Before we begin the presentation, we would like to cover three important disclosure statements. First, today's presentation may contain predictions, estimates, or other information that may be considered forward-looking statements. These forward-looking statements are subject to numerous risks, uncertainties, and assumptions, including those set forth in our filings with the SEC. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. During today's presentation, we will be conducting several panel discussions in which certain guests will participate. All statements made and opinions expressed by the panelists are solely their own and do not necessarily reflect the views of Affirm or its affiliates.
You should not treat any such statements or opinions as a recommendation to make a particular investment or follow a particular investment strategy. Neither Affirm nor its affiliates have verified the accuracy or completeness of such statements and opinions. Finally, today's presentation may include non-GAAP financial measures. These measures should be considered as a supplement to, and not a substitute for, GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in the appendix of this presentation. With the administrative stuff out of the way, we've got a lot of great content for you today. You'll be hearing first from our CEO, Max Levchin, in just a moment. We've got a lot of great presentations from our leadership here, as well as two question and answer sessions to get your questions answered.
Perhaps most importantly, for those of you in attendance, physically today, we will have a cocktail reception at the end of the presentation. To get us started, I would like to invite on stage our Founder and Chief Executive Officer, Max Levchin.
All right. Well, thank you. Thank you for joining us. We're excited to go a little bit deeper into Affirm, what do we do, why it matters, what we plan to do next, than the average Thursday afternoon earnings call. I'll take you through our agenda for the day real quick. Libor will tell you all about scaling Affirm Card. Wayne, our Chief Revenue Officer, will join us to talk about winning at checkout, how we've done it so far, and what do we plan to do to continue taking the place that is ours. And Pat Suh, our SVP of Revenue, will come and tell us about entering new markets, international as well as B2B. Then I'll come back with a little bit of future navel-gazing and a couple of thoughts, what might happen after today.
We'll have a Q&A session right after my talk. Brooke will come in to tell us all about our funding strategy and just the extraordinary job our capital team has done literally over the last 12 months. Michael will tie it all together with a really deep dive into financials, charting our fiscal future towards the next big goals. We'll have a few special guests along the way. I won't reveal all the secrets just now, but I promise you it'll be fun. We'll try to keep it pacey. We will not stand between you and your cocktail hour any more than we absolutely must, but the content is good. Before I get off stage and let Libor take it over, we mean the mission that we set out to do. We've been at it for 10+ years.
Everything we do connects to it. Nothing is more exciting for me personally than getting positive user feedback. Like, those of you who sometimes talk to me know that Affirm logo is always on my chest, and without fail, someone, any random situation, will grab me and say, "Hey, Affirm was really great. Thanks for that thing you helped me buy." True story, the man who put this microphone on me 80 seconds ago told me he uses it on Amazon, really loved it. It was great. Thank you. Thank you for a great job with the mic, and thank you for being a customer. The best, in my biased opinion, thing that we've done in the last 10 years is the Affirm Card.
It is a focal point of all the things we've set out to do to build a product that really bleeds the mission, improves people's financial lives, does all the right things at all the right moments, works for every kind of transaction. I'll stop because I normally can't shut up about it, and so, I'm about to go off on a rant. But as these things go at Affirm, the separation of church and state or the God knows what sort of metaphor to use here. Once a product is out of the innovation lab, it gets onto the factory floor, and the factory is run by Libor, our President, who's about to come and tell you everything that we've done with the card and what we're gonna do next.
Thank you, Max. I really appreciate it. I'm Libor Michalek, President of Affirm. I get to talk about the card, but it's still Max's baby, and so I get the pleasure of speaking to it, though. One of the things I wanna talk about is first, how we got here, a little bit of where this product came from. How we're seeing growth within the product, the expansion that those insights are informing, and the long-term opportunity that we see within the product. The product really started more than a decade ago when Max approached me talking about this idea of building honest financial products that improve people's lives.
And the idea there, rooted in that idea, was a product where the interests of the consumer are aligned with the interests of the business, where when the consumer does well, we do well, and when we get it wrong, and the customer doesn't do well, we share in those outcomes. And it really, as he was describing it, sounded like a deconstructed credit card. The pieces pulled apart and delivered back to the consumer in a consumer-friendly, understandable way, in a manner that ultimately delivered on those results. We started with Affirm at the checkout and point of sale, where customers get clear terms ahead of time so that they really understand what it is that they're getting into as a part of the purchase. They know the total cost as a part of the purchase price.
There's no later fees, interest, nothing that isn't presented upfront is done later. So that was the start. Obviously, consumers loved it. They used it quite a bit and continue to this day, and it was really driven from the concept of the customer understanding their purchasing power, and merchants distribute it because that confidence created conversion for the merchants. It created that additional lift in AOV and volume that they saw, and then we took that and moved to Affirm Anywhere. Taking the same product, allowing people to use it outside of the merchant network so that they could then leverage it broadly wherever virtual cards were taken.
Next, we developed the marketplace, which was our app, which really helped the users understand their purchasing power as a beginning of a journey in their purchases, and that enabled them to also understand where and how to use the product. Is it an integrated merchant? Is it a non-integrated? Are there any deals? Are there any kind of offers? That then drove incremental, incremental engagement from our customers, and we brought all of that together in the card. All those pieces come together in the card, where you still have all of those components, but you can use it everywhere and anywhere, and for any purchase that you make. And that really came together in a way that customers love this card.
They love the flexibility, the flexibility of being able to choose how they wanna pay for each of their purchases, whether it's an everyday spend and they're gonna pay for it now and draw straight from their account, whether it's a pay later transaction, where they're going to split it and they choose terms ahead of time, whether they've made the purchase and they want to decide that now that they've made it, they should have split it and are gonna split it as a result, all the way through all those options. They love it because of its acceptance. They can use this product anywhere that they want. They can use it online, offline, they can use it wherever Visa cards are accepted, and they know that Affirm is there with them. And most importantly, they really love it because it gets better over time.
As they use the product, it gets better, and as we develop new functionality within this product construct, we ship it over the air, they get it in their app, and next thing in the morning, they've got new features on the card that they can access and leverage. But don't take my word for it. Let's listen to some of our customers tell it in their own words.
What is your favorite card? You have, I think you have four cards. You have two credit, two debit. What's your favorite card to use? The Affirm Debit. Yeah? Why is that? No hidden fees, take your time. As long as you make your payments on time, everything's all hunky dory. My expectation for the card was really to work better than almost a credit card, because I like what it does before the card came, so I want it to work pretty much the same way. But now, it's a more convenient and access way to go in the store and not have to go through all the different things that they make you go through.
I like that I have an actual card, but I also can just access it right in my wallet. So if I'm online, I can just grab it right from the app, and if I'm not, then I can... You know, I have the actual card that they sent. I feel supported by Affirm being able to offer even those smaller purchases or bigger purchases that happen to come up by accident, and you need to deal with something, and Affirm is there. Well, like I said, you can use Affirm, my Affirm Card at a grocery store, so, you know, I live right near an H-E-B in my city, and also near my job, there's a Kroger, so it's like, "Okay, let's see what they got." Like, maybe, maybe get a couple of tomahawk rib-eyes. Those things are usually about $40 a pop.
Get two of those, some sides. Yeah, it's $100, but I can use my Affirm Debit, and we can eat good that week. It's the convenience of a credit card that, or a debit card that you can use anywhere, but you have the options of determining a payment plan for your purchase to save you in the long run on interest. I use it in between pays, and then I can just pay it back. But definitely all those gas, groceries, you know, emergency things. Like, sometimes my son needs Claritin.
I'll buy it with that, all with the Affirm Card, and then, like I said, just pay it back with either monthly payments or pay it back in full, you know, when my paycheck does arrive. This is like a credit card without the issues you would have with a, you know, one of those other credit cards. You see my wallet? Yep. See what's in front?
I love that they get it. I love that it resonates with them. And the great thing about that is this idea that Max came up with and talked to me about more than a decade ago, that they understand that this idea of deconstructing and pulling the parts back together creates this really powerful card. And so that love and that understanding is what we're is translating into strong demand for the product. That demand continues to be there as we roll out the product. We're up to, in October, 500,000 active users. That's where, that's where we're at as of now. Also, in October, we've reached $100 million in volume for the month, and all of that continues with really strong unit economics that are consistent with the rest of our product portfolio.
That is really encouraging to see as we continue to roll this product out. What we're also starting to see is that we're tapping into new areas and new categories in the merchant space as we see customers use the product. We see it in Pay Now. This idea of having the ability to use the card in this multimodal way with a Pay Now component is expanding usage into the areas such as groceries and restaurants. We also see Pay Later take up in areas that we haven't seen traditionally because of the offline penetration. We see really strong growth in home improvement and wholesale clubs, and that is really resonating with customers across a bunch of different categories. As we continue to grow the product, we're also seeing consistently strong cohort performance.
Each cohort, as we're layering them in into the product portfolio to grow to that 500,000, is showing really consistent performance of trending at $2,200 of usage per month. And as those cohorts continue to be layered in, as the product improves, seasonally adjusted, we see continued improvement in those curves. We really see customers understanding it, using the product more broadly, and delivering really strong results. And as the economics continue to improve, our cumulative contribution from the product is also growing. With each new cohort, it's performing better and better on economics and how much value is generated from each customer. So taking all of these insights, we're building on this performance as we focus on three core areas into the next year.
Focused on growing the user base, increasing frequency, and continuing innovation to make the product more sticky. So first, expanding the user base. Right now, that 500,000 users represents just 3% of our annual active user base. Very early still, and so we continue to layer in and distribute the product in, through messaging and multiple touch points as customers are active in the network, to distribute the card and make sure customers are understanding it and continue to onboard. We have a long way to go, and we intend to get, get there. We're also bringing point-of-sale, merchant-funded incentives, offers to the network so that the benefits that customers see in our point-of-sale network, 0% offer, offers, extended limits, reduced APRs, that those same benefits are in the card. So we're working with merchant partners to, to bring those into the ecosystem.
Next, we're looking at increasing frequency through everyday incentives that customers can benefit from as they use the product more frequently for everyday purchases. So including perks, rewards, starting to layer those in as what is available to a customer who is using the product on a regular basis. And we're also expanding checkout options, which includes new categories, making sure the product, as customers use it across these categories, that it is really working for them well and that those categories fit. And so category expansion, the cart sizes that we work with, both on the high end and the low end, making sure that how customers are using this product is actually working for them for those purchase sizes.
And creating more options, Pay in 6 , Pay in 2, introducing these options as a way to ensure that we're matching customers' cash flow based on the term lengths we're providing. Next, on innovation, we're announcing the launch of Affirm Account, which is a transactional account with savings APY. It is connected into the, like any transactional account, it has ATM access, direct deposit, all the things that you would expect with savings APYs. And it creates a tighter experience with the Affirm Card. With the Affirm Card, you have a much cleaner experience, especially with Pay Now, of understanding where you're at with your payments and what you have available to spend. It results in the customer being able to have higher Pay Now limits in the ecosystem. But don't take my word for it.
Right after this, out in the hall, we're gonna have demos, so the team is gonna put together demos, and they're really, really cool. It's much better to see it than listen to me talk about it. I encourage everyone to go check it out when you can, because they're—it's a really slick view into what's being done. And then, as far as innovations, of course, we continue to innovate on all the financial capabilities within the card to make sure that those capabilities really resonate and continue to add to the card product in what customers need to be able to manage their cash flow and really understand the how the product is working for them and how to match their spend to their income.
So taking all of these, components and putting it together, users, frequency, innovations, we think about the long-term expansion of the card to go beyond the immediate user base. So we obviously have 500,000 users, and we have forty million registered users. We have 16 million annual active users, so we have a lot of room within our own ecosystem. But really, we're going after the full card market. There is over $1 trillion in revolving consumer debt in this country, and there's no reason for any of it to exist. There's no reason for customers to be revolving and paying forever for purchases that they just layer into their credit card. Surprise, right? And these are not planned revolvings. They're accidental things that have happened to customers due to the circumstances of their lives.
We believe that all of that can be handled through Affirm Card and individual discrete repayment for purchases, where individual loans are matched to individual purchases. And so that is the market that we are going after. And as we think about the future and going after that large market, we think about the progression that we've seen. Functionality, as we introduce it, drives increases in network reach, and those then drive frequency and ultimately share of wallet. We see as the product has progressed through this curve to, from checkout to anywhere, to card to card with the account and beyond, that we see a greater share of each individual consumer spend coming to Affirm because the product is better. So speaking of network reach, I will now hand it over to Wayne, who's going to tell you all about what we're doing on the network. Wayne?
Thanks very much, Libor. Good afternoon, everybody. Wayne Pommen, Chief Revenue Officer. So you've just heard from Libor about our consumer strategy and what we're bringing to our users with the card. This section is going to be all about our merchant network. And in our last fiscal year, 87% of our GMV came through our merchant and partner integrations, and those integrations are also the biggest source of new users for us. And so our consumer strategy is built on the foundation of the merchant network that we've been building over the years. And this is why we're laser-focused on continuing to win at checkout. So there's three main pieces to our checkout strategy, which I'll take you through. First, we're always unlocking new merchants and new segments of the market.
Secondly, once we have merchants on the platform, we're looking to grow our impact for them and grow our share of cart over time. And third, we use partnerships to accelerate our distribution, especially into the long tail of the market. I'm going to tick through each of these strategies in turn. So unlocking new merchants and segments. In the last 12 months, we signed up over 21,000 new merchants. But let's start from the beginning. Why do merchants choose Affirm? They have a choice of providers. Why do we have the market share that we have, and why are we able to keep signing up merchants at such a rapid pace? Well, there's a few reasons for it, and as Chief Revenue Officer, in my travels, I'm out talking to merchants all the time, I see this firsthand.
First of all, it's the size and profile of our consumer network. So we've got over 40 million registered users, and if you're a retailer that's constantly looking to acquire and engage users, that's a powerful network to tap into. It's also the size and quality of our existing merchant network. We're live on retailers that represent 60% of e-commerce in the United States. So almost by definition, that means we're working with the biggest, most sophisticated, most discerning names in the industry, and it means we've had to face up to the most demanding technical challenges to support those merchants. It's also our brand. We have the highest aided awareness in our industry, and directly connected to that is it's the mission and the values underlying the product.
As I'm sure you've heard us say many times, we've never charged a dollar of late fees, a dollar of compounding interest, a dollar of deferred interest, and we're the only one of our competitors that can say that. Merchants understand this, and merchants today don't want to put a financial product in front of their customers that's going to leave them with a bad experience. But I think the most important reason why merchants choose us and stay with us is that the product performs. Give you a few stats here. We survey our customers regularly, and we know that 76% of our users would have either delayed their purchase or not completed their purchase had Affirm not been available at checkout.
