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This Fintech Just Took a Big Step Toward Dominating its Industry

By Matthew Frankel, CFP® – Sep 8, 2021 at 6:21AM

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It's tough to imagine a better piece of news for this company's shareholders.

We recently learned that buy now, pay later fintech Affirm Holdings (AFRM -1.73%) landed a partnership with Amazon (AMZN -0.77%) to allow customers of the e-commerce giant to spread major purchases out. In this Fool Live video clip, recorded on Aug. 30, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why this could be such a big deal for Affirm's bottom line.

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Jason Moser: Affirm, we saw the headline come out at the end of last week. Affirm has forged a very important relationship, or potentially very important relationship, with Amazon. Amazon customers will soon have the option to be able to split the total cost of purchases of $50 a more into simple monthly payments by using Affirm. What do you make of this headline? This is a big reaction for Affirm and probably a little bit of an overreaction considering this is just something that's getting some traction here. But given what we know about Affirm, given what we know about its reliance on another big customer, this is definitely just what the doctor ordered.

Matt Frankel: As you alluded to, their big customer is Peloton (PTON 0.30%), and this couldn't have come at a better time. Peloton have been following, just slashed the price on its bikes, lowered its sales expectations. It's really a great time for this to have happened. Affirm you mentioned the stock is up, I think it was 44% right before I popped on here.

Moser: Yeah.

Frankel: It's still about 33% below its 52-week high, so this isn't like a Bill.com (BILL) that's been on a tear for a year and then shot higher. It's just making up some lost ground, so that's point No. 1. They hit the lottery, in terms of companies that buy now, pay later providers we're pursuing. We mentioned when we talked about Square's (SQ -0.84%) acquisition of Afterpay, that Amazon was part of their universe, but that was part of Afterpay's app. Afterpay would allow people to split Amazon purchases on their own app. This is Amazon's first direct partnership with a buy now, pay later provider. Why is it important, other than the fact that Amazon is just huge? This is a huge needle mover for the company. I was reading that if they can get 1% of Amazon's North American sales volume, 1%, that that would add 10% to Affirm's revenue right away. That's 1%. Right now 9% of all e-commerce sales globally are bought through buy now, pay later. That's why this is such a red hot space. If they can get 9%, the current market size, so if they can get 9% of Amazon's sales volume, that would double their revenue virtually. It's a big deal.

Moser: Yeah, it does have a lot of potential there. I tell you, when I first read this headline, the first thing I thought of was I knew that I had seen some form of installment payment option on Amazon before. I've never used it, but I just knew I had seen it. I went to go look again to see exactly what I was remembering. What they have essentially, it's pay over the course of six months, for example, interest-free with your Amazon Prime Rewards Visa (V 0.97%) card. They do have an installment payment option for certain products on Amazon. That's just something that they run through their Amazon Prime Rewards Visa card. I guess the next logical question is, why not just continue to pursue that? I think ultimately at the end of the day, this is just about more choice. It's giving your customers more options. I think from that perspective, it's a no-brainer for Amazon, you're just giving your customers more choices. But for Affirm, this is just a massive win for business, where I think a lot of a lot of folks have looked at businesses like Afterpay and Affirm, and thought, well, those are features that other bigger fintech-type companies could just introduce to their platforms. Then certainly we saw Square go ahead and make that acquisition of Afterpay. The natural conversation beyond that was, who do we think might acquire Affirm. But maybe this buys Affirm a little time to try to make it on their own.

Frankel: Or maybe if it works, Amazon will acquire them.

Moser: Maybe.

Frankel: There are advantages. You mentioned Amazon's credit card. Not everyone wants a new credit card.

Moser: Yeah.

Frankel: Affirm has that option. A purchase wouldn't affect the buyer's credit score if they purchased it on an installment plan as opposed to a credit card. If you max out your credit card, it can be devastating to your score. But if you finance say a new entertainment center using Affirm's installment program, it wouldn't affect your credit score adversely. There are some big benefits for consumers to do this where it would really make sense. I don't want a maxed-out credit card showing on my credit.

Moser: No.

Frankel: If I were to finance a big purchase, that could be a good option for me because I know it won't affect my credit score as long as I pay it on time.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends Affirm Holdings, Inc., Amazon, Bill.com Holdings, Inc., Peloton Interactive, Square, and Visa. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Affirm Holdings, Inc. Stock Quote
Affirm Holdings, Inc.
AFRM
$13.08 (-1.73%) $0.23
Amazon Stock Quote
Amazon
AMZN
$93.41 (-0.77%) $0.72
Visa Stock Quote
Visa
V
$213.79 (0.97%) $2.06
Block, Inc. Stock Quote
Block, Inc.
SQ
$63.38 (-0.84%) $0.54
Peloton Interactive Stock Quote
Peloton Interactive
PTON
$10.06 (0.30%) $0.03
Bill.com Holdings, Inc. Stock Quote
Bill.com Holdings, Inc.
BILL
$121.47 (%)

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