Bonds with a welter of unusual cash flows are much sought for on Wall Street. Revenue from data centers, student loans, fast-food franchise payments has already been securitized via bond desks.
Your lunch order might now come next.
After Klarna Group Plc (KLAR), the Swedish provider of buy-now-pay-later (BNPL) loans, filed documentation to prepare for a U.S. public offering and also announced a partnership with DoorDash Inc. (DASH) to offer interest-free financing on its platform for purchases of at least $35, memes about “burrito bonds” and “lunch-backed securities” flooded social-media channels including X.
Given Wall Street’s past of transforming basic ideas into something exotic it can sell to investors, the memes—like the one below—suggest it could be only a matter of time until debt created by the partnership makes its way into a security.
Many of these were created in jest. But a few analysts with years of experience organizing asset-backed securities at Wall Street banks or purchasing them for their companies told MarketWatch that bonds backed by BNPL cash flows – including DoorDash orders – might soon become commonplace. There is undoubtedly appetite, they claimed.
“Burrito ties”
DoorDash officials declined to comment on the likelihood that loans created by this alliance will find their way into bonds issued by Wall Street companies.
A person familiar with Klarna’s approach noted that because the loan pool would need to reach critical mass first, a bond backed only by payment most likely wouldn’t be practical. Any BNPL-linked securities most certainly would comprise payment flows connected to several stores.
During a stay at UBS Group almost 20 years ago, Manish Singh, chief investment officer of Crossbridge Capital Group in London, helped build ABS products. That was before the worldwide financial crisis of 2007–08, another kind of ABS debt brought about in part by souring subprime mortgage bonds and derivatives.
As BNPL gains popularity, Singh informed MarketWatch these companies will have to transfer some loan risk off their balance sheets to provide funds for investment. That’s where Wall Street finds relevance.
Is it possible for a securitization? Indeed, he told MarketWatch as Klarna aims to increase payment volume for DoorDash transactions. Wall Street pioneered decades ago a process known as “securitization,” whereby pools of loans were spun into bond offerings.
Perhaps already taken are the first hesitant measures toward BNPL bond reality. To reduce some of this vulnerability, Klarna and PayPal Holdings Inc. (PYPL) have negotiated arrangements with big Wall Street companies during the past few years. Closing on a deal with Elliott Capital Management late last year, Klarna offloaded up to 30 billion pounds (GBPUSD) of BNPL loans in the United Kingdom.
PayPal revealed a comparable agreement for portion of PayPal’s European loan portfolio with private-equity company KKR & Co. (KKR) earlier, in late 2023. KKR posted a blog entry in January outlining the convoluted but maybe profitable process of securitizing these loans. The company stated in the statement that the PayPal partnership has been “upsized and extended.”
For this report, PayPal, Elliott and KKR’s representatives all declined to comment.
Securitization can free up money for a company like PayPal so it may go out and generate new loans, hence increasing the loan book’s growth, KKR’s Vaibhav Piplapure noted in the blog post. “For investors, it gives access to a diversified pool of consumer debt they couldn’t reach otherwise.”
The market for esoteric ABS booms
Experts told BourseWatch any bonds supported by Klarna-style payment flows would be classified as “esoteric” asset-backed securities.
That’s a catchall term for everything other than popular, more established ABS categories such credit cards, mortgage bonds and auto loans.
Market data from Finsight.com shows that issuing in the esoteric realm climbed to record territory in 2024 following a few boring years. Issuance has stayed high thus far in 2025, maybe paving the way for yet another record year.
Year Number of deals Dollar value of bonds
2021 214 $103.7 billion
2022 184 $91.2 billion
2023 175 $77.3 billion
2024 259 $113.9 billion
2025 (through March 25) 63 $30.2 billion
That is a tiny slice of the whole U.S. ABS market. Still, Christopher Kauffman, a senior portfolio manager focusing on securitized products for the Plus Fixed Income team at Allspring Global Investments, noted that demand for these kinds of exotic bonds has been robust as shown by spreads that have dropped over the previous few years.
Spreads in the bond market are the yield differential between a bond and a Treasury instrument scheduled to mature at almost the same moment. It’s extra pay meant to balance possible hazards.
“I think you could securitize anything as long as you can model the cash flows and you have some degree of certainty that they are predictable,” Kauffman advised MarketWatch.
Deals in the esoteric ABS area backed by unsecured consumer loans comparable to those provided by BNPL lenders already exist, Kauffman pointed out.
Based on Finsight.com, there have been issued since the beginning of 2025 no less than 17 bond agreements linked to consumer and marketplace loans. Affirm Holdings Inc. (AFRM) and SoFi Technologies Inc. (SOFI) are among the issuers, but since those loans already have established rates attached, it is simpler to estimate possible yields on linked bond sales.
To be sure, before releasing BNPL-backed bonds, Wall Street companies would have to pass some obstacles. Companies eager to turn these loans into securities for sale to investors would probably first have to have a track record to guarantee the bonds will perform as promised.
Initially, Kauffman added, hedge funds and other asset managers would probably find these bonds appealing. Klarna and rivals take a percentage of the sales instead of charging interest on BNPL loans. According to a business spokeswoman to MarketWatch, Klarna’s typical take rate is 2.7%.
This would probably mean that the bonds would have to be “overcollateralized,” Kauffman added, meaning they would be issued at a discount to par value to provide some buffer in case an unforeseen default surge occurs.
Although most of Klarna’s popular products do not charge interest, it does charge late fees to consumers who miss payments. For Wall Street players, these cash flows might make the bonds very lucrative.
Singh also mentioned how exceptionally dangerous bonds supported by BNPL loans could be. According to the recent data from the New York Federal Reserve, credit-card balances and subprime loan default rates stayed high in the fourth quarter of 2024.
Furthermore, Singh pointed out, if customers are so depleted that must turn to layaway for lunch, that alone calls into doubt their capacity for payment.
