Affirm’s core business is not a matchmaker model since retailers are only providing a channel of communication, to get to its consumers. Affirm doesn’t offer credit cards, it provides credits. The credit given to the consumer is applied directly to purchase either as an option for payment at checkout of partner stores or via an ‘Affirm virtual card’ on the Affirm app, with funds being transferred to the retailer rather than to the customer as cash to then spend.

Affirm operates in the finance industry, leveraging technology through its app and partnering with retailers to offer “point-of-sale loans” or “instant installment plans”–both in-store and online. Consumers can shop for goods and use Affirm’s offering to help finance those products through simple personal loans.

As the millennials are often struggling with credit cards, Affirm is an example of start-ups that are reviving point-of-sale lending, dominated by large financial institutions, acting as a disruptor to the credit card industry.

Affirm operates in the US and plan to expand its services to customers outside the United States. Affirm sells itself and its loans as fair and transparent, with no hidden fees.

Affirm was founded in 2012 by Jeffrey Kaditz, Nathan Gettings, and PayPal co-founder Max Levchin and it is based in San Francisco. In 2016, Affirm has earned a private valuation of between $1.5 billion and $2 billion, making the fintech company join the unicorn club (i.e. startup companies that had succeeded in growing and attracting international investments). Affirm has partnered with over 2000 merchants and made over $2bn in loans in 2018. Though the business only had 300 employees at the start of 2018, this is now over 500. As of April 2019, Affirm has raised $800m in equity valuing it at $2.9 billion since its original investment and remains a private company.

Affirm has one main customer group: consumers (i.e. online and offline shoppers) looking for simpler fixed-payment loans, an alternative to credit cards or bank loans, for financing purchases.

Most of Affirm consumers are millennials and people who do not have access to traditional credit cards or loan facilities. Affirms partners include well-known brands across fashion, retail, beauty, home furnishings, travel and more.

Learn more about the Product Business Model

A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.

Engagement  — Value Creation Proposition
Retailers are offered the service for free, though they may make some subsidy payments to Affirm to lower interest rates. Consumers pay interest rates on loans.

There are strong network effects, as the more retailers are brought on board, the more consumers can use Affirm’s credit facilities to make purchases. Furthermore, the more consumers make purchases using Affirm, the more retailers want to partner with Affirm and offer the facilities.

How Affirm creates value for consumers:

Affirm comes up with simple, transparent and cheaper credit loans for those who distrust banks or cannot get a credit card. Affirm provides an alternative to traditional credit cards at the point-of-sale, offering to consumers an easy to use and instant access to credit with competitive interest rates; allowing them to buy what they want with the option to spread payments over time.

Delivery — Value Chain
How Affirm works for consumers:

Consumers apply for loans via the Affirm app (including the Affirm virtual card), its website, or at checkout of partner stores. A “soft” credit check is performed based on the applicant’s details, and the application is approved or rejected. Where approved, consumers are then given a selection of payment terms (3-36 months) and exactly what their monthly payments will be in each scenario. Once the loan is selected and the purchase is made, consumers can manage the loan, including early repayments, via Affirm’s app and website.

Monetisation — Value Capture
Affirm makes money by charging interest of between 10 percent and 30 percent and as a payment processor. Affirm loans varies depending on the consumer credit score and other factors–without charging any consumers late fees, service fees, and prepayment fees.

Digital Technology
Affirm leverages technology through its app and partnering with retailers to offer “point-of-sale loans” or “instant installment plans”–both in-store and online.

The company uses AI to create a complete credit profile (even for consumers with a limited credit history), to identify who is creditworthy, and to increase customer engagement. This means that in the future, the company’s business model may change to “solution”.


Disclaimer — Written by Tatiana Mikhalkina and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School, this case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2014