Eye on BNPL: Affirm On Track to Be Profitable in Fiscal ‘23; Afterpay Expands in Canada

Affirm Holdings Inc. says it is on track to post profitable operating income in its fiscal year 2023. The declaration came during a conference call with analysts late Tuesday to discuss the buy now, pay later provider’s financial performance during the first quarter of its fiscal year 2023, which ended Sept. 30, as well its 2022 fiscal-year results.

September-quarter revenues totaled $362 million, up 34% year-over-year, while gross merchandise value totaled $4.4 billion, up 62%. Active customers totaled 14.7 million, up 69%, and active merchants more than doubled to 245,000, compared to a year earlier. Total transactions for the quarter were 13.3 million, up 97%, and active cardholders each generated 3.3 transactions during the quarter, up 39%.

In addition to the increases in these key metrics, Affirm increased its funding capacity by $470 million during the quarter, bringing its total funding capacity to $11.1 billion, the company said in a letter to shareholders separate from its earnings call. “Due to the relatively short duration of our products, this capacity provides us with the ability to fund more than $24 billion in annual [gross merchandise volume],” Affirm said in the letter. 

For fiscal 2022, which ended June 30, Affirm reported total revenues of $1.34 billion, up from $871 million year-over-year. Consumers using Affirm nearly doubled during fiscal 2022 to 14 million, up from 7.1 million in fiscal 202,1 and active merchants exploded to 235,000 during the period, up from 29,000 in fiscal 2021. Gross merchandise value for fiscal 2022 totaled $125 billion, up dramatically from $8.3 billion in fiscal 2021.

The loss rate for Affirm’s Pay in 4 installment loans is tracking to less than 2%, the company said in its shareholder letter. “As our Pay in 4 portfolio has grown, we have continued to optimize our product-specific underwriting and have benefited from an increasing proportion of transactions from repeat customers,” Affirm said in the shareholder letter. “When coupled with the pricing stability we have observed since launch, these underwriting improvements and favorable repeat customer dynamics have helped drive better than expected transaction-level profitability across our Pay in 4 portfolio.”

When asked during the earnings call about Affirm’s response to the Consumer Financial Protection Bureau’s recent report on the BNPL market, Affirm chief executive and founder Max Levchin told analysts the CFPB did “a pretty thorough job both interviewing and summarizing what the industry is doing.” The report has not changed Affirm’s roadmap, according to a transcript of the call from Motley Fool. 

“[The CFPB] didn’t go as far as naming us, but we’re the only one who doesn’t charge late fees, doesn’t have the sort of other shenanigans that regulators really dislike,” Levchin said, according to the transcript.

Levchin added that BNPL is a product that helps consumers build their credit history and credit scores and that Affirm has been “working pretty closely with the accredited reporting agencies and various other participants in the industry to help further that along. Our road map is not impacted,” he said according to the transcript.

In related news, rival BNPL provider Afterpay Ltd. has partnered with several fashion and footwear retailers in Canada, including Blondo, Dolce Vita, Fragrance Canada, HAVEN, Pilgrim, Vessi, and VSP. The new merchants will join Afterpay’s network of 144,000 global retailers and brands. Afterpay has more than 20 million global customers. 

Since September, Block Inc. has integrated Afterpay into its e-commerce products across Canada, according to Afterpay. Block’s Square and Afterpay transactions have a 70% higher average-order value compared to other payment methods, Afterpay says. BNPL has become a highly popular payment option for North American consumers, with 39% indicating that they have used BNPL more due to the pandemic and inflation, Afterpay says.

Block’s acquisition of Afterpay for $29 billion closed in February.