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.
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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.
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’s Mission Statement is: “Pay at your own pace”
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.
Let’s take a look at the Affirm Business Model Canvas below to understand their business model:
Affirm’s customer segments consist of:
Affirm’s value propositions consist of:
Affirm’s channels consist of:
Affirm’s customer relationships consist of:
Affirm’s revenue streams consist of:
Affirm’s key resources consist of:
Affirm’s key activities consist of:
Affirm’s key partners consist of:
Affirm’s cost structure consists of:
Below, there is a detailed swot analysis of Affirm:
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.
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