We know that merchants see much higher AOVs, average order values, when Affirm is present, because we're giving customers spending power on clear, friendly, easy-to-understand terms, right when and where they need it. Our product converts. We have head-to-head tests showing that we have 28% fewer abandoned carts than the next competitor. And ultimately, 91% of our loan transactions are from repeat customers, customers that have used the product, liked it, and are coming back again and again within our merchant network. So again, if you're a retailer that's looking to acquire customers, drive conversion, drive funnel performance, these advantages add up very quickly. So merchants want what we've got, and we're, we're signing them up to our platform at a, at a rapid pace. But where do we stand in that market? Where are we in terms of market penetration? What's the opportunity that's ahead of us?
Well, as you would know, last fiscal, we generated about $20 billion in GMV. That's inside of a roughly $1 trillion e-commerce market in U.S., retail, which is inside of a $7 trillion overall retail market when you include in-store. So e-commerce has been our bread and butter over these past years. Let's, let's double-click on that a little bit. We estimate that there are about 3.5 million individual e-commerce businesses in the United States, ranging from very large down to very, very small. And we're partnered with a little under 10% of those. If we then look at it on an addressable sales basis, we estimate we're going after about a $900 billion addressable sales market. The reason that it's not a trillion is there are certain categories that we, that we don't participate in.
If we look at the $900 billion, the partners that we are working with generate about or cover about 60% of that. So when we step back and look at this, we see a lot of room for additional penetration, especially outside the top 50, and also a lot of room for penetration in those merchants' share of spend, share of cart, which I'm going to talk more about in a second. So as I said, we signed up 21,000 merchants in the last twelve months. Here are some of the notable names that you may recognize, spanning fashion, electronics, general merchandise, and also travel, which is another historical core market for us alongside e-commerce. And as we go about this, we're also making sure we're maximizing the opportunities within those core markets. So low AOV, for example.
Historically, Affirm was a bit more of a focused on a bit more on larger purchases, but we know that 80% of e-commerce transactions in the U.S. are below $150, so that's an opportunity we don't want to neglect. We're leaning more into addressing third-party marketplaces, which are the fastest-growing segment of e-commerce in the U.S., and also, very importantly, side-by-side opportunities. So just because a merchant has already partnered with one of our competitors doesn't mean that that opportunity is closed to us forever, and actually, those can be very valuable opportunities for us as well. And just in the past few months, Shein and Temu are examples of where we're live, side by side with another provider and seeing excellent performance.
So everything I've just spoken about so far is in our core markets of e-commerce and travel, which is in the blue here. But when we zoom out and think about where is the U.S. consumer spending money, there are trillions of dollars more of consumer spending where our product has applicability in the future. You already heard Libor talk about how some customers are voting with their feet, with the card, and using it in categories that have not been a historical focus for us. We're also gonna be going after these on the merchant side, and we've already made inroads into segments like healthcare, for example. So we won't get to all of it overnight, but when I think about our runway to keep penetrating U.S. consumer spending and building the network, I get very excited. So that's on the merchant penetration side.
Now let's talk about growing share of cart. So when we sign up and onboard a merchant, that's just the beginning of the story, the beginning of our opportunity to expand our impact with those merchants over time. So we have quite an extensive playbook that we built over time to continue building our impact by rolling out features and enhancements after the initial launch, and I'll give you some examples. Our pre-qualification feature is all about showing customers what their spending power is with Affirm before they get to checkout, and that gives customers the confidence to convert and, where appropriate, to build their basket.
Adaptive Checkout is a product we launched a couple of years ago, which gives customers a choice of installment plans, of financing plans, that they can decide what is right for that purchase they're making and for their budget and for their cash flow. That also drives conversion for retailers. Financing plan, plan customization, very important. Things like 0% APR promotions, longer terms that might better suit the purchase price of the product, sometimes 0% promotions and longer terms together. These are very, very powerful tools for merchants to use that we have in our toolkit. And related to that, brand-sponsored promotions. We're spending more and more time facilitating underlying brands or vendors or manufacturers to be the ones to fund those 0% offers at retailers and drive performance.
So these are four examples among many others, and these strategies are often developed in partnership with our biggest and most important partners, and then when we see what works, we roll it out more widely to the merchant base.... So let's look at some more examples of this in action. What we've done on this chart is aggregated a number of our travel partners and tracked our share of cart in terms of our percentage of their sales that we are covering, that we're funding, from the first quarter of launch through to the thirteenth quarter. And so what you can see is that over those thirteen quarters, we've steadily and dramatically increased our share of that merchant spending. So again, that's as we roll out things like 0% APR campaigns, optimizing the financing plans.
We've also had great success starting in one category with a merchant and expanding it over time. So in travel, let's imagine that we start with flights, then we'll add car rentals, vacations, hotels, and so on, and keep expanding the amount of that merchant's business that we're covering. Channels as well, we might initially launch on web, but then later on we can be added to an app or to, let's say, a telesales channel. And we've done a similar analysis it with some of our largest general merchandise retailers, and the pattern and the tactics are very much the same.
When we put all this together, when we add our share of cart playbook to our track record of retaining those merchant relationships over time, what we end up with is a very strong net expansion rate, which sat at 115% in the quarter that we just reported. Then if we zoom out and think about the historical annual cohorts of merchants that we've acquired and track their growth over time, we're driving very strong compound annual growth rates in each of those cohorts. The last pillar I'm going to talk about is accelerating distribution. You saw a minute ago how many merchants there are in that long tail, outside of the top 50 merchants, that we have still to penetrate. The question for us is: how do we do that quickly and efficiently?
And a big part of the answer is through partnerships. So our partnerships fall into broadly three categories. First, e-commerce platforms. Most small merchants are using a third-party e-commerce platform to run their site, and we can be added easily as a payment method within those platforms, and it makes it easy for merchants to take advantage of what we have. And so we currently have 75 e-commerce platform partnerships, which collectively cover hundreds of thousands of merchants. The next main partnership category is payment service providers. These are increasingly important platform partners for us as retailers look to have all of their payment methods packaged up through a single provider. And so we have 14 PSP partnerships today, and we're putting more and more effort behind that channel.
The third leg of our distribution partnership strategy is wallets, getting integrated into wallets, and also browser extensions, which is another means of allowing customers to check out with us. So again, let's take a couple of examples. BigCommerce is an example of an e-commerce platform where we've been partnered since 2016. We've driven strong growth in active merchants and GMV in that time, and we took a big step forward in the partnership last year when we became the preferred provider on the platform. And we've been working more and more closely with the BigCommerce team to streamline merchant onboarding and make it faster and easier for merchants to adopt Affirm. And on the PSP side, we're very excited about our Stripe partnership.
We've only been live for about a year and a half, but we've got rapid and accelerating adoption and GMV growth, and we've already expanded the partnership from the US to Canada. So the last partnership case study I'll mention is a wallet case study, a wallet partnership, and this is one of the partnerships we are most proud of at Affirm. This is Shop Pay Installments, which is a powerful offering we built with Shopify inside of Shop Pay. So we launched this in June of 2021, and since then, the program has grown and grown as we've been working hand in hand with the Shopify team to keep developing the program and rolling out new features. When it first launched in June of 2021, it was a Pay in 4 only product.
A year later, we launched Adaptive Checkout, which I spoke about, giving customers the choice of plans to drive additional conversion. In December of 2022, we launched marketing tools to allow retailers to feature installments throughout the customer journey. Then just this year, we've launched in-store installments and also made it really easy for merchants to offer things like zero percent promos at will through the Shopify platform. This is just a sampling of. It's a non-exhaustive list of the things we've done together with Shopify, and we're not stopping here. We have a really robust roadmap to keep growing this partnership. For our next segment, we're very lucky to have with us Kaz Nejatian, who's the COO of Shopify. He's here, and he's going to sit down with Max to talk about this partnership in more detail.
Pick a side, any side. All right. Have a seat.
Age before beauty.
Have a seat over the beautiful chart. All right.
Hey, folks.
Kaz, everybody, please, please give our one of our finest friends, shareholders, and collaborators a warm welcome.
Thanks. Thank you. Thank you. Thank you.
O kay, I think our friendship predates the collaboration, but our relationship has deepened as we built some cool things together. So let's start at the beginning. Why did you pick Affirm?
Well, we-
You, you had your choices. You know how to build code.
Yeah, we had actually started down this path of building a competitive product ourselves. And as we got deeper and deeper into it, you realize, like, three things. One, first of all, this is insanely difficult engineering to do this well. Like, to do this at scale, with performance, without losing your shirt, is just insanely difficult engineering. Which at first, you know, didn't appear to us that way, but it is weird. Like, in order to do a sequel, we'd have to have as many engineers as Affirm has just to build it for ourselves, which is not an investment that we were, like, looking forward to making. Second, underwriting just tends to be large scale problem, and we have more scale than most people. But obviously, Affirm is the best company in the world at underwriting consumers.
And thirdly, it just became about like, you know, what do you want to work on, on any given day in and out? And we wanted to spread commerce for our merchants rather than build consumer lending products. And also, we just launched way faster, way better, and are in a green path of perpetually improving the product without having to always invest in it.
I agree. I agree with everything, but we did point out in the last earnings call that volume growth on Shop has accelerated for a third quarter in a row, I think.
Mm-hmm.
It's not, not through any kind of a juicing, just people need more Shop Pay Installments. So what has been your favorite thing in the history of the relationship so far?
You know, it's you have partnerships, like, most companies end up having partnerships that are companies to just get parts of what they need. But Affirm and Shopify partnership is a special one because I frequently get on calls, and I don't know who's from which company. I can't quite tell who's on our team, who's on Affirm's team. And I remember, like, the... I think it was a week before we were launching, we had to onboard. I don't remember how many thousands of merchants.
900,000.
It was like we had to onboard 900,000 merchants in one day, basically. Which is, you know, more merchants than every other lending, like, Pay in 4 a company combined had, like times probably seven. And we're like: "Hey, we have this problem." And I remember the thing that you guys did, which is still my favorite thing any partner has ever done. I think the entire Affirm team started reviewing merchants for a weekend, and it all got done. Which is, like, not a thing, like, this is like... Honestly, Affirm is core part of Shopify's infrastructure at this point, and it's hard to imagine the product without Affirm.
Yeah. For those of you who don't exactly know what this was, true story, we had to onboard almost 1 million merchants, and the fastest way to review it for policy violations, underwriting signals, because we still hadn't, at the time, yet fully automated it. We recruited the entire company, and 2,000 people took shifts manually looking at the merchants.
It was called Shopapalooza, and if you reviewed at least 300, you get a T-shirt, and if you did more than that, you got a bottle. I have a bottle and the T-shirt. Some people did. People started building tools. We used some pretty clever machine learning to speed it up, but the whole thing was done in 6.5 days or something like that, and it was pretty unbelievable. So I guess back to business. So Shop Pay is, you said it yourself, the best converting checkout on the internet. Where does it go from here?
Yeah
... and where does Shop Pay Installments fit into it?
Yeah, it's... Look, our job is to help merchants have down-funnel conversion. It's, like, the key to direct a consumer. It doesn't work without it. And Shopify's checkout is the best-performing checkout on the internet. You don't have to take my word for it. Like, one of the top three consulting firms, which for some reason I'm not allowed to name, did a study and found that ours performed 15% better on average and 36%-66% better than one of the enterprise solutions. So it's, you know, meaningful. And a good chunk of that is because Shop Pay Installments is so good at converting, right? You wanna offer buyers choice.
What you don't wanna do is have a buyer reach the last step of the checkout and get that, you know, spinning wheel of death, which happens with almost every other solution. But the way we're able to, or Affirm is able to pre-qualify buyers, put buyers through a funnel, offer Adaptive Checkout, offer the same product in online and in store, follow the consumer along the journey of that consumer, makes this product just... It's not like every other product. Comparing it to every other product is comparing like, you know, a Tesla to a horse.
That's a good line. So speaking of competitive products-
Mm-hmm
… we have a preferred relationship
Mm-hmm
... but you didn't exactly turn the switch off, and the rest of the-
No
... paying for and paying whatever providers are still available on Shopify. But without revealing any proprietary, confidential information, it's pretty clear that even without thumbing the scale, SPI is gaining share very rapidly. Why do you think that is?
Yeah.
Obviously, you know, it helps to be directly integrated and deeply integrated, but there are deeper reasons, or at least in our opinion.
Yeah.
We, we-
I think Shopify by merchant count is the single largest installment place on the internet for every single one of the installment providers. It's not like... I think that's true. Pretty sure. But the reason, like, merchants have overwhelmingly adopted Shop Pay Installments is because it integrates so deeply into their day-to-day flows, that it's not yet another thing they have to do, yet another thing they have to manage. The money lands at the same time, accounting works the same way, order fulfillment works the same way. They don't have to have competing systems and back offices. And, like, the buyer side is really obvious. It's very obvious on the buyer side why Shop Pay Installments is the best installment product. 'Cause that's, that's like every, you know, the, that purple button is the purple button everyone loves.
But if you're a merchant, you don't appreciate how much easier it is on the merchant side to not only increase conversion, but just day-to-day run the business. And I think that has been a large part of it.
That's certainly our take as well, and we worked very hard to bring everything from the basics like the dashboard, the reconciliation, you know, basic accounting features directly into Shopify merchant dashboard. But also, one of the reasons to reveal, maybe not so secret reason for our growth, we've consistently delivered financing program after financing program. This is what we call internally various products that we give merchants to help them convert. So Pay in 4 is where we started, then we went on to have Pay in 6 months, and on and on and on it goes. So as we bring these products directly into Shopify integration, I think that's the part where it really begins to shine, where you don't have to learn a different back end, and it's pretty powerful. There's actually... So that's definitely true for tiny merchants.
Mm-hmm.
Little merchants don't have the time. It's a sole prop , one or two people shop. Why do you think the really big guys adopt Shop Pay, but also SPI?
I mean, this has become actually a thing that we've jointly done because we started Shopify as, like, well known for being where everyone starts. What's less well known, but is objectively true, is Shopify is 10% of U.S. e-commerce. We have very, very large brands on Shopify, and more and more larger brands are coming to Shopify. One of the things that has happened is, like, CMOs just see conversion, right? CMOs see down-funnel conversion of Shop Pay Installments versus alternatives, and they frequently run them side by side to figure out which one works best. And over and over again, you know, like, the intuition of my mom's a Shopify merchant. My mom's intuition just happens to match the data science team of a large enterprise company, like, the thing that works tends to work.
So even when we go on, like, long A/B tests, it just tends to be by default helps Shop Pay. And the other thing that happens is I think, like, we're relatively transparent with our roadmap with our merchants. We're gonna work with Affirm on cross-border, on international roadmap, and, like, they believe that this is the bet on the future. Like, being on Shop Pay Installments is a bet on the future, and it's a bet that you'll never be off the green path and have to, you know, uninstall something.
Good glimpse into the future. Speaking of future and going international and new markets, thank you, Kaz. I think my job is to invite Pat on stage to tell us about the next set of big markets.
Cool. Thanks.
