In a crowded “buy now, pay later” space, Affirm is looking to differentiate itself in both acquiring a solution focused on post-purchase and return experiences and partnering with another financing platform.
The installment payments platform provider has acquired Returnly for approximately $300 million in cash and equity. With the deal, Affirm will offer services from the Returnly platform to partner retailers, and vice versa. Additionally, Affirm entered a partnership with Snap Finance, a provider of lease-to-own digital financing options, enabling Snap’s retailers to integrate Affirm as an alternative payments option.
The Returnly acquisition comes as returns continue to rapidly rise, with Affirm citing National Retail Federation (NRF) stats that U.S. consumers returned an estimated $428 billion in merchandise to retailers in 2020, which represented approximately 10.6 percent of total U.S. retail sales.
But NRF said this number had an even more drastic jump for purchases made online. While e-commerce accounted for $565 billion in sales in 2020, $102 billion of the merchandise was returned, or approximately 18 percent of online sales.
With Affirm recently going public, the company is under pressure to perform and bring something new to its offering. While 31 percent of U.S. shoppers have used a buy now, pay later service, according to a recent study from LendingTree, the competition is relatively even among the major players, creating more urgency.
Of the people that say they use these services, 25 percent said they use Affirm, which also happens to be the same percentage that uses Afterpay and almost the same amount that uses Klarna (26 percent). PayPal, which only last year launched its “Pay in 4” offering, but has been an alternative payments leader for years now, leads the pack at 39 percent of users.
Returnly serves more than 1,800 merchants including Everlane, Outdoor Voices, Fanatics, Untuckit and ThirdLove and says it has helped process more than $1 billion in returns for 8 million shoppers.
Affirm already had been an investor in Returnly since 2019, according to CEO and founder Max Levchin, noting in a statement that the buy now, pay later company recognized its ability to help merchants remove friction from returns, drive loyalty and retain more customers.
Levchin also highlighted the importance of issuing store credit before an item is actually returned, saying it is “now a practical requirement in highly competitive segments like fashion and lifestyle.” Returnly has an option similar to store credit policies called Returnly Credit, which is designed to let customers shop a retailer’s full product catalog, all while covering the costs of the new order up to the original price. The item is dispatched before the return is fully processed and shipped back so that shoppers know they have the item they want before returning their original purchase.
Returnly takes on all the product return risk, with the retailer getting paid on the product purchase upfront and in full. The company says that if a customer doesn’t send back the original order or it gets lost in the mail, it absorbs that loss while the retailer gets two sales in the books. Overall, Returnly reports that its credit service “saves” 3X more sales than traditional returns credit services and lifts repurchase rates 32 percent.
“We started Returnly to fix the broken returns model that offered consumers and merchants nothing but downside and frustration,” Eduardo Vilar, CEO and founder of Returnly, said in a statement. “As returns continue to challenge and inhibit commerce, we believe that now is the right time to join forces with Affirm and expand the reach of our mission.”
Prior to the deal, Affirm’s biggest difference between it and the other top players is that it is not an interest-free platform for most shoppers, and that it also doesn’t charge any late fees. Shoppers using Affirm can pay APR of anywhere from 0 percent to 30 percent on the purchase amount depending on the size and length of the loan provided, alongside a consumer credit check.
With the Snap partnership, Affirm is establishing that it is also willing to play well with others that are offering a similar pay-over-time offering. Snap appears to be catering to an audience that is still growing or rebuilding their credit profiles, and is backed by a proprietary, AI-driven credit modeling solution determining who gets approved for financing.
The credit concerns are real among today’s consumers, with the LendingTree survey indicating that 29 percent of buy now, pay later users shop with those platforms to avoid credit card debt. In line with that thinking, 43 percent say they use them to pay for more expensive purchases so they can spread the cost out over time, while 34 percent want to buy things they normally couldn’t afford.
Affirm also announced plans in February 2021 to launch the Affirm Card later in the year, promoting it as the first U.S. debit card to have direct access to pay-over-time functionality. The debit card will give cardholders the opportunity to pay for eligible purchases in installments. Shoppers using the Affirm Card to make an in-person or online purchases over $100 can either pay off the entire purchase at once or split their payment into four installments.
The Returnly transaction is expected to close in Affirm’s fourth fiscal quarter ending June 30, 2021, and is subject to customary closing conditions. The acquisition is not expected to have a material impact on Affirm’s second half 2021 fiscal year results of operations.