It’s been almost 10 years since PayPal co-founder Max Levchin launched Affirm, but the provider of buy now, pay later (BNPL) installment loans officially joined the ranks of the publicly-traded elite Wednesday (Jan. 13), after strong demand for its initial public offering (IPO) gave it an initial value of over $12 billion.
While Affirm’s long-awaited path to going public has been closely followed and generously backed by investors for years, the underpinnings of that support have always been rooted firmly in one place: growth.
The concept of installment loans is hardly new, having been around for decades, but the ease and clarity with which these payment alternatives are now being offered by Affirm and other startups like it is unprecedented.
Simply put, the rapid growth in demand for BNPL financing solutions from both consumers and merchants has been second to none this year.
“As of September 30, 2020, more than 6.2 million consumers have completed approximately 17.3 million transactions with over 6,500 merchants on Affirm’s platform,” Renaissance Capital said in a note to clients.
In addition, Renaissance highlighted Affirm’s 93 percent increase in full year revenue, a 77 percent increase in its gross merchandise volume to $4.6 billion, as well as the fact that customers liked the BNPL experience so much that nearly two-thirds of its loans were taken out by repeat customers.
The BNPL Boom
While Affirm’s life as a publicly traded — and therefore increasingly scrutinized — company is new, its business model and mantra have remained the same since the outset.
“Many, many, many Americans are deciding this is a better alternative for them than [using] a credit card,” Affirm CEO Max Levchin told PYMNTS CEO Karen Webster in a December 2018 conversation.
Levchin said consumers simply feel more informed and in control when they pay with BNPL versus using a credit card to make similar purchases.
“We’ve trained our users to consider every transaction as to whether it is something they are comfortable with — and we don’t want to lose that part of our offering,” Levchin explained. “But we want to give our users the same transparent credit option they can confidently use when making more of an everyday purchase instead of just being the credit product that they use when buying a mattress every seven years.”
Or Buying An Exercise Bike
One of the areas of focus surrounding Affirm’s current business is the fact that 30 percent of its sales are derived from a single customer — Peloton, the high-end maker of $4,000 treadmills and $1,800 exercise bikes. Although Affirm has 6,500 merchant relationships, Bloomberg points out that just 10 of them account for nearly 40 percent of its business.
While the risks — and concerns — posed by a highly concentrated customer base are legitimate, they are expected to spread out over time, given the fact that Affirm has thousands of merchant relationships now offering its BNPL financing option.
By comparison, when other FinTechs went public they also had lopsided revenue stories, including Square which relied on Starbucks for 14 percent of its revenue at the time, and PayPal which derived nearly 70 percent of its volume from eBay.
Battle Of The BNPL
With shares of Affirm now officially listed and backed by “Wall Street money,” the company can now more freely pursue growth and acquisitions, such as its $270 million dollar acquisition of Canada’s leading BNPL provider PayBright last month.
Affirm’s listing will also set up more direct competition and comparative analysis with fast-growing Australian BNPL provider Afterpay, which is currently the only other publicly traded firm in the segment. While Swedish BNPL player Klarna remains private, and well capitalized, it has repeatedly considered the possibility of going public itself.
In the meantime, Affirm has said it plans to continue to scale its next-generation BNPL platform to reach more users and merchants while it pursues its stated goal of “delivering honest financial products that improve lives.”
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