Great. Thank you, Kaz. We appreciate your time, and you're taking the time of yours today. I'd like to now invite on stage Pat Suh. Not sure who that is. I'd like to now invite on stage Pat Suh to describe our plan to enter new markets. Pat?
Thank you, Zane, and good afternoon. My name is Pat Suh. I am the Senior Vice President for Revenue at Affirm, and, I've been at Affirm almost nearly nine years, and I have to say, I've never been more excited about what we're doing here at Affirm. You heard, you heard Libor, and you heard Wayne talk about what we're doing on both the consumer side as well as the merchant side. I'm here to talk about where we're taking our value proposition and scaling that into new markets. So very excited to talk to you about that today. So I'm gonna talk about two opportunities: number one, international, and really our disciplined approach in approaching these markets; and number two, B2B, and how we're taking our offering to the business buyer and extending our TAM. So let's talk about international first. Obviously, international is a large opportunity.
60% of e-commerce, if we exclude China, takes place outside of the U.S. So for us, that actually represents close to $1.5 trillion of opportunity near term. And then we're already working with a number of U.S., Canadian, multinational companies today. And why are we seeing this demand? We're actually seeing this demand coming from both sides: our merchants, our consumers, and including our, our platform partnerships. And the reason they're talking to us, you know, and why we're constantly getting these questions, is really across a few different dimensions. So number one, they recognize that honest financing, honest financing for consumers is a global demand, is something that has universal appeal, and they're asking for us to expand that.
Two, they know they want to offer a wealth of offerings, more than just Pay in 4, and they're looking for a financial provider that can do that. Three, they know we can execute. We've worked with them, many of these partners for over a decade, where we've worked with them on growing their business, and they know we can execute. We've been able to reliably and quickly deploy solutions with them, and they see our teams as extensions of their own teams.... And then lastly, as you just heard from Max and Kaz, when we can partner together, when we can work together, understand each other's businesses, they know that we can deliver more value. So with all this, I do want to talk about the disciplined approach, since you all are investors, that we take into entering new markets. So first, total opportunity.
Kind of talked about the addressable market here. Two, we look at market share. We look at the presence of our existing merchants and partners within different regions. That allows us to de-risk our expansion there, as well as accelerate our time to market. Three, we certainly look at economics. We want to make sure that there's a reasonable mix of profitable products as we enter these markets, and there's an appetite for them. And lastly, obviously, speed of execution, product integration requirements, et cetera. And so I wanted to walk you through a quick example. I think Canada is an excellent example of how we expanded both with a partner and scaled for growth. So back in 2019, we actually launched with Peloton Canada.
Peloton had asked us at the beginning of 2019 to move into Canada and extend the 0% program that we had been working on in the U.S. that was very successful for the last four years. And in six months, we mobilized our teams to launch this before holiday. So in 2019, we expanded. Over the next several quarters, we saw expansion into the various provinces and territories, and then in 2021, we decided to accelerate our growth within Canada. We saw traction in the market, and we acquired PayBright, who was the leading financial service provider at the time. Shortly thereafter, 2021, second half, we launched with a major consumer retailer, and then in 2022, a major enterprise retailer. And finally, just this past year, in the first half, we completed our integration and migration of the users.
So everyone's on a single platform, and we are ready for the next stage of scale. Now, as we look beyond Canada, our largest partners actually already have significant market share outside of the U.S. that we think will really serve us well. So when we look at our top client relationships, again, leveraging that playbook that we look at, we see that, you know, anywhere from 20%-38% of our largest client relationships have significant market share in Europe. And this regional market share is really our opportunity to rapidly expand with those partners, and it leverages the existing pre-existing relationships that we've had. So based on these factors, Max announced our entry into the U.K. And when we look at our playbook again, we look at those four factors, right? TAM, $133 billion TAM for the U.K.
Two, penetration of existing partners. We see 20% penetration in the UK. There's proven customer demand and really an opportunity to go beyond Pay in 4 . So when we look at the economics, and we look at the speed and the demand within those markets, we think the U.K. is such an attractive market. Even the Brits want honest financing programs without those late fees and gotchas. And so we've continued our U.K. expansion. We have hired a seasoned team, we have a country manager, we have the licenses. We've been having active conversations with a number of partners, and so we're very excited about announcing some new news over time in the U.K. markets. Okay, now for B2B, and before I get into it, you know, the demand I'm seeing actually in the B2B space, just very exciting.
It's, I haven't seen this type of traction since my early days at Affirm back in 2015, so this is a very exciting time to kind of be in this space. And so we have an immediate opportunity within the sole prop B2B market. And so let me back up. Talking about what B2B means, we're first focusing on the SMB financing market, and this is, business buyers buying on behalf of their companies, and this can be anything from laptops to toilet paper. And, we already know that this is, a large market, $700 billion market. Now, when we focus on the sole prop space, that's already still a very large market, $300 billion and over 28 million sole props in the U.S. alone.
So when we think about the near-term opportunity, taking this sole prop market, expanding that further into what we think is the addressable SMB financing market, which existing credit offerings we think Affirm's solutions can fulfill. And then when we look further, we see the broader U.S. B2B TAM. So that's our disciplined approach and entry, again, with taking a measured approach in how we expand our addressable market. Why do we have a right to play? I think this stat is just very important. 69% of sole props that are less than two years old are declined for financing. And I think that's really powerful because that presents just a real opportunity for Affirm. As you know, we've been over a decade working on our underwriting technology. We're best in class. We've improved our technologies around fraud, checkout, and obviously, our brand recognition.
And so we believe that we can address this dire need within the B2B space and sole props specifically. So in addition to, you know, the approval rates, it's sort of exacerbated by the pain points that both buyers and sellers are feeling. So buyers, on one hand, in addition to not being approved for financing, they just have limited options to acquire that financing, and it takes some time to get. If you've ever applied for an SBA loan, those things do take time. And obviously, during certain seasonal periods, there's cash capacity constraints. And then for the seller and the retailers, you know, there are poor credit options, and they've seen how Affirm has been able to unlock growth, both in conversion, average order values, and they want that for their business buyer as well.
Now, just talking about a case study, Amazon, you've seen the announcement about two weeks ago. They launched with us on November second. They felt the same sort of pain points, where they had millions of sole proprietors not being approved for credit. We launched a pilot in early 2023, where we tested out the conversion, and we saw extremely strong demand from our sole props. And then finally, you know, we saw this as a great opportunity to extend the partnership and leverage also our network of 40 million registered users to enhance the sole prop approval experience.
And so again, speaking back to that playbook, and we look at the addressable market and TAM for the SMB financing market and for sole props, we see actually, with our pilot partners and our firm merchants, one-third of that market is actually covered by our existing merchant partners today. So I think that's very powerful as we look to expand into the sole prop business over the next year. And then, we're tackling these initial industries that we think we have applicability. And so now, I am very pleased to announce that our second B2B partner is Best Buy for Business. And I'm thrilled to have Jai Holtz, who's the VP of Financial Services for Best Buy, here today to join me. And I'll be chatting with him about how Best Buy is using Affirm for the sole prop buyer. Please welcome Jai Holtz to the stage. All right.
Try not to fall down, right?
They don't make these very sturdy. See that. How are you?
I'm good. How are you today?
Thank you for joining us.
Happy to be here.
I think for the sake of the audience, maybe you can start with an introduction, and a little bit about your background, Jai.
Yeah. So Jai Holtz, as Pat said, I lead the financial services business at Best Buy, which is both consumer and business. Prior to that, I've spent 20 years with other retailers, kinda supporting their financial services business. So most of that time was at Sears, but I've also been at a couple of fintechs in that time also.
Great. And so, maybe you can describe also Best Buy for Business. I don't know if, some of the folks here in the room may be familiar with it, but maybe you can talk a little bit about the service you're providing.
Yeah. So much like our consumers, there's millions of consumers out there that think about Best Buy first when it comes to electronics, comes to appliances. Not surprising, so do the businesses. The first thing that they think of when they're trying to outfit themselves is Best Buy. And so we have a huge breadth of customers that use Best Buy for Business, anywhere from large hospitalities that are outfitting every single one of their new rooms with a new big screen TV, to home builders that are looking for packages for their home buyers, and then even those small companies that just need a handful of laptops to really outfit their space that they're using.
That's great. I know that there's a lot of physical goods. I know some you had mentioned at one point, maybe even some services might be involved?
Yeah. So, you know, when we think about it, what you're seeing as a demand, not only for the product, but really the service that Best Buy can provide that no one else can with our Geek Squad. So they're looking for us to come in, hook everything up, wire everything. So really, we can do it from soup to nuts when you think about what the businesses need.
That's great. Then let's turn a little bit, I guess, towards the sole props and sole proprietorships within the business. Is that an important segment for Best Buy?
You know, so for about two years ago, we added the Best Buy for Business credit application online. It's really opened a brand new set of customers for us. So what we're seeing now is thousands of applications every single month that are coming in. And if you think about the customer that's going online to Best Buy for Business to apply, it isn't your large corporations. We have sales teams that support those folks. It really is the smaller companies. Think of the sole proprietorships, the LLCs, you know, the companies that have 100 or less individuals working for them are the ones that are really coming online and applying with us. And so it's a huge opportunity as we think about: how do we continue to grow these relationships, with these businesses?
Yeah. You mentioned they're applying on the site today. What sort of financing options are available to these with sole props and businesses?
Yeah, you know, it's been a struggle for retailers for many years. We have financing. We can finance a large corporation with no problem, right? There's more than enough lenders willing to do that with us. When it comes to the LLCs, comes to the sole proprietorships, they're just an underserved market. There is not a lot of national players out there-
Mm-hmm.
That are providing opportunities. And when you think about it, you know, if they don't get the opportunity with us, they're going somewhere else at a much higher expense, much less convenience.
That makes sense. So that's a big pain point in terms of them being able to apply and get financing, correct?
It is, and not only a pain point from, you know, can they get approved, but it's a pain point from the experience.
Mm-hmm.
You know, if you go to these big lenders, you know, they look at these folks, and they want all these, their financials. They want the financials of, you know, the owners and, and so forth, and the experience just becomes very poor for them.
Yeah.
It's a lot of work to come in and buy five, six, seven laptops.
Mm-hmm.
Right? And so how do we make that experience better, get more approvals, and help not only them but help our sales?
Now, are those the pain points that you see Affirm addressing?
It is, you know, as we look at it, and it's gonna be a growth, oh, you know, over the years. But, you know, we know the experience that Affirm provides, which is top of its class, and so we're looking now to add that to the business side.
Okay, great. Now, what percentage of Best Buy for Business customers are financing their purchases today?
Yeah, we don't exactly provide those exact numbers, but what I can tell you is majority of our Best Buy for Business transactions are financed. As you can imagine, you know, the last three to four years with the pandemic and now with some of the economic stress, that percentage has only increased.
Mm-hmm.
You're not only seeing consumers need more support financing, but you're starting to see these businesses, especially the small ones, need that support from us.
Mm-hmm. Now, when you looked at providers here, did you see any other providers being able to scale or handle the types of pain points that we're talking about?
So I've been trying to find the right partners for 20 years, you know? And so today, I don't believe that person exists for us to be able to take care of these customers in a national standpoint.
Mm-hmm.
That is really why we will be launching soon with Affirm to be able to hopefully overcome these challenges that have plagued the industry for years.
That's great. And then, what other expansion opportunities do you see between Best Buy and Affirm?
Yeah, I think this is where I'm most excited, truly. You know, right now, we're announcing and we're taking care of the sole proprietorship, but you guys have much bigger plans. How do we take care of that small business that just isn't being taken care of today? Whether it's a sole proprietor, whether it's an LLC, whether it's just a small corporation that doesn't have that financing or the depth of credit file that they need, how do we grow into those customers as we continue to grow into our partnership?
Terrific. Well, Jai, thank you so much for your participation here. We appreciate your time, and thank you for coming from Minneapolis.
Thank you
... today. And thank you, everyone.
Thank you. Let's give Jai a round of applause. Thank you, again. Great! Well, I would now like to invite Max back on stage to discuss and describe the future of Affirm. Max?
All right. Here I am. So, now, for some, visioneering, we'll go through, who we are, how we got here. Hopefully, you know who we are, but, just for some setting of the mood. More importantly, what are we trying to do next? I imagine that's on some people's minds, and, the path to the next big milestones, the financial kind that, Michael will, reveal soon after me. So I say this a lot, but I mean it every time: We have this giant payments network. We built it over decades, did a lot of hard work. Every single way, to quote myself from our S-1, "We had money and morality firmly in mind." And it's important we differentiate ourselves through treating both sides of the network, right? The consumers and the merchants.
We're getting dangerously close to ubiquity. I think, I'm not sure it was in the S-1 or in some of the talk tracks, but, I promise that at about 20 million active users, it becomes very hard or at least very stupid, not to accept Affirm. So as you can tell, we're getting pretty close. Our moats are well known, but, we are product innovators. I'll talk a little bit about some of our product ideas. We are underwriters par excellence. This morning, an unnamed issuer of credit, announced their next round of delinquency increased both year-over-year and sequentially, while we've been maintaining our numbers exactly to the targets we've set.
Technical excellence, that, you know, if you heard it from Kaz, but I think if Tobi, my fellow engineer, were here, he'd say, "Number one reason, we both code." And we did build the kind of trust that allowed us to invite or get invited by the largest e-commerce players in North America. It's only a start of what I think will be the most valuable payment network in the world. What made us unique, so the word unique on the page stands for the one decision we made in the very beginning. I've always wanted to set out to build a payment network, but unlike the last one that I built, where we didn't go below the rails, I wanted to actually manage risk.
On the assumption or on the conviction that by taking, managing, and pricing the risk, you could do more for both sides of the network, and you could eke out real differentiation and your own space under the sun. It worked. We get information from both the transactors and the items about the items being transacted. You heard Wayne wax lyrical about Adaptive Checkout. It really is as awesome as the story goes. It's basically the ultimate conversion machine. It allows you, as a merchant, to put forth a collection of deeply personalized offers, compelling the consumer to transact, easing their concern about affordability or giving them something that fits directly into their cash flow.
Every transaction becomes a personalized offer, which before Affirm, meant either doing discounting, which is one-size-fits-all margin destroyer, or even worse, going for things like fake free offers and other gimmicks that obviously we would never do. That is why merchants come to us. We help them sell more. It's pretty simple, but it is really effective. For consumers, we stand for transparency and confidence. This is a real snapshot of consumer reviews. We have millions and millions of consumer reviews. I get a randomly sampled one every 15 minutes. It's mostly dopamine. On occasion, it's sort of a thing to dive deep into to figure out what went wrong. If you can't read what they say, you can tell by the emojis. Most of the time, they really love us. I looked up iOS ratings right before I got on stage.
