Affirm has gotten several high profile deals lately, and if you invest based on the news, it would be a slam dunk buy. Their numbers, though, as Saul and others have pointed out…
…are not as clear.
For my part, the trouble is the story (hat tip to BroadwayDan) is not harmonious – it is incongruent. Affirm’s mission is “to deliver honest financial products that improve lives.” Their messaging seems to assert moral high ground over credit cards, but their solution to the credit crisis is…more credit? Does that make sense?
The moral argument
The fact is, I would implore friends and family NOT to use Affirm. Monthly bills residence, power, water, and cable/Netflix or whatever are typical for most folks, but I believe (and maybe this is just me) that the more monthly payments you have, the worse off you are. If you also have 2 car payments, student loans, etc…it gets very easy to have nothing left at the end of the month. I have seen this and I believe it to be a bad thing. Affirm’s business succeeds when there are more monthly payments. That’s what they do – with their BNPL product and even more so with their debit card product. I can’t see this as a good thing.
Fair question: How is Affirm different from Upstart? I see two big ways:
- Affirm has several sources of revenue (it really gets a little confusing), but the main and fastest-growing source is revenue from Interest. Upstart is paid a flat fee per origination, so they have no incentive to charge more than the “correct” rate, as best they can determine it. Affirm has the incentive to charge as high a rate as they can, and even if they resist it due to ethics or due to trying to grow volume, their risk explodes as much as revenue does.
- Affirm is all about turning purchases into payments. The more purchases/payments the better (for Affirm’s pocketbook). But as I said above, more payments are worse for consumers – the very ones whose lives Affirm wants “to improve!” Upstart is not directly influencing purchases – and I believe many of their loans aren’t going toward consumption at all, but paying down higher rate debt.
The business argument
I am not trying to get on my moral high horse. Ideology isn’t the only problem with credit. As everyone knows, a big problem is the risk that you won’t get paid back. So let’s say Affirm makes good on their altruistic promises like never charging late fees. Is that good for business? If they don’t charge high interest rates – do they ever turn a profit? Again, their pocketbook doesn’t seem aligned with their stated values.
I was already tempted to put this in the “too complicated” pile. But I feel there are more problems than just the hard to understand numbers. I don’t think people should use Affirm, and I think Affirm has serious risks that either keep them from being a profitable business, slow their growth, or maybe endanger their credit-worthiness long term.
These are just my thoughts – yours may differ. And it wouldn’t surprise me if Affirm bulls do really well in the short term. I won’t be among them, but you already guessed that.