As Affirm matures, it's widening its focus beyond the online "Pay in 4" installments popularized during the pandemic and is expanding its mix of interest-bearing loans, including those made in-store with its new debit card.
While online purchases still drive more than 95% of Affirm's transaction volume, the fintech is pinning its hopes for future profits on the new Visa-branded Affirm Card, which rolled out to more than 200,000 customers during the quarter that ended June 30, Affirm said Thursday.
During the most recent quarter, 51% of Affirm Card transactions were interest-bearing; 42% of transactions were paid in full at the point of sale and 7% were interest-free "Pay in 4" installment loans through the card, according to the company.
Customers are signing up for the Affirm Card at a rate of 75,000 a month, but the fintech is not marketing the card aggressively yet as it continues fine-turning the product, Affirm's founder and CEO Max Levchin told analysts during a conference call.
"The team's goal is to make Affirm Card the top-of-wallet purchasing device, which means that whatever your percentage of pay-now transactions is, I want them all and whatever it is you might put on your credit card, I want you to put on the Affirm Card. At the moment that sits at about 42% pay-now transactions, and the rest is both interest-bearing and non-interest-bearing," Levchin said.
Participating customers must link a bank account to the Affirm Card. Those who wish to finance a purchase in a store with the Affirm Card request a loan through the Affirm app. Affirm applies its usual instant credit check and offers a range of repayment schedules for the customer to choose from.
Levchin said he expects the Affirm Card to help deliver annual profitability on an adjusted operating income basis going forward.
Eligible Affirm Card customers receive the debit card in the mail, and they may use it to pay for in-store purchases in full or request a customized loan through the Affirm app. In either case, users complete the purchase by inserting their Affirm debit card into the card reader at the point of sale, Levchin said.
A key goal for the Affirm Card is to drive frequency of use for everyday purchases beyond the current rate where consumers typically use Affirm about four times a year, Levchin said.
"If you're trying to be a payment network, you have to be there for doughnuts and coffee and for bicycles and couches," he said, adding that as consumers increase everyday usage of the Affirm Card, the firm's loan-underwriting processes will be enriched by tracking users' cash-flow.
BNPL fintech rival
The Consumer Financial Protection Bureau has not formally established regulations for the buy now/pay later industry, a point of concern for consumer advocacy groups worried about the loans'
"Part of why the BNPL world doesn't not like to report to the bureaus is because the original scoring systems … don't really account for what these loans look like, just the sheer multitude of them. And so part of the work we're doing with the industry and the bureaus is to make sure that [sharing loan data] works the right way for the end customer," he said.
Affirm's gross merchandise volume during the quarter was $5.5 billion, up 25% over the same period a year, helped by stronger sales of big-ticket purchases, including travel. Revenue for the quarter reached $446 million, up 22% year-over-year. Total active users reached 16.5 million at the end of the quarter, up 18% over the year-ago period.
Affirm's rate of loans delinquent at least 30 days hovered at about 2% at the end of the quarter, an improvement of 30 basis points compared to the quarter ended March 30, 2023, Affirm said.
Analysts applauded Affirm's strong revenue growth, but doubts persist about the company's long-term profitability.
"Even with generally positive results, it is hard to ignore Affirm's continued operating losses and loss margins expanded more than 11 percentage points over the past year, resulting in a $2.6 billion deficit," said Kevin Kennedy, analyst at global research firm Third Bridge, in a Thursday note to investors.
The debit card product is a step in the right direction, and will likely play a key role in the path to profitability by driving better monetization of existing users without the drag of marginal customer acquisition costs, Kennedy said.
"Affirm's future as a standalone business will be contingent on the company's ability to develop and effectively cross-sell a wider spectrum of financial services products, as the BNPL offerings of major diversified tech players like PayPal, Apple and Block are becoming increasingly competitive," he said.
