The Buy Now, Pay Later segment is booming across the world. According to a market research report by Pune-based Straits Research, the global market size of the buy now, pay later segment was worth 256.54 billion USD in 2022, and it is estimated to reach an expected value of 3892.19 billion USD in 2031, growing at a CAGR of 30.5 per cent during the forecast period of 2023-2031.
In this market of immense growth potential, Affirm Holdings Inc. has emerged as a viable alternative to credit cards, which we know incurs exorbitantly high-interest rates, by making a paradigm shift to the huge buy now, pay later industry. This San Francisco-based start-up, Co-founded by Max Levchin, Nathan Gettings, Jeffrey Kaditz, and Alex Rampell, has the stated mission of delivering honest financial products that improve lives.
Founded in 2012, this financial technology company is offering buy now, pay later (BNPL) service for online and in-store purchases. Affirm employs various types of lending solutions for consumers, including an online payment link at checkout, a virtual card, or a physical card.
However, at the very outset, it should be made clear that everybody across the world cannot access Affirm’s service. According to its website Affirm works with businesses based in the US and Canada, as well as businesses based outside the US, as long as the majority of their customers have a billing address in the US or Canada; the business has a US or Canadian entity; the business has a US or Canadian bank account where Affirm can deposit fund. Moreover, they are providing their pay-over-time solution to US and Canadian shoppers only at present.
For Consumers
Affirm empowers consumers by offering a transparent and flexible way to pay over time with no late or hidden fees. The company claims to provide consumers with greater control over managing their finances. By September 2022, Affirm was serving nearly 14 million customers and 235,000 merchants.
Affirm claims to enable eligible consumers to pay at their own pace in biweekly or monthly payments rather than entirely upfront. Unlike many credit cards and other buy now, pay later options, Affirm doesn’t charge any hidden fees, not even late fees. The interest-bearing transactions they facilitate only include simple interest. This entails that the interest is based upon a fixed percentage that the consumer agrees to upfront at checkout, and it never compounds. Consumers who choose Affirm never owe a penny more than what they agree to at checkout, even if they are late or miss a payment.
One can say that Affirm is a much more flexible and affordable financial option than credit cards. Unlike most credit cards and other pay-over-time options, Affirm shows consumers exactly what they will pay upfront, never increases that amount, and never charges any late or hidden fees.
For Merchants
However, Affirm is not only beneficial for customers. Affirm helps merchants of all sizes drive growth and better serve their customers. Overall, according to Affirm’s website, merchants using Affirm reported more than 60 percent higher average cart sizes in calendar years 2022 and 2021.
Affirm’s ‘Adaptive Checkout’ is an innovative financial solution for merchants the company claims to provide personalised payment options to online shoppers based on their profiles and shopping cart contents. Using proprietary algorithms for real-time decision-making, the solution offers pre-approved payment plans, allowing customers to compare and choose from the offered bi-weekly or monthly instalments. Affirm also has an interest-free product named ‘Split Pay’, which offers a biweekly pay-in-4 option to consumers.
Recent Developments
In the recent past, Amazon and Affirm announced an expanded partnership that makes Affirm the first pay-over-time option available at checkout on Amazon Business, a business-to-business (B2B) store that helps businesses of all sizes digitize and automate procurement with powerful management controls and analytic tools—all within the familiar experience of Amazon. Now, these Amazon Business customers can split the total cost of eligible purchases and pay over time with Affirm without late or hidden fees.
This marks the launch of Affirm’s new B2B pay-over-time solution dedicated to serving sole proprietors. By selecting Affirm at checkout on Amazon Business and entering a few simple pieces of information, such as registered business name and business address, small business owners will receive an instant credit decision. If approved, they can select from customized pay-over-time options of three to 48 months with the confidence that they will never pay more than the amount agreed to upfront. For example, a $200 purchase at a 15 per cent APR would cost a customer $34.81 per month for six months, totalling $208.84.
Since first launching on Amazon.com and the Amazon mobile app in 2021, Affirm expanded to Amazon.ca in 2022 and was directly integrated as a payment option on Amazon Pay earlier this year. Customers looking to use Affirm through Amazon Business can do so using the Amazon Business website and Amazon Business mobile app.
Revenue Model
Affirm’s revenue model is also simple but innovative. Affirm generally earns revenue from merchants by helping them facilitate a transaction. This is commonly referred to as Affirm’s merchant discount rate. Affirm also earns interchange fees when consumers use their virtual cards over established card networks.
The company also sells a portion of the assets originated in their platform to third-party investors and recognises a gain or loss on the sale of these loans. Making money by providing loan services on behalf of third-party investors who have purchased consumer loans from Affirm is another source of revenue for Affirm.
