window-dependent, spread-volatile).

As we discuss later in the report, this duration advantage underpinned Blue Owl’s $2.4bn forward-flow with Pagaya in Feb-2025 and is central to PGY’s de-risking strategy, helping it move away from a precarious reliance on short-term ABS issuance toward more predictable, long-term funding from institutional investors like Blue Owl.

Castlelake

Castlelake is a global private investment firm founded in 2005 that specializes in asset-based and credit-rich investments across real assets, aviation, and specialty finance. It sources opportunities in consumer and small-business lending portfolios, residential and commercial mortgages, and other asset-backed credit structures. In July 2025, Castlelake entered into a forward-flow agreement with PGY to purchase up to $2.5bn of consumer (personal) loans over a 16-month period. Together with the Blue Owl deal, this highlights how PGY is securing long-term committed capital relationships, enabling them to shift away from purely traditional ABS issuance toward more stable funding conduits.

Oaktree Capital

Oaktree is a highly reputable global alternative investment manager with a leading credit platform that spans public and private markets — covering high-yield bonds, leveraged loans, private credit, and structured debt. Its investment philosophy emphasizes risk control, value orientation, and access to less efficient credit niches — traits that align strongly with the mindset of ABS investors.

The firm has not publicly announced a forward-flow partnership with Pagaya Technologies, but its recent expansion into consumer finance — notably a $250m investment in the credit-card fintech Coign — is highly significant. For a firm of Oaktree’s stature and credit-experience to move more deeply into unsecured consumer credit signals a broader endorsement of the macro-outlook for consumer lending and structured credit. It suggests that institutional capital is comfortable allocating to this space, which, in turn, supports the growth of intermediaries like Pagaya.

Given this backdrop and Oaktree’s structured-credit capabilities and investor risk-appetite, the firm remains a plausible counterpart in Pagaya’s broader funding ecosystem — either now or as the platform continues to scale.

KKR Credit

KKR Credit is the credit arm of KKR & Co., overseeing a broad platform spanning leveraged loans, private credit, structured finance, and asset-based finance. In recent years, KKR has expanded aggressively into asset-based finance — including consumer, auto, and specialty-loan portfolios — to capture higher-yielding, collateral-backed opportunities. It raised about $6.5bn for its latest ABF fund and acquired a consumer-loan portfolio from Harley-Davidson, underscoring its growing exposure to consumer credit. While not a direct Pagaya partner, KKR’s scale in structured and asset-backed credit positions it squarely within the institutional demand base that platforms like Pagaya are designed to serve.

Note: These private credit names are just a few who are expanding into consumer credit. Major PE giants like Apollo, Blackstone, and Brookfield are all scaling their private credit arms, drawn by the asset class’s durable income streams and superior risk-adjusted returns relative to traditional equity strategies.

Consumer-facing aggregators like LendingTree and Credit Karma sit upstream of loan origination. They help source borrower demand for lenders but lack Pagaya’s downstream connection to institutional funding — a gap Pagaya bridges.

LendingTree

LendingTree operates a financial marketplace connecting consumers to lenders across products like mortgages, credit cards, and personal loans. It earns fees from lenders but doesn’t originate or service loans itself.

Credit Karma

Credit Karma is a personal finance platform and lending marketplace that connects borrowers with banks and fintech lenders while helping users understand, monitor, and improve their credit health. Beyond offering free credit scores and personalized loan or card recommendations — where it earns referral fees upon approval — Credit Karma also provides tools like Credit Builder, a deposit-backed credit line that lets users spend only what they’ve saved. This structure helps consumers build payment history and raise their credit scores without falling deeper into debt. By combining education, responsible credit products, and marketplace access, Credit Karma plays a socially constructive role in improving financial inclusion and long-term consumer creditworthiness.

Digital lenders such as LendingClub and SoFi exemplify the modern originator archetype — managing balance sheet exposure through selective securitization and digital-first credit workflows. Pagaya, by contrast, provides a continuous secondary outlet for loans that lenders — whether banks or fintechs — reject or wish to offload, creating a dynamic funding loop between origination and capital markets. Importantly, Pagaya serves not only traditional banks but also these fintech-native players, embedding itself within the broader digital lending ecosystem.

