E-commerce giant Amazon appears to be leaving its options open when it comes to buy now, pay later services, letting an exclusivity commitment with Affirm expire Tuesday.

Although the two companies have a commercial agreement that runs through Jan. 31, 2025 – and can be extended for successive one-year terms at that point – Jan. 31 marked the end of BNPL provider Affirm having a claim as the sole installment loan provider for Amazon’s customers. 

“Until January 31, 2023 (unless otherwise extended pursuant to the terms of the Commercial Agreement), Amazon has agreed not to make available on Amazon.com other closed-end installment loan products and services by certain competitors of Affirm,” a November 2021 filing with the Securities and Exchange Commission stated.

Not covered by that restriction: “Installment products and services offered to customers as a feature of a credit card,” the filing noted.

Affirm Spokesperson Matt Gross declined to comment. An Amazon spokesperson didn’t respond to repeated requests for comment on the issue.  

Losing that exclusivity with Amazon comes as San Francisco-based Affirm faces intense competition from the likes of Klarna and Afterpay in the BNPL market.

Amid a tougher economic climate, analysts are also keeping an eye on Affirm’s loan funding in a higher interest rate environment, and on its customers’ discretionary spending and its customers’ credit health. 

"Investors will closely scrutinize Affirm's commentary on credit for signs of weakness or tightening, "Bank of America analyst Jason Kupferberg wrote in a Jan. 17 note to investor clients. “A tightening of the credit box could lead to slower (gross merchandise volume) growth.”

Partnerships with major retailers such as Amazon, Target and Walmart have been big wins for Affirm, as has a partnership with Canadian e-commerce company Shopify. 

Last year, Affirm extended its exclusivity period with Shopify, according to Autonomous Research analyst Rob Wildhack. That’s why he doesn’t rule out the possibility of Affirm retaining exclusivity with Amazon. But he doesn’t think it’s highly likely either, partly because Amazon could view more BNPL options as appealing to a broader customer base. Wildhack expects to hear more on Amazon when Affirm reports earnings Feb. 8.

“Our base case is that (Affirm) will retain exclusivity, but likely with a cost,” Kupferberg wrote, noting the agreement’s expiration date.

Klarna and Afterpay spokespeople declined to comment on whether their companies are in talks with Amazon. Spokespeople for Sezzle and Zip didn’t immediately respond to requests for comment. 

It’s taken Affirm more than a year to increase its presence across Amazon’s product web pages, and the company still isn’t done, “so I think it would take another BNPL provider a long time to build up the same presence/integration,” Wildhack said in an email. 

Affirm’s share of Amazon’s gross merchandise volume is “likely less than 1%,” leaving plenty of room to grow, Wildhack said.

Affirm Chief Financial Officer Michael Linford said in November that the company was considering increases to the amount it charges merchants for its services, although he noted Affirm is not having such discussions with its biggest customers.

The company lowered its fiscal year 2023 earnings guidance in November, citing macroeconomic headwinds, higher interest rates and funding costs, Kupferberg noted. 

As for whether Amazon could build its own installment option in favor of working with a BNPL provider, Wildhack said it’s a possibility. “But at the same time, I think Amazon wants Affirm as a partner to help it sell more stuff,” Wildhack said.

Affirm’s customer base likely holds value for Amazon, too, and “the vesting on some of the (stock) warrants Affirm gave Amazon are tied to Affirm’s growth at Amazon,” he noted.

By Caitlin Mullen on Feb 2, 2023
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