It's 4.9 after 1.4 million reviews. We're well-reviewed, and we're, we're still well-loved by our consumers. The thing that is maybe a little bit below the surface is the brand scales. If you are taking your Hamptons third bedroom and turning it into a gym, we'll help you finance the bike or the, the rower or the treadmill, and if you're living paycheck to paycheck and shopping at Walmart, we're there for you, too. The brand is universal. It actually spans the entirety of the credit spectrum and scale of wealth. Our products adhere to universal values: simplicity, boldness, and honesty, and that seems to work, or at least that's what these reviews say. We're also, last I checked, the highest-rated payment type on Amazon, where they rate everything, including payment types. As our network grows, our modes get deeper.
We get more data, we underwrite more transactions, we meet more people. You've seen the size of the user file that we have underwritten in Wayne's presentation. Network expansion is fueled by signing up with new merchants, but also by making new connections in the network, for example, going offline, like we did with the card. When we introduced the card at an event pretty similar to this one two years ago, we called it the great unbundling of the credit card. That is, at the time, was shorthand for conviction that you can buy expensive things in this very new format, which, of course, is a very old format, but long superseded by theoretically a better way of piling it all onto one big debt, revolving it for a very long time, and paying interest. We said, "You know what?
We're gonna undo the whole thing." Card took a while to come to full fruition, but it is here now. It's compounding at double-digit month-to-month. Shows no sign of slowing down, which I take to be the beginnings of an existence proof that we were right in our assumptions. And so when we launched the card, we sort of said it, but maybe a little sotto voce, we want to be there for every transaction, and with every passing earnings call, we said it a little bit louder and a little bit louder. We think that we can make every purchase better, not just the considered ones, not the giant ones. So quick stats. 80% of all transactions in the U.S. are under $70, and the average card swipe is $60. You would think that is a solved problem.
It's super easy. This happens all the time. Go downstairs, buy yourself a cup of coffee. Should be extremely, extremely optimized, and yet it's not. You have two choices. You have debit, which gives you no grace period, no insufficient funds protection, and if you're not careful, you're going to end up with a $30 maximum NSF fee for trying to buy a salted pretzel outside. On the other hand, you have credit, and if you live in New York and get paid a Wall Street salary, you think of it as debit, credit, who cares? End of the month is all that, you know, I need to do to pay off my bill. But for most people in the country, you're not starting the month with a 0 balance.
You're actually coming in revolving already, and you're about to pay interest on a $5 pretzel if you're a tourist hanging out in Times Square, buying yourself a snack. I think neither of the two things are good or optimal or liked by consumers. I'm not aware of any payments brand that has the sort of consumer love that we have, and I think that gives us a license to reinvent all these transactions and make them better. I don't think you should pay $30 for a $5 transaction, that's for sure. So we're going to unbundle all payments, not just the considered ones. We're not going to be constrained by paying for or pay on the monthly schedule. Those are constructs that we invented, but we're not going to be held to them. You'll see some interesting changes there.
The reason we think we can do all of this, and the standard rebuttal is: Well, it's complicated. Swipe a card and move on. That, you know, the easiest—it is the best user interface ever invented for payments. But the thing that we learned over the last 10 years of operating, young consumer is completely unafraid to handle payments in a combination of a piece of plastic and an app or just an app or just a website. The whole modality of 'let's keep it as dumb and simple as possible, swipe the card and move on,' is up for renegotiation. $20 billion says so, and we're going to keep growing pretty quickly because young people are hungry for more control and more transparency.
So I'll rattle off some radical ideas that we think we have, which we don't think are radical at all, but in there, you'll hear a little bit about where the products are going. Every transaction should offer you a grace period. There should be none without. Your card and your payments should be entirely aware of your existing balance, and you should never get overdrawn. In fact, before the regulators kill NSF fees, we think we're going to figure out a way to just get rid of them entirely. Wallets should automatically present to you the best possible financial decision for you right now. They should always be on your side. If it's higher for longer, your spending account, in addition to your checking account, should pay you interest. You heard Libor touch on that a little bit, and we have a lot of plans for that.
Your payment schedules should be smarter than you, should figure out when to put themselves into your calendar right next to your paydays. Rewards should not be about redistributing money from sandwich shops to huge brands. Safe and cheap bank payments should not be a pipe dream. We have a lot of plans to do all these things. By the way, everything I just said applies just as much to small businesses as it does to consumers, and as you just heard, we are marching forward towards providing our services to sole props and, and all sorts of ideas beyond. If you paid attention to Libor, you know that a bunch of these things are already on the roadmap. What he didn't say is that they're coming thick and fast as early as beginnings of next year. The reason for this is because we're actually more than a network.
I keep on saying we're a network. Network businesses are the only things that are worth building, I think is one of the quotes in my original earnings call. But there's more to us than just a giant collection of merchants and consumers. We built our entire technology stack from the ground up. It's a fairly significant and expensive investment in software engineers and time and all sorts of resources, but it's very much worth it. We are able to create something that's much more of a platform, building blocks of code that all has to build new software. If you want a little more of a visual here, you can see that Adaptive Checkout is a layer over all the foundational layers. The financial products sit on top of it. There are more coming. Affirm Card is the ultimate container for it all.
The reason we drew it this way is 'cause as you will see, the new products we launch will become available not just in Adaptive Checkout, which is a natural place to present new products, but also immediately visible in the Affirm Card and in our partner integrations. So as we create new innovation, you will see all these products deploy across the merchant base, of course, so long as the merchants want it. The software that we've built also contains things that handle everything from handling the load, monitoring, logging, self-healing, et cetera. That is what allowed us to win these giant partnerships. By the way, if you're waiting for an obligatory AI mention, I will tell you that AI writes quite a lot of test code for our stack. That was a nice little gain we got from LLMs.
More importantly, all those clips you saw of consumer sentiment, the ones that are angry, are summarized for me by AI and are direct feeder into areas we're gonna improve. So, we don't, we don't brag too much about it, but LLMs are an important component to where we're going as engineers. So we're gonna have, we think, a pretty easy time shipping new products. Easy is probably too, too generous, but we have a, we have a collection of elements on our roadmap that we're very excited about. Our competitors are either running on software stacks that are written in languages no longer maintained. Some of those were designed before I was born, and I'm not as young as I used to be. And startups that we compete with may have the old technology, but they don't have the distribution.
Every time we launch a product, it shows up in front of hundreds of thousands of merchants and millions and millions of consumers. All of this is going to be available to all of our partners, all of our consumers, all of our merchants, and the card carriers very, very soon. That's because we're much more like an operating system than a network. The network is the foundation, but the software stack is what really matters. We want to be relevant to every transaction, not just Pay in 4, Pay in 6 . Finance is much more about payments than it is about paying in any number, and we want to be the most loved or at least preferred way to pay for everything.
As a builder of operating systems, we're also our own favorite developer, but we have all the intention, as you heard from Kaz, to open our APIs to our partners and allow them to contribute to the ecosystem of apps that runs on top of our OS. So I'll leave you with this. Five years from now, we have no intention of being a leader in BNPL. We intend to be the leader in payments, making it more honest, accessible, and better for everyone involved. On that note, I'd like to invite my co-conspirators for some questions from you.
Thank you, Max. Okay, I'd like to now invite Libor, Wayne, and Pat to join Max on stage for our first question and answer session. We will accept questions from both the online audience as well as those of you in the room with us today. We ask that you please defer any questions related to financial matters until the second question and answer session, after which Michael will have presented the financial model, excuse me. I think we're ready. So we'll go ahead and kick it off. If you have any questions, please raise your hand. We also ask, if you do ask a question, state both your name and the company that you represent. Bryan, we'll start with you.
Hi, it's Bryan Keane, Deutsche Bank. I guess two questions. One, the everyday purpose, kind of, Affirm Card, their, their new competitors and their competitors doing similar things. How, how does that differ from what Affirm offers? And then secondly, as you get more into underwriting kind of general purpose cards, how do you differentiate yourself from, from regular bank underwriting on that? Thanks.
I'll start, and I'm sure Libor has opinions. So to my knowledge, and the knowledge of some of our IP lawyers, no one's doing exactly what we're doing. The pre-plan a purchase directly into a debit card or swipe and turn into a payment plan afterwards is a fairly unique combination. I'm sure it's possible to come close by some of the products you see from traditional banks, where you swipe your debit card and then you split ex-post. There's a bunch of dangers in that model if you purely go with it.
For one, it's a little difficult to predict just how good the credit is gonna be if you swipe and say, "Oh, crap, that shouldn't have been a transaction," one too many times, you're gonna find yourself wondering whether this was really a good idea to approve the swipe in the first place, and so on. So I'm not too concerned with both the underwriting and product differentiation from the traditional banking competition. But certainly, I've said it before and I'll say it again: there are no monopolies in payments. What I do think we have that is truly unique is not just a collection of consumers that are excited to use the product and love us, as you saw, et cetera, we also have a massive network of merchants.
The work that Pat has done since time immemorial, and Wayne and their team, has allowed us to amass direct links and therefore opportunities for direct promotions from the merchants themselves. It's very hard to say, "Oh, by the way, that swipe is a 0% deal," if the merchant or the brand isn't actually funding it, and that is what we have. The core value of Affirm to the ecosystem is that the economics are fundamentally renegotiated on every swipe. That is not something that anyone else, to my knowledge, can support.
Yeah, I mean, I think one thing, just to make sure it's really clear, is it's not a line of credit. The product is still the same consistent product that we've been building and iterating on under as a including underwriting, where for every single transaction that is made, we are looking at user signals, merchant signals, point-in-time signals to really decide if this particular purchase is one that we can extend credit for. And that, like Max said, I think that continues to be a unique differentiator. It leads to better outcomes for the consumer. It leads better outcomes, I think, on a credit side as well, that we're able to really do that every single time in real time.
I think we have the next question from Dan. Just scream.
Just scream.
But for the webcast. Looks like we're having some mic difficulties. You got it? Let's just do it.
Here.
Let's try a different mic here.
I'm telling you, just scream. Or just shout.
Okay. Dan Dolev at Mizuho. Great stuff. Can you maybe dig a little deeper into the Affirm Account? Very interesting development on the transactional account. What are the opportunities? You know, how does Affirm look like in two to three y ears with that account in terms of the traction you're getting? Thank you.
So the most important part of it, this is actually something I learned at my last payment network. Going from no available balance to some stored balance is a force multiplier on transactional velocity. So I'll give you a couple of use cases that are kind of obvious, but they speak to a deeper purpose. So for example, if you're handling a refund on the Affirm Card, it is a giant pain in the butt for us to build because traditional card networks are not really designed for example, carriage of transactional IDs with high degree of veracity through multiple rounds. And so doing this where we are directly integrated is, of course, easy because we did it the right way, but if you're doing this through a hybrid loop or completely open loop, it's very difficult.
Doing this to an account that consumer has with us, and just for the avoidance of doubt, of course, it sits in a bank, it's FDIC insured, it's not an Affirm, Affirm Account, but it is an Affirm Account that a consumer can access through a device that is managed entirely by Affirm. And so when they want to spend that money again, it's available there immediately. That's one really key component. The other one, it becomes an account where if you keep a balance, especially for some of our lower income, lower credit quality consumers, it is a fundamentally important underwriting signal. And so if we're trying to extend the coverage to more people, having an account with a balance in it just unlocks a tremendous number of doors.
Those of you who've been tracking this for a long time, as I know you have, you know that we've had a savings account for quite some time, that we've used very, very carefully to learn about consumer behaviors. We've never promoted it, we've never put too much weight on that product. But the idea of, can we create enough trust to eventually transition that into a transactional account was always there.
So today, what we're really doing, the announcement is that we're directly connecting the card with a transactional account, and the functionality of the savings account will remain, including the APY and all the goodness, but it'll have a ton of other really cool things like ATM access, et cetera. The card will become a full-purpose card. Like, in many ways, I guess I should have answered the question, is this will be a top-of-wallet card through the features that it offers, first and foremost.
Practically speaking, our ability to couple them more closely together means we're able to raise limits. And so from a customer's point of view, they have more accessible purchasing power.
Yeah. Great.
I think we had a question from a viewer online.
Yes. Andrew Windram asked: It's rarely spoken about at Affirm, but could you unpack how your SKU level data presents an opportunity for brands and merchants to drive conversion and success there?
Oh, my God, that's a "Tell me about the history of the world in seven sentences" kind of a question. I'll give you some examples. I'm sure all of you can come up with your own favorite examples, but if you're buying a thing and the brand wants you to feel extremely good about buying it, over time, the brand can say, "I will just make the interest be zero, because I know what the SKU is, and I'm motivated to fund the interest of this transaction." You cannot do that on any other payment network other than one that knows SKUs, and we are and others are not. That's the most basic example. In addition to it, we just have a tremendous amount of information around things like repayment for SKUs.
And so you start figuring out what it is that people value more, like capital assets versus things that they see as consumables, et cetera. So it has an enormous feed into our underwriting engines. And then beyond that, we understand consumer preferences. Part of, you know, I, I alluded to it, Adaptive Checkout is about conversion. If we know what it is you bought in the past, what you value, what you think is a really important thing to have on a 0% deals or not on a 0% deals, we can use that information to formulate an offer for you and teach the merchant, "Here's what this consumer will value in their next transaction as it comes up." And so the SKU level data feeds both the transactional underwriting as well as transactional offer targeting with an Adaptive Checkout or the card.
I can add a little bit on SKU information and how merchants are using it. Even a mattress merchant, which has just a limited number of SKUs, we have some of our mattress providers having 11 different financing programs, depending on, you know, the price point or potentially bundles. So having that SKU, that ability to do a financing program to a SKU is very powerful. Other merchants, like our OTAs and our travel group, having information about when a flight will take place or when a trip will complete, actually has some signals into how well that individual will repay.
And so that actually feeds into our underwriting. So we've been able to leverage some of that data to enhance our underwriting and actually approve more for some of our OTAs. SKU level information just in itself, when you add it in addition to our technology, it's just very powerful.
Even using it for inventory management, when they want, they have got too much of something and wanting to move it, move product, they can create offers for it.
Andrew Bauch from Wells Fargo. You had one slide where you showed the progression of share of, of card, within the travel industry, and then I believe the other one was general merchandise. They both had their own little inflection points at certain periods in the life cycle. I think it was quarter seven. What are the drivers of that inflection, and is there kind of a roadmap on how you penetrate these verticals that ultimately starts to drive the flywheel effect?
Yeah, I think the lumpiness you see in those charts really is tied to when we might have launched some particular initiative with some particular merchant. So let's imagine in travel, maybe that was the quarter that we went from flights to vacations, for example. Or in general merchandise, it might be when the merchant unlocked a bunch of 0% promos. And so there's not necessarily an even pattern as to when the different levers roll out, but our strategy is to roll out as many of them as we can on top of each other over time. Sometimes that requires a lot of cooperation and technical work on both sides to unlock, but you know, the goal is kind of this never-ending process of layering on these levers.
Hi, Jason Kupferberg from Bank of America. So I just had two questions. The first one is international versus B2B. I'm curious if you're taking a three- to five-year view, which do you—of those two, do you think will be generating a greater degree of volume and revenue for Affirm? And the second question is just on Affirm Card, are you seeing any meaningful amount of cannibalization at all versus the traditional Affirm platform? And if so, any way to quantify that? Thank you.
