The Affirm business model is the result of its founder’s perception, that in the future, customers are going to be ruled by the products or services that offer utility, convenience, and efficiency — all at the same time. If your finances are stretched, but you need to make an emergency buyout, you can take credit with Affirm at the checkout and pay later, with no fees, and already know how long it’s going to take to pay off.
A brief history of Affirm
Affirm service’s started in 2012, when one of PayPal’s founders, Max Levchin, a Ukrainian-born American entrepreneur, along with other investors, created a fintech to loan money to customers, generating a new way of buying products, without having to actually spend cash immediately.
The idea behind the company was surely promising at the time, but the beginning was a bit slow, and after its foundation, the company took a long time to captivate a reasonable set of partners to team up with and offer their services.
In 2014, Levchin embraced the company’s goals completely and became their CEO, starting a restructuring plan to reorganize Affirm’s administration, kick-starting an advertising campaign to announce them, and investing in technologies to upgrade Affirm systems.
The result of those initiatives was the launching of their first app that enabled their customers to use their loan services at online retailers. The launch was a success and was able to place Affirm in the spotlight in both financial and technology areas, which resulted in a formal partnership with Walmart, the US largest retailer company, providing a new payment option to Walmart’s customers.
In 2020, after the increase in its partnership base, the company decided to move to the stock market, announcing in November of the same year its intention to prepare for an initial public offering (IPO). The negotiations were concluded in 2021, and on January 13, Affirm was listed for the first time on NASDAQ, raising about US$ 1.2 billion with its IPO.
After that event, Affirm’s reputation grew even further, just as the number of companies that wanted to enter into a partnership with them. The result of their fast-growing revenue and the improvements in their services raised a light in Amazon headquarters and made them forge a partnership with Affirm, which will grant Levchin’s company to be Amazon’s exclusive “buy now, pay later” partner.
Who Owns Affirm
Affirm Holdings is still up today, owned by its founders. One of them, Max Levchin, has become the CEO of the company in 2014 and remains in the position today.
Affirm Mission Statement
Affirm’s Mission Statement is: “Pay at your own pace”
How Affirm makes money
Affirm is a pioneer in point-of-sale loans (POS), through a chain of partners that agrees to allow their clients to choose the method of payment. This new model of shopping is very popular among the Millennial and Z generations, since they tend to have less income and, consequently, less wealth and access to credit cards.
The company revenues come from two opposite ends: first, they charge interest over each loan that a customer issues from them, and they also charge the merchants for the cost of the processing transaction between merchant and customer.
Affirm charges, on average, a total of 18% percent of the interest in every transaction, although this percentage ranges from 0% to 30% percent, and it is based on the customer score and their monthly income, so people with a good financial background are likely to pay less interest.
Concerning the merchant’s fees, Affirm does not publicize the exact amount they charge from each merchant, but the estimate is around 2% and 4% percent, with a value fluctuation depending on the customer payment score, the number of acquired products, the issued amount, and the nature of each product. All that information plays a part when it’s time to calculate the fee.
To assess the data of each customer, related to their financial capability and debt records, Affirm enlists the help of an AI technology that review customers’ application and search for their payments’ information available at FICO, comparing them with other spending data.
That is necessary to create a virtual profile of each person, containing all the information needed for the company to give the green light for the loan. This is the standard protocol of the company, and it is used in all transactions.
Affirm’s Business Model Canvas
Affirm’s Customer Segments
Affirm’s customer segments consist of:
- Merchants: Formed by merchants such as e-commerce, supermarket, and retailers companies that offer their customers a POS option to pay for the merchandise and services offered by them;
- Consumers: Clients that go shopping in any of those partner’s stores or websites.
Affirm’s Value Propositions
Affirm’s value propositions consist of:
- Merchants: Offer their clientele an easier way to acquire goods, even if you don’t have a credit card or have a low payment score;
- Consumers: Choose the best option to pay for their goods, being able to select the number of parcels and how much each one is going to cost, and how long it’s going to take to close the debt.
