Affirm: An in-depth guide

Last updated January 26, 2024
  1. Introduction
  2. Where is Affirm used?
    1. United States
    2. Canada
    3. Australia
  3. Who uses Affirm?
    1. Demographics
    2. Business types
    3. Use cases
    4. Customer preferences
    5. Recent trends
  4. How Affirm works
    1. Customer journey
    2. Business operations
    3. Additional functionalities
    4. Generally eligible
    5. Potentially eligible with restrictions
    6. Generally ineligible
  5. Benefits of accepting Affirm
  6. Affirm’s costs and fees
    1. Transaction fees
    2. Payment gateway fees
    3. Additional fees
  7. Affirm’s security measures
    1. Data security
    2. Account security
    3. Transaction security
    4. Transparency and control
    5. Additional security measures
  8. Requirements for businesses to start accepting Affirm payments
    1. Basic business requirements
    2. Regulatory compliance
    3. Technical requirements
    4. Additional considerations
  9. Alternatives to Affirm
    1. Klarna
    2. Afterpay
    3. Sezzle
    4. Zip
    5. PayPal Credit
    6. Europe
    7. Asia
    8. Latin America

The American fintech company Affirm has become a major player in the buy now, pay later (BNPL) industry, attracting 16.9 million users and partnerships with more than 266,000 businesses. Its success is driven by user-friendly payment options such as Pay in 4 and a few monthly payment options, as well as its virtual card and strong partnerships with leading brands such as Nike and Adidas.

Affirm offers a variety of payment solutions. Its core offering, Pay in 4, allows customers to divide purchases into four biweekly, interest-free installment payments made over eight weeks—making everyday purchases more financially manageable. For those who prefer managing finances monthly, Affirm’s monthly installment options offer a longer period to make full payment. However, these monthly installment options do come with interest, typically at competitive interest rates ranging from 0% to 36%.

The company also has both a physical and virtual card offering, which allows users to take advantage of its benefits even when shopping beyond its partner businesses. Affirm’s diverse suite of solutions caters to varying financial needs and preferences, providing customers with flexibility and control over their purchases.

So what is required for businesses to offer Affirm as a payment option to customers? Below, we’ll take a look at how Affirm works, who uses it and for what kinds of purchases, and what businesses need to do in order to offer Affirm to their customers.

What’s in this article?

  • Where is Affirm used?
  • Who uses Affirm?
  • How Affirm works
  • Benefits of accepting Affirm
  • Affirm’s costs and fees
  • Affirm’s security measures
  • Requirements for businesses to start accepting Affirm payments
  • Alternatives to Affirm

Where is Affirm used?

Affirm’s BNPL solution has gained traction in North America, but its approach varies across markets to serve distinct customer preferences and comply with local regulations. Here’s a look at how Affirm operates in each region.

United States

With the US BNPL market poised to grow 24% annually from 2023 to 2030, Affirm has capitalized on the increasing demand for flexible financing options. According to a Bank of America report, Affirm was the most frequently used BNPL app in the US in the third quarter of 2022. Its integration with major platforms such as Shopify and digital wallets resonates with tech-savvy customers looking for a convenient checkout experience. Affirm also complies with regulations set by the Consumer Financial Protection Bureau (CFPB), fostering user trust and responsible lending practices.

Canada

After the US, Canada is Affirm’s biggest market. Affirm’s services in Canada mirror its US strategy of integrating with the major ecommerce platforms and digital wallets that are preferred by Canadian customers. The company also adapts to specific regulations, such as those set by the Financial Consumer Agency of Canada (FCAC) to guarantee responsible financial practices in the region.

Australia

Affirm became available in Australia in 2021, launching its entry into the Asia-Pacific region. However, the company announced in 2023 that it would be winding down its Australian operations.

Who uses Affirm?

Affirm has seen widespread adoption, with varying levels of usage and preferences depending on local demographics, business types, and use cases. Here’s a closer look at the diverse landscape of Affirm’s reach.

Demographics

  • Age: According to Statista data, millennial customers (defined as ages 30 to 44 in the survey) lead the charge in Affirm usage, accounting for 28% of Affirm users. Its popularity spans age groups, though, with baby boomers (defined as ages 60 to 78) making up 23% of Affirm users.

  • Tech-savvy: Early adopters of technology are likely to be early adopters of Affirm, as it’s largely used for ecommerce purchases.

  • City dwellers: Urban areas with well-developed digital infrastructure tend to encourage higher Affirm usage.