LendingClub

LendingClub is a digital marketplace bank offering unsecured personal loans. Originally a peer-to-peer platform, it now originates and services loans directly, retaining some on its balance sheet while selling others through structured certificates. LendingClub has also leveraged Pagaya’s AI-powered credit infrastructure to expand loan approvals beyond its in-house models, allowing it to approve a wider range of qualified borrowers while managing credit risk efficiently through Pagaya’s investor network.

SoFi

SoFi began with student loan refinancing and has evolved into a full-service digital bank offering personal loans, investing, and mortgages. It funds most of its lending from deposits and securitizes select portfolios to recycle capital. SoFi partnered with Pagaya in 2021 to integrate Pagaya’s AI underwriting system into its platform, enabling broader access to credit for its members while diversifying funding sources through Pagaya’s institutional investor base. Unlike most other fintech lenders, SoFi takes deposits too, so they must maintain the CAR requirement, which means they can find greater value in PGY's investor network than most other fintech players.

BNPL lenders like Affirm and Klarna have opened new channels for consumer financing but remain vertically integrated — they originate, hold, and occasionally securitize their own loan portfolios. By contrast, Pagaya acts as a multi-originator marketplace where ABS investors can “shop” across a broader range of consumer credit assets, yields, and risk profiles rather than being confined to a single lender’s paper.

Klarna

Klarna is a BNPL fintech that partners with retailers to offer flexible payment plans at checkout. It generates revenue through merchant fees and financing charges and, through its collaboration with Pagaya, gains access to diversified institutional funding to manage loan growth and credit exposure more effectively.

Affirm

Affirm provides BNPL financing through merchant partnerships and direct-to-consumer options. It earns revenue from merchant fees and interest on loans it holds or sells but has not publicly partnered with Pagaya, remaining vertically integrated across origination, funding, and risk management.

Auto marketplaces connect consumers, dealers, and lenders, enabling transparent price discovery and access to financing offers without taking balance sheet risk themselves. They occupy the retail layer of the auto-finance ecosystem, whereas Pagaya operates in the funding layer alongside the auto lenders, providing them with "second look" credit assessments.

Cars.com

Cars.com is a digital automotive marketplace that connects buyers and sellers while aggregating financing offers from partner lenders. It generates revenue through dealer subscriptions, advertising, and lead generation but does not underwrite or hold loans.

Autotrader

Autotrader functions as an online car-shopping platform, allowing consumers to compare vehicles, pricing, and financing options from dealerships and lenders. It earns revenue primarily from dealer listings and advertising.

myAutoLoan

myAutoLoan is an online auto finance marketplace that connects consumers with multiple lenders for new, used, or refinance loans. It earns referral fees from lenders but doesn’t fund loans itself, acting purely as a digital connector between borrowers and financing institutions.

Auto financing platforms such as Carvana operate closer to the transaction itself — offering integrated financing or lender-matching capabilities to convert vehicle sales efficiently. While they originate or facilitate credit directly, they still depend heavily on securitization markets for capital recycling, a process Pagaya seeks to streamline and standardize across lenders.

Carvana (ticker: CVNA)

For a deep dive into Carvana, check out our report published in Jan-2025. Carvana is an online vehicle retailer that integrates auto retailing with financing, allowing customers to purchase cars end-to-end on its digital platform while offering in-house auto loans. It originates and securitizes these loans to fund growth and improve liquidity, typically retaining servicing rights. Carvana’s vertically integrated model — spanning origination, financing, and securitization — gives it substantial control over the auto credit value chain. While not a direct competitor to Pagaya today, its structure overlaps with part of Pagaya’s marketplace function in auto finance. Should Carvana achieve dominant market share across auto retail and lending, it could meaningfully erode Pagaya’s addressable opportunity in this vertical by internalizing both origination flow and investor demand that would otherwise pass through Pagaya’s platform.

CarMax (ticker: KMX)

CarMax is the largest used-car retailer in the U.S., operating an omni-channel model that combines online browsing with physical dealerships and in-house financing through CarMax Auto Finance. Its fixed-price, no-haggle approach and vast vehicle inventory make it a trusted choice for mainstream consumers, while its financing arm allows it to underwrite loans across a wide credit spectrum. However, unlike digital-first rivals like Carvana, CarMax still relies heavily on traditional credit models. If Pagaya proves highly efficient at pricing and distributing loans to lower-FICO borrowers, it could enable legacy players such as CarMax to compete more effectively with Carvana’s fully integrated digital model by expanding approvals and liquidity in riskier credit tiers without materially increasing balance sheet risk.

