When Max Levchin founded consumer financing firm Affirm Holdings (AFRM) in 2012, he aimed to make it a big player in the "buy now, pay later" market. Thanks to a stellar list of online partners — Amazon.com (AMZN), Walmart (WMT), Shopify (SHOP), BigCommerce (BGIC) and recently added Best Buy (BBY) — Levchin can now check that box for Affirm stock.
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Companies like Affirm, Klarna and Block's (SQ) Afterpay position buy now, pay later — or BNPL — as a payment alternative to credit cards from Visa (V), Mastercard (MA) and others. With BNPL options, consumers pay off purchases in monthly installments, either with low interest or none at all.
Now Levchin aims to expand deeper into financial services with the Affirm Card.
"The best, in my biased opinion, thing that we've done in the last 10 years is the Affirm Card," Levchin told Affirm stock analysts at a November investors meeting. "It is a focal point of all the things that we've set out to do. Build a product that really bleeds the mission, improves people's financial lives, does all the right things at all the right moments, works for every kind of transaction."
It's the latest strategy from Affirm, one of several so-called neo-banks that are digital-first technology companies moving into financial services. Neo-banks usually have mobile or online apps to deliver banking services to customers, but don't have physical bank locations.
Affirm Stock Jumps In 2023
Due to growth in the BNPL market, San Francisco-based Affirm reported September-quarter revenue of $496.6 million. That's up 37% from a year earlier. Fiscal second-quarter results are due Feb. 8.
Affirm stock has shot up 192% over the past 52 weeks, though shares have pulled back slightly since Jan. 1. Shares rallied in late 2023 amid media reports that BNPL usage jumped during the holiday shopping season.
The challenge for Affirm has been making the business profitable. In the last four quarters, Affirm has reported losses of $1.10 per share, 69 cents, 69 cents and 57 cents.
Further, the BNPL market is crowded. Affirm, Klarna and Afterpay face competition from a wave of newcomers as well as banks. And, there's concern some consumers may not pay off the loans if they overindulge, especially if a recession hits. So analysts closely monitor delinquency rates.
Still, Wall Street views the Affirm Card as the next growth driver. The company's revenue mostly comes from online purchases, but the Affirm Card will give it a presence in brick-and-mortar retail stores.
The Affirm Card works as a debit card that links to consumer checking accounts at banks. It allows consumers to pay for purchases right away or request to pay for purchases over time.
Consumers can request a payment plan in the app before checking out. They can also link their bank account to pay with the Affirm Card. Also, they can use the app to request payment plans for eligible purchases after swiping or tapping.
Moving Into Everyday Purchases
"The Affirm Card isn't a line of credit," Affirm stock analyst David Chiaverini of Wedbush told Investor's Business Daily in an email. "Rather each purchase is underwritten separately. And the consumer, if approved, can choose among varying financing options for the purchase between 'pay in 4' with no interest, or pay over time in monthly installments with interest."
Consumers typically use BNPL for big purchases. During the Covid emergency, Affirm's biggest customer was fitness gear maker Peloton Interactive (PTON). Consumers also typically buy furniture, electronics and household appliances.
Analysts expect consumers to use the Affirm Card for everyday purchases.
"Notably, the card has offered growth to categories that historically were not penetrated by Affirm, with an increase in Pay Now transactions in grocery stores, restaurants, and gas stations, as well as an increase in Pay Later transactions in home improvement, grocery stores, auto parts and services and wholesale clubs," RBC Capital analyst Daniel Perlin said in a recent note to clients.
Big Market Opportunity For Affirm Stock
After testing the product for a couple of years, Affirm rolled out the debit card in 2023. The company had 500,000 active users as of Oct. 31.
In the September quarter, the Affirm Card contributed roughly $224 million in gross merchandise volume, or the total value of transactions handled by payment platforms. That's up from $130 million in the previous quarter.
At the November investor day, Affirm President Libor Michalek said the company is playing the long game. It wants to deepen customer engagement and capture in-store opportunities. Currently, about 1.3% of BNPL users have the debit card. Officially, the Affirm Card comes as a Visa debit card issued by Evolve Bank.
"So we have 500,000 (Affirm Card) users and we have 40 million (BNPL) registered users," Michalek said. "We have 16 million annual active (BNPL) users. So we have a lot of room within our own ecosystem. But really, we're going after the full card market. There is over $1 trillion in revolving consumer debt in this country and there's no reason for any of it to exist. And so that is the market that we are going after."
Meanwhile, with its mobile app and updates, Affirm will be able to notify consumers of in-store promotions.
Neo-Bank Strategy Evolving
The company also now offers Affirm Money accounts, which are transactional checking accounts connected to Affirm Cards.
"The AFRM card can link to either the Affirm Money account (a transactional account within the app) or to your regular Affirm account, which is likely connected to a checking account or debit card," Mizuho Securities analystNicholas Lucas told IBD. "There is also a savings account within the Affirm app which can be used to make payments as well."
He added: "The best way to think about it is just bringing the Affirm app in-person to brick and mortar as the transactions are functionally the same as if you were to use the Affirm app on an e-commerce transaction."
Affirm's online BNPL business, of course, isn't going away.
But Affirm stock holders should keep an eye on the Federal Reserve. If interest rates move lower, that'll be a plus for shares, making it easier to finance consumer loans.
Follow Reinhardt Krause on X, formerly called Twitter,@reinhardtk_techfor updates on artificial intelligence, cybersecurity and cloud computing.
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