Affirm’s channels consist of:
Affirm’s Customer Relationships
Affirm’s customer relationships consist of:
- Social media
- Users’ channels
Affirm’s Revenue Streams
Affirm’s revenue streams consist of:
- Merchant fees
- Interest in customers’ loans
Affirm’s Key Resources
Affirm’s key resources consist of:
- Partners network
- Financial expertise
Affirm’s Key Activities
Affirm’s key activities consist of:
- Financial lender
Affirm’s Key Partners
Affirm’s key partners consist of:
- Credit card processing networks
Affirm’s Cost Structure
Affirm’s cost structure consists of:
- Bonus payments
- Legal fees
- Development programs
- Administrative and legal departments
- Tech department
- Client/Partner support
- PayPal Credit: Ironically, Levchin’s greatest rival was the company he helped to create. PayPal Credit was originally called Bill Me Later and was acquired by PayPal group in 2008. It has a solid position in the installment market and carries the name of one of the main fintechs in the world. As a competitor, it surely has the weight of the reputation and is also backed by a colossal capital and strong relations with big retail companies, such as Amazon and Walmart;
- Sezzle: The sweetheart of the post-boomer generations, Sezzle is specialized in e-commerce, with more than 40,000 partners in the virtual world. Its main weapon is flexibility, since they allow its clients to reschedule their loan parcels, accommodate their needs, and facilitate their relationship with their finances;
- Splitit: A partner of Visa and Mastercard, Splitit offers the possibility to acquire an installment loan using your credit card, without having to pay a fee to the bank. The deal with the two biggest credit and debit card operators enables the use of Splitit pretty much in every corner.
Affirm’s SWOT Analysis
Below, there is a detailed swot analysis of Affirm:
- Entrepreneur mind: Affirm has in its top echelons, only people with an innovative mindset, strong will, and with flawless ideas. Using Levchin’s effort as an example, we can easily point out that the company is controlled by people who know what they want, are experienced in the business market, and can make great changes with only minimal corrections;
- The right person: Levchin’s role in the creation of PayPal didn’t go unnoticed, and he enjoys great respect and admiration in both tech and financial areas, so it’s easy for him to pave a way for Affirm to reach strong brands and form partnerships with them.
- New in the market: It may appear contradictory to call Affirm a pioneer in the installment loan business, and at the same time call it a novice in the game. But their app was launched only 5 years after its foundation, and they moved slowly to conquer their portion of the market and gather partners, therefore companies that are younger than them are already consolidating in the game and making their reputations, like Sezzle, for example.
- Eyes on the north: We envision that spending some effort trying to control North America’s market could be a great opportunity to Affirm. Installment money loan is relatively new in the US, so in places like Canada and Mexico, this kind of business is in an embryonic state. If they can reach there first, they may be able to play as the spearhead and the reference in those countries. This move allows them to expand the brand, while they retain attention and control of the US market, enlarging their business on the home front.
- Strong players: Affirm is giving its first step in a field where the big players are starting to run. The major competitors are ahead in market dominance, brand recognition, and customer preference, which means they’ve got a long journey if they want to close the distance between them and their competitors;
- Distrust: Being new in some businesses does not always attract attention. In the case of Affirm, they only started their IPO in 2021, so it’s way too early for the market to embrace the company, therefore, even with the conquest of business partners and great closed deals, it is hard to attract investors and build a partnership for Affirm. An opposite situation for their rivals, which enjoy the public’s approval and investors’ trust.
Affirm business model is heavily dependent on the minds of their creators, since they play a strong role in the business’ directions and desperately need them to build a network of brand partners, so necessary for companies like them that are still beginning in the market.
The company focuses on development on two fronts: one of them is having a more personal interaction with shoppers, the people for whom the loans are destined, and the other is maintaining and enlarging their partnership chain, to enable them to reach an even bigger audience.
If we are going to have to guess, we could say that Affirm, although not yet solid, certainly has a bright future ahead, if they keep their pace. As mentioned before, the company would profit great deals if turn its boat to the closest market, without retreating just to the U.S., but also being able to fight for its place in the whole of North America.