More than half of the U.S. population reported living from paycheck to paycheck, according to PYMNTS data, including 25% of consumers who used Buy Now, Pay Later (BNPL) in the past 12 months , pointing to the payment option as a potential over-acceleration of credit while managing risk.
“We want to be able to give them that option and with clarity of exactly how much they’re paying to get it now versus what it would mean to save money and buy it later,” says the president of Technology, Risk and Operations Libor Michalek said in an interview. âIt’s a compromise that everyone makes on a regular basis. “
Michalek said that much of this shift has been a shift in consumer preferences for more flexible and innovative digital payment solutions.
Read also: 53% of high-income Americans live paycheck to paycheck
Speaking to Karen Webster and Mark Smith, Head of Payments Market and Business Development at Amazon Web Services (AWS), for PYMNTS TV, Michalek said Affirm wants to help people understand how credit works and how credit works. data is used to make loan decisions as they pay off over time.
âIt’s about how they understand their behavior over time and its impact on their creditworthiness and their ability to access more credit in the future,â Michalek said.
Already 29 million US consumers have used a BNPL solution, and some 43% of the adult population, or 111 million consumers, have said they are interested in using the payment option to pay for purchases of services. important such as travel, renovations and medical expenses. .
PYMNTS research found that 83% of consumers who wanted to use BNPL to make a major purchase said it was a convenient alternative to using personal loans and credit cards.
See also: The next BNPL Horizon will expand access to 83% of those who want to make big ticket purchases
âWhat really resonates with them is this transparency, this clarity in advance that they know exactly what they are getting,â Michalek said. âThey know what it will mean for their portfolio and what it will mean in the longer term. “
Room to grow
PYMNTS data showed that 27% of consumers would be willing to use BNPL services from banks where they have an account, compared to 23% who said they would be willing to use BNPL providers.
What sets Affirm apart from many banks and other BNPL offerings is that Affirm does not charge late fees. It outlines the installment payment plan in advance, which Michalek says provides greater clarity and transparency, which in turn leads to better decisions and better value for consumers.
PYMNTS research also found that over 25% of consumers viewed BNPL options as a way to avoid having their line of credit blocked, and 26% preferred to avoid a high purchase on their credit card. Smith said that in speaking with the card issuing banks at the onset of the pandemic, he found that an increasing number of consumers were paying off their credit card balances in full for a similar reason: People wanted to save their credit lines. credit “for a rainy day”.
âThey didn’t know if their job situation, their financial situation was going to change, and they wanted that safety net,â Smith said. âI thought it was really interesting. The pandemic has certainly fueled the catalyst around buy now, pay later, and interest in the option. “
He added that although few US banks currently offer a BNPL product, he expects more banks to enter the space as consumer awareness continues to grow.
âIt’s the start to buy now, pay later in the US, at least,â Smith said. “There is a ton of room for growth.”
Driven by data
Michalek said Affirm only asks for a little information up front to make sure it knows who the customer is before consulting third-party sources to provide an initial loan approval. The company then tracks users as they continue to shop using BNPL.
âAs consumers use the product, as they navigate their lives using the product through more and more of their purchases, it really creates a rich tapestry of understanding exactly what they are capable of. [managing],” he said.
Forty percent of consumers said they would be at least “somewhat” interested in providing personal transactional data for more favorable BNPL payment terms, with willingness to share personal data most common among most people. interested in BNPL options overall. Thirty-eight percent of Millennials said they would be “very” or “extremely” interested, according to PYMNTS data, as did 21% of Gen Z.
For high value purchases, Affirm enables merchants to find affordable solutions without resorting to discounts, and offers consumers the ability to pay over time with payments that are within their budget. Affirm’s underwriting model has absorbed years of reimbursement data from various purchases of different sizes and consumption behaviors. This allows it to offer payment terms of six weeks to 48 months and interest rates of 0% to 30% Annual Percentage Rate (APR), enabling various merchants to meet the needs of their customers, a Michalek said.
From an operations perspective, AWS enables Affirm to collect and analyze a large volume of data at scale, extracting information about purchases, payments, and consumer purchasing power across a wide range of markets. verticals and products.
âTo buy now, pay customers laterâ¦ as well as any payment customer that generates credit on AWS, the key to data,â Smith said. âYou can take third party data, you can take credit bureau data, but the more data you have and the ability to store, catalog, manage, and most importantly, glean information from that data,â is huge. “
This availability of data, Michalek told Webster, is what helps power Affirm’s new adaptive payment feature, launched last month to give consumers bi-monthly and monthly payment options for every transaction side-by-side on the go. the finalization of a purchase.
Read more: BNPL Company Affirm deploys adaptive payment
âWhat’s comfortable from a consumer’s perspective on a monthly basis changes from consumer to consumer, and indeed from purchase to purchase and even time of year,â Michalek said. . âAdaptive Checkout really looks at this and tries to bring the best options to the consumer. “