Business types

  • Retail: Major retailers and ecommerce platforms now offer Affirm, driving widespread customer adoption.

  • Health care: Dental and medical practices offer Affirm as a payment option, increasing patient access to elective procedures.

  • Travel and hospitality: Airlines, hotels, and travel agencies integrate Affirm, facilitating booking and payment flexibility.

  • Education: Universities and educational institutions offer Affirm as an option for paying tuition, helping students and families manage their financial burden.

Use cases

  • Large purchases: Affirm is often used for large online purchases, offering a convenient and budget-friendly solution.

  • Recurring payments: Customers choose Affirm for recurring expenses such as subscriptions and gym memberships to spread the cost over time.

  • Emergencies: Many users rely on Affirm for unexpected expenses such as car repairs or medical bills, providing a financial safety net.

  • Gift-giving: Customers use Affirm for gift purchases, allowing them to afford more generous gifts without breaking the bank.

Customer preferences

  • Transparency: Affirm’s transparent pricing and clear payment terms attracts users.

  • Flexibility: Customers choose Affirm for its flexible payment plans, allowing them to budget for payments.

  • Responsible spending: Customers appreciate Affirm’s tools and resources that encourage responsible spending habits.

  • Mobile integration: The US mobile payments market is expected to increase by roughly 13% year over year from 2022 to 2027, according to a Mordor Intelligence report. Affirm prioritizes easy integration with the digital wallets and financial apps preferred by mobile-first customers.

  • Innovation: Affirm continuously invests in new features such as savings accounts and loyalty programs to enhance user experience.

How Affirm works

BNPL has fundamentally changed how customers pay for goods and services, while helping businesses boost sales and customer engagement. Here’s how Affirm helps customers and businesses.

Customer journey

  • Flexible payment options: Affirm offers customers two primary payment options:

    • Pay in 4: This option spreads the cost over four biweekly, interest-free installments.
    • Monthly payments: Finance larger purchases with monthly installments spanning 3 to 48 months, with interest rates determined by an individual’s credit and the terms of the loan.
  • Seamless checkout: Customers can choose Affirm as their preferred payment method during checkout, where it’s integrated for ease of use.

  • Comprehensive account management: A user-friendly app and online portal offer complete control over customers’ Affirm accounts. Customers can:

    • View transaction history and upcoming payments
    • Make payments and adjust payment plans
    • Access customer support
    • Manage and activate virtual cards for in-store purchases
  • Unwavering security: Affirm prioritizes security using:

    • Tokenization to safeguard sensitive financial information
    • Encryption to protect data in transit and at rest
    • Fraud prevention tools to deter unauthorized activity

Business operations

  • Effortless integration: Affirm easily integrates with most modern existing point-of-sale (POS) systems and online platforms through application programming interfaces (APIs) and software development kits (SDKs).

  • Simplified transaction processing: After a customer selects Affirm as the payment method at checkout, the platform instantly verifies their identity and creditworthiness. Approved purchases are funded to the businesses within two or three business days, with Affirm assuming the risk of nonpayment.

  • Transparent merchant fees: Businesses incur a transaction fee for each Affirm purchase, which typically consists of a fixed amount and a percentage of the purchase value.

  • Advanced risk management: Affirm’s sophisticated risk management tools assess credit and help prevent fraudulent transactions to protect businesses from bad debt and chargebacks.

  • Actionable data insights: Affirm provides valuable data insights into customer purchasing behavior and preferences. This data allows businesses to:

    • Optimize marketing campaigns and product offerings
    • Personalize customer experiences
    • Improve overall business performance
  • Technical foundations:

    • Scalable infrastructure: Affirm uses a distributed architecture to handle high transaction volumes reliably.
    • Machine learning algorithmic power: Affirm uses machine learning algorithms for:
      • Credit assessment, determining loan eligibility and interest rates
      • Fraud detection, protecting both customers and businesses
  • Assured compliance: Affirm adheres to stringent data privacy regulations, including the EU General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) for responsible and secure handling of customer data.

Additional functionalities

  • Virtual cards: Affirm provides virtual cards for convenient in-store purchases without a physical card.

  • Budgeting app integration: Affirm integrates with popular budgeting apps, offering customers greater financial control.

Generally eligible

  • Physical goods: Affirm typically allows financing for most tangible products, including clothing, electronics, furniture, appliances, and home goods.

