Everything Merchants Need To Know About Using Affirm: What It Is, How It Works, Pricing, & More

We often talk about how tightening credit standards have changed the face of lending. What’s less discussed is the effect the Great Recession has had on borrowers.

American credit card debt, currently amounting to just under $1 trillion, is one of the easiest types of credit to overextend yourself on. Not coincidentally, many younger Americans are avoiding credit cards at a higher rate. Fewer than one-in-three Millenials claim to have a credit card, for example. Likewise, businesses may find a lot of value in business credit cards, but they aren’t right for every situation–namely those in which you can’t pay off your debt within the interest-free grace period.

That’s where Affirm comes in. Companies like Affirm count on the fact that cardless consumers will still face situations where they need to buy something they can’t afford.

What Is Affirm?

Founded in 2012 by Max Levchin, Nathan Gettings, and Jeffrey Kaditze, Affirm provides a “point-of-sale” financing to businesses and consumers called “buy now, pay later” (BNPL). BNPL solutions like Affirm essentially it fill a similar niche to credit cards–you’re taking out a “loan” at the same time you purchase the product you’re using the loan for.

Affirm streamlines this process with an app for in-person transactions. Alternatively, they may be present as a financing option when you’re making a purchase online.

How Does Affirm Work For Merchants?

Affirm boasts that it can boost the average order value (AOV) customers spend when they’re shopping at your store by giving them a way to purchase your products with credit, but at a (potentially) lower cost than they would with a credit card. Affirm lets business customers to design a custom program, allowing you to influence the APR (0%-30%) and term lengths (up to 36 months) of the loan your customers will be offered at the point of sale. Payment is settled within one business day.

You’ll also be able to access Affirm’s tools, which can allow you to market through their customer network as well as try out different sales strategies through programmatic A/B testing.

Note, for B2B purchases, Affirm has recently spun off a new company called Resolve.

How Does Affirm Work For Customers?

Let’s say you’re a customer of Joe’s Fun Stuff and you decide you can’t possibly live without the hottest new gaming console a moment longer. Among the usual payment options are cash, credit, and maybe a few digital wallets. But this merchant also provides an option to use Affirm, which allows you to take out a short-term loan on the spot to finance the total or partial cost of your purchase. You’re given the choice of paying back the loan over the course of several different term lengths, maxing out at 36 months. Affirm then shows you how much money you’ll be paying in interest, both as a percentage and a dollar amount. It also shows you what your monthly payment will be. If you accept, your purchase is processed. There are no additional fees.

Your APR will range between 0 and 30%. The rate you’re charged will depend on several factors, including the terms agreed upon between Affirm and the vendor, the term length you choose, and your history (credit and buying history with Affirm).

How Much Does Affirm Charge Merchants?

You’ll find very little info about Affirm’s pricing on their site or elsewhere, but the cost per transaction reportedly falls somewhere between 2-3%. This fee may vary depending on the size of your business and any particular arrangements you work out with Affirm.

Pros & Cons Of Using Affirm

So what are the benefits and risks of using Affirm? We’ll break it down from both the merchant and customer perspective.

For Merchants

Pros:

• It’s A Way For Customers To Afford To Buy Your Products: Cash is king and credit cards are convenient, but what if you don’t have cash and you don’t have the credit limit to afford a more expensive item? Having Affirm can help you make sales you may otherwise miss.
• Access To Affirm’s Customer Network: Affirm’s userbase doubles as a marketing platform and even a pseudo-customer management system.

Cons:

• Cost Per Transaction May Be Higher Than Credit Cards: Depending on the arrangement you’ve worked out with your merchant account provider, as well as the cost of the items being purchased, Affirm may cost you slightly more than if the transaction had been made with a credit card. There’s also a chance it may cost slightly less, however.
• It Adds Complexity: Depending on your tolerance for complexity, you may or may not want to have one more type of payment to keep track of and train your employees on.

For Customers

Pros:

• Access To Credit Despite Poor/No Credit Rating: Unlike most credit cards, Affirm is usually available to customers with poor credit.
• Better Rates For Long Term Purchases: Credit cards offer great value for purchases that you can pay off within your interest-free grace period. If you’re carrying a month-to-month balance, however, credit cards can quickly become a burden. Affirm offers predictable, and potentially lower, interest rates.
• No Additional Fees: Affirm doesn’t have origination or administrative fees, making it a pretty simple financial product to understand and use.
• Promotional Offers: Stores may occasionally offer 0% APR financing through Affirm.

Cons:

• It Can Be Expensive: If you have the cash or can pay your credit card off in full at the end of each month–and your purchase doesn’t fall into the case above–you’re probably better off using one of those instead.
• Your Information Will Be Used In Marketing: This may or may not bother you, but you should be aware that Affirm doubles as a marketing platform for businesses that use it.
• It Can Set You Up For Failure: The danger of easy point-of-sale financing like this is that it can encourage the habits associated with reckless credit card usage, without the benefits of responsible credit card usage. Remember that having more time to pay won’t necessarily help if you’re spending beyond your means.

Affirm For Businesses: FAQs

Is Affirm Right For Your Business?

There’s a lot of diversity in the types of financing being offered to individuals and businesses these days. POS loans fit into the broader alternative lending trends. That is to say, they’re fast, easy, and more expensive. Still, they do provide options for borrowers who have a hard time otherwise accessing credit, or who wish to avoid credit cards’ minimum payment trap.

Is it worth incorporating Affirm into your business? If you’re selling relatively expensive items, there’s a pretty good chance that Affirm will have some kind of a positive effect on your sales–most of Affirm’s testimonials come from businesses that sell at least some big-ticket items. Businesses selling relatively inexpensive goods, however, can probably just safely stick to cash and card-based payments (with support for digital and mobile wallets if you’re hip).

Meanwhile, if you’re a business owner that prefers old-fashioned credit cards, why not take a look at our business credit card comparison chart? Need help navigating all these new payment systems? Check out The Small Business Owner’s Guide To Alternative Payments.