Amazon Validates BNPL Market with Affirm Deal

Amazon Will Offer Installment Payments Through Affirm

Amazon (AMZN) is getting into the buy-now, pay-later market, inking a deal with Affirm (AFRM) to let customers pay off purchases of $50 or more in installment payments. It is the first time Amazon is partnering with a buy-now, pay-later platform, although the company does already offer installment payments on some items it sells.

The ecommerce giant is entering the space at a time when demand to pay in installments is growing, particularly among younger shoppers. These customers tend to be wary of credit cards with high interest rates and prefer to make interest-free payments over a short period of time. Amazon and Affirm are testing the payment method with select customers and plan to roll it out more broadly in the coming months.

Affirm Gets a Lift

The deal was a huge win for Affirm, which has emerged as one of the leaders in the buy-now, pay-later market. The company, which went public in January and is run by PayPal co-founder Max Levchin, has seen rapid growth. Last fiscal year revenue increased 93% year-over-year and the company is forecasting 64% growth in 2021.

Affirm has 5.4 million active consumers, which is a 60% increase from last year. At the same time the size of the transactions on its platform increased 10% and the number of merchants nearly doubled. Walmart (WMT) and Peloton (PTON) are two of Affirm’s customers.

Competition Heats Up

Affirm’s partnership with Amazon sent Affirm shares up more than 40%. Despite the win, Affirm faces some formidable competition in the installment payments space. Rival Afterpay (AFTPY) was recently acquired by Square (SQ) for $29 billion, and Klarna is valued at close to $46 billion. In comparison, Affirm is now valued at around $25 billion. There is also talk that Apple (AAPL) and Goldman Sachs (GS) are partnering to create an installment payment service.

The buy-now, pay-later market is heating up as consumers embrace this interest-free way of paying off their purchases. With Amazon’s backing, Affirm stands to gain ground in a highly competitive space.

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