Affirm’s core business model revolves around providing Buy Now, Pay Later (BNPL) financing options to consumers at the point-of-sale, primarily for online purchases. Here are the key aspects of their business model:
- Merchants pay Affirm a transaction fee (around 2-5%) for each BNPL purchase, which is their main revenue stream.
- Consumers can split purchases into fixed monthly installments with no late fees or compounding interest.
- Affirm uses AI to assess consumer creditworthiness and determine interest rates (0-30%) based on risk.
- They aim to provide a more transparent and consumer-friendly alternative to credit cards.
Early Growth Strategies
In its early stages, Affirm focused on several key strategies to drive customer acquisition and growth:
- Partnerships with Merchants
Affirm built a network of merchant partners across e-commerce, retail, and travel to integrate their BNPL checkout option. This gave them access to a large potential customer base. - Targeted Marketing
Affirm promoted their BNPL solution in merchant marketing channels like emails, social media, and website banners to raise awareness with shoppers. They also highlighted Affirm early in the customer journey on product pages. - Leveraging the Affirm App
The Affirm shopping app, with over 6 million users, became a channel to promote merchant brands and offers to a targeted audience of BNPL-interested consumers. - Expanding Approvals
Affirm worked to increase the percentage of shoppers who could be approved for BNPL financing to maximize conversion rates. - Differentiating with 0% APR Offers
Promotional 0% APR financing options helped Affirm stand out from competitors and appeal to cost-conscious consumers.
These strategies allowed Affirm to rapidly grow their merchant network, consumer user base, and transaction volume in their early years. However, as the BNPL industry matures, Affirm is now working to diversify their product offerings and customer relationships.