Auto lenders such as Ally Financial and Westlake Financial are long-standing users of securitization but have increasingly turned to Pagaya’s AI-driven infrastructure to enhance underwriting precision and expand funding flexibility. Their adoption illustrates how Pagaya is embedding itself deeper within the auto-finance ecosystem — serving not merely as a capital connector but as a data and decisioning layer that enables lenders to approve more customers while managing balance-sheet risk.

Ally Financial

Ally Financial is a digital bank and one of the largest auto lenders in the U.S., offering vehicle financing, mortgages, and consumer deposit products. Ally is a major user of Pagaya’s platform (and also Carvana), leveraging its AI models and investor network to expand auto-loan approvals beyond the limits of traditional credit models. The integration allows Ally to increase origination volume while maintaining risk discipline, as Pagaya helps route loans to institutional investors through its marketplace — improving Ally’s capital efficiency and customer reach.

Westlake Financial

Westlake Financial is a nationwide auto lender specializing in subprime credit, partnering with over 14,000 dealerships. Westlake uses Pagaya’s AI-based credit-decisioning to identify and approve additional qualified borrowers and to offload loans through Pagaya’s investor network. This collaboration strengthens Westlake’s ability to scale originations without materially increasing its balance-sheet exposure, showcasing how Pagaya’s technology enhances both loan throughput and funding diversification across the auto-lending landscape.

The Hidden Risks Behind Pagaya’s Edge

At first glance, Pagaya (PGY) appears to occupy a defensible and highly differentiated position in the fintech landscape, seemingly without direct competition. Yet beneath that surface, several questions emerge that investors should consider carefully.

How advanced is Pagaya’s AI underwriting?

1. While PGY positions itself as an AI-first company, the transparency around its technology is limited. Unlike Upstart (UPST), which regularly publishes detailed updates on its model evolution and engineering breakthroughs through public channels such as its Medium blog, PGY offers little visibility into its technical progress. Its quarterly earnings calls and shareholder letters rarely include commentary on model architecture, training methodology, or explainability features. This absence makes it difficult for investors to gauge whether Pagaya’s underwriting models are truly cutting-edge or more incremental in nature.

What data advantage does Pagaya really have?

2. Another concern lies in the breadth and uniqueness of PGY’s data inputs. UPST’s models ingest a wide array of data sources via APIs — from transactional and employment data to behavioral and education variables — enabling a richer view of borrower risk. PGY, by contrast, appears to rely primarily on the data supplied by its lending partners at the point of origination. If Pagaya is operating on essentially the same input data as the lenders themselves, the company’s claimed underwriting edge may be more a function of scale and network effects than of true model superiority.

How much risk does Pagaya retain?

3. Perhaps the most material concern is PGY’s level and type of risk exposure. As the sponsor of its asset-backed securities (ABS), Pagaya must comply with the Dodd-Frank risk-retention rules, which require issuers to hold at least 5% of the fair value of each securitization. Importantly, the regulation does not stipulate that this 5% must come from the equity tranche — sponsors may satisfy the requirement through a “vertical slice” across all tranches, a “horizontal slice” of first-loss exposure, or a combination of both. Pagaya, however, goes well beyond this baseline. Through its Opportunity Fund, it retains exposure almost entirely via the horizontal first-loss position — the unrated equity tranches — and often in amounts far exceeding the 5% minimum. This structure, largely funded by non-U.S. investors, effectively serves as the capital cushion that makes the senior and mezzanine tranches more attractive to institutional ABS buyers. In essence, Pagaya is absorbing substantially more tail risk than the law requires, allowing other investors to participate higher up the stack with greater confidence.

While this practice supports deal execution and investor demand, it magnifies Pagaya’s exposure in adverse credit environments. By concentrating risk in the lowest tranches rather than distributing it evenly across the structure, Pagaya’s earnings become highly sensitive to rising delinquencies and charge-offs. When credit conditions are benign, this approach amplifies yield; but when defaults climb, it turns into a leveraged bet against consumer credit deterioration — an asymmetry that investors should weigh carefully when assessing the durability of Pagaya’s model.

When times are good, this strategy is highly attractive for PGY. Here's a hypothetical and simplified example based on the mandatory 5% risk retention imposed by Dodd-Frank: