Lending Unicorn Affirm Launches In-App Shopping to Position Itself as a Retail Destination

Fintech unicorn Affirm wants to be the go-to app for mobile shoppers.
The lending startup, led by PayPal co-founder Max Levchin, has redesigned its app to allow users to browse the websites of the brands they want to shop with and checkout without leaving the Affirm app. The new experience is similar to that of its competitor Klarna, Affirm’s Swedish counterpart that further expanded it's U.S. reach this year.
Affirm has also made its instant card-issuing feature available to everyone. That allows users to create a prepaid card in the app for the amount of their purchase and use it online at checkout or in-store by putting it in their Apple or Google Pay wallets. Affirm slowly began rolling out this feature about a year ago.
The company, which initially made its mark as a point-of-sale lender driven by merchant partnerships, has been trying to position itself as more of a direct-to-consumer retail brand. Previously, customers’ awareness of Affirm relied on how prominently the merchant partner would display it as a payment option across the various shopping stages on its website.
Affirm belongs to a whole class of point-of-sale finance companies that also includes Klarna and Afterpay. They issue small loans with short-term repayment plans of three, six, or 12 months and full price transparency, with rates from zero to 30 percent. In a departure from how credit is typically underwritten, Affirm sees every transaction — who is buying, what they’re buying, and where — and underwrites them separately. (By contrast, when banks issue loans or credit lines, they typically don’t know exactly how borrowers are spending the money from the loan.)
To use Affirm, customers need to pre-qualify for a loan. The app asks them to provide their name, birthdate, email address, phone number and the last four digits of their Social Security number, to access their credit report and FICO score. It also determines other risk and affordability factors from its machine learning models and proprietary underwriting technology, a spokeswoman said.
Affirm faces some cultural challenges in the U.S. compared to other places, especially Europe where markets there have historically captured more installment lending volume. Spending culture in the U.S. tends to revolve around credit cards. Creating new payment habits can be difficult to break – just look at how long it took Apple Pay to finally take off – and many who are wary of how credit cards might hurt their financial health worry that a loan for non-essential and arguably low-dollar items could be just as hurtful.
Many people also just like their premium credit cards, but that doesn’t seem to be who Affirm is attempting to lure onto the platform. Cards like the Chase Sapphire and Amex Platinum cards are geared toward travel and dining, but Affirm seems to be targeting shoppers who opt for private label retail credit cards to get store discounts on purchases. Those cards tend to attract more subprime borrowers because they are easier to get approved for, although they tend to come with more predatory terms.
U.S. credit card debt is at its highest level ever -- $870 billion, as of December 2018 according to the data from the Federal Reserve. There are 480 million credit cards now in circulation, over 100 million more than in 2008, during the recession. Last year Experian reported that the percentage of severe delinquency on store-branded credit cards rose to their highest level since early 2011.
The drumbeat for POS loans has been growing louder over the last two years as merchants seek ways to increase sales and consumers demand more transparency from credit providers. This year Chase created a purchase financing option for its customers, Mastercard bought POS loan platform Vyze and Klarna made a big push in the U.S. with a flashy ad campaign featuring Snoop Dogg.
According to Affirm, merchants see a 20 percent conversion lift and an 92 percent increase in average order value when customers use its payment option. A study by Forrester reported a 32 percent increase in sales for companies offering POS financing.
We use cookies and similar technologies on this site to collect identifiers, such as IP address, and cookie and device IDs as described in our Privacy Policy.