  • Digital goods: With Affirm, you can finance select digital goods such as software licenses, online courses, and memberships offered by authorized partners.

  • Travel: The company partners with specific travel providers to offer financing options for flights, hotels, and vacation packages.

  • Health care: Customers can also finance certain health care services with Affirm, including dental care, vision correction, and veterinary services.

Potentially eligible with restrictions

  • Gift cards: The BNPL service may allow financing on specific gift cards, but the issuer and type of gift card determine eligibility and potential restrictions.

  • Preorders: Affirm may allow financing for preorders of certain products, but the specific rules and payment schedule may differ from standard financing options.

  • Custom or personalized items: Eligibility for custom or personalized items depends on the specific product and the business’s agreement with Affirm.

Generally ineligible

  • Services: Affirm does not offer financing for services such as haircuts, car repairs, or legal fees.

  • Intangible goods: Intangible digital products such as music, e-books, and movies are typically not eligible for Affirm financing.

  • Tickets and event passes: Affirm does not offer financing for tickets to concerts, sporting events, and other events.

  • Financial products: Investments, insurance, and other financial products are not eligible for Affirm financing.

  • Restricted goods: The company prohibits financing for items such as alcohol, tobacco, firearms, and adult content.

Benefits of accepting Affirm

Incorporating Affirm as a payment method into your business strategy can have many advantages, including:

  • Simple transactions: Affirm’s user-friendly interface makes transactions smooth and effortless. This ease of use is particularly appealing to modern customers who value quick and hassle-free shopping experiences. By streamlining the checkout process, Affirm can help reduce cart abandonment rates, a common issue in online retail.

  • Flexible payment options: Affirm is known for its flexible payment solutions, such as pay later or installment plans. This flexibility can attract a diverse range of customers, including those who prefer deferred payments or those who might not have immediate access to the funds required for larger purchases. As a result, businesses can potentially see higher average order values, as customers are more inclined to make more significant purchases when offered manageable payment plans.

  • Risk mitigation: One of the standout features of Affirm is its approach to risk management. The service takes on the responsibility of conducting risk assessments, shielding businesses from the financial risks of default or fraudulent transactions. This feature is particularly valuable for small and medium-sized businesses that may not have extensive resources to manage these risks independently.

  • Brand reputation and trust: Working with Affirm, a well-established and trusted brand in the payment industry, can positively impact your business’s reputation. Customers who recognize and trust Affirm’s brand are more likely to feel secure conducting transactions with your business, which can lead to increased customer loyalty and repeat purchases.

  • Marketing and exposure: Affirm also provides marketing support to its partner businesses. By featuring your business on its platform, Affirm exposes you to a broader audience, potentially driving new traffic to your website. This partnership can be particularly beneficial for expanding your customer base and increasing brand visibility.

  • Enhanced customer base: With Affirm’s popularity in the US market, especially among younger demographics who favor digital and mobile-friendly payment solutions, businesses can tap into a new segment of tech-savvy customers.

  • Increased conversion: Affirm reports that companies offering Affirm as a payment option experience 28% fewer abandoned carts compared to other BNPL options.

Affirm’s costs and fees

Affirm offers businesses and customers a flexible BNPL solution. Here’s a breakdown of Affirm’s fee structure.

Transaction fees

  • Merchant discount rate (MDR): This percentage-based fee applies to all Affirm transactions. The rate varies depending on the specific Affirm product used (e.g., Pay in 4, longer-term monthly financing) and the transaction volume, though Affirm doesn’t make the exact amount readily available.

  • Interchange fees: These fees, charged by issuing banks and card networks, are independent of Affirm and directly impact the business’s overall cost. While Affirm negotiates competitive interchange rates, these can add an additional 0.5% to 1.5% to the transaction cost.

Payment gateway fees

Some businesses use third-party payment gateways to process Affirm transactions. These gateways typically charge per-transaction fees, which can range from 5¢ to 20¢. Some gateways may also charge monthly fees on top of per-transaction fees. These typically run between $10 and $100 a month.

Additional fees

  • Chargeback fees: Similar to traditional card payments, businesses may incur chargeback fees if customers dispute a transaction and the chargeback is not ruled in favor of the business. These fees vary depending on the processing bank and can range from $15 to $25 per chargeback.

  • PCI DSS compliance fees: Businesses that accept card payments must comply with the Payment Card Industry Data Security Standard (PCI DSS). This may involve additional costs for security software, audits, and staff training.

