Affirm is the largest independent BNPL provider based in the U.S. The majority of its installment loans tend to be longer-duration and interest-bearing, rather than the short-term, interest-free loans.

Affirm may have lost exclusivity with Amazon earlier this year, but Affirm remains a payment option on the e-commerce company’s checkout page. The commercial agreement between the companies runs through January 2025.

When analyst Jason Kupferberg asked if the Amazon Pay tie-up “moves the needle” on Affirm’s gross merchandise volume in fiscal year 2024, Linford suggested during his appearance at the Bank of America Securities global technology conference that it’s just one “important” piece of the puzzle for the company.

“Tens of thousands of retailers” offer an Amazon Pay button at checkout, according to an Amazon spokesperson Thursday.

Because Affirm is a non-depository lender, its loan funding relationships are crucial, CEO Max Levchin said during the company’s fiscal third-quarter earnings call May 9. 

Affirm’s capital partners include asset managers, banks, pension funds and insurance companies, and the company accesses funding through securitization deals and warehouse lines, among other avenues.

Affirm currently has two bank partners, Cross River Bank and Celtic Bank, and is working toward adding a third, Chief Capital Officer Brooke Major-Reid said during an investor conference appearance in May.

The funding environment for Affirm has grown more challenging due to banking sector volatility stemming from such failures as Silicon Valley Bank and Signature Bank, the Federal Reserve’s interest rate increases and wider credit spreads, Linford said.

Affirm plans to continue to use funding strategies such as warehouse lines and consolidated asset-backed securities deals, but the constrained environment could “change the shape of (profit and losses) in a given period,” Linford said. 

As the company’s funding costs rise, Affirm has done the same with pricing, Linford noted. Affirm increased its maximum annual percentage rate on interest-bearing loans to 36% from 30% in recent months. More than half of the quarter’s interest-bearing gross merchandise volume came through merchants that adopted that higher limit, the company said in its fiscal third-quarter shareholder letter.

Increasing APR caps for some merchants has allowed Affirm to continue to earn enough revenue to offset funding cost increases, Linford said Thursday. Still, it could take several quarters to reap those benefits, and the constrained funding environment is expected to continue through the company’s fiscal fourth quarter, Affirm said in the shareholder letter.

By Caitlin Mullen on June 9, 2023
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