That's a great question. The second one certainly is. I don't know if anyone of us is really qualified to opine on the first one, though. Obviously, I love all my children, and B2B is, you know... Long-time watchers heard me say on many earnings calls, small businesses, that's the engine of our economy. I love small businesses with a great degree of passion, and nothing excites me more, perhaps, than launching this sole prop thing, except the card, of course, which is, you know, the best thing ever. And international is so cool, and you heard Kaz basically pre-announce it for me, so that was cool. But I think all these things are going to be pretty awesome. Which one happens bigger, faster? Don't know. Don't really care.
I think all of those are huge opportunities for us. We see quite a lot of greenfield there. On the cannibalization, I'll let Libor quantify it because his team watches this very, very carefully. But the one thing that's worth knowing, a huge part of the card design or how we approached it is the. I'm stealing his quote, but, "We embrace channel conflict." We are. We invent, build, manufacture, and sell instruments. We want to be in every wallet. We want to be in every checkout. We're happy to have our logo embedded at the last page. We're happy to have our logo embedded in every button. And so when we do that, key part of it is you want every offer that merchants painstakingly put together on our platform available in every channel.
And if it's not available there today, we work very hard to harmonize it. You don't want consumers going: "Oh, I clicked on that button, then I got the zero percent deal. It was sweet, and I clicked again, and it was gone. I forgot which button." So like, that's noise and friction. We don't want any of that. And so cannibalization is okay, so long as the economics remain similar or ideally the same, and we work quite hard to make sure that it's fully harmonized. It's never perfect because everybody's on a slightly different implementation schedule, but it is an important thing for us to track. Then, as far as card cannibalization stands today, Libor can tell you.
Yeah, I mean, we do, we do see positive substitution. And by positive, I mean that ultimately, the product that they're substituting into the card has wider reach, has more use cases. And so when we see a customer move from the one-time use cards, from that narrower capability to the broader capability, they, they are substituting, but they're using the product more frequently. And so we see increase in volume and GMV and usage, like the cohort chart that I showed, that is a lift above the, the product that they're substituting out of.
Yeah, average card usage is more frequent than the highest frequency of pre-card user.
Yeah.
It stands to reason.
Yeah
- that the substitution, whatever happens, is an accretive, not destructive.
Yeah. I mean, and a little bit of inside baseball, I mean, as we're rolling the product out, these are the things that we're looking for, right? That the substitution is positive, and that's where we have this measured pace, from cohort to cohort to really understand exactly what's happening.
Yeah. Actually, I forgot to drop an important stat in my talk track, so I'll ad lib it now. So in support of the argument that we are an operating system or at least a software development platform that becomes faster and faster, the launch of the B2B required no new integrations, except for obviously new merchants that are launching with us and no new consumer information, but the card is even cooler. So the time we took to figure out that the cannibalization was positive and the credit outcomes were better or equal to existing was longer than the actual software development cycle. So the card was done quite some time ago. We just weren't willing to say, you know, "Caution to the wind, let's see," because we knew there would be a trade-off, and we wanted to see that the cannibalization is positive, not negative.
So you can do your own math, what exactly took how long, but the card was in my wallet for quite some time before it was allowed to go wider because we wanted to make sure this cannibalization is actually clearly positive. And we have a lot more to do, so it'll get even better, but we didn't pull the trigger on it until we knew it was going to be great.
Ramsey?
Ramsey El-Assal from Barclays. Two questions. The first is, I wanted to follow up on something you mentioned about merchants now willing to host multiple providers at checkout. I think you characterized that as an opportunity. How do you ensure that's an opportunity rather than the opposite? And then the second is just a follow-up on Dan's prior question about the Affirm Account. And is this the long-term vision here to build up a deposit base to basically fund loans? Could it become an important funding source? Is that the long-term vision, or is that not necessarily the purpose?
I'll take that backwards. The shorthand answer to the second part is no, we're not constructing a backdoor into banking. We do not intend to lend from these deposits, certainly not on the roadmap right now. It is exactly what I said it was. So at PayPal, when we went from you can't store a balance to you can store a balance, we saw an increase in transactional velocity because once you have money in your pocket, you intend to... or you tend to spend it a little bit sooner. And so as consumers pick up Affirm, they say, "Oh, yeah, I do have a balance there. That's what I'm going to use." So it's all about that, more about that, and access to cash and all the sort of things that you do with a transactional account.
It is not something—we don't have a bank charter. We're not looking for a bank charter right now. We wouldn't be able to lend against it even if that was on the roadmap, but it isn't. So that's entirely a feature-related development. And we've said it before, just sort of double-click on that a little bit harder. We won't seek a bank charter until we see a feature that we have to have one for. So if there was something on the roadmap that we said, "We have to build this because it's so on mission, so important to us," the only way to do it with a bank, then we'll talk about getting a bank charter. Bank charter in and of itself is not a positive or a negative. It's just not the thing in front of us right now. Um, and the, uh-
Side by side.
Back, back to you. Yeah, side by side.
Yeah. Good question on the side by side. I think we're seeing it much more of an opportunity than a threat. And the main reason is that where competitors are already installed is typically in the low AOV space, where we hadn't focused as much. And so as we push more into that space, it's typically us coming into that space as opposed to competitors trying to come into our space. And I think if we tallied it up over the past year, we've seen much more examples of us being added side by side versus the reverse.
Hey. Reggie Smith from JP Morgan. Congrats on the Best Buy announcement today. My question, just looking at Best Buy's website, they have their own card, their own business card, much like I guess Amazon does. Can you remind us how you guys win in those head-to-head situations? And maybe talk a little bit about the risk profile of a small business, loss rates, et cetera. Whatever you can share now, just to kind of lay that out for us. Thank you.
Go, Pat.
I can share at least, with Best Buy, they do have the card, and they actually wanted to seek out additional options, and that's why they came to us. So it is actually to augment their existing card. And also what they saw with other providers outside of the card was those approval rates that we kind of talked about during the Best Buy during the B2B presentation. So that's 69% of sole props specifically, though being declined. Now, if we look at the broader SMB financing, I don't have those statistics for Best Buy, but we do know that there is a significant need. They want to have a wealth of offerings, and they look to us to provide that. So that's what I can share today.
To answer the last second part, the economics, we don't have specific numbers to share, but we do expect that it will be in line with our broader product suite.
Hi, Michael Ng from Goldman Sachs. Thank you for the question. It's up to, Libor showed a chart around contribution profit per cohort increasing over time. And I was just wondering if you could talk a little bit about the drivers of that. Is that, you know, more products being rolled out after each successive cohort, or is it just merchant expansion allowing for users to spend across more merchants? And then s econdly, just as a follow-up, on international, is the go-to-market gonna be any different relative to domestic? And, are you gonna have any funding changes that may look different than the U.S. and Canada?
Yeah. So it's cumulative contribution is what it's called. The steady rises in improving in economics, not any contribution into the program, but the economics of the program improving. That is primarily driven, and I think we talked about this a few quarters ago when we were talking about the timing of our rollout, is being driven by a lot of the Pay Now functionality, and as we were dialing in the new model. So there's multiple models actually operating within the context of the card. The model that is the newest in that product suite in that product, in that suite of models, is what we call the Pay Now model, the NSF model for swipes as you swipe, then you have two days, and it settles with the backing account.
That was the one where we spent a couple of quarters tuning it, and the improvements there are where a lot of... Not all of that, but a chunk of that is coming from. Limit setting as well is a piece of it. Yeah, but that, that's what's driving it.
International.
International go-to-market?
Yeah.
Sorry, could you repeat the question?
The question was around whether the international go-to-market or funding would be different relative to what you do in the U.S.
I may defer on the funding piece, for the financials section, if that's okay?
Yeah.
The go-to-market is sort of the story writes itself. We have a small group of enormously large partners that are all multinational. We need to make sure that they are ready when we're ready, or we're ready when they're ready. But again, you've kind of heard Kaz say, we're gonna go international together. You know, they typically, Shopify has done what they said they will, and we've been the same with them. So, I feel good about that. And obviously, there's plenty of other players that are very active internationally, and we intend to partner with them. We have a exciting list of launch merchants for the U.K. that obviously we're much more than just contemplating.
Probably worth holding off those announcements until we're live in the country, but we will show up to a launch party in London with merchants to show for it.
Yeah, I guess I didn't answer 'cause the go-to-market actually is part of the strategy, working with our merchants in those go-to-markets, and it helps us de-risk kind of the spend that you need to do to enter an international market and develop any of that brand recognition. So by launching with a partner, we're able to really not only take advantage of their market share on that scale, but save a lot on the go-to-market.
James.
Thanks. James Faucette, Morgan Stanley. I wanted to follow up on a question around the extent around the Affirm Card cohorts. I was trying to see if I could see that chart, and I've been able to find it, but it seemed like I remembered that the newest ones were starting off at a higher-
Yeah
... spend level-
Correct
... than the oldest ones have reached yet. Can you describe like what's happening in terms of the type of customer that's why that's happening, and how we should expect the customer types and additions to evolve over time?
If you look at it, there's a relatively consistent slope, although the lower ones are sloping up a little bit more as the economic improvements roll through. But there's also, I guess, as I was saying, the model around the Pay Now component. When it was not where we wanted it to be, we were taking more losses than we wanted, and so those losses are on, obviously, on principal, and so that takes a longer time to catch up. And so that starting out negative and being there is weighted by those cohorts. And even though the surviving cohort, the surviving components of that cohort are performing well, it's gonna take a little bit of time for them to catch up.
Got it. Got it. And then the second part of my question is, once again, is on that, that card mix. I thought it was an interesting chart in terms of credit versus other payment options-
Mm-hmm
How is that mix of, you know, effectively debit versus credit performing right now versus what you'd initially expected, and any adjustments you're, we should think about making there?
Well, today, it's performing very well. It's performing in line, and that's largely why the economics are coming out as similar.
So, the point is, you expected that mix of credit versus-
The mix itself?
Yeah.
The short answer is yes. We expect it to be relatively consistent, although the Pay Now component, as those cohorts season, does start to pick up as people understand the product and the use-how they interact with it. But generally, when you think about it, the considered purchases themselves on a GMV basis are larger purchases, and so that chart is showing GMV basis, not transaction count, and that's why it's weighted the way it is. And so that's the expectation.
Yeah.
Yeah.
There's roughly a 2.5x-ish ratio between GMV to transactions if normalized against pay over time GMV. In other words, it's like 10% of the volume, but 25% of the swipes. Two important disclaimers: If you sampled the product feature set over the last 12 months... So it was ready about 12 months ago. It needed to bake. We had some real economics to deal with. We didn't like some of the comprehension issues, but the product was basically as it is. But as soon as we said, "All right, we think it's good enough to start testing with a small group of users," we started building out new features. And so part of the "Oh, look at all these cohorts," there's a little bit of credit, which Libor's team did a fantastic job.
When we started with Pay Now, it was lossy, and like proper lossy, not, not, not good. It's now profitable, which is quite, you know, quite nice. But the other dimension was there's just not as many ways to use the product, not, not as many features, and there's more coming. You saw some of the perks and rewards type stuff that we're talking about. That will increase, probably, we'll probably put a little bit more thumb on the Pay Now scale because there'll be reasons to spend just things that you consumed, and so on. So I, I would caution the modelers in the room to not over-index, "Oh, you know, now I know what that number looks like." Like, it will keep moving as we launch new features, and there, there's a long roadmap of stuff.
I mean, tying it back, sorry, I know we're... But tying it back to the Affirm Account, that is one where we've beta'd it with customers, where there's more significant on a transaction account basis volume moving through the Pay Now component. But still on a GMV, it's not far off from what you're seeing.
We'll take our final question from an online viewer. Dara?
Yes. Andrew Hillman asked: How do you envision in-store offers being distributed to Affirm cardholders? In a way, merchants still view these purchases as incremental and are willing to pay comparable MDRs to what is seen with e-commerce transactions.
I think if you walk into a store, or you park at the favorite parking lot, and your app flashes up saying, "If you use your Affirm Card, TV on aisle five is interest-free over 39 months," that's a pretty sweet way to promote the offers. And so we have a lot of conviction around just completely supercharging the in-store offers, and that is where merchants can truly measure incrementality. One of the things that, One, one of the ways, by the way, to think about offers on the card, again, so if you're a payments nerd, you know exactly what I mean by card-linked offers. You also know that it's the one that got away. It was supposed to be this great thing. It never quite worked. It's a pain in the butt to register. It routes through traditional networks. It's not really SKU sensitive.
It's got all sorts of issues. Because of the proprietary rail that we have, the card promotional platform is basically card-linked offers done right. We know exactly how to reconcile because we know every BIN and every PAN, and we know the SKUs in a ton of situations, which means that, you know, whatever is being promoted, we definitely know the SKU, which allows us to do all sorts of closed-loop connections where you can scan a barcode or the app can just know that you're next to something that's being promoted. And so the opportunities to present an offer at the right time, in the right place, at the right store, are plentiful, and that's what Libor meant by the over-the-air updates. Like, these things can arrive in your app without any need for you to know how it happened. It'll just be there for you. We're very, very excited about in-store promotions, for sure.
Merchants are excited about it, too, because they can bring the physical card, have that BNPL transaction occur, no training, very limited, you know, information that needs to be passed to the, the sales rep. There's no need to, for a card-not-present transaction any longer. So it actually accelerates the ability to adopt, our financing solutions in store.
Great.
Well, said about-
Well, that concludes our first question and answer session. Thank you to our four speakers. You'll see them again. As a reminder, we will have a final question-
Thank you
... and answer session at the end of the presentation.
Thank you.
All right. In the second half of today's forum, we will provide an overview of our funding strategy, as well as an update on our financial model. To get us started, I'd like to invite on stage Brooke Major-Reid, Affirm's Chief Capital Officer, to discuss our funding strategy. Brooke?
Thanks, Zane. All right. She's not coming. I'm here. These headshots always get me. Good afternoon, everyone. My name is Brooke Major-Reid, and I'm Affirm's Chief Capital Officer. I heard today that Patti LaBelle was in the building. True story, not sure under what capacity, but I will not be channeling my inner Patti, so you can stay seated. But what I will be doing is taking you through an update of our overall funding strategy. As you've heard from my colleagues, it's a very exciting time in our business for sure, and trust me, I'm so grateful that it's not the same level of excitement we entered 2022 with. And at Affirm's capital team, on Affirm's capital team, that's no exception.
We have made tremendous strides scaling our funding ecosystem over the last several years, and that is well ahead of our meaningful GMV growth. So as a reminder to everyone, we fund the business across three primary channels: the issuance of asset-backed securities, or what we refer to as ABS, forward flow or loan sales, and we also have warehouse lines. So on this next slide, I've highlighted a few key stats that reflect our progress over the last couple of years, and that period also covers the most acute, uncertain times around macroeconomic uncertainty, some geopolitical uncertainty, but also market volatility.
