For years, the “Buy Now, Pay Later” (BNPL) sector has been viewed as a convenient alternative to the credit card—a digital tool to split a purchase into manageable chunks at the checkout screen. But Affirm is no longer content being a feature of the shopping experience. The company is now attempting to rebuild the very plumbing of consumer finance.
Speaking at the company’s investor forum on May 12, CEO Max Levchin laid out a vision that extends far beyond installment loans. Affirm is positioning itself as a direct challenger to the dominant card networks, explicitly stating that its goal is to become as indispensable to merchants as Visa, Mastercard, and American Express.
This shift represents a strategic pivot from promotional lending to infrastructure. By controlling the “closed loop”—acting simultaneously as the credit issuer, the data transmitter, the acquirer, and the risk manager—Affirm aims to strip away the layers of middle-men that have defined the payments industry for decades.
The strategy hinges on a fundamental bet: that real-time data is a more accurate predictor of creditworthiness than a static credit score. While traditional banks grant a line of credit based on a snapshot of a consumer’s history, Affirm evaluates every single transaction individually. According to Levchin, this granular approach is the “rocket fuel” powering the company’s growth, allowing it to make pricing and underwriting decisions in milliseconds.
Moving Beyond the Checkout Button
The transition from a checkout tool to a daily payment method is most visible in the rapid scaling of the Affirm Card. According to company data shared during the forum, the card now has 4.4 million active users who spend an average of $2,400 annually. More tellingly, spending growth for the card is running at 130% year over year.
For Affirm, the card is less about the plastic and more about the frequency of engagement. The company noted that cardholders spend roughly three times more across the Affirm ecosystem than those who only use the platform for occasional installment loans. This creates a reinforcing data loop: higher transaction frequency generates more behavioral data, which in turn allows the company to refine its underwriting and offer more personalized merchant targeting.
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To capture spending outside of online storefronts, Affirm is aggressively integrating into digital wallets. By embedding its financing options into Apple Pay, Google Pay, and Chrome autofill tools, the company is following the consumer into physical retail. The results are already appearing in the data:
- Wallet Volume: Reached $1.7 billion over the trailing 12 months, a 155% increase year over year.
- Sector Growth: Spending at restaurants via wallet integrations grew fourfold, while gas and service spending tripled.
- User Engagement: Transactions per active consumer have risen 50% since the last investor forum, now averaging 6.7 transactions annually.
The Underwriting Edge and the AI Shift
The tension between Affirm and traditional credit card networks boils down to how risk is managed. Traditional underwriting typically relies on a credit limit—a ceiling that remains static regardless of what the consumer is buying. Affirm’s president, Libor Michalek, argued that this model is outdated.
Affirm utilizes a “transaction-level” underwriting model, meaning the risk is assessed at the moment of purchase. To power this, the company has shifted toward a transformer-based AI architecture. This newer generation of machine learning is designed to uncover “pockets of opportunity” within existing datasets that older models might miss, allowing the company to approve more users without increasing its risk profile.
| Feature | Traditional Card Networks | Affirm’s Network Model |
|---|---|---|
| Credit Evaluation | Static credit lines/scores | Real-time, per-transaction analysis |
| Data Loop | Fragmented (Issuer vs. Network) | Closed-loop (Issuer, Acquirer, Manager) |
| Merchant Value | Payment processing | Conversion boost (~30% increase) |
| Funding Source | Deposits/Interbank markets | Diversified partners & planned Industrial Bank |
Solving the Cost of Capital
The most significant hurdle for any lending business is the cost of the money it lends. Currently, Affirm relies on a diversified network of roughly 200 partners, including warehouse lenders and asset-backed securities (ABS) investors. CFO Rob O’Hare noted that as the market gains confidence in Affirm’s underwriting, funding costs are dropping; ABS spreads have narrowed from roughly 300 basis points in 2023 to about 100 basis points recently.
However, the long-term solution is the creation of Affirm Bank. The company is pursuing a Nevada-chartered industrial bank, which would allow it to take direct consumer deposits. This move is a critical piece of the puzzle: deposits are generally a cheaper source of funding than borrowing from capital markets.
John Marion, the slated president of Affirm Bank, indicated that the bank would focus on high-yield savings accounts and the origination of BNPL loans. The company projects that Affirm Bank could eventually originate 40% to 50% of the company’s total loan volume, while keeping only about 10% of those loans on its own balance sheet to maintain liquidity.
Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice.
The next major milestone for the company will be the official regulatory approval and launch of the Nevada-chartered industrial bank, a move that will determine how effectively Affirm can lower its cost of capital and compete with the deposit-heavy balance sheets of traditional banks.
Do you think the “closed-loop” model will disrupt traditional credit cards, or is the convenience of established networks too strong? Share your thoughts in the comments.
