A shopper in the United States who wanted to spread the cost of a purchase could put it on a credit card or apply for a store's financing program AF3. A card left the final repayment date open for anyone who carried a balance AF3. Many young adults stayed out: more than 6 in 10 millennials said they had never signed up for a credit card, a group that had doubled in size since the 2008 financial crisis AF2. Store financing added an application at checkout, and any lender still had to judge each borrower's risk and fund each loan AF3 AF2.
Affirm
Affirm priced each purchase as a loan shown in full with no late fees, underwrote it in real time, stretched it from four payments to five-year loans, and became the lender inside Shopify's and Amazon's checkouts, volume that funded a standalone business with 23 million consumers.
How Affirm won
- 1 · 2014–17A loan priced in full at checkout, with no late feesTotal cost and end date shown before purchase, simple interest and no late fees, aimed at shoppers the card business had not won.Transparent Pricing
- 2 · 2014–19Underwriting each transaction in real timeLevchin's PayPal fraud work became per-purchase risk models, retrained on Affirm's own repayment history.Founder Domain Expertise
- 3 · 2015–25One lender from pay-in-4 to multi-year 0% APRMerchants pay larger fees to offer 0% APR; loans reach $30,000 over five years, and interest-bearing loans were 72% of FY2025 volume.
- 4 · 2020–25Commerce platforms make it their exclusive US lenderExclusive US lender for Shopify's Shop Pay Installments (2020) and Amazon's first installment provider (2021); 377,000 active merchants by 2025.Distribution Partnerships
- 5 · 2020–25Scale economies in fundingAAA-rated securitizations, a master trust and more than $22 billion of funding capacity from 150+ partners, grown with volume.Scale economies
Versus Afterpay: Afterpay offered four free payments on small baskets, earned part of its income from late fees and sold itself to Block in 2022 as its losses rose. Affirm quoted the full cost of each loan with no late fees, underwrote it in real time for purchases from $50 to five-year loans, became Shopify's and Amazon's lender, and turned that volume into the funding base of a standalone business with 23 million active consumers.
Arena: Market Conditions Before Affirm
How each step happened
Step 1 of 5 · 2014–17
A loan priced in full at checkout, with no late fees
Affirm's innovation was a loan for one purchase with its whole cost shown at checkout. The shopper saw every payment and the end date before buying, paid simple interest that never compounded, and owed no late or penalty fees AFM-1 AF1. That reversed how card credit made money: founder Max Levchin says late fees make up more than half of card issuers' profits, and Affirm has never charged one AFM-2. Afterpay, founded in Sydney in 2014, made its four payments free to a shopper who paid on time and took part of its income from those who did not AFM-10 AFM-3.
The loan was aimed at shoppers the card business had not won, such as the many young adults with no card, offering credit tied to one item and approved at the moment of purchase AF2. The annual report gives the reason for dropping late fees: "we are not incentivized to profit from our consumers' mistakes or misfortunes" AF1. The choice put all of Affirm's income into the price it quoted up front, so that price had to be right, which was the job of step 2.
Rivals Afterpay charged no interest but, in Australia, $10 for a missed payment and $7 more a week later; late fees were 24.4% of its income in fiscal 2018 and still 15% of revenue in 2024 AFM-3 AFM-11. Card issuers earned from revolving balances and late fees AFM-2.
Step 2 of 5 · 2014–19
Underwriting each transaction in real time
Quoting every loan in advance only works if the lender knows, within seconds, who will repay. Levchin brought that problem from PayPal, where fighting fraud shaped his approach to risk, and he founded Affirm on the bet that better underwriting and fraud technology could beat the old systems AFM-2 AFM-1. At launch a shopper typed in a phone number and got an instant decision; Affirm had identified more than 70,000 personal traits it thought could predict repayment AF2. "The fact that we can look at data, pull it and underwrite a loan for you in real time is very valuable," Levchin said in 2014 AF2.
