Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Vaughn Ridley/Sportsfile via Getty Images

Affirm’s Amazon-sized ambitions

 Affirm’s CEO Max Levchin

Hello and welcome to Protocol | Fintech! This Tuesday: Affirm's Amazon deal, Gensler looks at payment for order flow, and PayPal wants to add investing.

(Was this email forwarded to you? Sign up here to get it in your inbox every week.)


The Big Story

An Amazon-sized deal

Affirm's Amazon deal could be a major boost for the "buy now, pay later" provider.

The agreement will make Affirm deals available to Amazon's customers at checkout, enabling them to split any purchases worth $50 or more into monthly payments. The deal, struck last week, was the latest big move in the industry.

  • Square's recent deal to acquire Afterpay for $29 billion indicates how the payments giant views "buy now, pay later" as key to its merchant and consumer businesses.
  • Apple has also been rumored to be preparing to launch its own "buy now, pay later" offering with Goldman Sachs.
  • And Visa, AmEx and Citi are also jumping in with their own services — as younger consumers seek to use credit cards less.

This is all about repeat customers. Amazon's giant reach will boost new customers to Affirm, while also providing more incentive for Amazon customers to click "buy" on more items.

  • For Affirm, this will mean an influx of new business from the ecommerce giant's customers. Some portion of those trying out Affirm for the first time on Amazon will likely become repeat Affirm customers. In its fiscal year ending in June 2020, 64% of Affirm's transactions were made by repeat users, the company said.
  • The deal is "transformative for Affirm, and perhaps represents one of the only merchant deals that could shift the balance of power in BNPL so dramatically," said Matt Harris, partner at Bain Capital Ventures.
  • While Affirm reported an average of two transactions per consumer in the first 12 months of new customer use as of last June, this deal could boost that much higher to perhaps 10 times per year, Harris said. Investors were bullish on the news, with Affirm's stock jumping 46% on Monday.

Repeat customers translates into becoming a household name. Through its partnerships with household-name retailers — and especially with Amazon — Affirm basically wants to connect directly with customers.

  • Affirm already has its own app where consumers can purchase installment deals from a range of merchants. It includes deals where Affirm has a partnership with merchants, as well as where it doesn't. At those merchants where it doesn't have deals, the system uses a one-time virtual card at the point of sale.
  • Affirm says that one-third of its transactions in its most recent quarter were made directly from its app, indicating that Affirm is driving customers to merchants, not just acting as a boost to purchases on merchant websites.

But big partnerships aren't without risk. Should Affirm continue to gain traction with consumers, Amazon and Shopify are bound to notice.

  • It's always possible Amazon or Shopify could eventually switch to their own BNPL product.
  • But for now, Affirm's goal is to build up brand affinity with customers. Amazon, where many customers buy everything from household staples to bigger-ticket items, could help do that; Affirm just needs to make sure it happens as quickly as possible.

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

From Protocol | Fintech

Can a non-bank deliver crypto yields without crypto headaches? Eco aims to replace banks, checking, savings and credit cards, allowing customers to work in dollars — but with USDC stablecoins at the backend.

Payroll data is fintech's $10 billion "holy grail," and access to it is expected to unleash a new wave of fintech innovation. Fintech companies, including Plaid, Finicity and newer startups, are jockeying for position.

Overheard

  • "I'm raising this because it's on the table. This is very clear." —SEC Chair Gary Gensler on the possibility that payment for order flow could be banned.
  • "If we all need to give up our air miles, points and cashback in order to save the planet, it's a small price to pay." —Mogo CEO David Feller on the digital payments company's plan to plant a tree for every transaction on its MogoCard.
  • "It's never been possible for someone in India to buy $20 worth of Amazon with a flick of a finger. A lot of people want to replicate the Robinhood model." —DriveWealth CEO Robert Cortright on the growing popularity of fractional trading, which was popularized by Robinhood.
  • "It's nice to watch how we went from this weird niche product to everybody now talking about it and being the de facto service to go to if you buy crypto in Austria." —Bitpanda CEO and founder Paul Klanschek on the Vienna-based crypto investment platform's growth.

Need to Know

Making Moves

  • Dan Huggins is Bank of New Zealand's new CEO. Huggins, who had served as the bank's executive for customer, products and services, will replace Angela Mentis in October. Mentis is taking on a new role as group chief digital, data and analytics officer of National Australia Bank.

Deal Flow

3 Questions With...

Yinon Ravid, CEO of Albert

(Albert is a financial management app.)

What fintech trend are you most excited about?

For the last 15 years, a lot of the products that fintech consumers use haven't changed dramatically until the last decade. People have bank accounts, savings accounts, investment accounts. Over the last 10 to 15 years, you've seen huge changes in the way people are able to do things, the way payments are made, the way people are able to save, the way they're able to invest, the way they're able to manage cash. That has really given a whole new level of control and expectation of how good these interfaces and products should be. It's no longer acceptable to just deliver a website that maybe sort of works or has downtime every Saturday night like some of the old financial service products used to. Customers are going to expect these amazing services, amazing experiences. That's the biggest trend in all of this.

What fintech trend is most troubling for you?

The way people are investing. Obviously investing is the cornerstone of wealth-creation long term. The way people allocate their personal portfolios, I don't think should be in high-volatility stocks or exclusively cryptocurrency. I think it's most troubling to see that the amazing access, amazing interfaces people have been given to invest in are not being coupled with a more responsible set of guidelines as well. At the end of the day, you will not consistently, with any good expected value, build wealth by day-trading or being in meme stocks. Part of building amazing interfaces and giving everybody access is you also have to help people do things that yield out good outcomes consistently. I'm not sure that's happening entirely.

What was your biggest professional blunder, and what did you learn from it?

The thing that we realized, after a year of building an app for consumers that helps them budget and save more, is that people really wanted to talk to humans. And customers were willing to pay to talk to humans. About a year in, we offered Albert Genius, and we let customers pay what they think is fair for Albert Genius. That's ultimately what let us take off. That's what let us actually get to where we are and build a service that people want. Customers are willing to pay for a service that we're offering them and that's a very fantastic business model because it's aligned with the customer. So the biggest blunder is not doing that from day zero, but thankfully we learned it along the way.

Data Point

64.4%

The price rise in direct listings, compared to a 26.8% return for the S&P 500.

Thanks for reading — see you Friday!

Recent Issues