The buy now, pay later (BNPL) competition is heating up as big players in the fintech space embrace the model. To win more market shares, payment companies are beginning to strike surprising partnership deals.
Two fintech giants, Affirm and Stripe are partnering up to help companies offer BNPL services. Under the deal, Affirm will make buy now, pay later technology available to businesses that use Stripe’s payments tech, enabling them to offer their customers the option to pay for services in installments.
While each of the companies offering BNPL has devised incentives to win the emerging market, partnering with a company with a huge customer-base like Stripe, will likely give Affirm advantage. Below, TechCrunch reports on why the partnership is a huge deal for Affirm.
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The deal is significant for Affirm because Stripe, which was valued at $95 billion last year, has “millions” of customers. It processes hundreds of billions of dollars each year for “every size of business — from startups to Fortune 500s.” And this gives Affirm an opportunity to generate more revenue as it makes money in part on interest fees. For its part, Stripe is able to offer prospective, and current, customers more payment flexibility.
Affirm — which was founded by PayPal co-founder Max Levchin — has built technology that can underwrite individual transactions, and once determining a customer is eligible offer them the option to pay on a biweekly or monthly basis. Those that qualify have the option to use Affirm to break up the cost of purchases ranging from as little as $50 all the way up to $30,000. The maximum credit limit is $17,500.
A common misconception about BNPL is that customers don’t have to pay interest. Some customers are in fact charged interest, but Affirm says it doesn’t charge late fees and that there are no surprises with the amount of interest it charges. For example, it presents the exact fixed amount a customer will pay in interest upfront.
In an interview earlier this year, Libor Michalek, Affirm president of technology, emphasized the company’s efforts to be transparent.
“We’ll communicate it to them obviously, as an interest rate as we’re legally required to, but also in dollars and cents,” he said. “A lot of times people get surprised when I tell them that a $1,000 purchase at 15% for a year actually translates to $83 because of the amortization schedules. A calculator on our website lets you play with all of those numbers.”
Affirm stock has taken a huge hit in the last year — along with most other tech companies — and as of today, was trading at just under $30. That’s significantly lower than its 52-week high of $176.65, and means that the company is now valued at about $8.5 billion. Still, the company’s last earnings report beat expectations, with Affirm noting that its active merchants in its fiscal third quarter grew by more than 16x year-over-year (to 207,000) and that active consumers grew by 137% year-over-year (to 12.7 million). It also reported that its revenue was up 54% (to $355 million). Meanwhile, its operating loss widened to $226.6 million compared to $209.3 million in the same period last year — which it says was driven by “continued investment in sales and marketing,” including $102.4 million of expense related to warrants granted to Amazon in November 2021.
The company has also recently announced partnerships with Fiserv, Shopify, WooCommerce and Verifone.
Meanwhile, competitor Klarna has hit some recent bumps — cutting its valuation and laying off staff.