Will Affirm be the next PayPal?

BNPL services, instalment loans that usually charge no interest, have surged in popularity as retailers respond to demand from consumers for easy repayments without running up debt. 

BNPL providers usually add a payment button on the retailer’s website and then charge the merchant a commission for each transaction.

The BNPL service provider exists to streamline the payment process. The biggest difference between it and traditional bank loan is that there is no interest.
BNPL companies mostly charge merchants, and for each transaction, revenue is charged as well as late fees for late payments from consumers.

Installment plans not only boost sales, they also allow shoppers without cash to snap up bargains and stock up on holiday gifts. The installment plan is beginning to replace the traditional one and become all the rage among retailers.

BNPL’s suppliers allow customers to pay in installments, allowing them to avoid buying large quantities of goods with high-interest credit cards. The advantage of this is that among Gen Z and Millennial consumers without credit cards, the purchase costs can be divided into installments for weeks or months.

RBC Capital Markets estimates that the BNPL option will increase retail conversion rates by 20-30 per cent and average purchase value by 30-50 per cent.

Interest in store credit cards dropped sharply in 2021, according to a report from Lending Tree. But the report also found that consumers were still slightly more likely to use store credit cards for holiday purchases than installment plans that allow them to buy now and pay later.

According to FIS Worldpay, BNPL is the fastest growing e-commerce payment method in the world, with the second fastest growth in digital wallets.

BNPL is the most aggressive presence in the global online payment trend. The whole pattern of consumer finance is stirring under its strong wind.

Affirm Holdings(AFRM.us), which offers a “buy now, pay later” service similar to Alipay, is emerging as a new star in the U.S. online payment market.

photo credit:Affirm website
photo credit:Affirm website

Affirm was founded by Max Levchin, a co-founder and former CTO of PayPal.

Affirm had its big moment this year when it went public on Nasdaq, becoming one of the first PayPal affiliates to venture into the capital markets, following in the footsteps of big data analyst Palantir.

Retailer Target recently announced that it has launched a new installment plan with Afflem (AFRM) and Sedzle ahead of the busy holiday season, offering shoppers additional payment methods. Consumers can use installment plan providers to take advantage of holiday deals and specials.

In addition to retailer Target, Affirm has struck striking partnerships with major merchants like Amazon, Shopify and Wal-Mart to capitalize on BNPL growing appeal.

Affirm’s core business is financial technology, which may remind investors of a larger, more established fintech company, PayPal(PYPL).

Affirm, a fintech company focused on the U.S. and Canada, has three core components in its business platform: Consumer-facing payment solutions (BNPL), merchant commerce solutions, and consumer-centric applications.
As of September 30, 2020, Affirm had completed nearly 17.3 million transactions between 6.2 million consumers and more than 6,500 merchants.
Affirm does focus more on payment technology, perhaps because of its PayPal DNA, and it’s not far from being a “richer, more flexible payment solution provider.”

Data, underwriting and credit decisions are the trenches of affirm

As one of the first to enter the BNPL market in North America, Affirm has insured many consumers.
In other words, Affirm needed to penetrate the retail space. As a result, Affirm has years of experience underwriting millions of consumers during economic slowdowns and booms.

Affirm allows consumers to make purchases over a fixed number of installments, with no hidden fees, charges, or compound interest. Merchants work with Afirm, where consumers tend to buy more often and spend more on each order.

If Afirm continues to grow and innovate, it could one day become a big fintech company like PayPal. So far, however, Affirm’s achievements have been impressive enough.

The rapid growth of the “buy now, pay later” market is partly driven by rising levels of consumer debt, which have raised public concerns about the risk of debt defaults and prompted regulatory consultations in several countrie