The model now turns five inputs from the shopper into more than 500 data points and prices risk by month, term, purchase size, merchant and item AF1. Repayments feed back into it: "New data is regularly used to retrain each model," so the models improve as consumers, merchants and repayments grow AF1. Levchin says that, using its own repayment history with purchase and price data, Affirm approves about 30% more applicants than the industry AFM-2. Wider approval at a quoted price let Affirm lend more, for longer.
Rivals Afterpay did not check credit scores, and Australia's regulator ASIC noted in 2018 that it made limited inquiries into shoppers' finances AFM-10 AFM-3. In the half year to December 2021 its receivables impairment, the provision for loans it did not expect to recover, rose from A$72.1 million to A$176.8 million AFM-6.
Founder Domain ExpertiseData network effectsQuality & feedback systems
Step 3 of 5 · 2015–25
One lender from pay-in-4 to multi-year 0% APR
With a price on each loan, Affirm could finance purchases that four payments could not cover. The same lender handles a small basket split in four and a loan of up to $30,000 over five years AF1 AFM-12. By May 2017 its 900 merchants included Peloton, Casper and Wayfair, sellers of bikes, mattresses and furniture AFM-1.
Merchants paid for the range. On a 0% APR monthly loan the merchant pays a larger fee so the shopper pays no interest; Levchin says merchant conversion rose by as much as 30% AF1 AFM-2. In fiscal 2025 (the year to June) interest-bearing monthly loans were 72% of gross merchandise volume (GMV, the value of purchases Affirm financed), 0% APR monthly loans 13%, and Pay-in-X, one to four interest-free payments, 14% AF1. The long loans carried the volume, and a platform that wanted one lender for every basket size needed them.
Rivals Afterpay kept to four interest-free payments AFM-10, the standard format of payments every two weeks over six weeks AF3, and launched in the US in May 2018 on fashion retailers Anthropologie, Free People and Urban Outfitters AFM-10. Federal Reserve figures for 2025 show the split: Afterpay/Block issued 38% of US pay-in-4 loans to Affirm's 8%, while Affirm issued $41.3 billion of US buy-now-pay-later loans of all kinds, 26% of the total AFM-12.
Step 4 of 5 · 2020–25
Commerce platforms make it their exclusive US lender
Commerce platforms chose Affirm as the one lender behind their own checkout. Shopify announced the partnership in July 2020 and in June 2021 launched Shop Pay Installments with Affirm as its exclusive US provider; by May 2022 more than 100,000 Shopify merchants offered it, and the exclusive deal was extended AFM-4. Shopify cited Affirm's technology, expertise and openness about fees AFM-4. In August 2021 Amazon made Affirm its first installment provider, for purchases of $50 or more at 0–30% APR with no late fees, and Levchin credited full transparency in the negotiation AFM-5.
Platforms put Affirm in front of merchants who never integrated it themselves; the open pricing of step 1 and the range of step 3 made Affirm a safe single choice. By June 2025 it had about 377,000 active merchants and 23.0 million active consumers AF1. Shoppers came back: transactions per active consumer rose 20% in a year to 5.8, and the Affirm Card, used for everyday and in-store spending, made up about 10% of transactions AF1. Each new merchant gave returning shoppers another place to use Affirm AF1. The cost is dependence: the annual report warns that losing Amazon or Shopify, through a lapse in exclusivity or otherwise, would hurt the business AF1.
Rivals Afterpay had 23,200 active merchants in North America by March 2021, its largest region AFM-9. It agreed in August 2021 to sell itself to Block for US$29 billion in stock and completed the sale in January 2022, after its half-year loss rose to A$345.5 million AFM-10 AFM-6.
Step 5 of 5 · 2020–25
Scale economies in funding
Every loan needs capital, and the platform volume of step 4 let Affirm build its funding at scale. Its first securitization, a bond backed by its loans, came in July 2020. By December 2024 it had issued more than 20 such deals worth over $10 billion, set up a master trust (a standing vehicle that issues loan-backed bonds again and again) and held more than $22 billion of funding capacity from over 150 capital partners AFM-7. Capacity grew about 50% a year alongside GMV over the four years to fiscal 2024 AFM-7.
