Affirm is best understood as a payment network in the mould of American Express rather than a lender, with about 95% of transactions coming from existing customers.
Affirm took on the harder problem of large, long loans, with a monthly installment plan loss rate of about 3.5% versus about 1% for traditional short-term buy now, pay later.
Affirm's rate sensitivity is real, as a 100 basis point rise would cost about $90m in P&L, while Walmart's switch to Klarna-powered OnePay had limited impact.
Affirm Built a Payment Network by Underwriting Every Purchase
Affirm is best understood as a payment network that extends credit, not a conventional lender. It underwrites every purchase individually, which let it win the large, long loans that rivals avoided, and repeat usage compounds the network. The open questions are merchant concentration and how investors value a credit business at a market cap near $25bn.
Takeaways
Affirm works like a payment network. Affirm underwrites each transaction separately instead of granting a general credit line. Fraser compares it to American Express. About 95% of transactions come from existing customers, and average usage rose from two transactions a year to seven.
Harder long loans created an underwriting edge. Affirm took on large, long loans while Klarna began with short pay-in-4. Monthly installment loss rates are about 3.5%. Fraser says its underwriting beats Synchrony's despite its customers being about 50% prime against 75%.
Longer loans carry most of the profit. About 70% of GMV comes from interest-bearing loans. Pay in X loans earn 1 to 3% of GMV in gross profit, and the blended figure is about 4%. Merchant-funded 0% loans can carry a high single-digit discount rate.
Large runway remains in merchants and products. Buy now, pay later is about 6% of US e-commerce and Affirm holds roughly 50% share. It is integrated with only 75 of the top 250 merchants. The Affirm Card, Edge and agentic commerce could push GMV above $100bn.
Rate risk and funding look manageable. A 100 basis point rise costs about $90m of P&L. Half the loan book reprices within a quarter and 75% within two. About half of loans are sold off balance sheet, and a banking licence is in process.
Merchant concentration is the main risk. Amazon is over 20% of the business, and losing a large merchant would hurt the acquisition flywheel. Walmart moved to OnePay powered by Klarna, yet the impact was limited because most customers kept using the Affirm card.
Tech-native culture keeps costs flat. G&A has been flat in dollar terms for five years and stock-based compensation for six. About 70 to 80% of code is deployed by AI. Levchin's salary is under $40,000 while he owns billions in stock.
Levchin's road to Affirm
Max Levchin was born in Ukraine, left Kyiv around age ten after Chernobyl, and moved to Chicago shortly before the Soviet Union fell.
He studied at the University of Illinois, where Marc Andreessen had just launched Mosaic.
He became CTO and co-founder of PayPal in his early twenties, after funding startups on credit cards that damaged his credit.
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A car dealer refused him a loan after the PayPal IPO. About a decade later he started Affirm, with no late fees, compounding balances or deferred interest.