Affirm explores subscriptions to boost profitability efforts

The news: Affirm is reportedly considering a subscription service called Affirm Plus, per Bloomberg. Code for the service was discovered in the company’s iPhone app.

• Affirm Plus would guarantee a 0% annual percentage rate (APR) on installment loans up to $2,500. Affirm currently offers rates between 0% to 36%.
• The service would also include a 4.75% annual percentage yield (APY) for its savings accounts, up from 4.35%.

Why this matters: A subscription service could help Affirm overcome the profitability struggle BNPL fintechs face.

• The traditional BNPL model is a very low-margin business, and intense competition and growing scrutiny over fees have made it even harder for fintechs to achieve profitability.
• And higher interest rates have raised funding costs for providers, squeezing those margins even further.
• Just last week, we wrote about how Klarna is leaning into affiliate marketing revenues to boost profits. And it worked: Klarna achieved profitability in May—its first month of profit since August 2020, per its H1 2023 results.
• Like Klarna, Affirm is also hoping to diversify its revenues, but it’s just taking a different strategy by banking on subscription revenues and the Affirm Card.

Will it work? Affirm will reportedly charge $7.99 per month for the service.

Affirm Plus would bring in a new and consistent revenue stream for Affirm. But the BNPL provider will need to weigh the risks of a potentially large increase in 0% APR loans, especially since many consumers struggle to make their BNPL payments on time. There’s also a risk the subscription revenues won’t bring in enough to make up for the loss of interest revenues.

The bigger picture: Affirm isn’t the first financing provider to offer a subscription.

• Sezzle launched a similar subscription service in June called Sezzle Pay Anywhere, which lets users make purchases in four interest-free repayments spread over 6 weeks anywhere Visa is accepted. The service targets financially underrepresented consumers who want to build their credit.
• And this subscription trend has extended into the credit card space as well. The TD Clear card is a subscription-based credit card that doesn’t charge interest.

The takeaway: BNPL is reimagining how consumers access credit as providers explore new fee and interest models. We expect this will have a bigger impact on the credit card space as BNPL players continue to push the envelope.

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a three-times-weekly recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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