Affirm is a financial technology company offering installment loans to consumers at the point of sale. The company started operations in 2012 as part of HVF, a startup studio created by PayPal co-founder Max Levchin. Other Affirm founders include Jeff Kaditz, Nathann Gettings, and Alex Rampell. The company has its headquarters in San Francisco and has about 2,552 employees.
Affirm provides a “buy now pay later” (BNPL) financing, an alternative to credit cards for online and brick-and-mortar retailers. It pays sellers or retailers in full for the merchandise at the time of sale and collects payments from the consumers over time. As of June 2022, Affirm had more than 235,000 active merchants using its service and had extended more than $15.5 billion in credit to more than 14 million consumers.
A study by Fortune Business Insights forecasts the “buy now pay later” (BNPL) market to reach $90.51 billion in 2029, a CAGR of 21.7% from 2022 to 2029. While the BNPL space is Affirm’s most direct competition, the company competes with other consumer lending companies, such as credit cards, personal loans, and lines of credit.
In this Affirm competitors analysis, I’ll report Affirm’s top competitors and evaluate their strategies in the “buy now, pay later” space. I’ll also provide an overview of the BNPL market and discuss the potential opportunities and challenges for Affirm going forward.
Bottom Line Up Front
The Affirm competitive landscape mixes other BNPL providers, traditional lenders, and new FinTech startups. The company leverages its data-driven underwriting approach to offer competitive terms to consumers and merchants. While the BNPL market is growing rapidly, it remains nascent and is subject to regulatory scrutiny.
List of Affirm’s Competitors
Affirm’s Business and Growth Strategy
Affirm’s growth strategy focuses on expanding its merchant network and increasing consumer awareness of its brand. The company has partnerships with some of the biggest names in e-commerce, such as Shopify, Zen Cart, Expedia, ASOS, and Overstock.com. In addition to online retailers, Affirm is also in partnerships with physical stores, such as Walmart, Macy’s, and Mattress Firm.
To increase consumer awareness, Affirm invests heavily in marketing and advertising. In Fiscal 2022, the company spent $532 million on marketing, almost thrice the amount it spent in the previous year. The company plans to continue investing heavily in marketing to drive awareness and adoption of its products.
Affirm is also active in acquisitions. Before going public, it had three companies under its belt: Sweep, a provider of software that helps businesses automate their accounting; LendLayer, a provider of short-term working capital loans to small businesses; and PayBright, a provider of BNPL solutions for Canadian merchants. Later in 2021, it acquired Returnly, a provider of return management solutions for e-commerce businesses.
Affirm’s Financials and Revenue Model
According to Crunchbase, Affirm has raised $1.5 billion in equity funding from 27 investors, including Morgan Stanley, Founders Fund, and Spark Capital. Its latest round was a post-IPO equity round that raised an undisclosed amount in January 2021. Affirm became a publicly traded company on January 13, 2021, with an initial public offering (IPO) of 24.6 million shares priced at $49 each.
The IPO raised $1.2 billion and valued the company at $12 billion. As of August 24, 2022, the company had a market capitalization of $5.29 billion, with a 52-week range of $13.64 to $176.65 per share.
Affirm makes money by charging interest on the loans it provides to consumers. The company doesn’t charge fees other than interest, so there are no late fees, prepayment penalties, or origination fees. The APR on Affirm loans ranges from 0% to 30%, depending on the merchant and the consumer’s payment history. The company also earns revenue from merchants by charging a processing fee to merchants on each transaction.
Affirm doesn’t disclose the amount it charges merchants, but speculation puts the fee between 2% and 4%. In FY 2022, Affirm generated $1.349 billion in revenue, up from $870.5 million in 2021. Net loss widened to $707.4 million in 2022 from $441 million in the previous year, primarily due to higher marketing expenses. The company’s total revenue as a percentage of its gross merchandise volume was 8.7% in 2022, down from 10.5% in 2021.
Affirm Competitors Analysis
Affirm’s competitive landscape comprises BNPL providers, traditional consumer lending companies, and credit cards. This analysis will focus on the “buy now pay later” (BNPL) space, as Affirm’s primary competitors are in this category.
Klarna
Founded in 2005, Klarna FinTech company based in Stockholm, Sweden. The founders, Sebastian Siemiatkowski, Victor Jacobsson, and Niklas Adalberth, started Klarna as a student project at the Royal Institute of Technology in Stockholm. The goal was to make online shopping smoother and safer. That was its core focus when it launched in 2005 and remains so today.
Today, most people know Klarna as a “buy now, pay later” service offered at the checkout by many retailers. However, that is just one of the company’s products. It also offers direct payments, post-purchase financing, and special financing for big-ticket items. Klarna announced on its website that it has about 150 million active consumers in 45 countries cutting across 450,000 merchants.
