May 8, 2015
Affirm, Inc. is an online payment service company which lets consumers split purchases into smaller monthly payments. Affirm is one of several web start-ups experimenting with more flexible loans. Rather than relying on FICO credit scores, it calculates the risk of borrowers based on a range of personal data, including information gleaned from social media profiles as well as the cost being purchased. It then determines what rate and structured payment makes sense to offer the customer. Recently, the company raised around $275 million in new capital. The Series B funding involved investors such as Spark Capital Growth, Jefferies and Andreessen Horowitz, Khosla Ventures and Lightspeed Venture Partners. The equity portion of the round was as much as $80 million. The company had previously raised $50 million in its Series A funding.
The company aims to use the new capital to significantly increase loan distribution capacity, grow merchant services efforts, offer customers low-cost loans and develop new products. The company also wishes to reach more consumers, and develop and launch new products and services. Affirm has also featured on our LTP9 Leaderboard of the most promising companies in the technology-based personal lending space.
Affirm enables online shoppers to split the purchase price, plus a small amount of interest depending upon individual customer, into monthly payments of 3, 6, 9or 12 months. This type of payment flexibility makes shoppers more likely to make a purchase. The simple interest-based term loan is underwritten in real time and only requires most customers to provide generic information. Affirm settles with merchants within a day, guarantees all payments, and takes on all repayment and fraud risk. It makes money from the interest charged to consumers as well as the processing fees merchant pay, which is comparable to credit card processing fees. It is generally 2%-3% of purchase price. Affirm’s business is akin to Bill Me Later (now PayPal Credit) that PayPal had acquired earlier.
The impetus for launching the company stems from a perceived mistrust around banking among the new generation of savers and consumers who are joining the labor force now. A recent study from Viacom’s media group showed that top banks are among the ten least loved brands in America. The study highlights that 53% of survey participants don’t think banks offer differentiated services.
If convenience is the pitch for the millennial online shopper, increased conversion rates are the reason why online retailers are turning to Affirm. Integration of its payment services can increase conversion rates by 20% and boost purchase sizes anywhere from 79% to 84% according to company estimates. This is done by providing consumers with access to fairly-priced real time credit while promoting financial responsibility.
More than 100 retailers offer Affirm to customers. Affirm’s payment service integrates with e-commerce platforms offered by the likes of the eBay Inc.-owned Magento, Spree Commerce, 3D Commerce and AmeriCommerce.