So when we think about what's been happening in our funding channels, from left to right, starting with ABS, we've almost doubled the number of transactions we've issued over the last couple of years, and we just priced a $400 million transaction with our banking partners just yesterday, which is very, very exciting. Our total issuance volume as of the last quarter stood at $6 billion, and that's well in alignment with how we think about accessing a channel like ABS. As a result, we've deepened our buyer base, adding 100 distinct, 100+ distinct ABS investors, attracting them to our platform, given the quality of our product. And we've done that through our own investor engagement, but also with the support of our banking partners.
On the bilateral side, we have increased our strategic partnerships by about 50%, adding warehouse and forward flow partners who we know will be able to scale with us over time. All of that activity has resulted in a very robust capital position of over $13 billion of funding capacity as of the end of the last quarter, almost double where we were two years ago. And again, that's ahead of the need. I will say that we are acutely aware that excess capacity has a cost. We are wholesale funded, so we manage utilization or excess capacity, the inverse of that, by undertaking a very risk-managed approach. So we tend to hover in the 70-ish% range, much like you've seen us report in our prior quarterly reporting. On this slide, I'd like to take you through our approach.
People often ask: How do you optimize across all these channels? What do you optimize for? The answer is threefold. First, we invest in all our channels throughout market cycles. We build the apparatus, we invest in the model, and we have that as our anchor in terms of all the things that we're trying to do to fund the business, again, ahead of need. The second thing is that we align the capital team's objectives and activities around the financial objectives of the broader business. We're constantly looking at how the financial picture will look relative to how we are executing in capital. Finally, we execute thoughtfully. What does that even mean? That means we cultivate and prosecute a robust pipeline through all cycles.
We always have partners and a diversity of transactions that we're looking at, such that we're never reliant on a single partner, a single channel, or subject to extreme technical market swings that may lead to off-market or destructive cost of unit economics relative to cost of funds. So that's really important. On the right-hand side, we have laid out how we directionally see the interplay across the channels. What you'll see here is a powerful depiction of why we are so hyper-focused on investing in diversity. For example, the warehouse channel looks pretty stable, very attractive, general cost of funds, capital efficient. And I should step back and say, across the channels, we're looking at cost of funds.
Capital efficiency just refers to how much of our own capital and cash we're investing in the funding business, and then market volatility as a proxy for access or pricing. So as I was saying, warehouse, pretty stable, but less capital efficient relative to ABS and forward flow. But ABS and forward flow are very susceptible to market headwinds and shocks, as much like we saw over the last 12 to 18 months, and we continue to navigate the headwinds in the market. But because of this diversity, we've been able to successfully fund the business in an accretive way overall. And we saw this most acutely, if you think back to last fiscal year, Q2, we opted to lean into more balance sheet facilities as we navigated the most acute headwinds at that particular time. So we saw this dynamic at play.
So where does this all take us? Our priorities look really familiar, table stakes, but what we're doing is we're doubling down on diversity. It's been our superpower, it's been the thing that we have been quite successful at, and we are grateful for the partners who have hung in there with us over time, and the diversity has continued to lead to capital efficiency, also cost of funds advantages. When I talk about managing capital efficiency, it's really maintaining a level of what we call equity capital required of the business. That is in the around 5% range, and we think that's a healthy range relative to scale as we grow the business. Leading to expansion, we will continue to diversify, but also not just in terms of partners and channels, but in terms of structures.
We are looking forward to accessing differentiated pools of capital through new structures, which will ultimately lead us to the point of transformational scale, so we're looking ahead. When you think about what we're trying to do in capital, is really be thoughtful about where the business is headed. Never be a limitation, never be a constraint on the business, but do so while we're thinking about everything related to unit economics as well as depth and access across our model. With that, I'll turn it over to Michael Linford. I welcome Michael, our CFO, to lead us in a discussion with some of our capital partners. Michael?
I am so excited for this. We have received a number of questions over the years at Affirm about getting more context for our capital partners, and I am delighted to have on stage with me a sampling of our best capital partners across very different strategies and approaches to the market. And I think it's gonna be a really enlightening conversation for us. So what I'd like to do, if it's all right, is start with everybody introducing themselves. Just so who you are, what your firm is, and how you think about how you think about the asset class, you know, very broadly, and we'll start with you, Hussein.
Thanks, Michael, and great to be here. I'm Hussein Abbas. I run our strategic credit business at CPP Investments. That's about a $10 billion credit investing business as part of our broader capital solutions arm, which is a $30 billion multi-strategy credit investing business. To answer your second question around how do we think about the asset class, specifically around the consumer, I think we're actually quite bullish.
We think that, you know, sort of some of the tough times for the consumer are potentially behind us. We saw the softer print, and what we're seeing out there are some green shoots, actually. Clearly, it's bifurcated, right? You gotta be nervous around the lower FICO area of the credit spectrum, but broadly, we're bullish sort of going through the next year or so.
Thank you. Jem?
Hello. Hi, Jem Tian, ABS Trading, JP Morgan Asset Management. Responsible for ABS Trading, Resi, and we manage about $750 billion AUM across our global fixed income platform. In terms of the overall consumer outlook, you know, we are generally still largely positive on the consumer fundamentals as a whole. But, you know, we are taking a somewhat cautious outlook, given the fact that the advent of the stimulus and pandemic stimulus is somewhat in the rearview mirror. We do think the overall subprime consumer has already largely felt some of the pain in terms of losses and in delinquencies as well.
But we're also keeping a closer eye on the near-prime borrowers 'cause we believe that could be the next cohort to feel somewhat of the pain in the consumer class.
Brendan?
Hi, guys. Brendan Feeney, New York Life, responsible for our direct investment strategies as well as consumer ABS, on the whole. Looking at the consumer, I mean, I think, you know, we, we kind of look back to what is the, the volatility that could occur, and we've been using the financial crisis as the, the barometer of how, you know, how things can change over time. Consumer looks, you know, fairly good compared to that time period. Maybe not as strong as it was two years ago, but still, still quite strong. Our investment strategy will go from, you know, senior-rated, triple A investments to, you know, forward-flow strategies. So, you know, we are, you know, cautiously optimistic that things will continue to perform.
We have certain sectors that we haven't participated in, but by and large, we think the consumer is, you know, has held up fairly well. You know, right now, just looking at specifically unsecured consumer lending, you know, we haven't spent a lot of time or invested broadly in the sector. However, with, you know, with this brand, the Affirm brand, like, you know, we do think very positively of it and think it's been a good place for us to put money to work.
Alex?
Hey there, Alex Saporito from One William Street . I am a portfolio manager on our private credit business. Among other things, I buy whole loans and provide financing for consumer lending. I'd echo what other folks are saying. We're cautiously optimistic, but we've definitely seen divergence in performance between sectors of the consumer as well as across different originators. And we take comfort in partnering with originators that have sophisticated underwriting capabilities that allow them to make adjustments quickly to adapt to changing macroeconomic environments. We also take comfort in working with originators that have differentiated consumer sourcing strategies. I think in this market, if you're competing with 30 other lenders for the same consumer, you often get adversely selected on both the coupon as well as on credit.
We like to partner with folks that have strong relationships with their sourcing channels that allow them to get differentiated performance out of those consumers.
Marty?
It sounds a lot like you're talking about Affirm there, Alex. I'm Marty Attea . I head up Barclays' Securitized Products Origination business. I don't know if I have quite the degree of conviction of the rest of the team here on where the market's going, but then again, I'm on the sell side versus the buy side, so maybe that's okay. But if I look at all the sectors that I cover, which is, you know, it's quite a few, it's globally across all the structured products we have, and I'm not just saying this 'cause I'm here today, but I particularly like where Affirm is at right now.
No matter, I think, where your view is, the more uncertain you have it, but even if you do have conviction, shorter term, higher velocity, consumer assets with, you know, considerable yield on it, I think it's a great spot to be in.
We obviously agree. So I think you heard a consistent theme across the panel here around cautious optimism and bifurcation of performance. And so I'm gonna, yeah, ask each to speak to specifically how they think about the Affirm asset. Some have already hinted ahead, but Marty, let's start with you. What about Affirm-
Yeah
- gives you conviction?
Yeah. So, look, I think we've heard hints of it from the other folks, too, that we're starting to see some bifurcation in the market. I think it's easy to underwrite when unemployment keeps going down, rates are low, there's low inflation. But I think Affirm has a real passion for underwriting. And I don't know if you always hear a lot of people say they have passion for credit underwriting, but they clearly do, and they take a lot of pride into it. And I think they take full advantage of the fact that they constantly have at bats. Given the shortness of the collateral, they're in a position to continually fine-tune, and I think the proof in the pudding is they actually do that.
If you look at 2021, which I think was a rough year for many consumer lenders, and then you listen to Affirm talk about how they took advantage of the fact that they were seeing those signs early and were tightening up origination over the course of 2022, and then you look at the vintages that we saw in 2022 and on, and each successive quarter was going better, and better and going more in line with things, I think that says a tremendous amount. So all that data they're picking up, all the focus from senior management pays out in really good performance.
I think, you know, not only do, you know, do I appreciate at Barclays as a lender and partner to you in various ways, but we've seen the receptivity in the capital markets, most recently on the deal that you priced yesterday, that that message goes out and resonates. So it's a great place for a credit investor, in my opinion, to, you know, park your money in good markets and bad, but I think in particular, in volatile markets, the inherent nature of the product and the way that you underwrite it helps.
I'm gonna mix it up a little bit. Brendan, I wonder if you can give a perspective here as somebody who's more new to partnering with us.
Yeah, in looking at Affirm and how it's positioned in the, you know, consumer lending market, we just do our traditional, you know, kind of top-down underwriting approach. First starting about management team and, you know, who are we partnering with? You know, is there an alignment of interests? We think those things are really critical even before we get to the collateral. You know, some of the most important components of, you know, finding the right partners. So, you know, from looking at Affirm, like, it checks the box there. The alignment of interest is just we find that and the fact that it's not a platform that's just gonna sell everything that they originate. They do have some capital attributed to this collateral. We find that to be comforting.
But then, you know, looking at the collateral, I think everyone's touched on the velocity of the collateral. You know, comparing this to, you know, more of a traditional debt consolidation product, you know, that's gonna be a longer duration. So if there's a miss on the credit, you're gonna feel that pain for a lot longer, whereas you're looking at this product, maybe you can fix it within a month. So your duration of, you know, deteriorating credit should be faster, at least that's the theory. We find that to be really, really beneficial. You know, I think you're always gonna have changing credit markets and changing collateral performance.
Just the speed of which you can correct that and get back to a more normalized state is really powerful when you're dealing with a product that, you know, has such a short duration.
I'm gonna go to the other end of our life cycle a little bit. Hussain, we've been working together for quite a while now, and we've valued the partnership and the way in which you guys show up, and I think we can build a business together. I'd love your perspective on how you think about Affirm specifically, and what gives you confidence that we're gonna navigate the market well?
Yeah, firstly, I think our partnership probably goes back maybe five to six years now, when you were still sort of a venture-backed company. You know, we've had the privilege of kind of seeing Affirm grow, not only just in terms of, like, volume, but in terms of, like, the underwriting prowess. I think Max used the word par excellence. We would sort of, like, second that. Now, admittedly, you know, when we started the program with Affirm, there was no buy now, pay later, right? That was something we had to explain to our credit committees. In fact, we had to understand it first. But it's been great to see how Affirm has grown through COVID.
I think that was the first test, and then subsequently, you know, a bit of capital markets volatility and to come out with a diversified set of, like, funding partners, access to banks, forward flow partners like ourselves, securitization markets, and I think that is a very good testament of a sound, capital market strategy. So there's a big tick there for us. I think one of the things that my sort of the panelists have said, which really resonates with me, is this aspect of, the ability to re-underwrite credit quickly. Specifically in this environment, whereby both on the rate side as well as on the performance side, there's a lot of volatility, and there's a lot of data points being thrown at you, both as an investor as well as an originator.
So to absorb that and put that into play, and come out with sort of consistent performance, I think that's the key, and that is what has made us sort of stay with Affirm relative to a bunch of other things that we're engaged with, on the asset-backed side. Hopefully, that continues. You know, our mantra at CPP is sort of like, you know, partner with the best, and as they grow, we can grow, and I think that has resulted in us sort of staying with the, with the platform.
And we're honored that you do. And, Jem, I'm wondering if you could speak to specifically the ABS program. So there's a lot of issuers out there. Affirm is relatively young in its history. How do you view the Affirm name inside of your fund?
Yeah, I think it's important to note that we prefer issuers that have skin in the game. So a firm like Affirm, excuse me-
Who's on first?
Has considerable skin in the game in that they also, unlike other MPL players, where they're just loan aggregators, they also are loan originators as well as loan aggregators. So we do prefer issuers that actually have skin in the game, like Affirm. Additionally, if you look at the credit performance of Affirm versus other MPLs or marketplace lenders, the credit performance of Affirm is typically a lot better in terms of credit performance versus their respective peers. So we try to choose issuers that have or do focus on credit versus their peers. And we feel like, given the fact that, you know, presumably if, you know, things start to turn sideways, you know, Affirm is one of the last credits, so to speak, standing.
The other thing that we actually like, as an ABS trader, I do think that it's an opportunity to add short-dated assets at very attractive levels. I'll leave it at that.
Alex, why don't you round us out here?
So, look, I think one of the main reasons we enjoy partnering with you guys is drawing a blank on what I haven't already covered. We do like that there's some gray hair. It's. You'd think that having experience through credit cycles is important in the underwriting business, especially at this sort of scale. But with a lot of the fads in financial services over the last several years, there's been a lot of firms that have had good software, really good ideas, and just have failed on the execution because they didn't have. Look, the Venn diagram of people with experience and people with really exciting new ideas doesn't usually overlap much.
We like that Affirm has good software, good products, really innovative systems and innovative ideas, but understands how to navigate through cycles with people that have navigated through cycles.
Excellent. So, Brooke, I'm going to bring you in here, and you made reference to it in your talk, and Marty did as well. We just priced a transaction. We were in the market over the past several days. Give me a little bit of color from your perspective, then I'll ask Marty to weigh in about how the market treated us in this last deal that we did.
Yeah, no, thanks for asking about that, Michael. I think we continue to be pleased with the fact that we're providing something that investors are very excited about. We feel we're getting credit for credit, and that has not always been the case, and we've worked with our banking partners to be really disciplined about that. It's not always been the most elegant landing, so I don't want to sit here and say that all things have been, you know, stellar. But this particular transaction really was a proof point around if you're disciplined, if you're partnering with investors, if you're thinking about structuring the right way... I should note that we structure the team. I manage treasury, capital markets, quantitative markets, which includes the analytics.