  • Fraud prevention fees: Businesses may choose to employ additional fraud prevention tools to mitigate the risk of fraud. These tools often involve paying additional fees, which vary depending on the chosen service and agreement.

Affirm’s Pay in 4 product is unique, as it typically involves no fees for customers. However, other Affirm products carry additional fees for businesses, as outlined above.

It’s important to note that these are general guidelines, and the actual fees may vary depending on several factors, such as:

  • Region: Fees may differ based on the location of the business and customer.

  • Affirm product: Each Affirm product has its own fee structure.

  • Individual business agreement: Affirm may offer custom fee arrangements to high-volume businesses.

Affirm’s security measures

Here’s a detailed breakdown of Affirm’s key security measures.

Data security

  • Encryption: All sensitive data, such as bank account information and Social Security number, is encrypted using industry-standard AES 256 encryption both in transit and at rest.

  • Tokenization: Sensitive data is replaced with unique tokens that cannot be used to identify individuals. This adds an extra layer of security in case of a data breach.

  • PCI DSS compliance: Affirm is PCI DSS Level 1 compliant, the highest level of security certification for payment processors. This means it adheres to strict data security standards and undergoes regular audits to ensure compliance.

  • Data centers: Affirm’s data centers are located in secure facilities with 24/7 monitoring and access control. The company also uses intrusion detection and prevention systems to identify and block unauthorized access attempts.

Account security

  • Strong authentication: Affirm requires two-factor authentication (2FA) to verify your identity when you log in to your account. This adds an extra layer of security beyond just your password.

  • Password security requirements: Affirm enforces strong password requirements, including minimum length and complexity restrictions. The company also recommends changing your password regularly.

  • Account monitoring: Affirm monitors accounts for suspicious activity and will notify you if it detects anything unusual.

  • Fraud prevention: Affirm employs a variety of fraud prevention techniques to identify and block fraudulent transactions. This includes machine learning algorithms and fraud scoring models.

Transaction security

  • Secure Sockets Layer (SSL): All communication between your browser and Affirm’s servers is encrypted using SSL and Transport Layer Security (TLS) technology to protect your personal information from unauthorized access.

  • Tokenization: Sensitive information is not stored on Affirm’s servers. Instead, it is tokenized and replaced with unique tokens that cannot be used to identify individuals.

  • Fraud prevention: Affirm uses a variety of fraud prevention techniques to identify and block fraudulent transactions. This includes machine learning algorithms and fraud scoring models.

  • Chargeback protection: Affirm offers chargeback protection to businesses in case of fraudulent or unauthorized transactions.

Transparency and control

  • Privacy policy: Affirm has a comprehensive privacy policy that governs how it collects, uses, and shares your personal information.

  • Security center: Affirm has a dedicated security center on its website with information about its security measures and how to protect your account.

  • User controls: You can control your account settings and preferences, including privacy settings, notification settings, and two-factor authentication.

Additional security measures

  • Bug bounty program: Affirm has a bug bounty program that allows security researchers to report vulnerabilities in its systems for a reward. This helps the company identify and fix any security issues quickly.

  • Penetration testing: Affirm regularly conducts penetration tests to identify and address vulnerabilities in its systems.

  • Security training: Affirm employees undergo regular security training to keep their knowledge up-to-date on the latest threats.

Requirements for businesses to start accepting Affirm payments

Before you can offer Affirm’s BNPL financing to your customers, your business needs to meet certain eligibility criteria. Let’s break down the key requirements.

Basic business requirements

  • Sell directly to US or Canadian customers: Affirm currently operates solely in these two countries.

  • Have a US or Canadian entity: Your business must be legally established in either the US or Canada.

  • Have a US or Canadian bank account: This is necessary for receiving payments processed through Affirm.

  • Have a website in English: All communication between Affirm and your customers will be in English, so your website should have an English option as well.

  • List prices in USD or CAD: Affirm only processes transactions in these currencies.

  • Operate in accordance with Affirm’s prohibited business policy: This policy outlines industries and products that Affirm prohibits, including weapons, age-restricted goods, and certain financial services.

Regulatory compliance

  • Truth in Lending Act (TILA): This federal law requires that businesses provide customers with clear and accurate information about their financing options, including terms, conditions, and interest rates.

  • Equal Credit Opportunity Act (ECOA): This law prohibits discrimination in credit decisions based on factors such as race, religion, gender, and marital status.

  • Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act: This law regulates the sending of commercial emails, including those related to BNPL financing.

