Women’s Wear Daily: Drive Incremental Value with Affirm

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This article was originally published on Women’s Wear Daily

April 12, 2016 – The concept of buy-now-pay-later isn’t new to retail, but a San Francisco company is giving it new meaning.

Affirm is a financial tech company that provides instant micro-loans at the point of purchase in e-commerce transactions. And it just got a $100 million cash injection of its own, bringing its total funds raised to $425 million.

Affirm was founded by former PayPal founder Max Levchin, and acts like a temporary credit or debit card for a generation of consumers who are increasingly eschewing old-fashioned plastic. During the checkout process, it instantly analyzes and approves customers (without a “hard” credit pull) and provides an intentionally straightforward range of options for repayment. Affirm assumes the risk by paying the merchant immediately, and charges a small fee to the retailer that is comparable to that charged by credit card companies.

This Series D round of funding was led by Founders Fund, in addition to existing investors including Lightspeed Venture Partners, Spark Capital, Khosla Ventures, Andreessen Horowitz, Jefferies and more.

This comes at a time when Millennials are both more trusting of tech companies and less inclined to have a credit card. According to research from PayPal, 67 percent of Milliennials said they were more likely to trust a tech firm as compared to 59 percent of Gen Xers and 54 percent of Boomers. It’s also estimated that 60 percent of Millennials don’t have a credit card, and don’t want one.

Although the company has been around for almost four years, vice president of merchant services Brad Selby said what really helped it take off, especially among the style set like Gilt, One Kings Lane and BCBG, was a tweak in its positioning.

“We are a hybrid payment and finance tool that we really look at as a marketing tool,” said Selby, who added that Affirm began to treat its product offering as this generation’s version of the “house card.”

Customers can apply for a temporary debit card number through Affirm for a specific retailer and specific amount, then use that information during checkout. They then repay Affirm in installments. The tool is primarily is designed to work for e-commerce checkouts, but pending approval, could be added to mobile payments platforms like Apple Pay to use in stores.

In the past year, Affirm has gone from working with 100 to 700 merchants who offer its service at the point of sale. Merchants can either incorporate a “Pay with Affirm” option on their e-commerce sites, or redirect a customer to Affirm’s Web site to apply for a temporary card number.

“Once we started to describe it in those terms, it was like the flip of a switch. When we did start to draw those comparisons and talk about why this was friendly to users, people started to jump on,” Selby said. “It’s very clear that not too many 24 year olds want a physical plastic card that they forget about.”

According to the company, merchants offering Affirm have experienced up to 80 percent lift in average order value, 20 to 25 percent improvement in conversion rates and 31 percent repeat purchase from Affirm customers.

The new round of financing, according to Affirm, will be used to “further Affirm’s mission to revolutionize the banking industry by being more accountable and accessible to consumers.” It will be used to increase Affirm’s loan distribution capacity, to grow its merchants and to expand it product offerings beyond point-of-sale financing.

Last fall, BCBG began a pilot program that advertised a partnership with Affirm on its e-commerce site. BCBG senior vice president of digital commerce Michelle Magallon said the pilot was more successful than expected. Magallon said that the shopper who checked out with Affirm had an average order value that was 82 percent higher than average, and tended to be a repeat customer.

“The Millennial customer is averse to credit, so this offers a solution that is microfinanced,” Magallon said. “It’s not something she feels is a credit card.” Magallon also said the service was particularly appealing for the consumer who wouldn’t normally be able to afford a designer brand, and see it more as a customer acquisition tool. Since testing the service in November, she said that a number of retailers have asked her about it.

Going forward, both she and Selby are interested in the ability for omnichannel customers to use as a Card Not Present transaction from the Affirm app or potentially using something like Android or Apple Pay.

“Max changed the payments industry forever with his work at PayPal, and we think Affirm is positioned to be just as impactful,” said Founders Fund partner Brian Singerman. “Affirm’s technology brings much-needed transparency and accountability to a stagnant industry that’s no longer meeting the needs of consumers.”