Affirm, the point-of-sale lender, has experienced a remarkable turnaround in 2023, with its stock surging by an impressive 430%, outpacing all other U.S. tech companies valued at $5 billion or more. This surge starkly contrasts the previous year when Affirm shares plummeted by 90%, grappling with rising interest rates, recession fears, and weakened consumer spending.
The Federal Reserve’s indication of upcoming interest rate cuts and the increasing adoption of Affirm’s buy now, pay later (BNPL) offerings by more retailers have contributed to the positive sentiment around the company. The company’s shares were significantly boosted in November after expanding its partnership with Amazon and a record-breaking high in BNPL purchases on Cyber Monday.
Affirm, founded in 2012 by PayPal co-founder Max Levchin, competes in the BNPL market with companies like Klarna, Block’s Afterpay, and Zip. The BNPL model allows consumers to split purchases into multiple installments without accruing compounding interest. Affirm generates revenue through interest payments and fees charged to merchants offering their lending services.
While Affirm faced challenges in early 2022, including workforce cuts and concerns about negative consumer sentiment, the company’s fortunes began to change in August 2023 after reporting strong fiscal fourth-quarter earnings. Affirm secured new merchant deals in various sectors beyond retail, including travel, wireless, ticketing, and healthcare. The announcement of offering BNPL loans at Walmart’s self-checkout kiosks further propelled the stock.
Despite the significant rebound, Affirm shares remain approximately 70% below their peak in November 2021. Looking ahead to 2024, Affirm is eyeing international expansion and has introduced initiatives such as a debit card, allowing customers to pay upfront or in installments. The company plans to introduce a spending account tied to its debit card, expanding its offerings into a full-fledged financial services firm.
While some analysts express optimism about Affirm’s future, others remain skeptical, citing intense competition from established players like PayPal and Block. In its defense, Affirm emphasizes its growing user base, expanding merchant partnerships, and low default rates compared to industry standards.
Regulators are closely monitoring the BNPL space, with three U.S. senators urging the Consumer Financial Protection Bureau to monitor the increased usage during the holidays. Like its peers, Affirm faces scrutiny, with the CFPB subjecting BNPL to greater oversight in line with credit card companies. As BNPL adoption grows, concerns about potential consumer overextension and regulatory scrutiny continue to be part of the landscape.