We structure our own deals side by side, so we pressure test the buffers, the triggers, against everything in our ecosystem. So when we are looking at an ABS transaction, we're thinking about the investor. We're asking folks what they would like to see, and we're thinking about the next iteration. So as we executed on this deal in partnership with Barclays and our other underwriters, we were really pleased to see the efforts you know bear fruit in terms of the execution and the fact that we were able to clear the full stack and have the kind of reception. I think the number is 7+ times oversubscribed.
That really is something that we're quite proud of, but we're also grateful for the support because we know what a challenging time it is on both sides. So, Marty, I don't know, given that you led, if you want to mention anything.
Yeah, I'm always happy to weigh in on this sort of thing. Well, especially when we are part of the deal, that doesn't hurt. But, look, I think when you look at it over the course of the year, it's been a very difficult issuance year. There has been a lot of volatility, rates... There has been, you know, big swings in sentiment between where people think unemployment's going to go, where rates are going to go, et cetera. So it's made it for a challenging issuance year for many. But I look back on the year and the deals you've done, and I think each deal has been more successful than the last. You know, your deal before this, you were able to upsize materially. This one, as you mentioned, you were heavily oversubscribed and were able to tighten it.
I don't think that's a coincidence. I think, as I alluded to earlier, people are starting to see, you know, proof. You know, I think there's always been a belief that you guys knew what you were doing on underwriting, but when you see other people, you know, broader kind of deterioration credit a bit, and then you see that your most recent vintages are performing better than the year before, and then you kind of partner that up with all the hard work you do in terms of transparency, investor meetings, you roadshowed recently, you show a lot of commitment, you've seen your management come in there. You're obviously all very busy, but you're not taking any chances in terms of all the partners you have to do to make the company be successful, whether it's the underwriting, the capital raising, the outreach.
All of that, I think, to the point that Alex made when he talks about gray hairs and all that, it's very self-serving of us.
I don't know what Alex is talking about.
To say that, by the way, I'm a huge buyer of that. But the truth is that all of those things, all those details, it's all very thoughtful, whether it's the new products, whether it's the outreach to investors, the transparency you put it out, how you're so concerned about all your vintages. It's all very impressive, kinda like cradle to grave. And I do think it's very gratifying when you do all that work, and then it comes up with a lot of investors showing a lot of interest in the deal, and that you see that happen a couple times in a row, even though it's not an easy market for anyone to issue in.
Well, thank you, and thank you to all the panelists. Let's give them a big round of applause.
Thank you so much.
We're dismissed. Thank you. And here we are, the last presentation before Q&A and then cocktails. The most exciting part of the day, the financial model. Hold on, clear chairs. So thank you all for taking the time to attend today. Thank you to all of our partners from the outside who participated, and thanks to the Affirm team who made this possible. A lot of work goes into these events, and thank you. So I'm gonna cover three things here. The first is I'm gonna recap our progress since the IPO. It's a good moment to look back, being here at Nasdaq. I'm gonna talk about our path to the next milestone we talk about with respect to GMV, which is our $50 billion mark, and then I'm gonna update the long-term financial model that we shared with y'all back in 2021.
I remember distinctly the phone call I got from Max in the summer of 2020, when we decided it was time to take the company public. I remember it distinctly because it was, I think, characterized with a lot of volatility. It went from March, and the shelter-in-place orders coming down and the fear around what might happen with COVID, to a realization that we were winners in the COVID era, for sure, and that our credit model was passing its first test, as you just heard on the stage a few seconds ago. And that was a time we had just finished our fiscal 2020, and the business was obviously very, very different than what it is today. The macro environment was very, very different, and in the time since the IPO, we've seen changes in just about everything.
But the one thing that I think has stayed the same is consistent outperformance. We've grown our GMV 5 x since fiscal 2020, a 60% compounded growth. Our revenue, less transaction costs, the key measure of our unit economics, is up 58% on a compounded basis. That's 4 x since our IPO. The revenue has tripled, and what's really interesting and pretty new to the business is we're beginning to show real operating leverage in the business. On a last twelve-month basis, we're actually profitable, looking at adjusted operating margin, and we're proving Max's vision around the operating system of Affirm driving leverage, and we'll talk about that in more detail in a second. So how do we get from there to the next milestone, the $50 billion mark that we put out there?
I think it's important to recap the addressable market that we're playing in. First, you have core retail, the portion of our business that is in the wheelhouse for what we do every day. That will still be the biggest part of what we do. We think we're playing in a $7 trillion space here, e-com of which is $1 billion of that, and the BNPL current penetration is very, very small. So we're roughly 2% of U.S. e-commerce today. Obviously, we have a lot of room to grow within e-com, and as you heard Libor talk about, we have a lot of opportunity in taking the card offline to help address the $6 trillion of spend that we largely don't address today. You heard today about continuing advancing our B2B work and the work that we have with sole props.
There's another $700 million-- $700 billion business in SMB financing, of which $300 billion is just in sole props alone, and we're pleased to be partnering with some of the leaders in that space out the gate. And then lastly, you heard about international, and international for us represents a sweetener to the addressable markets. We're, we're market leaders in Canada today, a $44 billion market, and we are going to be launching in the U.K., a $133 billion market. EU's on the horizon, but that's obviously a very large market too, with a $1 trillion in spend. So we wanted to map out how you take that TAM, and you take the product roadmap that you heard so much about today and how it maps into the growth algorithm.
In our fiscal 2024 outlook, we've communicated $24.25 billion of GMV. That growth is primarily going to come from winning at checkout. That's doing more of what we do every day. We've communicated before that our direct-to-consumer business, in particular, card, net of any cannibalization, will deliver a few points of growth for the year, and we feel good about delivering on our outlook of $24.25 billion. Over the medium term, we're gonna work our way to $50 billion in GMV, and we're gonna do that by continuing to win at checkout, by growing the card and continuing to launch new markets. The first of which we think will deliver mid-teens growth rate a year. That's just addressing that $7 trillion opportunity, $1 trillion online and another $6 trillion offline.
The card itself helps us address that, and we think that'll deliver approximately mid-single digits of growth a year. And then our new markets will be low single digits per year. Those markets tend to take more time to grow, and yet we think is an important piece of diversifying and scaling the platform. The model. So before I update the model, there's a few things that are important inputs to it. The first is the card itself. The card today is actually three separate financial products. We have Pay Now... Pay in 4, and then these monthly installment interest-bearing loans as well. What's important is that the current mix of products that we're seeing with respect to the card is heavily weighted towards monthly installments on a GMV basis.
And why that's important is that's what primarily informs our ability to deliver the 3%-4% revenue less transaction costs on the card. So as Max mentioned before, there's a lot of transactions that are happening with Pay Now, but most of the GMV, given the higher average order values, is sitting in pay over time in monthly installments. 86% of GMV is there, and that's a product that we know very well and can print very strong, profitable units behind. The second thing to know is that the mix of in-store versus offline is heavily weighted with respect to, relative to Affirm overall, is heavily weighted towards the offline portion of the world. So 26% of the volume is coming in offline.
Why that's so important is if you think about the growth rate of the card and what it's gonna take for the card to get to the level that we've talked about, low to mid-single digits growth per year in terms of the total contribution to growth rate, you need to be addressing very big markets. We're proving resonance here in a way that, frankly, no other player has. We're able to address offline spend today in this form better than any other way. Between the high mix of interest-bearing products and monthly installment products, combined with the strong offline concentration here, almost an order of magnitude higher than the rest of the portfolio, we feel confident around the long-term growth of the product and the profitability of it.
Before I go to the non-GAAP, other operating expenses, I wanna take a second and talk about the Enterprise Warrant expense that's been flowing through the GAAP P&L. I wanna do this because I, I do think it's important for people to understand a few things. The first is that there are four different tranches of Enterprise Warrants , two of which have already fully vested and two of which are still vesting. What's important about that is, for the shares that have already vested, they obviously can't drive any dilution, even if expense is still flowing through the P&L. Of the tranches that have not yet fully vested, one is vesting on a time-based estimate. There's 2.2 million shares left to vest. Those shares represent approximately $300 million of SBC.
The reason for that disconnect, as you're quickly doing the math in the head, is because we value these awards at the time that they were granted, and which in this case, was November of 2021, which was a time when the share price was very different. As a result, the level of stock-based compensation in the P&L doesn't match what you think the level of dilution might be to the actual shareholder. Then the last chunk of shares, which will continue to flow through the P&L through fiscal 2029, we estimate, is 100-dollar strike warrants. And similarly to the low level of dilution you expect out of the 2 million shares left to vest on the Penny Warrants , the 100-dollar warrants obviously don't represent a material dilution on a fully diluted basis.
So while the enterprise stock expense, the Enterprise Warrant expense has been flowing through the P&L, we expect it to go down over time, and we expect the total dilution to the shareholder to be approximately less than 1% for the remaining vesting. Similarly, stock-based compensation is a topic that's received a lot of attention, and we wanna make sure we understand everybody understands how we see it. There's two pieces here. In the chart, you'll see the CEO Value Creation Award , which, like our Enterprise Warrants , was valued at the time of the grant, which was the time of the IPO back in 2020. And then the employee stock compensation, which is more normal run rate, equity awards for our employees. The remaining vesting tranches for the CEO Value Creation Award require 132 volume-weighted average price.
I hope that we get there, and if we do, I think the shareholder will be quite happy. The balance is employee compensation. We expect that to be less than 5% in the near term and less than 3% over the medium term in terms of actual dilution. Okay, with those two things out of the way, I wanna talk about the non-GAAP view of the world. This is our estimate around operating expense leverage that we intend to show over the medium term. While revenue growth is above 20%, we would expect to be delivering somewhere between 32.5% and 35% operating expenses as a percentage of revenue. And while we get to sub-20% revenue growth rate, that number will fall down to 17.5%-20%.
We'll sum it up for you in the next slide, trust me. But the key thing to point out here is that we would expect from this point, relatively low leverage in sales and marketing, we think low single digits, whereas we would expect medium leverage, mid-single digits across tech, data, analytics, and G&A, mostly because of the relative sizes. Sales and marketing on a last 12-month basis, on a non-GAAP basis, is now down to 5% of revenue, and TD&A and G&A are about 18%. What I think is really important here is if you look at the fiscal 2023 column, operating expenses on a non-GAAP basis for other OpEx was about 47% of revenue, and that number fell to 41% on a last 12-month basis, where the only real difference there is Q1.
And I think that's a tremendous amount of leverage that we're able to drive in one quarter's worth of changing. The only difference between the LTM and fiscal 2023 is Q1, and that's a reflection of what Max mentioned. We have a really efficient way to deliver new financial applications to the world, and we can drive significant leverage. I think this was a topic of conversation, frankly, for a lot of investors over the years, and our ability to substantially reduce line items like sales and marketing while still growing the business at the rate we have is, I think, pretty impressive. Okay. Here is our updated financial model for our investors to look at. The headline is: There's no real change.
Affirm continues to expect to deliver 3%-4% revenue less transaction costs as a percentage of GMV, 6%-8% revenue as a percentage of GMV, and 20%-30% long-term adjusted operating margins. The only thing that's a little bit different in this model than what you would have seen two years ago is even in the higher growth periods, we still intend to run the business now in the 5%-15% adjusted operating margin range. Which means that we know, and we demonstrated it last quarter, and our guidance for this fiscal year certainly implies it, that we can run the business with a level of profitability and continue to be very growthful.
We still intend to keep the same long-term margin targets, but in the medium term, as we're growing faster than 20% on a revenue basis, we'd expect 5%-15% adjusted operating margins. I'll note that our guidance for fiscal 2024 has us at over 20% growth rate on revenue and above 5% from an adjusted operating margin standpoint, which is right in line with the guidance that we've given on the growth phase. I am positive there will be more questions on this, which is why we are now going to move to a Q&A and invite everybody up on stage to answer your questions.
Thank you, Michael. I would now like to invite all of our Affirm speakers back on stage for the final question and answer session. As a reminder, we will accept questions from both the virtual and in-person audience. If you have a question, please raise your hand, and we will bring a microphone to you. Please state your name and the company that you represent. Looks like our first question will come from Tim.
Great. Thank you. Tim Chiodo from UBS. So we touched about this a little bit a week or so back, but I thought this would be a good forum to bring it up again. So we talk a lot about the 3%-4% RLTC as a percentage of GMV, but there's a big chunk in there from the processing cost, which is about a whole point, which is big relative to 3-4. So could you just talk about some of the opportunities to bring that cost down over time in terms of reducing maybe card-based funding or paybacks to more of a bank-based method using something through the likes of Plaid or others? Thank you.
Yeah, I mean, I think it's a logical question, and then the answer follows. I mean, we are actively working on moving customers over to bank-based to ACH repayment, incentivizing that where it makes sense, making it available as a default repayment mechanism. We also, especially at the lower card sizes, this is where products like Max talked about, Pay in 30 or Pay in 2 makes sense, right? Because you have less payment processing cost as a result of it. And we're also looking for users who are high-velocity users, aligning repayment dates across multiple obligations that they have, so we can do a single draw. So it's... The observation is accurate, and we are actively working on reducing that cost.
Great. Any more questions? Looks like Rob has one.
Thanks. Rob Wildhack from Autonomous Research. Maybe a question for Brooke. You talked about or I wanted to get your thoughts on the balance between having a ton of willing funding partners and then making sure that each of those partners gets sufficient volume. And then I want to extend that, too, to an environment when the macro inevitably turns, and you might have to say, "Hey, we're going to pull back on growth," so, you know, your planned allocation might be a little lower. How do you keep all the funding partners happy in that construct?
Yeah, no, thank you for the question. I think it's a pretty nuanced, right? Which is not always the, the answer you wanna hear. But we really start with how to think about optimization from a credit, from a risk management perspective. We have ABS trusts we need to fill. We have priorities with respect to triggers. So we're looking at the entire model in terms of just basically staying clear and well outside of any potential triggers or challenges there with respect to risk limits. When you think about how we manage excess capacity, like I talked about earlier, we are really leveraging the forward flow, other you know capital-intensive channels, you know pretty fully.
I think the excess capacity that we're thinking about or we talk about is truly on the warehouse side. So warehouse is really that kind of release valve. It's an aggregator, but it's really the emergency valve for us in terms of how we think about managing excess capacity. So there's rarely a time when we are not utilizing, rather, certain channels fully, and most of that excess capacity tends to sit in warehouse lines. And, you know, we should never be a constraint on growth, so the ability to fund the business is never in a part of the equation about whether we pull back or not.
The question about pulling back or the consideration around pulling back is if we see something meaningfully changing or shifting in terms of how things are going in the broader business, not necessarily on the funding side. So to recap, it's first kind of risk management. We need to make sure everything's robust and tight, but we're also thinking about, like, how to maximize the higher capital-intensive channels first as it relates to risk limits and cost of capital.
Vera, I think you had one from online?
Yes. Back to the Affirm Card cohorts, can you please share what you've seen, you've been seeing between different cohorts? Is the spending higher or are the unit economics higher? Did you start scaling the product more meaningfully once the unit economics improved?
