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Affirm Raises $500 Million With Reported IPO Hanging in the Balance

The money just keeps flowing for the upstart installment payments industry. Affirm has raised $500 million in a Series G investment round, bringing the “buy now, pay later” platform to an overall $1.3 billion in total funding raised to date. Singapore-based wealth fund GIC, a returning investor, and investment advisor Durable Capital Partners LP led the round.

In July, The Wall Street Journal reported that Affirm was working with Goldman Sachs on laying the groundwork for an IPO that could value the company up to as much as $10 billion. It is unknown whether the funding would impact or alter the reported go-public plans. Affirm was last valued at $2.9 billion in April of last year after securing a $300 million funding round.

The funding announcement comes in the same week another major installment payments provider, Swedish fintech company Klarna, secured $650 million in funding, expanding the company’s valuation to $10.65 billion and making it the fourth-most valuable private fintech business worldwide.

Alongside the investment, Affirm is introducing a new feature, an interest-free biweekly payment option for transactions as low as $50, instead of the typical monthly payments spread out over six, 12 or 18 months. This would be beneficial for merchants that sell smaller-ticket items in addition to the typical higher-priced purchases that installments transactions are typically used for.

“Alongside this new capital, our latest product is another step towards becoming as ubiquitous as credit cards—Affirm is now an even more attractive payment option for everyday wants and needs,” Max Levchin, CEO of Affirm, said in a statement. “We can also now better support merchants who offer smaller ticket items and bring their customers a more transparent, flexible way to pay.”

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More than 5.6 million U.S. and Canadian consumers use the platform, Affirm says, nearly doubling the more than 3 million it said it had in November. According to the Ascent survey from The Motley Fool, Affirm is the third-most used “buy now, pay later” platform in the U.S., after PayPal’s Bill Me Later and Afterpay, with 25.7 percent of the 1,862 shoppers surveyed saying they’ve used it once.

The buzz for these platforms is understandable in an era of economic uncertainty, as younger consumers look to alternatives to traditional credit cards. The Ascent survey indicated that 39.4 percent of shoppers use them to avoid paying credit card interest, while 38.4 percent turn to them to make purchases that otherwise wouldn’t fit into their budget.

In the case of Affirm, consumers are not charged with late or hidden fees when using the product, but the monthly payments options carry an upfront interest rate ranging anywhere between 10 and 30 percent based on the shopper’s credit.

The ability to provide clarity in terms of payments is key for Affirm and other installment payments providers as they continue to grow and bring in more consumers. Only 22 percent of respondents from the Ascent survey said they fully understand the terms and conditions of using installment payments. Of those who avoid using installment payments, 49 percent said it’s because they don’t understand how these services work.

Affirm reports that its 6,000 merchants, which include Walmart, Adidas, Peloton and Oscar de la Renta among many others, reported 85 percent higher average order value (AOV) in 2019 when compared to other payment methods, while 67 percent of Affirm purchases were from repeat users.

Affirm has partnered with various apparel retailers in the past month, including Bonobos, Callaway Golf and David’s Bridal.

And in July, Shopify selected Affirm as its exclusive partner to power Shop Pay Installments, bringing the installment payments platform to “hundreds of thousands of new merchants and their customers” later this year. The companies have not revealed an official launch date yet.

As more installment payments players flood the space and a clear leader appears yet to be established, these businesses are starting to take steps to differentiate from one another beyond the actual payments offering. In the case of Affirm, the company launched a high-yield mobile savings account that further caters to the young demographic that often is low in savings and high in credit card debt.

The account is free to set up, offers a 1.3 percent annual percentage yield (APY) and includes no minimums or fees, as well as optional auto-deposit.

Klarna is spreading out its offering as well, launching its first loyalty program within its platform, called Vibe, which is currently available to consumers in the U.S. and will soon be launched in additional markets. Additionally, the company enables shoppers to use the app to wish list their favorite items, access discounts, set up price-drop notifications and track spending and deliveries.

Affirm has not revealed how it plans to use the funding. Other returning investors in Affirm’s funding round include Lightspeed Venture Partners, Wellington Management Company, Baillie Gifford, Spark Capital, Founders Fund and Fidelity Management & Research Company LLC.