What Affirm’s IPO and Chase’s new installment product say about the BNPL market

Digital commerce platform Affirm filed to go public last week. The startup founded by PayPal founder Max Levchin provides retail customers with installment based loans and is a major competitor in the Buy Now, Pay Later market. 

Affirm lets retail customers pay for their purchases using fixed payments, instead of deferred interest, hidden fees and penalties associated with credit cards. Merchants use Affirm to promote products, acquire new customers, increase revenue and glean insights on their consumers’ behaviors.

The startup’s IPO documents reveal a sizable company growing quickly and also stemming its losses. The company plans to go public amid a host of new and incumbent players investing heavily in the market. 

Affirm now serves around 6.2 million people who have made approximately 17.3 million purchases. 6500 merchants like Neiman Marcus, David’s Bridal and Callaway Golf use Affirm to offer installment payments to their customers. Its lending capabilities aside, the platform is a major ecommerce ecosystem that grants retailers and consumers discovery access to connect and interact. 

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As Affirm matures from an installment loan player to a full-blown ecommerce platform, customer metrics begin to matter more. Affirm outperformed its competitors in its measurement of customer loyalty with a 78 on its Net Promoter Score for the second half of the 2020 fiscal year. Since 2016, its dollar-based merchant retention rate remains above 100 percent across each merchant brand. 64 percent of Affirm loans during the fiscal year which ended on June 30, 2020 were taken out by repeat consumers.

Despite Affirm’s achievements in brand loyalty, the company’s success relies on its ability to attract and retain a diverse merchant base. A large percentage of the fintech’s revenue is tied to its partnership with exercise equipment company Peloton. Peloton represented 28 percent of Affirm’s total revenue in the fiscal year which ended on June 30, 2020. The loss of Peloton or any other major merchant partners could really impact the firm’s prospects.

Buy Now, Pay Later companies enable consumers to defer payments on purchases through installment based loans. The $24 billion industry is gaining traction in the U.S especially among credit card holders, millennials and Gen Z consumers. 18 percent of millennials made at least one BNPL purchase within the last two years. Nowadays, consumers are more budget conscious and increasingly seek out BNPL providers to finance single purchases to avoid revolving credit card debt. 

7 percent of Americans made a BNPL purchase in the first nine months of 2020 and around 50 million BNPL purchases have been made within the past two years, according to Forbes. 

Chase recently entered the market, launching a new BNPL offering. With My Chase Plan, consumer credit card holders can pay off purchases worth $100 or more over a set time period with a fixed monthly payment at zero interest. Prior to a purchase, My Chase Plan users have access to a calculator that determines repayment plan options that go into effect upon purchase. 

“My Chase Plan is even more relevant since the onset of the pandemic because it delivers payment flexibility in an uncertain economic climate,” said Anthony Cirri, general manager of lending and pricing for Chase Card Services. “In the past few months consumer priorities have shifted and My Chase Plan is now available to help our customers pay off purchases they need to make, with predictable monthly payments that can fit within their budget.”

The Covid-19 pandemic has forced more consumers towards shopping online and accelerated the shift from physical stores to ecommerce by five years, according to IBM’s U.S Retail Index. As a result, BNPL leaders like PayPal, Klarna, Afterpay and Affirm have been rapidly acquiring both merchants and consumers. Major BNPL competitors are expected to triple their current one percent ecommerce market share to three percent by 2023, according to Worldpay’s 2020 Payments Report,

The pandemic has also impacted the types of products consumers are financing. Shoppers are buying more home renovation supplies as they are forced to shelter in place.

“One particularly interesting trend is how many customers are utilizing My Chase Plan for home improvement purchases — which is in the top three purchase categories. Amid the pandemic, we are all spending much more time in our homes,” said Chase’s Cirri.  

“As a result, many customers are making improvements to their living space and 57 percent of consumers plan to do home improvement projects in the remaining weeks in 2020 and into 2021, according to our recent survey findings.”