Gosh, that's a lot of questions. You know, working backward, yes, once we felt we had the economics in a suitable place, I won't say perfectly completely optimized, but sufficiently optimized, is when we started to scale, though we continued to optimize, and so we continued to see improvements on the economic side. As far as cohort performance, the main thing we see there is, you know, we have to disaggregate the seasonality components, and so seasonality of the onboarding cohort has an impact. But then when we look at the broader trend of comparing year-over-year cohorts and looking at those, we see product improvements leading towards higher spending on a per cohort basis.
Seasonally adjusted, new cohorts are spending greater on a per year basis than older cohorts, and we expect that trend to continue.
Reggie Smith from JPMorgan. Obviously, you guys are really good at risk management. I've noticed, I guess, in recent quarters, your proportion of revenue that comes from interest income has increased, and that's twofold: one, you're raising the APRs, and two, you're growing the book. I guess you didn't talk about it specifically, but how are you thinking about the size of your balance sheet? Maybe if you could frame that in the context of GMV as well. Just trying to figure out, you know, how large you're willing to get and how much opportunity is in that line item.
Yeah. So, we're not gonna provide any sort of long-term guidance on the balance sheet. I think the capital program continues to have the same priorities that it's always had. They're not gonna get in the way of growth, as Brooke said, which means that we're gonna enable growth. And you saw the investors up on the stage earlier, who I think are a really good insight into why we're so confident in our ability to enable that growth. And I love Rob's question because I do think that's a bigger risk for us, is that we can't keep everybody happy, much more so than we can't access capital. And so, look, we're gonna scale. I'm not gonna get in the way of that.
The second priority behind it is making sure we deliver the unit economics that we need to deliver. That's to make sure that we can fund our business and be profitable and be good stewards of capital and everything else. And the last priority is to make sure we manage the amount of equity concentration, and it's... The priorities are in that order for a reason. We're gonna enable growth no matter what. We're gonna deliver our units first, and then we're gonna be mindful about the equity capital because we wanna make sure that we don't get in the way of long-term growth. And so the reason why I answer the question that way is the constraint will ultimately be the last piece, but only after the first two are met.
Do you guys have a target when you think about it?
So we don't. Today, we enjoy a pretty envious position in that we've got ample liquidity, and so it really hasn't been a constraint for us. We treat it very scarcely, though. The reason we've been talking about it so loudly and for so long is because we're definitely mindful of the fact that that's ultimately a constraint on what we can grow into.
Andrew?
Andrew Bauch from Wells Fargo. So one short-term financial question, not necessarily short term, but thinking about the 3%-4% range, maybe if you can just give us an update on the variables that can bring us to the high end or the low end. Obviously, mix is an important dynamic here, and anything else that you were thinking about is how mix evolves over time.
Great question. Mix is the one word that I think answers the question. It's mix of capital, mix of loans, mix of partners, channels. These all tend to swing the number quite a bit. So last quarter, we delivered on the high end of the range, and that's despite being in a high-rate environment. And I think there's a real lesson there around the funding costs and funding environment's important to us, but not as important as our own mix or our own execution in the capital markets or our own mix of channel partners. And so I think you saw last quarter, we were in the higher end of that.
I think, you know, if you look forward, the continued capital mix that you'd expect, the periods of heightened use of balance sheet, let's say at the end of Q2, like we usually would, you're gonna see a little bit more on the balance sheet. That will tend to drive the number down just because you're gonna hold more loans. And similarly, I think that as you can sell more loans, it can swing to the other side inside the period. I think that credit always matters. We don't take that number out. So when we talk about our revenue less transaction costs, it includes the provision, which is the amount necessary to support the current expected credit losses, and I think that's a really important part of our unit economics. And because the loans turn over so fast, we don't think of the problem as being separate.
We think about them as part of it, and so our ability to continue to manage credit outcomes will also play into that. And then I think the level of merchant support and engagement, in particular promotional activity, tends to be really impactful for us in terms of driving that merchant network revenue line.
No, thank you. And then, for Max, I mean, you had a comment that and the vision being the leader in payments. Obviously, the business today is skewed towards, you know, the lower end of the credit spectrum relative to the mean. But being the leader in payments, in our view, would essentially mean being able to move up the affluence curve. And so how are you gonna break the ingrained behaviors around credit and rewards that are offered by, you know, some of the largest issuers in the space today and gain further penetration up there?
So for what it's worth, we can definitely quibble with the definition of where the business is today. I wish we could skew as low as I would like because I think there's some tremendous work to be done at the truly sort of, call it bottom quartile. But we, generally speaking, can't really go there because we don't want to price the credit any higher than we do, and just the products that make sense there aren't the ones we make today. So we play primarily in the two middle quartiles. But you're right, we are far away from the Black Cards and the Sapphire Reserves, and all of that. And I'm not sure we can compete on rewards there. Also not sure we want to compete on rewards there.
It's the sort of thing that you end up sort of trying to scale the mountain that somebody else already planted a flag on. What we do have, and where we do skew very high credit, are, you know, the 26% of our S-1 filed volume was due to Peloton, which is now, we've outgrown them quite significantly. But make no mistake, those are 39 months loans. Given our conservatism when it comes to credit, those are not bottom or middle or any quartile other than the very top, because we're taking quite a long duration risk. And so that is a little bit of a blueprint for what kind of things that consumer is willing to take, even if they have, you know, a Black Card in one pocket and a Sapphire Reserve in the other.
And we'll lean into that, those learnings quite heavily. Definitely not gonna pronounce any products here, but something that's still in the lab layer versus on the factory floor is the product that I think, products that we think would work for a higher credit quality demo, where we can offer... Where we can focus on, "Here's a bunch of really great services and amazing deals you couldn't get anywhere else," where we're not super concerned with the credit quality at all. And don't, you know, expect us to show up with quintuple miles on your favorite whatever. The reason people do that, frankly, is for exactly that. Let's take MDRs from small merchants and give it to the marquee sponsor of the card. That's tried and true, and it works okay. I think between our innovation and perhaps the Credit Competitiveness Act, the game might change.
Hey, Kyle Peterson, Needham. Thanks for taking the question. You guys got a, gave a lot of really good color on, you know, risk, specifically on, you know, the credit side of things, of where we are in the cycle. I was wondering if you'd give a little more color on, you know, how you guys are thinking about, you know, interest rate and, you know, duration risk. It seems like the velocity of the assets is reasonably quick, but, you know, any more color on how you guys are thinking about that, would be really helpful.
Yeah, I mean, the longer duration is the question, right? The way we're thinking about it is longer duration, as the duration increases, generally from our perspective, in terms of what we're willing to extend, moves up the credit ladder. And there, it's prime. The primary controls there that we're looking at are exposure and the size of the exposure we have to that consumer, as well as their general outstanding debt. We look at it through really two lenses, both of the absolute amount as we think about their indebtedness, but also what is the monthly obligation for that consumer.
And so when we think about managing risk on longer duration, higher credit, we're primarily looking at it through that lens, and monitoring the performance of the consumer across all of their obligations to us. Obviously, all of their obligations, period, but a special attention of when they have multiple obligations and where in the payment cycle they are, and how they're performing, not just that first payment to DQ, DQs, but also subsequent payments and how that's going. And that's the primary things we're looking at from a credit perspective. A few others, but that, that's kind of the 10,000-foot view.
Thank you.
Mm-hmm. Kevin?
Kevin Barker with Piper Sandler. You know, obviously, we've seen a lot of merchants have a slowdown in spending or at least a slowdown in transaction volume, so naturally, they're your counterparty, and so they're looking to increase, you know, conversion rates and more spending. So how do you balance your conversations with your merchants on supporting them by either opening the underwriting box or shrinking the underwriting box, and then, you know, maybe balancing that on supporting them versus pulling back in what might be a weak economic scenario?
Well, I mean, I'll take a part of it, at least. Obviously, there is the conversation with the merchant as well. But the primary starting point is always the consumer and their credit performance. So we're looking at that and on making sure that we're not overextending the consumer, that we're not creating risk for the business, especially as it relates to the capital program. And so we're looking first at the consumer, then the capital program, and then we're looking at what's available, what options we have at the merchant. You know, it's not just a matter of lowering cutoffs, it's not just a matter of increasing exposures, but we also have fixed APR.
You know, moving from a floating interest program to a fixed APR program, or going to zero, and other offers as well. That can work broadly. The other component of it is, it's not just that we're looking at consumers who are at the limit of what is sustainable for them. There is... You know, when we look at the 40 million users that we have, a lot of them have additional capacity, and it becomes more of a question of, is this the thing that they want to spend the dollars they have remaining in terms of exposure and limits? Is this the purchase that they want to make? That's where the merchant is trying to put their best foot forward relative to other merchants.
So when we talk, when we think about it internally, from our perspective, it's really two sides of the same coin. On the consumer side, it is we are trying to increase share of wallet. The spend that that consumer is going to have, we want to capture more of it, and on the merchant side, we're trying to capture a larger share of cart. And again, it's, you know, we're trying to grow it, but we're also trying to capture more of it. And those become, you know, really, it's a transaction, so it's the same thing, just two different sides of it.
Yeah. We do have conversations with our merchants, where we're very transparent, and they're transparent with us. So if they're trying to lower their cost of acceptance, we look at different ways we can customize the program. So maybe, as Libor kind of mentioned, we could do a 4.999% APR versus, you know, a variable rate, and that might be better than a 0% offer. Or maybe you do a 0% offer promotionally at certain periods, where you can afford that spend, or you offset maybe advertising spend. So if you know you're doing a big promotional event, maybe you want to spend a little more on the financing program, offer a 0% program, and then in other times, you might want to cut back or if you have surplus inventory.
So really, what we try to do is customize the program based on the constraints that the merchant is seeing. At times, they may want to flex up to get more volume. At times, they may want to flex down, but we can be variable and work with them around that.
Looks like James.
Great, thanks. Wanted to ask a couple of questions. First, on this point on 0%, and Max, you talked about with Peloton, that you had very long duration, so it was very high credit quality customers. Should we then think about the ability... I mean, a couple of questions stem from that. First, as you have other 0% promotions, how much can you bring that down or off those 0% promotions to lower credit quality customers if the durations are short enough? And, you know, should we anticipate that there should be promotions where you can address those higher credit quality customers in the future, like big-ticket purchases, longer duration again?
So Libor kind of hinted at it, and a really important piece here is the total amount of dollars this particular consumer can afford to pay per month. As the higher up you go in credit quality, where both willingness and ability to repay becomes less of a concern, you're now looking at actual cash flow constraints. And obviously, at a certain level of personal wealth and savings, whatever, all of this becomes more of a prioritization game than actual constraints on the ground. But for the mid-prime, near-prime, upper, upper mid-prime customer, it does become a question of: What is better for you, a 0% rate or a longer term? And you can sort of imagine it's a fairly obvious three-dimensional function, and you can find the optimal point for just about any consumer if you understand them well.
We absolutely have done programs with merchants, and sophisticated merchants, incidentally, use the tools that we provide for them to define these things almost entirely and sometimes entirely without our help. Again, our job is to build more and more software tools so they can say, "Here's what I want my approval curve to look like, because I know this particular consumer, a 5.99% APR is more than enough. They are compelled to transact, and it lowers my cost of acceptance dramatically because these are fixed payments upfront that they pay in MDR, while 5.99% is an over time APR, obviously." And so I think it's really appropriate to think about these things as kind of a continuum of offers, quality of credit, and merchant margin.
Those are kind of the three dimensions that we optimize in, and it's a 3-D surface, but there's always a point for every customer where they'll go from, "This is interesting, but I'm not quite prepared to transact," to, "This will actually work for me, and I'll go do it." And we both A/B test and use merchant intuition to find the right points on that curve.
I mean, just to kind of give you an idea, I mean, on the merchant side, there's merchants with very healthy margins in certain subsegments, and we've had conversations where those MDRs are pushing 20%, because of what they want to do, as you said, going low, long, and zero. And so we can operate in that space.
I also think it's a mistake to think that we only engage with high credit quality users on 0%. High credit quality users use credit and they borrow, and I think that's part of the reason why they're high credit quality. And so, while we do have the ability to approve deeper and the average is lower, we absolutely underwrite and are able to engage higher credit quality users with interest-bearing loans.
And then my second question was, you know, I guess, like, when you look at the time bridge between medium-term and long-term growth rates, like what brings that slower growth, higher margin environment sooner versus pushes it out further? Just trying to think about, like, how we think about sensitivities there.
Yeah, I think the, I mean, the biggest thing is honestly how quickly we're able to ship products that resonate with consumers and deliver the economics that we need that are scalable and sustainable. And I think Max talked a lot about being able to ship products quickly. I think the constraint will probably be in making sure that they resonate with consumers in a way where we can still deliver the unit economics that we need. 'Cause we don't think growth and profitability are trade-offs; they really go hand in hand. It's an issue for us with respect to the unit. And with respect to the operating expenses, the investment we make is consistent with the growth that we're seeing in the business, and those things are coupled in a way we can control.
Dan?
Hey, yeah, Dan Dolev, Mizuho again. Thanks for taking my question. Can you maybe talk about the dollar-based retention, net retention? Seems quite high, I think 115%. You know, can we talk about that, the sustainability of that ratio, and is there more room to gain share as that continues? Thank you.
We don't see any reason why it can't be sustained. I don't think we've found the upper limit of that share of cart. You know, I showed those charts earlier in terms of how the share of cart can build and build over time, and we don't think we've hit any sort of limit there. And then when I look at our ability to retain the logos and renew, and when you put those two things together, I don't think we see any reason why it's not sustainable.
Also, just a friendly reminder that we're still in the 2%-2.5% of e-commerce, 0.27% of all commerce, and so it's, it's not hard to have good growth rates and high retention rates if you are breaking into a giant market where there's obvious consumer demand. Okay, I think if we were in the... Once we get to 10%, which, you know, I, I hope to get to sooner than later, then we can debate sort of how viable is it and all that. But generally speaking, we are liked by our partners. They sell more. They're, they're very clear about that. A lot of them pay us more than they pay for credit card acceptance, which is the best possible litmus test. Like, is this thing worth it? Like, they have a way of accepting payments.
Everybody's got a card of some kind in their pocket, and they choose us right alongside those logos. That must mean that we add something that otherwise doesn't happen. And so, so long as that continues happening with the products that we have today and going forward, I think we feel very good about the dollar retention rates.
Any other questions?
Oh, we have tired them out.
Last call, otherwise, I think we can end it there.
It is the sense of alcohol is right outside.
All right.
Great! Well, I'd like to thank you all.
Thank you.
Actually, three thank yous. First, thank you to the audience, both virtual and in person, for attending today. Second, we'd like to thank, Kaz, Jai, and our funding partner speakers that joined us on stage. And finally, the many, Affirmers that took part in creating this presentation. We could not have done it without you. So with that, we will be hosting the Affirm Card and Affirm Account demo in the back of the room, as well as the cocktail reception, and we look forward to seeing you there. Thank you.