Affirm is betting on these initiatives to drive growth amid rising macroeconomic challenges

Affirm is betting on these initiatives to drive growth amid rising macroeconomic challenges

Affirm is betting on these initiatives to drive growth amid rising macroeconomic challenges

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The rising interest rates and high inflation is having a significant impact on the bottom line of major BNPL firms. While players such as Klarna have seen a considerable drop in growth and valuation amid the growing macroeconomic challenges, Affirm, one of the leading firms in the global buy now pay later industry, has managed to record strong growth in 2022. For instance,

  • In its fiscal Q4 (ended June 2022), Affirm reported a growth of 77% year over year in its gross merchandise volume. During the same period in 2021, the firm reported a growth of 106% year over year. While there is a slowdown in growth percentage, the firm has experienced strong growth in 2022, given the evolving economic trends globally.

The firm has attributed this growth to the increasing customer and merchant base, both of which have assisted Affirm in driving transaction volume. Despite the rising inflation and declining consumer spending, Affirm has recorded a growth of 96% year over year in its active customers. On the other hand, the partnership with two major e-commerce firms has also assisted Affirm in increasing its gross merchandise volume.

Notably, Affirm entered into strategic partnerships with Shopify and Amazon, thereby allowing the BNPL provider to gain access to their online stores. The partnership with Shopify has resulted in a growth of 710% in its merchant base. With a merchant partner network of 1.75 million worldwide, the partnership with Shopify has allowed Affirm to immediately gain access to a sea of new merchants and customers.

By the end of June 2022, Affirm had a total of 235,000 merchants on its platform, as compared to 29,000 a year before. In terms of merchant partners, there is still huge growth potential for the BNPL provider, as the total merchant base of Affirm only represents a mere fraction of the total merchant base of Shopify.

Along with the rise in its merchant base, the firm also experienced a significant increase in its customer base. With over 14 million users using the BNPL service, Affirm had nearly doubled its consumer base compared to a year before. For the fiscal ended June 2022, consumers purchased a significant US$15.5 billion worth of goods. Consequently, the firm experienced a growth of 54% in its revenue, reaching US$1.3 billion.

Another factor that has driven the transaction volume for Affirm is the pent-up demand in the travel sector. Notably, the firm recorded a growth of 87% in travel and 443% in the ticketing sector in FY Q4 compared to same period in 2019. In Q4, American Express, Expedia, Priceline, and Vrbo were among the top ten merchants for Affirm.

While the firm is remaining cautious going into H2 2022, Affirm is planning to adopt a number of initiatives to drive its business growth from the short to medium-term perspective. For instance,

  • In H2 2022, the firm is planning to launch Affirm Rewards, which will enable consumers to earn a reward at the checkout and redeem their points for future purchases. The launch of Affirm Rewards is part of the firm's strategy to make a push in the customer loyalty segment, as it seeks to compete with credit card providers and other BNPL players such as Klarna.
  • Along with Affirm Rewards, the firm is also planning to add more features to its Debit+ program, which connects to the bank accounts of customers, thereby allowing them to make installment or debit payments. Notably, the Debit+ product has resulted in strong momentum for the firm. The gross merchandise volume for active Debit+ users has been more than 40% when compared to non-Debit+ users. Consequently, the firm is looking to build more features into its Debit+ product to drive customer engagement.
  • Affirm is also looking to expand its geographical footprint over the next three to four years to drive up its merchant and customer base. Notably, in its efforts to expand globally, the firm also changed its brand name in Canada from PayBright to Affirm Canada. In Canada, the firm also partnered with Amazon to expand the BNPL payment option to shoppers in the country. This should further assist the firm in driving its gross merchandise volume.
  • Additionally, to further drive its customer numbers, the firm is planning to launch new features which might assist the firm in onboarding customers that have been left out of the traditional credit-reporting infrastructure. Furthermore, with cash in hand, the firm is also looking at potential acquisition deals to drive its growth. At the end of FY Q4, Affirm had US$1.26 billion in cash and cash equivalents. However, this is down from its reserves of US$1.47 billion during the same period a year before.

The BNPL sector is expected to remain under pressure amid the growing macroeconomic challenges from a short-term perspective. However, players like Affirm reaffirm the growth potential of the sector in the long run. Although losses for Affirm have widened for the year ending June 2022, the firm is expected to perform well compared to other players in the segment. Even in a period of rising inflation, consumers have continued to buy online. Consequently, strategic partnerships, such as the one with Amazon in Canada, can further boost the growth of Affirm over the next three to four years.

To know more and gain a deeper understanding of the BNPL market in the United States, click here.

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