Few innovations in the financial services sector boast the attention, and often criticism, garnered by the buy now, pay later space. The disruption to the legacy credit ecosystem is potentially mammoth and is only bested by its potential impact on consumer psychology.
Companies like Affirm, Klarna, and Afterpay have become synonymous with the industry and entrenched in the cultural zeitgeist—fom Klarna’s much meme’d partnership with DoorDash to Affirm’s tie-up with Costco.
Affirm in particular is laser-focused on breaking the cycle of revolving debt and believes that it succeeds only when its customers do.
“We really do not want customers to fall behind and get into trouble with our product,” said Affirm’s CRO Wayne Pommen.
A few imperatives are core to the company. Firstly, and perhaps most importantly, unlike legacy credit card companies, Affirm does not believe in late fees or compounding interest. Its rigorous underwriting process is the foundation of its business, and solid partnerships are essential.
Building a strong foundation
Affirm has a lot of cogs turning at once, but the credit assessment has the most critical function. Unlike with a traditional credit card, where you’re approved once to enter the realm, Affirm assesses a customer’s creditworthiness on a case-by-case basis. The company will often assign an interest rate based on the results of the customer’s credit check and the particular transaction in question.
“Credit is job #1 at Affirm,” said Vishal Kapoor, Affirm’s SVP of product management, in a written statement. “With 13+ years of experience and more than $100b in loans to 50m+ people, our expertise sets a high bar.” At a time where horror stories of American consumer delinquencies abound, Affirm prides itself on having consistently lower credit delinquency rates compared to legacy financial institutions and takes this part of the process very seriously.
The mission is always top of mind for Affirm’s leadership.
“We want to support our customers where they spend money, where they shop,” Pommen said. “Any time a customer is making a purchase with Affirm versus a credit card where they’re risking getting trapped in revolving debt, we think they’re better off.”
Variety is the spice of BNPL
Optionality is a big part of the value proposition. Affirm’s products include both interest-bearing and non-interest bearing options, a variety of time horizons, and now even a debit card.
“The average Affirm user is doing 5.6 transactions currently a year. The [debit] card users are much, much higher than that, more like 20,” Pommen said. He added the card now has over 2 million active users.
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It’s not all on the consumer: Affirm also generates revenue through its merchant partners, via discount rates and transaction fees.
“What merchants are often doing when they’re contributing to the revenue is offering the customer a special deal,” said Pommen. Merchants subsidize purchases, allowing the customer to benefit from interest-free payments, which, according to Kapoor, leads to higher conversions, larger baskets, and more repeat customers. At a time of elevated economic uncertainty, driven mainly by tariffs, merchants have shared concerns about being overly burdened by rising costs.
“Merchants pay us for that growth, and this value on both sides powers the flywheel that makes Affirm stronger at scale,” Kapoor said. Innovation is a part of the secret sauce: Affirm launched AdaptAI this year, an AI-powered promotions platform, enabling merchants to offer personalized deals that meet real-time customer needs.
Howdy, partner
Affirm has some lucrative partnerships under its belt, including a tie-up with Shopify that expanded internationally earlier this year and a deal struck with Costco in May.
As Affirm grows, so does competitor pressure. Earlier this year its high-profile Walmart partnership ended, making recently IPO’d Klarna the exclusive BNPL provider for the nation’s biggest retailer.
Despite some big moves in the sector, Pommen’s eyes are on the prize. “Our goal is to build a really big payments network,” he said. “We’re only going to be successful doing that if customers have a good experience with us.”
Expert insight: BNPL
As the BNPL sector heats up and incumbents deliver new products and revenue streams, there will remain those who are entrenched on one side of the debate or the other.
In an email to Revenue Brew, Christopher Stroup, founder and president of Silicon Beach Financial, praised Affirm’s efforts to establish itself as a more mature BNPL option. In particular he said the company’s partnership with Costco “reinforces the idea of BNPL as a responsible financing tool, not just a lifestyle perk.”
He also said Affirm’s decision to not charge late fees will pay dividends.
“Savvy consumers increasingly view BNPL as a credit alternative, so they’ll reward companies that feel transparent, protective, and designed to keep them out of debt traps,” Stroup said.