Klarna and Affirm are similar in their products and target markets. Both offer BNPL solutions to consumers and merchants with almost comparable APR rates. However, while Affirm’s main focus is the US market, Klarna is more global in its approach. The company is strong in Europe but is also making inroads into the US and other markets.
While Klarna’s aggressive expansion plans will likely increase revenues and market share, the company is burning through cash. The first half of 2022 saw Klarna’s pretax losses increase three-fold YoY to 6.2 billion Krona. In May 2022, the company slashed about 10% of its workforce to reduce costs.
However, it is still one of the best-funded companies in the BNPL space, with $4.5 billion in total equity funding, according to Crunchbase. With mounting losses and a difficult operating environment, its valuation dropped 85% from June 2021 to June 2022 to $6.7 billion. But compared to the grand scheme of things, 2018 in particular, this is still a relatively high valuation for Klarna.
Competitively, Klarna has the upper hand in international markets and global partnerships, whereas Affirm has a stronger focus on the US market and has more US partnerships. Overall, Affirm is the better-positioned company. When we compare market dominance to financial performance, it is clear that Affirm is the stronger company. In a basic sense, Affirm is only present in the US, yet it isn’t far behind Klarna’s revenue.
Sezzle
Sezzle Inc. is a financial technology company based in Minneapolis, Minnesota, United States. The company offers an interest-free installment payment solution for online and in-store shoppers. The founders, Charlie Youakim, Paul Paradis, and Killian Brackey, started Sezzle in 2016 to help people manage their finances and make better financial decisions.
Sezzle’s initial offering was next business day ACH transfers. The company also offered a cash-back reward program. In 2017, it launched its “Buy Now, Pay Later” product, which allows shoppers to pay for their purchases in interest-free installments. This product is available in nine countries: the United States, Canada, Austria, Belgium, the United Kingdom, France, Spain, Italy, and the Netherlands.
Sezzle has partnerships with more than 47,900 active merchants, including Adidas, American eagle, Forever 21, and Nike. The company has more than 3.4 million active customers and has processed more than $1.9 billion in underlying merchant sales for the last 12 months as of June 30, 2022.
Although Sezzle has its headquarters in the United States, it doesn’t trade on any US stock exchanges. The company is listed on the Australian Securities Exchange under the ticker SZL.AX. As of October 24, 2022, it had a market capitalization of A$125.671. The company has raised $401.6 million in eight rounds from five investors. Its latest funding was a post-IPO equity round on October 18, 2022, that raised $100 million.
Affirm competes with Sezzle for a share of the “buy now, pay later” market. Sezzle’s competitive advantage is its interest-free installment payment solution. While it doesn’t have the same brand recognition as Affirm, Sezzle’s partnerships with major retailers give it a significant presence in the market.
In 2021, Sezzle had about $99 million in revenues, which is way below the $0.87 billion that Affirm had. Financially, Affirm is in a much better position to compete with Sezzle.
Plans for Zip to acquire Sezzle in a $491 million merger deal fell through in mid-2022, so the two companies remain competitors. Many industry experts believe that Sezzle would have become the leading “buy now, pay later” provider in Australia and New Zealand if the merger had gone through. While these aren’t areas of interest in the current Affirm business model, it’s possible that Affirm could expand into these markets in the future.
Afterpay
Afterpay Limited is a FinTech company operating in the global payments industry. The company offers a “buy now, pay later” service that allows consumers to make purchases and pay for them over time in interest-free installments. Afterpay is available in Australia, New Zealand, the United States, Canada, and the United Kingdom.
Anthony Eisen and Nicholas Molnar founded Afterpay in 2014. The company launched it “buy now, pay later” service in 2015. It went public in 2016 on the Australian Securities Exchange under the ticker APT.AX. In 2017, it merged with Touchcorp, an Australian payments company. The merged company was renamed Afterpay Touch Group. Later in 2019, it was renamed to simply Afterpay Limited.
According to Statista, Afterpay had about 3.6 million active customers in Australia and New Zealand. The company has more than five million active customers in the United States and over 15,000+ retail partners. The Covid-19 pandemic caused a surge in demand for Afterpay’s services as people looked for ways to finance their purchases without incurring debt.
Afterpay and Affirm have similar business models. Both companies offer “buy now, pay later” services that allow consumers to finance their purchases over time. Afterpay is available in more countries than Affirm, but Affirm has more retail partners. Affirm also has a partnership with Visa that gives it access to Visa’s network of merchants.
Square acquired Afterpay in August 2021, paying A$39 billion in stock. Being part of Square will give Afterpay access to Square’s ecosystem of products and services, which will help it grow its business. Moreover, it will further open its doors to the US markets, a key area of focus for Affirm. As a subsidiary, Affirm doesn’t disclose its financials separately.
