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US ‘buy, now pay later’ giant Affirm has launched in the UK, pitching itself as a more responsible alternative to lenders who charge late fees at a time when the sector is coming under heightened scrutiny.
The Nasdaq-listed fintech is rolling out interest-free and interest-bearing loans with monthly payment plans from Monday, following soaring popularity for BNPL borrowing.
The loans allow customers to defer or divide payments into instalments at checkout, and boomed during the pandemic when low interest rates and stay at home directives fuelled a surge in online shopping.
Spending on BNPL purchases grew 18 per cent last year to hit $316bn, according to payments processor Worldpay and accounted for 7 per cent of all UK ecommerce transactions. Leading providers in the country include Klarna, Clearpay and PayPal as well as banks such as HSBC, NatWest and Monzo.
Affirm was founded in 2012 in the US, and is one of the biggest BNPL lenders in the country, offering loans with interest rates ranging from zero to 36 per cent, and no extra fees. It now has more than 18mn active customers in the US and merchant partners including Amazon and Walmart.
The company posted a 48 per cent jump in revenue for the three months to the end of June, to $659mn, and a delinquency rate on monthly instalment loans of 2.3 per cent.
It has launched in the UK as BNPL lenders come under greater scrutiny, with the government launching a highly anticipated consultation to bring BNPL lenders under the scrutiny of the Financial Conduct Authority and the Consumer Credit Act last month.
“The reason we think we have a right to win in the UK is because we’re bringing a different approach,” said chief executive and founder Max Levchin.
Affirm underwrites every individual transaction before making a real-time credit decision, he said, and “only approves consumers following an assessment that evidences their ability to repay”.
It also does not charge any late fees, unlike many of its rivals. Nearly a quarter of BNPL customers were charged late fees in the UK 2023, according to research by Centre for Financial Capability, a financial education charity.
Levchin, who also co-founded PayPal with tech billionaire Elon Musk, said that the “root cause” of the vast majority of those fees were taken from borrowers who intended to pay their loans but forgot to do so.
“They want you to be forgetful, they’d rather you didn’t really pay on time because there’s a little more extra revenue,” he said.
For the smaller pool of borrowers who had no intention of paying back, late fees were “like screaming into the void” and would not ultimately prevent credit losses. “The only way you don’t have that loss is you underwrite better,” he added.
Under the UK government’s proposed measures, regulators would force providers including Klarna and Clearpay to check that shoppers were able to afford repayments before offering a loan.
Levchin, who has sat on the consumer advisory board of the US Consumer Financial Protection Bureau said Affirm would work closely with regulators on the consultation.
“You can absolutely legislate things out of existence or regulate things out of existence and deprive consumers of access to credit and all kinds of things. So you want to be not just regulated, but regulated intelligently,” Levchin said.
Affirm said its interest-bearing loans would only apply fixed interest “calculated solely on the original principal amount, meaning the amount of any interest does not ever increase or compound.”
BNPL lenders are increasingly diversifying into interest-bearing products as higher interest rates are putting pressure on their business model. Swedish fintech Klarna, the market-leader in the UK, also has an “financing” option of interest-bearing loans.