Affirm is one of the companies at the forefront of “buy now pay later”—the slick digital lending that’s growing in popularity with Gen Z and millennial shoppers. Nearly a decade since Affirm was started, the BNPL business model is dogged by questions about whether its claims about being interest-free and not charging late fees are too good to be true.
Those questions are increasingly important as pay-later services from the likes of Affirm, Klarna, PayPal, and Afterpay become entrenched and go head-to-head with the $8 trillion credit card industry. In Australia, there are signs of younger consumers who have never filled out a card application getting in over their heads with these types of offerings, according to a regulatory review (Affirm wasn’t included in the review). And merchants, who may have to fork over some 3% to 6% of the transaction to the pay-later lender, have to decide whether putting these services on their checkout is worth it. (You can read more about the ins and outs of BNPL—a catchall term for point-of-sale and pay-in-four loans—in this story).
Affirm CEO Max Levchin insists his company is different. The PayPal co-founder says Affirm only collects interest about half the time and that it never charges late fees. He says this forces Affirm to underwrite loans carefully, because otherwise it stands to lose money. As for merchants, he argues that Affirm is well worth the expense because it can boost the amount of money customers spend and can bring them back more often. He says this will help Affirm withstand a competitive land-grab phase as these lenders fight for market share.
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