Buy Now, Pay Later (BNPL) company Affirm expects that if the high level of interest rates persists for a long period, consumer demand for its short-term loans will increase.
Michael Linford, the financial director of the mentioned firm, says that the product of this brand is perceived differently by customers compared to traditional offers of a corresponding nature. He stated this during a conversation with media representatives. The financial director of the company separately noted that consumers are more focused on the amount of the monthly payment. According to him, interest rates are not a factor that is taken into account as a matter of priority when choosing a loan offer.
Mr. Linford says that non-refundable Affirm accounts simplify the decision-making process for consumers since in this case, they will have to take into account only the cost of the goods and the associated interest. He also noted that in a period of high-interest rates, the impact of this circumstance on the amount of monthly payments is minimal. This feature is perceived by the CFO of the company as a reasonable reason to expect an increase in consumer demand for Affirm offers.
In the early days of the coronavirus pandemic, this firm showed rapid growth. This positive trend was due to an increase in consumer interest in the sphere of e-commerce. However, the favorable period at the beginning of the pandemic did not provide the company with a kind of sustainability base. This year, the firm had to cut 19% of the workforce. The company was also forced to reduce costs. These decisions were made by the firm’s management due to high-interest rates, which negatively affect the economic condition of consumers.
At the same time, these problems did not prevent Affirm from improving its financial situation. According to the results of the third quarter of this year, an increase in gross sales of the company was recorded by 28% year-on-year. In monetary terms, this figure amounted to $5.6 billion. The company’s revenue for the third quarter was fixed at $496.5 million. This indicator grew by 37% year-on-year. The firm’s net loss in the third quarter decreased to $171.8 million from $251.3 million a year earlier.
Creditworthiness indicators have also improved. The share of overdue loans among Affirm customers decreased to 2.4%. A year earlier, this figure was 2.7%.
Michael Linford says that the improvement in the company’s results is due to the firm’s approach to managing credit indicators.
The advantage of Affirm is that the company is an underwriter at the transaction level, which allows it to make informed decisions on each operation. The firm also relies on its own credit models.
The short-term approval process at the transaction level in Affirm helps to prevent consumers from accumulating large balances of funds during periods of financial stress. Michael Linford also highlighted the high level of repeat rates among the company’s existing customers. He is optimistic about the firm’s prospects in sphere lending. In his opinion, customers will need financial products for lending.
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