The many faces of Affirm

Hey!

Remember the phrase, “It’s a bird! It’s a plane! No, it’s Superman”? That’s what comes to my mind every time I think about Affirm. Is it simply an online lender with a smarter customer acquisition strategy? An up-and-coming credit card challenger? Or is it something else entirely - something we haven’t quite labeled yet?

Affirm has evolved a lot over the years. They started with a checkout button to help customers finance online purchases. Then went on to launch the Affirm Card, a new breed of cards that combines debit and credit capabilities. And now they want to power credit for all debit issuers out there.

But here’s what confuses me most: Affirm says it's “building a new kind of payment network.” Not a lending network. Not a commerce network. A payment network. That suggests Affirm’s ambitions might go far beyond what it is today.

Isn’t it exciting? Let’s dive in!

Jevgenijs

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Affirm as an online lender

Affirm $AFRM ( ▲ 3.29% ) used to be a pretty simple company. You could think of Affirm as an online consumer lender that has figured out a better way to acquire customers by integrating into the checkout process. Instead of getting a credit card or a personal loan, consumers could just use the Affirm button at checkout.

Yes, there was some complexity in the model, as some of the loans were interest-free, with merchants paying interest on behalf of the buyers through the merchant fees. However, the ZIRP era came to an end, and Affirm started originating more and more interest-bearing loans. At some point, one could have reasonably expected that interest-free loans would disappear altogether.

So one can think of the reported “Gross Merchandise Volume” as lending origination volume, and the rest would be the same as for a consumer lender: interest income, cost of funding, credit losses, etc. Nothing unusual, a straightforward business model with several comparable companies.

Affirm as a neobank

However, things got more complicated over time. In 2022, Affirm crossed the 10 million active customer milestone. Then, in 2023, it crossed the 15 million active customer milestone. And this made me think: what if Affirm will eventually become a neobank? Nubank started with a credit card, perhaps, BNPL was an equally viable path?

Around that time, Affirm became more vocal about its debit card, the Affirm Card, and about its intentions to expand into in-store commerce. Bear in mind, that back then, the Affirm Card seems like a regular debit card (more on this later). So it felt like Affirm started expanding beyond online lending.

Then, in November 2023, at the Investor Forum, Affirm launched the Affirm Money Account, a high-yield “savings account with the flexibility of a checking account”. The way it was presented, and the features that it had (and still has), made it a viable alternative for a bank account.

And just like that, at least in my head, Affirm stopped being simply an online lender and became a more complex creature. Affirm became similar to Cash App. Or rather an alternative version of Cash App, which actually managed to integrate Afterpay.

Affirm as the next-generation Amex

And then…Visa announced Visa Flexible Credential, a new type of card that combines the debit and credit capabilities under the same card. Visa Flex lets consumers choose how they want to pay for a purchase—whether from a linked checking account or a credit line.

And it turned out, that there was nothing “regular” about the Affirm Card. The Affirm Card was a real-life example of a Visa Flex card that combined debit and credit capabilities. Affirm customers can use Affirm Card as a debit card, but they can also fund their purchases with installment loans.

For a while, I had a thesis that Affirm should be compared to American Express. Both companies are payment networks, and both are lenders too. After all, Amex’s executives have been saying for a while now that the company’s loan book grows primarily from a BNPL-like product.

However, the element of a card was missing…and the Affirm Card (put on Visa Flex rails) completed this puzzle. At the end of 2024, there were 1.7 million active Affirm Card users, and Affirm disclosed an internal goal of 20 million cards (without specifying when). American Express has 46.3 million cards issued to U.S. consumers.

This made me drop the idea of Affirm becoming a neobank. American Express also offers savings accounts, but these serve solely as a funding source—not as part of a broader goal to become a primary bank for its cardholders. Thus, I started living with the idea that Affirm could become the American Express for the next generation of consumers.

Affirm as an embedded lender

…and then, Affirm announced a partnership with FIS to provide credit capabilities to FIS’s debit card issuer clients. Essentially, any bank can issue Visa Flex cards, and Affirm is ready to provide credit for such debit issuers. The issuer gets higher interchange, Affirm gets to earn the interest…a win-win.

However, this new direction completely broke my thesis of Affirm becoming the next Amex, because Amex does not power credit for other debit card issuers! This is some kind of embedded lending play!

Moreover, after giving it more thought, I realized that Affirm has been playing this embedded lending game for a while now. Shopify’s Shop Pay Installments are powered by Affirm. Oh, and Apple has embedded Affirm into Apple Pay!

So…Affirm is a point-of-sale lender via its checkout button. Affirm is a new-generation credit card company via the Affirm Card. And now they are also an embedded consumer lender. I mean can you name any company that would do all of the above?

Affirm as a payments company

But what confused me the most is… You know how every press release has that “About X” section at the end? In those “about" sections, Affirm says “Affirm’s mission is to deliver honest financial products that improve lives. By building a new kind of payment network…” Not a lending network, not a commerce network, a payment network!

…and during their Investor Day in 2023, Affirm management showed this slide 👇🏻 “Five years from now…the leader in payments”. What is this about?! Will Affirm eventually go after Visa and Mastercard or something?

So who are you, dear Affirm?! I am definitely excited to find out!

Cover image source: Affirm

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