Affirm reported healthier earnings in the most recent quarter than it had in previous earnings seasons, but some of investors' fresh optimism comes from an unusual source: the grocery aisle.
The buy now/pay later market, where Affirm was an early mover, is typically thought of as a way for consumers to cover discretionary purchases like apparel and shoes. But Affirm's newest product, which ties a buy now/pay later loan to a debit card, is finding favor with food shoppers.
“We wanted to be the thing that people take to go shopping for their family, to give them financial flexibility,” Max Levchin, Affirm's founder and chief executive, said during a Thursday conference call with investors to discuss the company’s fiscal third-quarter results.
Debit+, a new Visa debit card from Affirm, lets consumers to manage everyday purchases by allowing them 24 hours to split any eligible purchase of up to $1,000 into an interest-free loan repayable within four installments due every two weeks.
Early results show the card is most popular so far with Walmart shoppers buying groceries, Levchin said. Walmart is one of Affirm’s key partners.
The data about the popularity of Debit+ with grocery shoppers is “super anecdotal,” he added, noting there is a waiting list for the new product, which is available only to a subset of customers so far.
Affirm works with Plaid to instantly determine whether a Debit+ user qualifies to turn a purchase into a four-segment loan, borrowing up to $1,500 below the customer’s bank account balance. Users have the option to convert Debit+ payment plans to a loan, subject to approval, according to the product’s terms and services.
The card's issuer, Evolve Bank & Trust, provides a virtual account accessible in the companion Debit+ app and also mails a physical version of the card to the customer. Affirm plans to make Debit+ available to all customers within a few months.
The reception for Affirm’s newest product aligns with other data suggesting consumers are looking for ways to balance household expenses amid rising gas costs and inflation. In a recent survey by Aite Novarica, 24% of consumers said they had used a BNPL service to buy groceries this year.
One analyst said that while BNPL loans can be a boon when consumers are looking to even out payments on tight budgets, borrowing for everyday purchases is a precarious business model for lenders.
“The BNPL model is in a state of flux as lenders learn that weak credit and cloudy terms do not work in consumer finance. Addressing new markets will help the BNPL business model, but moving into financing consumable products will only hurt consumers and leave financial institutions with weak balance sheets,” said Brian Riley, head of credit advisory at Mercator Advisory Group.
Another way Affirm hopes to reach more users is through a new Chrome browser extension it rolled out recently that enables online shoppers to access the company's BNPL loans even if the merchant doesn’t have a direct checkout integration with Affirm.
Affirm also added the capability for users to earn interest on cryptocurrency by giving users of the Affirm savings account the option to receive their savings yield in Bitcoin.
During the quarter that ended March 31, Affirm’s gross merchant volume was $3.9 billion, with total revenue of $355 million, up 54% from a year earlier. Losses were lower than analysts expected, with a net loss of $54.7 million compared with $287 million in the same quarter a year earlier. Active consumers increased 137% over a year earlier and total transactions rose 162% year over year, Affirm said.
Investors have been concerned in recent months watching Affirm's stock price fall and market capitalization decline — down to about $6.5 billion from a peak of $47 billion after going public last year. Observers also worried about the potential effect of rising interest rates on Affirm’s loan-funding costs, loan losses and consumer risks from inflation.
“We think Affirm management likely reassured investors on the outlook for their business related to these factors at least for the near term,” analysts from Morgan Stanley said in a Friday note to investors, noting that Affirm’s loan delinquencies and loan-loss reserves appear to be stable for the immediate future.
Affirm’s stock rose 27% on Friday, to $22 a share, after it reported its financial results.
John Adams contributed to this story.
