Dive Brief:

• Lower interest rates mean that more customers of the buy now, pay later company Affirm may see 0% interest on their transactions, or discounted APRs, the BNPL player’s Chief Financial Officer Michael Linford said in a podcast interview posted on Monday. That, in turn, will help merchants by encouraging consumers to spend more, he added.
• Consumers won’t see these changes immediately, Linford stressed, instead these benefits are likely to come about in one to two years.
• "Our business is not a few big loans, it's lots of little loans that we can construct and constantly curate, the mix of which allows us to navigate and be reactive to the macro-environment as it changes," Linford said on the podcast, which is produced by Stakeholder Labs, a company that provides software intended to help public companies engage with investors.

Dive Insight:

The Federal Open Market Committee cut the overnight bank lending rate from a 20-year-high of 5.25% to 5.5% to between 4.75% and 5% in a September meeting.

The Fed had increased rates from near zero in recent years to battle persistent inflation. With price pressures beginning to ease, Fed watchers have forecast additional future rate cuts.

Those cuts will “allow us to invest that back into the consumer, into the merchant relationships,” Linford said. “For the consumer, that could look like more 0% offers or discounted APRs.”

The interest rates offered to customers depend on a number of factors, including the size of the purchase and the purchaser’s credit history.

An Affirm spokesperson declined to comment beyond what Linford said on the podcast.

As interest rates fall, the company will be cautious about changing its prices amid economic uncertainty, Linford said.

"A lot of our funding sources are pretty sticky, so it will play out over the course of a year, or two years, before the benefit shows up in our pricing structure," he told Katie Perry, host of the After Earnings podcast.

"We're mindful of the fact that a reduction in rates is probably coming with a less optimistic picture of employment," Linford added, "which is something that's very important to us."

The U.S. economy created 142,000 jobs in August, according to the bureau of labor statistics, which was a smaller number that analysts expected. The employment number in July was even lower. The U.S. economy created 114,000 jobs that month, a drop-off from the 206,000 jobs created in June.

The Fed's move to cut interest rates may signal that the agency expects to see equally tepid job growth in the months to come, Linford said.

"That puts us in a position where we really want to be paying attention to employment," he said.

Even so, Wall Street analysts are upbeat about Affirm's prospects as interest rates decline.

The company will see higher revenue as the cost of transactions goes down, Mizuho Securities analyst Dan Dolev wrote in a Sept. 19 note to investors. Affirm "continues to improve on adjusted profitability prospects," he wrote.