Is Affirm ($AFRM) the growth star of Fintech 50 Index due to winning in the BNPL (Buy Now, Pay Later) market? 

Affirm is a publicly traded stock in the Fintech 50 Index that could be the winner in the BNPL (Buy Now, Pay Later) segment of the Fintech market.

Affirm was not the first innovator in BNPL. That prize goes to Klarna which we first covered in 2014 (mentioning Affirm as a follower). The market winner is not necessarily the first innovator – think Facebook beating myspace.

BNPL is what you do in the physical world (pay the barista only after you have your coffee) but for much bigger items. Doing that digitally means managing fraud and deadbeats, which is what the Credit Card industry does so well. BNPL requires tracking users, for example via their confirmed national ID. This is easy in small homogenous countries in Europe. Affirm is making BNPL work in a large non-homogenous market (America) with a weak national ID (Social Security numbers). China has strong national ID and India has Aadhaar so BNPL should also work well in Asia.

BNPL is a great market that solves a Category 1 problems on both sides of the network:

– For consumer = less time/hassle buying on a mobile phone

– For  merchant = less mobile shopping cart abandonment

The Bull case for Affirm ($AFRM) is:

– Lending is the revenue model of banking, a huge market

– The key to lending is at point of sale which is what BNPL does

– Affirm is the Only BNPL that is publicly traded

  • Affirm is winning in reviews such as this one from Investopedia
  • There may be network effects from more merchants leads to more borrowers leads to more merchants and so on

The Bear case for Affirm ($AFRM) is:

– Affirm are not making money yet, stock price will crash when interest rates rise

– BNPL is easy to copy; there is not much technology moat.

– BNPL needs to disrupt Credit Card networks in order to scale and investors are valuing the Credit Card network brands as if such disruption was unlikely.

– Klarna may beat them as Klarna a) dominate the profitable high end of the market b) have top tier VC who will do an IPO if markets stay bullish.

Answer to the headline question is wait and see. In theory Affirm ($AFRM) is a leading player in a hot market but we will have to see how quarter to quarter growth plays out to see if Affirm ($AFRM) is a real growth star.

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