PayPal
PayPal Holdings, Inc. is an American FinTech company that operates in the global payments industry. The company offers online payment solutions and has more than 429 million users in 200 countries. PayPal started its operations in 1998 and was acquired by eBay in 2002. EBay spun off PayPal in 2015, becoming a separate publicly-traded company.
PayPal has three main business segments: core payments, merchant services, and others. Its core payments segment includes PayPal, Venmo, Xoom, and Braintree. The merchant services segment comprises PayPal Here, Bill Me Later, and Merchant Services International. The “other” segment includes things like its investments in startups and equity interests.
In 2020, PayPal launched “Pay in 4,” a “buy now, pay later” service that allows consumers to finance their purchases over time in interest-free installments. Unlike other “buy now, pay later” providers, PayPal requires its consumers to commit to a 25% down payment before using the service.
PayPal is a much larger company than Affirm. It has a diversified business model with several revenue streams. PayPal is available in more countries than Affirm and has more users. Even if we consider the BNPL business separately, PayPal is ahead of Affirm if we consider the number of active merchants. The first quarter of 2022 saw the BNPL side of business transact with more than 1.2 million merchants.
Affirm has the advantage of being a dedicated BNPL provider, while PayPal is a payments company that offers BNPL as one of its products. While it remains to be seen how successful PayPal’s BNPL business will be, the company has the necessary resources and reach to make it a success. PayPal doesn’t disclose its BNPL financials separately.
Zip Co Limited
Zip is an Australian BNPL provider founded in 2013. Its founders, Peter Gray and Larry Diamond started the company to make it easier for people to access credit. Initially, the company went by the brand name ZipMoney. In 2017, it was renamed Zip Co Limited. Zip operates in Australia, New Zealand, Canada, the USA, the United Kingdom, and other European countries.
Zip’s main products are Zip Pay and Zip Money. Zip Pay is a “buy now, pay later” service that allows consumers to finance their purchases over time in interest-free installments. It’s through Zip Pay that Zip competes with Afterpay and Affirm. Zip Money is a line of credit that consumers can use to finance larger purchases.
Zip is a strong contender in the BNPL space. The company has partnerships with major retailers in Australia, New Zealand, Canada, the USA, and the UK. These include ASOS, Bunnings Warehouse, Sephora, Adidas, and Nike. It’s also actively making acquisitions. For instance, it acquired QuadPay in 2019 for $296 million. The QuadPay acquisition was a major move for Zip, as it allowed the company to enter the New York market.
Zip is a publicly-traded company with a market capitalization of A$ 271.616 million. In 2022, it reported revenue of A$620 million, an increase of 57% from 2021. The company has about 11.4 million customers, including those using QuadPay. Financially, it is doing well, with strong growth and profitability.
While Zip and Affirm are both strong players in the BNPL space, they have some key differences. Zip has a presence in more countries. It also offers a line of credit product in addition to its “buy now, pay later” service. Affirm has better financials and growth prospects.
Affirm SWOT Analysis
The following are the strengths, weaknesses, opportunities, and threats of Affirm:
Strengths
- Strong network effects
- Technology and data-driven approach
- Distinctive business culture
- Strong brand
- US market dominance equity
Weaknesses
- Lack of profitability
- High customer acquisition costs
Opportunities
- Continued growth in e-commerce
- Expansion into new geographies
- Increased adoption by merchants
Threats
- Intense competition
- Regulatory risk
- Technology risk
FAQs – Affirm Competitors Analysis
Question: Who are Affirm’s competitors?
Answer: Affirms competitors are companies that offer buy now pay later financing or other forms of installment loans. Top competitors for Affirm in the US include Klarna, Sezzle, Afterpay, PayPal, and Zip Co Limited. Affirm also competes with traditional lenders such as banks and credit card companies.
Question: What is better, Affirm or Afterpay?
Answer: Both solutions offer “buy now, pay later” financing to consumers. In my opinion, Affirm is better than Afterpay because it has multiple payment options, offers loans with lower APRs, and has more flexible eligibility requirements. Moreover, it doesn’t charge late fees.
Question: Can I use Affirm to pay rent?
Answer: Affirm’s terms of service prohibit using the service for rent payments. You can’t use Affirm to pay other debts or settle your utility bills. Moreover, BNPL isn’t a good option for making rent payments since it could lead to late fees and damage your credit score.
Closing Thoughts
In this Affirm competitor analysis, we’ve looked at the top companies in the space. While Affirm is a strong player in the BNPL space, it faces intense competition from providers such as Klarna, Sezzle, Afterpay, PayPal, and Zip Co Limited. The company must continue to differentiate itself through its technology and data-driven approach.
It also needs to improve its profitability for sustained competitive advantage. In the long run, Affirm’s success will depend on its ability to maintain a solid customer base and merchant relationships. The company has made great strides so far, but it will need to stay ahead of the competition to remain a leader in the BNPL industry.
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