Can you quantify the impact of pricing initiatives on recent volume growth?
Answer
It is difficult to quantify the exact impact of pricing initiatives on volume growth, as these measures are not directly coupled with specific outcomes.
Affirm maintains a wide APR range and underwrites each transaction individually, focusing on risk management while still benefiting from pricing initiatives.
The company prioritizes positive unit economics and ensuring revenue growth offsets changes in funding costs and provision costs, allowing for a return to normal business operations.
Unbundling vs. Rebundling of Credit Cards
Question
How do you view the recent trend of rebundling in the credit card industry, such as the partnership between Capital One and Discover, and its potential impact on the industry and Affirm’s competitive landscape?
Answer
The Capital One and Discover partnership is seen as a highly impactful and interesting development in the financial services industry.
While the creation of another network is positive for market plurality and validates the potential for building new giant networks, the products intended to run on this network appear to be similar to those on Visa and Mastercard.
Affirm’s model, which involves SKU-level data analysis and direct integration with merchants for underwriting and APR subsidies, remains fundamentally different and offers a unique value proposition.
GMV Growth and Underwriting in Q4
Question
Given the strong GMV growth in the recent quarter, is there any reason for caution or tightening of underwriting in Q4, considering the implied growth rate of around 25%?
Answer
Affirm does not operate on a strict quarter-by-quarter basis and focuses on long-term growth rather than short-term fluctuations.
Q4 is expected to be a seasonally stronger quarter, with year-over-year growth accelerating and a 2-year growth rate of approximately 58%, despite a slight deceleration from Q3.
Affirm Card Cohort Analysis and GMV Trends
Question
Can you provide insights into the usage trends of the Affirm Card, particularly regarding recent cohorts using the product more than initial cohorts, and how GMV might trend in Q4?
Answer
The increasing usage of the Affirm Card by recent cohorts is attributed to ongoing product improvements and enhancements, particularly in the user interface and overall user experience.
The company has observed a significant increase in pay-now usage, indicating better consumer understanding and adoption of the product.
While specific growth trajectories are not provided at this time, the Affirm Card is expected to continue its hyper-growth stage with a focus on further product enhancements and experimentation with rewards.
Resilience to Rising Interest Rates
Question
What factors contribute to the resilience of GMV and margins in the face of rising interest rates, and how does Affirm navigate potential future rate increases?
Answer
Affirm’s business model is not highly sensitive to minor rate movements, and the company is comfortable operating at the rates set by the Fed, with the ability to continue growing even in the presence of rate cuts.
The resilience is attributed to the nature of Affirm’s lending business, which is not as rate-sensitive as traditional lending models.
Affirm Card Volume Growth Trajectory
Question
Given the seasonality observed in the Affirm Card’s sequential performance, can you provide insights into the longer-term volume growth trajectory of the card, considering the current pipeline and potential for future product enhancements?
Answer
The sequential decline in the Affirm Card’s performance was primarily due to seasonality and is not indicative of a concerning trend.
Affirm is pleased with the card’s growth and adoption rate, and further product improvements are planned to drive continued expansion.
While a specific growth curve is not provided at this time, the Affirm Card is expected to evolve into a multi-billion dollar business with ongoing experimentation with rewards and a focus on margin-conscious growth.
Margin Trends and Future Outlook
Question
Can you discuss the factors driving the consistent outperformance of adjusted operating margins and whether the current guidance for Q4 (15-17%) is a good starting point for next year, or if there are other considerations to take into account?
Answer
The strong operating leverage achieved in the current year is attributed to rapid growth in unit economics and disciplined management of fixed operating expenses.
While the company expects some of these trends to continue, it remains optimistic about future opportunities and will invest resources into growth initiatives.
Affirm reiterates its commitment to maintaining revenue growth rates above 20% and operating within the adjusted operating income framework provided to investors in November.
Balancing GMV Growth and Credit Performance
Question
Is there a framework for balancing GMV growth and credit performance, particularly in light of the potential for increased delinquencies despite current over-earning levels?
Answer
While Affirm acknowledges the potential for seasonal fluctuations in delinquencies, the company remains committed to maintaining a vigilant watch over credit quality and actively managing risk.
The current over-earning levels provide additional capital to invest in growth initiatives, such as APR subsidies for higher credit quality borrowers, without compromising credit standards.
Affirm emphasizes that credit is managed independently of growth considerations, with a focus on delivering positive credit results while responsibly pursuing growth opportunities.
Customer Support for Affirm Card
Question
Can you provide an update on the progress of improving customer support for the Affirm Card, particularly through the use of AI systems, and discuss the balance between reducing support costs and minimizing usage friction?
Answer
Affirm has implemented various improvements to the Affirm Card, particularly in reducing surprise user experiences and enhancing the user interface to eliminate confusion and increase usability.
The company has made significant investments in AI technology to enhance customer support and reduce costs, with a focus on developing intelligent chatbots that can efficiently handle customer queries and provide accurate information.
Affirm is committed to ensuring customers have access to human support when needed, but aims to leverage AI to pre-work and streamline the customer service process, leading to cost savings and improved scalability.
Affirm Card User Demographics and Adoption
Question
Can you share any insights into the demographics of Affirm Card users and the specific customer segments where the card is gaining traction?
Answer
The Affirm Card is primarily used by transactors or habitual revolvers who appreciate the ability to finance certain purchases while avoiding debt on others.
While Affirm is designed to address a wide range of credit bands, the current user base is characterized by individuals who value the flexibility and predictability offered by the card’s unique features.
New Customer Acquisition and Exclusivity
Question
How does the presence of multiple BNPL providers on a single platform, rather than exclusive partnerships, impact new user adoption, and is exclusivity a key factor in driving growth?
Answer
Affirm is comfortable operating alongside other BNPL providers and does not require exclusivity to drive user acquisition.
The company’s unique value proposition, including features like no late fees, no compound interest, and no deferred interest, attracts a loyal customer base that actively seeks out the Affirm brand.
Affirm’s extensive user base and brand recognition contribute to its ability to compete effectively even in non-exclusive environments.
Average Order Value (AOV) Trends and Product Mix
Question
Are there any notable trends in average order value (AOV) or product mix that provide insights into changing customer dynamics and usage patterns?
Answer
AOV trends have been relatively stable and are influenced by factors such as promotional 0% sales and the introduction of new products or categories.
While Affirm has a strong position in higher average order value and more considered purchases, the company is actively working to serve a broader range of transaction types and increase frequency of use.
International Expansion and Credit Performance
Question
As Affirm expands into new international markets, what are the funding and credit performance considerations, and how transferable are the U.S. credit models to these new geographies?
Answer
Affirm anticipates a period of learning and adaptation as it expands into international markets, with a gradual approach to volume growth and a focus on credit performance.
The company is confident in its ability to transfer credit models across borders, as demonstrated by its success in Canada, and will take a cautious yet opportunistic approach to international expansion.
Localized funding sources will be established to support operations in new geographies, and global partnerships will be leveraged to facilitate expansion.
New Merchant Additions and Success Factors
Question
Can you provide additional details on the success factors driving new merchant additions, such as specific verticals, digital versus in-store presence, or the impact of channel-based sales?
Answer
New merchant additions have been driven by a combination of direct sales efforts and partnerships with channel-based distributors.
Affirm is particularly excited about the growth opportunities presented by mid-sized businesses with $10 million to $50 million in GMV, as these merchants are typically growth-centric and experience accelerated growth when using Affirm.
