Affirm Holdings Q2 FY25 earnings call AFRM

Affirm observed a noticeable increase in 0% APR loans, which are programs where merchants or manufacturers subsidize interest for borrowers. This strategy allows merchants to offer promotions without compromising pricing integrity, channeling promotional dollars into reduced APRs instead of discounts (e.g., typical 10%-20% off). The company has industrialized tools for merchants to easily implement these programs. These offers are now syndicated across all Affirm surfaces, including the app, card, and integrated wallets, enhancing the network's value by providing unique reasons for consumers to buy.

The company expressed pride in its capital markets execution, highlighting the Sixth Street partnership as a significant leap forward. Management emphasized a thoughtful approach to scaling its capital program, aiming for durability across multiple economic scenarios by leveraging forward flow agreements with private credit and insurance companies, while also maintaining a strong reputation in ABS markets. The funding cost benefits seen in Q2 were attributed to favorable market conditions and Affirm's differentiated credit performance, which has improved conversations with capital partners.

Active customers grew 23% year-over-year, marking four consecutive quarters of acceleration. This growth is attributed to a deliberate focus on increasing direct-to-consumer engagement through the Affirm Card and app, as well as expanding e-commerce coverage. The company noted that this acceleration is not due to changes in credit underwriting standards, but rather a result of compounding efforts to re-engage dormant consumers and improve conversion.

Affirm has been using machine learning and AI since its inception for underwriting and fraud prevention. The company is actively investing in modern transformer architecture approaches for model building, particularly in fighting fraud. AI tools are also being deployed for productivity across various departments like legal, compliance, accounting, and marketing, enabling the company to achieve operating leverage and focus on hiring higher-caliber specialists without necessarily expanding overall headcount. For example, AI can quickly analyze hundreds of thousands of merchant contracts for product launch feasibility.

The Affirm app is being redesigned to enhance utility and act as a marketplace for deals, particularly 0% APR offers. The 'deals tab' in the app is fielding hundreds of thousands of searches per week, with a search-to-transaction initiation rate clipping 30%. The Affirm Card, which now accounts for over 8% of total GMV, is seen as a product for the company's best consumers who fully embrace Affirm's value proposition. The company aims to expand card use cases beyond large purchases to everyday spending categories like groceries and medicine, as evidenced by a new partnership with GoodRx.

Affirm is in the early stages of its UK launch, with initial results described as 'pleased but not satisfied.' Shopify is noted as the first major enterprise-scale integration expected to go live in the UK soon. Management believes there is significant market pull for longer-term loans (e.g., 24-month, 36-month) in the UK, as incumbent banks are less willing to approve such products and pure-play competitors are not active in that space. The company believes it is taking market share in the US and sees a 'target-rich environment' for international growth, with sales pipelines well-filled.

Management maintains a disciplined approach to credit underwriting, assessing consumer financial health for every transaction and focusing on shorter terms. They emphasize that growth is not driven by loosening credit standards, but by merchant partnerships and product initiatives. The US consumer is currently viewed as healthy, with high employment and strong loan repayment. The company is prepared to adjust quickly to macroeconomic shifts, noting that its product structure allows for rapid response to changing conditions. They are not concerned by 'higher for longer' interest rates, having operated successfully in the current rate environment.