Quantfury Gazette


The credit industry loses its edge

Carlos M Contributor
credit industry affirm holdings nasdaq afrm

Affirm Holdings (NASDAQ: AFRM) decided in 2012 to take all the mistakes the retail lending industry has made and condense it into a business model focused on complete morality, transparency and freedom from fine print. Their results speak for themselves, they have 12 million active users and a presence in 5,000 retail businesses in the US.

The problem in the global credit industry that Affirm is trying to solve today is so big that a study conducted by Goldman Sachs (NYSE: GS), indicates that credit card debt is $925 billion in the third quarter of 2022, where the average interest payment rate is 19%. Does that sound high to you? Well, let me tell you that it does not compare at all to the chilling 329% interest paid on average in Brazil, which during the pandemic reached 800%. 

For this reason, to become a client of Affirm, you must go through a selection process, where in addition to knowing your economic situation, what they are looking for is to offer you the best possible deal according to your purchasing interests or financial goals. The added bonus they have is that the process can take as little as 3 days as they apply AI models for data validation, unlike a traditional banking institution.

In an industry ruled by bureaucratic dinosaurs, this company was able to carve out a niche for itself with a simple strategy: Flexibility when paying installments, immediate availability of money, no small print, and the simpler the better. Their platform works so well that their users can use their “pay later” option to attach which dates are best for them to make the installment payments leaving them with a firm budget and not decapitalize before the end of the month.

One of the biggest fears I have suffered as a consumer is going to the local supermarket at the end of the month with just enough money to buy food for the week, because with the inflation in LATAM, you never know if you will be able to buy everything. And using credit is not accessible to everyone who does not meet simple requirements such as a minimum threshold of monthly earnings, plus companies like American Express (NYSE: AXP) stopped offering their services for the country. Since I am a freelancer, it is complicated for me as it is not a stable income like what I would get in a contract job.

This would be the icing on the cake that crowns Affirm Holdings (NASDAQ: AFRM) as the “Buy now, pay later” champion, its intentions to expand to other countries, with its interest-free fees. What appears to be a strategy that keeps them from growing actually does the opposite effect. With no fees, customers are incentivized to spend more at merchants that accept financing by Affirm Holdings (NASDAQ: AFRM), since they also have physical cards, but they are not needed thanks to their digital platform. It works so well that retailers are charged a fee for each purchase financed by this platform.


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