A deal with Apple could help Affirm get out of the red

All eyes have been on Apple’s big AI announcement this week (the “A” is for “Apple”, apparently) but the company also announced yesterday that Apple Pay users across the US will soon be able to use Affirm for "buy now, pay later" (BNPL) purchases. That gives Affirm access to millions of new potential users, sending the company’s shares up more than 11% on the news.

BNPL has been a battleground, with some of the early-movers in the space — like Affirm and Klarna — facing competition from PayPal to Walmart, as companies realized that chunking up payments into multiple slices maybe wasn’t actually rocket science? Not to be outdone, Affirm has been busy innovating too, with new features announced last week such as the ability to pay in 2 installments.

Launch now, regulate later

The BNPL sector has also faced scrutiny from the Consumer Financial Protection Bureau, which recently classified such lenders similarly to credit card providers (which probably should have happened sooner) requiring them to offer similar safeguards and protections.

While this partnership might not be Apple’s most headline-grabbing of the week, for unprofitable Affirm it’s a big deal. Indeed, since 2019, the company has amassed $2.8 billion in cumulative losses, with only a single profitable quarter. Affirm primarily generates revenue in two ways: charging interest on certain loans and collecting merchant fees, where businesses pay a commission for the service — the idea being that the sale might not have occurred without the BNPL option.

However, offering 0% interest and no late fees for over a year is risky, requiring a substantial provision for potential defaults, a large cost for Affirm. With marketing expenses and other overheads, being sustainably profitable has been difficult — joining forces with one of the largest companies on the planet may help.