Buy now-pay later company Affirm is counting on a new debit card to aid the company's growth, even as it's getting a later start on that new product than expected.
When Affirm Chief Executive Max Levchin first unveiled plans for an Affirm debit card in 2021, to give customers access to the buy now-pay later service, he said it would be available later that year. However, during a company conference call May 12 to discuss fiscal third quarter results, Levchin said the debit card will be offered by the end of this year. Affirm declined to explain the reasons for the delay.
In a statement, the San Francisco-based company noted the card is being “rolled out to tens of thousands of consumers through our beta program," which began last year. The company also said it has a waitlist for the new card and that it's inviting "tens of thousands of consumers" on a daily basis to get the new card.
The new debit card will let Affirm customers pay upfront, via a link to their bank account, or access the company's BNPL financing.
Levchin, a billionaire cofounder of PayPal, told Wall Street analysts that he had high expectations for the card, which will be available to customers in good standing with the company. When consumers apply for Affirm's services, the company will review their recent credit usage and reject anyone who the company decides won't be able to pay off purchases, according to Levchin.
He noted that in the beta program for the new card, called Debit+, users averaged more than two transactions per week compared with non-users. The most visited physical retail location during the beta has been Walmart grocery. Levchin said that indicates consumers are finding the service useful.
“We want it to be top of wallet," Levchin said. "We want it to be the thing that people take to go shopping for their family.”
The company plans to keep improving the card with regular updates, Levchin said during the conference call.
It's a physical card as opposed to a digital card to create a "more ubiquitous payment option because Debit+ opens up basically an unlimited amount of merchants to consumers for Affirm to be able to capture a little bit of share," Mizuho Americas Analyst Nicholas Lucas said in an interview.
Critics of the industry, however, have argued the ease with which consumers can access credit through BNPL services like Affirm encourages people to overextend themselves, taking on too much debt by purchasing household goods through installments.
Marshall Lux, a consultant with Boston Consulting Group and a research fellow at Harvard Kennedy’s Mossavar-Rahmani Center for Business and Government, believes the Consumer Financial Protection Bureau should move faster on BNPL regulation because most borrowers are subprime. “This should rise higher in terms of the CFPB agenda,” he said in a recent interview.
The CFPB opened an inquiry last year into the business practices of the BNPL industry. Affirm, Block's Afterpay, Klarna, PayPal and Zip have been asked to provide information about their business practices, including how they safeguard confidential information from consumers.
None of the BNPL companies targeted by the CFPB is profitable when measured by Generally Accepted Accounting Principals (GAAP).
Affirm posted a GAAP operating loss of $227 million in the most recent quarter which included $217 million of equity-related costs. Levchin expects to achieve a sustained profitability run rate on an "adjusted basis" by the end of next year. Lucas, however, expects the GAAP losses to continue for the foreseeable future.
The company's earnings report was better than Wall Street analysts expected as the number of active merchants surged 12,000 to 207,000 year over year, and active consumers more than doubled to 12.7 million people and total transactions spiked 162% to 10.5 million.
