Affirm explores subscriptions to boost profitability efforts

Article by Grace Broadbent | Sep 25, 2023

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.