Dive Brief:

• Buy now, pay later company Affirm is offering more no-interest loans as the company puts a bigger emphasis on luring customers with cheaper financing.
• Such loans made up 13% of credit use with its financing products in the fiscal quarter that ended Dec. 31 of last year, up from 11% in the same quarter in 2023, the company said during its quarterly earnings report.
• The move is a bid to expand Affirm’s customer base, Chief Financial Officer Rob O'Hare told investors and analysts on an earnings call Thursday. “The growth of 0% loans in a quarter where we had really, really strong [profit] margins, that's not a coincidence,” he said. “That's something that we're actively trying to do more of.”

Dive Insight:

San Francisco-based Affirm makes less money from non-interest bearing loans compared to interest-bearing loans, but will make up for that lost interest income by encouraging more people to use its products, O’Hare said.

“We think it is a great thing for our network in terms of what it does for reaching a broader cross-section of consumers,” he said in response to a question from an analyst about why the company was offering more non-interest loans.

The company reported a gross merchandise volume of $10.1 billion in the quarter, roughly $1.3 billion of which came from 0% monthly loans.

The company works with merchants to offer buy now, pay later financing options along with loans of up to 36 months with an APR between 0% and 36% at checkout. It earns revenue from the interest paid by consumers as well as fees that merchants pay.

“We generally earn larger merchant fees on 0% APR financing products,” Affirm said in its quarterly filing with the Securities and Exchange Commission on Thursday, although the document does not provide precise figures.

More business owners will jump on board with Affirm services because offering loans with no interest will convince more people to buy their products, O’Hare contended.

Affirm reported $866.38 million in revenue for the quarter, a roughly 46% increase from the $591.11 million in revenue it registered for the same quarter in 2023. The company reported net income of $80.36 million for the quarter, compared to a $166.9 million loss for the year-ago quarter.

William Blair analysts said Affirm’s move to offer more 0% loans was a plus.

“We think a modest but important shift to 0% loans is a reflection of Affirm’s value proposition; merchants willingly bear a larger cost of BNPL owing to superior conversion, customer loyalty, and average ticket [size],” the analysts wrote in a note to investors Thursday.