How Does Affirm Make Money?

Are you someone who loves to shop online but sometimes feel the pinch on your wallet? Well, you’re not alone! The advent of buy now pay later (BNPL) and point-of-sale (POS) loans has been a boon for many millennial and Gen Z shoppers who want payment flexibility without resorting to credit cards.

One of the biggest players in this space is Affirm. With its attractive offerings, Affirm has managed to grab the attention of merchants and consumers alike. And it’s not just the younger generation; even those with higher incomes are using these services for their convenience and flexibility.

But here’s the million-dollar question: How does Affirm make money? This has been the backbone of their growth strategy, and we’re here to help you uncover their secrets. With Affirm’s ever-increasing presence at the checkout of more and more stores, it’s crucial to understand their business model to assess their competitive edge.

What is Affirm?

Affirm, founded in 2012 by the brilliant trio of Max Levchin, Jeffrey Kaditz, and Nathan Gettings, has been shaking up the POS loan industry ever since. With its headquarters in San Francisco and a partner network of over 11,500 merchants and 6 million customers across the United States, Affirm is one of the oldest and most trusted POS loan firms out there.

How Does Affirm Make Money

But what sets Affirm apart from its competitors? For starters, Affirm is dedicated to providing convenient POS loans to the millennial market while maintaining transparency throughout the entire process. Unlike other loan providers, Affirm charges an APR on each purchase, promising customers no hidden fees and complete visibility on the total loan amount at the time of sale.

Affirm’s AI-based algorithm is used to underwrite loans and determine the most appropriate financing options for customers, quickly generating loan terms. With flexible financing options and a commitment to transparency, Affirm continues to expand its user base and onboard new merchants at lightning speed, making it a top POS loan company globally.

How Does Affirm Work?

When you’re ready to make a purchase from one of Affirm’s 11,500+ partner merchants, simply select Affirm as your payment option. Affirm will review your application and provide you with an APR based on your FICO score and other spending data. And don’t worry, Affirm won’t charge you any fees for account setup, late payments, service, or prepayment.

Once you’re approved, Affirm will underwrite the loan directly with you, so you can enjoy the things you love now and pay for them later. You’ll have repayment options ranging from 3 to 36 months, with APRs that vary based on your financial and credit status. And if you’re worried about the impact on your credit score, fear not: Affirm runs a soft credit check that won’t affect your score or status with the bureaus or banks.

But that’s not all – Affirm’s merchant partners have reported an 85% increase in orders and a 20% increase in purchases from repeat customers since joining forces with the fintech giant. You’ll find Affirm’s partners across a variety of industries, including fashion, dentistry, electronics, auto, travel, and more. So whether you’re looking to upgrade your wardrobe with Adidas, snag a Peloton bike, get your hands on the latest sneakers from StockX, buy groceries from Walmart, or plan your next event with Eventbrite, Affirm has got you covered.

How Does Affirm Make Money?

If you have ever used the “buy now, pay later” service Affirm, you may have wondered how the company makes money. Well, wonder no more. Here, we’ll explain how Affirm generates revenue from both its customers and the merchants it partners with.

Interest Income: Charging Customers for Loans

One of Affirm’s primary revenue streams comes from the interest it charges customers on loans. While the company doesn’t charge any fees, it does charge interest rates on its point-of-sale (POS) loans. The annual percentage rate (APR) can vary from 0% to 30%, depending on the agreement with the merchant and the creditworthiness of the buyer. The average APR for an Affirm loan is 18%, but about 43% of loans are issued at 0% APR.

To assess a customer’s creditworthiness, Affirm uses a complex algorithm that takes into account various factors, such as their credit score, payment history with Affirm, length of relationship with the company, and current economic conditions. This algorithm allows Affirm to offer loans with terms that are appropriate for each customer’s credit risk.

According to Affirm, its algorithm ensures that borrowers pay back the vast majority of loans taken through the platform. The company also underwrites all its loans through Cross River Bank, Celtic Bank, or Affirm Loan Services, which allows it to make higher volumes of loans and better margin rates in the long term.

