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,
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,
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.
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