Scale spread the fixed cost of that funding across more loans. Affirm draws on four channels (warehouse credit lines, securitizations, loan sales and forward-flow agreements to sell future loans), so no single buyer sets its terms AF1. Its systems let it add "capital partnerships, and other elements without necessarily adding significant overhead" AF1. In 2024 Morningstar DBRS rated the senior notes of a $350 million Affirm securitization AAA, citing the underwriting and origination record behind the loans, the record built in step 2 AFM-8.
In fiscal 2025 Affirm financed $36.7 billion of purchases and earned $3.2 billion of revenue, up 39%, with net income of $52.2 million after a $517.8 million loss the year before AF1. Loans priced in full with no late fees, platform volume and the funding they attracted built a large standalone business in a large market.
Rivals Afterpay's finance costs were A$251.5 million against A$645 million of income in the half year to December 2021 AFM-6. Under Block, its Australian entity has booked A$12.2 billion of writedowns since 2023 AFM-11.
Key dates
- 2014Launch: instant installment loans at online checkout AF2
- 2014-10Afterpay founded in Sydney AFM-10
- 2017-05900 merchants Including Peloton, Casper and Wayfair AFM-1
- 2018-05Afterpay launches in the US with fashion retailers AFM-10
- 2018-08Late fees are 24.4% of Afterpay's income AFM-3
- 2020-07Shopify partnership announced AFM-4
- 2020-07First securitization of Affirm loans AFM-7
- 2021-01Shares begin trading on Nasdaq AF1
- 2021-06Shop Pay Installments launches, Affirm exclusive in the US AFM-4
- 2021-08Amazon makes Affirm its first installment provider AFM-5
- 2021-12Afterpay half-year loss rises to A$345.5M AFM-6
- 2022-01Block completes its purchase of Afterpay AFM-10
- 2022-05Shopify exclusivity extended; 100,000+ merchants AFM-4
- 2024-02AAA rating on senior notes of a 2024 securitization AFM-8
- 2024-06$2,323M revenue Fiscal year to June, +46% year over year AF1
- 2024-12$22B+ funding capacity From more than 150 capital partners AFM-7
- 2025-06$3,224M revenue Fiscal year to June, +39% year over year; GMV $36.7B AF1
- 2025-0623.0M active consumers And about 377 thousand active merchants AF1
Sources
Oldest first.
- AF2 How Affirm wants to remake money. Founder interview
- AFM-1 Is PayPal Co-Founder Max Levchin Making The Next Credit Card Killer?. Trade report with founder quotes
- AFM-3 Afterpay's late fees make up 24pc of its income. Trade report on company results and regulator review
- AFM-2 Max Levchin of Affirm: Why I Built Affirm after PayPal (The Next Billion S2 Ep 38). Founder podcast interview
- AFM-9 North America Becomes Afterpay's Largest Market for its Buy Now, Pay Later Services. Trade report on company results
- AFM-5 Affirm CEO Max Levchin explains how the company handled negotiations with Amazon. Trade report with founder quotes
- AFM-6 Ballooning bad debts drive worsening Afterpay losses in latest half. Trade report on company results
- AFM-4 Affirm extends multi-year exclusive partnership with Shopify in the U.S.. Company press release
- AF3 Buy Now, Pay Later: market trends and consumer impacts. Regulator report
- AFM-8 Morningstar DBRS Assigns Provisional Ratings to Affirm Asset Securitization Trust 2024-A. Rating agency report
- AFM-7 Affirm's capital strategy 2.0. Company investor post
- AF1 Affirm 2025 Annual Report. Annual report
- AFM-11 Booming Afterpay's mind-boggling losses since US sale. Trade report on company accounts
- AFM-10 Afterpay. Encyclopedia (orientation)
- AFM-12 Buy Now, Pay Later Beyond 'Pay in 4': A Comprehensive Product Overview. Regulator research note