Merchant Fees: Charging Merchants for Processing Payments

In addition to charging customers interest on loans, Affirm also generates revenue from merchant fees. When a merchant partners with Affirm to offer financing to its customers, the merchant pays a processing fee for each transaction. While Affirm doesn’t disclose the exact fee it charges merchants, it’s estimated to be between 2% and 4%.

The merchant fee covers the cost of processing payments, allows the merchant to receive payment within two days, and helps subsidize the risk that Affirm takes on each transaction. In cases where Affirm financing is available at 0% APR, the merchant pays for the transaction cost.

In summary, Affirm makes money from both its customers and the merchants it partners with. By charging customers interest on loans and merchants a processing fee, Affirm has created a profitable business model that has helped it become a leading player in the “buy now, pay later” industry.

Affirm Accelerates Growth with Expanded Merchant Network and Strategic Acquisitions

In today’s fast-paced world, everyone wants to get ahead, and Affirm is no exception. As one of the leading Buy Now Pay Later (BNPL) providers, Affirm has set its sights on future growth. Despite experiencing a surge in user growth during the 2020 pandemic, Affirm remains smaller than its rivals Klarna and Afterpay. However, Affirm is taking bold steps to accelerate its growth in 2021.

One of the key strategies for Affirm’s growth is expanding its partner merchant network. Affirm aims to offer its services to more merchants and reach more consumers than ever before. Affirm’s recent exclusive deal with Shopify will enable all 10,000 merchants on the Shopify network to offer BNPL services. This partnership will help Affirm gain a significant market share and take on its competitors head-on.

Expanding its merchant base is crucial for Affirm’s growth, especially since a third of its revenues come from its exclusive relationship with Peloton. However, with the Shopify partnership, Affirm’s revenue streams will diversify, making it less reliant on any single merchant. This diversification will also allow Affirm to reduce the impact of any adverse economic events.

But that’s not all. In May 2021, Affirm made a strategic acquisition of Returnly, a leader in online return experiences and post-purchase payments. This acquisition will enable Affirm to offer a broader range of services to its merchant partners, making Affirm a one-stop-shop for all their financial needs. With Returnly’s expertise in post-purchase payments and returns, Affirm can provide its partners with a more comprehensive suite of services, enhancing the overall customer experience.

Top Competitors Dominating the POS Loan Market

When it comes to point-of-sale (POS) loans, Affirm is the OG. But as the saying goes, “the only constant is change,” and the lending industry is no exception. Affirm now faces stiff competition from a slew of other finance companies that offer alternative financing options to consumers. These companies not only skip the APR but also provide guaranteed financing approval, which is making them serious players in the market.

So, who are these competitors? Here’s a rundown of the top BNPL (buy now, pay later) and POS loan providers that are giving Affirm a run for its money:

  1. Sezzle: With over 1.6 million active users, Sezzle is a rapidly growing fintech company that offers interest-free installment plans for online purchases. The company is known for its straightforward approval process and zero hidden fees.
  2. PayPal Credit: PayPal Credit has been around for a while, but it still remains one of the most popular financing options for consumers. The company offers flexible payment plans, no annual fees, and a simple application process.
  3. Klarna: Klarna is a Swedish fintech company that’s taking the world by storm. The company offers a variety of payment options, including pay later and installment plans. Klarna is known for its easy-to-use app and exceptional customer service.
  4. Afterpay: Afterpay is an Australian company that’s made its mark in the US market. The company offers interest-free installment plans and a simple application process. Afterpay also partners with retailers to offer exclusive discounts and deals to its customers.
  5. GoCardless: GoCardless is a direct debit payment processor that’s gaining popularity in the UK and Europe. The company offers a variety of payment options, including installment plans, and is known for its flexible payment schedules and easy-to-use platform.
  6. Quadpay: Quadpay is a US-based company that offers interest-free installment plans for online purchases. The company also offers a virtual card that can be used for in-store purchases. Quadpay is known for its fast approval process and user-friendly app.

These competitors may be giving Affirm a run for its money, but that’s not necessarily a bad thing. More competition means more innovation and better products for consumers. At the end of the day, it’s the consumer who wins.


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