Affirm Holdings, Inc. AFRM has announced the launch of its latest product Adaptive Checkout. The product will build upon the company’s existing product suite. It will provide customers with biweekly and monthly payment options at the time of checkout.
BNPL is a kind of financing option, which allows customers to make payments for their purchases in instalments according to the terms of the offer. This arrangement works in favour of merchants as well as shoppers. While customers can afford high-value purchases by splitting payments, merchants gain from high sales.
The company, which is a buy now pay later (BNPL) service provider, is bringing new solutions and innovations to make BNPL services more attractive for its customers. During its experimental version, Adaptive Checkout saw a 26% increase in cart conversion, on average, a 22% lift in approvals and a 20% increase in sales from the offering of monthly payments through Affirm alone.
Based on the transaction size, Adaptive Checkout will provide the option of selecting from four interest-free payments every two weeks to monthly payments spanning 3-36 months. This product is expected to bring incremental increases in sales volume and an average order value, driving meaningful growth for businesses.
BNPL services proved to be a huge attraction among buyers, especially post COVID-19, which induced financial distress. Moreover, BNPL is favored over credit cards by the users looking to avoid the high cost and by those who do not qualify for the said cards.
The BNPL is an exploding space and even though the instalment payments facility has been in existence for a long time, it was earlier structured in a traditional way, carrying an interest plus late payment and other additional charges. The BNPL trend got accelerated owing to trust issues in legacy financial institutions.
The new-age customers, mainly Gen Z and millennials, look for payment options that are easy, transparent, interest-free and dispersed via a digital medium and mobile phones. And the BNPL fits the bill perfectly here.
The BNPL market is expanding fast. According to Worldpay’s 2020 Global Payments (NYSE:GPN) report, “buy now pay later” is the fastest growing e-commerce payment method, globally. In North America, the BNPL market share is expected to triple to 3% of the e-commerce payments market by 2023. In other regions, such as EMEA, “buy now pay later” already accounts for almost 6% of the e-commerce payment market and is expected to grow to almost 10% by 2023.
This vast market opportunity is attracting players and heating up competition. The same is underscored by the recent deals announced. The payments company PayPal (NASDAQ:PYPL) Holdings, Inc. PYPL is also dipping its toe in the sector. Another company Square, Inc. SQ, recently announced a $29-billion acquisition deal with the Australian firm Afterpay, a rival of Affirm. The major company in the BNPL space is the Swedish start-up named Klarna, which holds the number one spot followed by AfterPay and Affirm.
The company is well-poised for growth in the BNPL industry, which has low barriers to entry. It boasts customers like Walmart (NYSE:WMT), Shopify (NYSE:SHOP) Inc. SHOP, Amazon.com (NASDAQ:AMZN), Peloton (NASDAQ:PTON) and others who use its instalment plan service to offer their customers.
In May, Affirm completed the acquisition of Returnly, a leader in the online return experience and post-purchase payment space. On the merchant side, this acquisition meaningfully expanded the company’s addressable market. Affirm also extended its presence in North America by closing the buyout of the leading pay later brand PayBright in Canada, earlier in January..
This fintech company is in its early stages and is incurring losses, which may continue for some more years as it expands to get a considerable market share. Investors will be looking for its top-line growth.
Per its latest quarterly updates, active merchants surged 412% to nearly 29,000 while active consumers grew 97% to 7.1 million year over year. Transactions per active consumer increased 8% to 2.3 as of Jun 30, 2021. Another key metric, gross merchandise value (GMV), soared 79% to $8.3 billion. Growth in these metrics reflects its strong business and stickiness of its products.
Affirm also provided a strong guidance for 2022, which expects GMV in the range of $12.45-$12.75 billion, revenues between $1.16 billion and $1.19 billion and an adjusted operating loss between $145 million and $135 million. The revenue view indicates growth of 33-36% from the year-ago reported figure. GMV outlook suggests an increase between 50% and 54%.
The company currently carries a Zacks Rank #3 (Hold). It should give good returns over the long term as it increases its market share and turns profitable. Since its IPO in January, the stock has gained 17.3%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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