Introduction
Affirm is a fintech company that provides financing options to customers who want to make purchases but may not have the funds to do so outright. Whether it’s a new couch or a pair of expensive shoes, Affirm offers flexible repayment plans with transparent terms and rates to help customers spread out their payments over time. But how does Affirm make money? In this article, we’ll dive into the various revenue streams that allow Affirm to operate as a sustainable business.
Affirm’s Business Model
At its core, Affirm makes money by charging interest rates and late fees to customers who choose to finance their purchases through the platform. When a customer selects Affirm as their payment option, they are provided with an interest rate and a repayment plan that spans over several months. Affirm earns money through the interest charged on these loans, which can range from 0% to nearly 30%, depending on the customer’s creditworthiness and the term length. Late fees also generate revenue for Affirm, as customers who miss a payment are required to pay additional fees to cover the delinquent balance.
For example, if a customer finances a $1000 purchase with Affirm at a 10% interest rate over a 12-month term, Affirm stands to make about $67 in interest over the life of the loan. Late fees can add up quickly, too – missing a single payment on the same loan can lead to an additional $25 fee.
Partnerships and Collaborations
Affirm has partnerships with a number of retailers, including large brands like Walmart, Nordstrom, and Wayfair. These partnerships allow Affirm to offer financing options to customers on the checkout page of these retailers’ websites. In exchange, Affirm receives a referral fee from the retailer for each customer who uses its financing options. Additionally, Affirm also generates revenue through interest and fees charged to customers who finance their purchases through these partnerships.
For example, if a customer finances a $500 purchase from Walmart through Affirm at a 15% interest rate, Affirm would make approximately $22.50 in interest over the life of the loan. Walmart would receive a referral fee from Affirm, and the customer would have a flexible payment plan to pay off their purchase over time.
Investing and IPO Plans
Affirm has had a long history of investment from venture capital firms, including Founders Fund and Lightspeed Venture Partners. In January 2021, Affirm went public in an initial public offering (IPO) that raised $1.2 billion. The company’s shares debuted at $49 per share and have since risen to nearly $140 per share.
Going public allows Affirm to raise additional capital, which it can use to expand its presence in new markets or develop new products. It also provides investors with an opportunity to share in the company’s success through stock ownership. An IPO can also have an impact on Affirm’s revenue moving forward, as the company is now subject to public scrutiny and must generate returns for its shareholders.
Cross-Selling and Upselling
Affirm can also make money by cross-selling and upselling additional financial products to existing customers. For example, if a customer has successfully paid off a previous Affirm loan, they may be offered a pre-approved credit card from one of Affirm’s partner banks. Similarly, if a customer is in the process of financing a purchase through Affirm, they may be offered a personal loan from a partner bank to help them cover additional expenses.
Affirm earns revenue through referral fees from these partner banks if a customer decides to take advantage of these additional financial products. They also benefit from customers who continue to use Affirm’s financing options over time, leading to more interest and fee revenue.
Merchants Paying for Affirm’s Services
Finally, Affirm charges its merchant partners a percentage fee on each transaction made through its platform. For example, if a customer makes a $100 purchase from a retailer that uses Affirm’s services and selects a repayment plan, Affirm would charge the retailer a percentage of the transaction total. These fees can range from 1.5% to 3% depending on the merchant’s agreement with Affirm.
This can be a significant source of revenue for Affirm, especially as more retailers adopt its payment platform. Merchants benefit from Affirm’s services by increasing their customer base – offering financing options can make large purchases more accessible to customers who might not otherwise be able to afford them. This, in turn, can lead to higher transaction volumes and more revenue for both the merchant and Affirm.
Conclusion
In conclusion, Affirm’s revenue streams are varied and diversified. The company earns money through charging interest rates and late fees to customers, generating revenue from partnerships with major retailers, cross-selling and upselling additional financial products, and charging merchants for using its services. Additionally, Affirm’s recent IPO has brought the company into the public eye, potentially opening up even more revenue streams in the future as it continues to grow and evolve.