Technical requirements

  • Integrate Affirm’s API: This allows your website or app to communicate with Affirm’s platform for credit checks, payment processing, and customer support.

  • Display Affirm branding: Businesses must display Affirm’s logo and financing options prominently on their website and checkout pages.

Additional considerations

  • Customer base: Affirm is most popular with customers who are credit-conscious and looking for flexible payment options. Consider whether your target customer is likely to be interested in BNPL financing.

  • Transaction volume: Affirm may have minimum transaction volume requirements for certain businesses.

  • Fees: Affirm charges businesses a fee for each transaction processed. These fees vary depending on the size and type of transaction. Refer back to our section on Affirm fees for more detail.

Alternatives to Affirm

In the increasingly crowded BNPL environment, several alternatives offer similar features with subtle distinctions. Here are some of Affirm’s most prominent competitors:

Klarna

  • Global reach: Klarna boasts a wider global presence than Affirm, operating in 45 countries compared to Affirm’s two. This makes it a great option for businesses with international customers.

  • Larger business network: Klarna collaborates with more than 500,000 businesses worldwide, offering greater brand recognition and customer familiarity.

Afterpay

  • Focus on smaller, frequent purchases: Afterpay (also known as Clearpay in the UK) specializes in smaller purchases—typically under $1,000—and it offers a simple four-payment structure with no interest. This appeals to customers seeking convenient payment options for everyday shopping.

  • Strong presence in Australia and New Zealand: Afterpay enjoys a dominant market share in its home region, making it a natural choice for businesses targeting those markets.

  • Fast and easy sign-up: Afterpay’s onboarding process is known for its speed and ease, making it attractive to both businesses and customers who value convenience.

Sezzle

  • No-interest financing: Sezzle offers true no-interest financing for its shorter purchase plans, making it a competitive option for price-conscious customers.

  • Strong focus on Gen Z and Millennials: This payment method has a strong following among younger customers, making it a relevant choice for businesses looking to reach younger people.

  • Flexible payment options: Sezzle offers several payment plans, including biweekly and monthly options, allowing customers to tailor their payments to their needs.

Zip

  • Hybrid model for Australian customers: Zip offers both BNPL and traditional credit options in Australia, giving customers the flexibility to choose the option that best suits their needs. For all other locations, Zip offers a shorter BNPL payment plan.

  • Interest-free promotions: Zip frequently runs promotions offering interest-free financing on certain purchases, which can be an attractive incentive for customers to choose Zip over its competitors.

  • Variety of products: In addition to BNPL, Zip offers virtual credit cards and a mobile wallet, providing a comprehensive suite of financial solutions for customers.

PayPal Credit

  • Uses PayPal’s existing customer base: With millions of existing PayPal customers, PayPal Credit offers a convenient payment option for customers who already trust and use the platform.

  • Promotional financing: PayPal Credit frequently offers promotional financing options, such as 0% APR for a specific period, making it a competitive choice for larger purchases.

  • Integration with the PayPal system: PayPal Credit integrates with the broader PayPal system, allowing for easy checkout and payment management.

Here are some of Affirm’s main competitors in other global markets:

Europe

  • Klarna: A dominant player with a widespread presence across Europe.

  • Clearpay: Popular in the United Kingdom, Clearpay offers the option to pay in four installments with no interest.

  • Alma: A French BNPL provider with a focus on larger purchases and longer repayment terms.

  • Scalapay: An Italian BNPL solution with a strong presence in Italy and Spain.

Asia

  • Afterpay: Strong market share in Australia and New Zealand, offering the option to pay in four installments.

  • Grab PayLater: A leading BNPL provider in Southeast Asia, PayLater is integrated with the Grab superapp.

  • OPay: A BNPL player in growing markets across Asia, OPay offers flexible payment options and rewards programs.

  • Atome: A popular BNPL solution in Southeast Asia, Atome is known for its fast and easy sign-up process.

Latin America

  • Mercado Pago: A leading BNPL provider in Argentina, Brazil, and Mexico, Mercado Pago offers a variety of payment options and integrations with MercadoLibre.

  • Nubank: Nubank is a Brazilian digital bank with a popular BNPL solution integrated with its banking services.

  • Clip: Clip is a Mexican BNPL provider focused on small and medium-sized businesses.

  • PagSeguro: Offering BNPL solutions in Brazil, PagSeguro focuses on integrating with its existing payment processing platform.

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