We'll get going for our next session. We are very excited to have Affirm with us for the next hour. We have Brooke and Rob. Maybe I'll start with just asking you guys to introduce yourselves and maybe describe a bit about what your mandate is at the company. I'm always curious, maybe a very short kind of story about when you joined the firm and what motivated you to join, maybe in a couple of sentences, just gives a sense of how you're thinking about the company.
Sure. Thanks for joining, everybody. Good to see you. My name is Brooke Major-Reid. I'm the Chief Capital Officer at Affirm, and effectively what that means, I make sure we have enough liquidity and capital to do the stuff we need to do. That spans funding the business, so funding the loans we originate, managing the bank partner relationships for the originating banks because we don't have a bank charter, so we have lenders of record, and we partner with originating banks. Managing those relationships with other bank partners that do things like Debit+, so that ecosystem. Treasury, as you think about just the core corporate treasury operation, that as well, and the funding part of our treasury operations. Capital markets globally, so that whole team.
Last but not least, we have a quant group. Think of them as the folks who keep us on the right side of the tracks here in terms of managing risk from a facility and funding perspective. That's my mandate at Affirm. I joined Affirm about two years ago in the role. The thing that appealed to me most is that the mission, it was so mission-aligned. The culture was so healthy and, you know, filled with folks who are just really smart about wanting to solve real problems. I come from the Caribbean. I came here for college, the opportunity to find different ways to provide access to capital, that was very appealing, and to do it in a very honest, transparent way.
For me, it was kind of value and mission alignment along with the culture.
Yeah.
Hi, I'm Rob O'Hare. I'm a senior vice president on the finance team. I spend my time across sort of five sub-functions within finance. Those include investor relations, as well as our what we call strategic finance team, which owns all of our forecasting and financial planning for the business. I also work with our corporate development team, which owns all of our whole company M&A, as well as integrating those businesses after the transactions. I lead a merchant pricing team which sets sort of go-to-market rate cards for new merchants, and also is at the table for renewal and negotiation discussions with large platforms or partnerships. I also lead a small procurement team that manages all of the vendor spend.
I think in terms of, you know, sort of what drew me to Affirm, you know, Affirm sort of came on my radar. I had the luck of being an angel investor into a friend's business, and that business was actually acquired by Affirm.
Mm-hmm.
I had sort of the funny experience of being on the cap table while I was interviewing, which I've never had before. I think what came through in the interviews, you know, I was fortunate to speak with Michael, our CFO, as well as Libor, our president, and Max, our founder, during my recruiting process. There was just such a consistency and such a passion around the mission. For me it really hearkened back to sort of what I experienced when I was at Square previously of sort of democratizing finance and bringing financial services, in this case, consumer lending, to market in a really fair and honest way.
Yeah.
That was really.
Yeah.
brought me over.
Got it. Okay, great. That's very, very helpful background. Well, we're very excited to have you here, Brooke, to get into some of the questions about the financing nitty-gritty. I had a couple of questions about sort of high level, high level results from the quarter, et cetera, but I'm gonna leave them for the last because I really wanted to make sure we have enough time for the nitty-gritty of financing, since that's the topic. I'll jump into that. Maybe first question for you, I wanted to start at a high level. You have a long career in kind of consumer credit. I think you worked in different areas.
You talked a little bit about Affirm in terms of the mission, but talk about your view of what Affirm brings to the consumer credit market.
Mm-hmm.
I think kinda my fundamental question is, there's a lot of consumer credit products out there.
Right.
It's not like consumer credit market doesn't exist, right? We have credit cards, we have different kinds of financing, personal loans, et cetera. Point of sale financing is not a new thing.
Right.
From a, like, a credit professional expert perspective, how do you think about what is Affirm bringing to the table that's new and needed?
Yeah. No, that's a really, really good question. You know, when I reflect on kind of our model and how much I've learned about how we actually run the business, I could not be more honored to be a part of the team. I say that with a lot of humility and sincerity because when on the surface, we're providing, you know, honest financial products, but the thing that is honest about it is just that the transparency. No late fees, no compound interest. It's stated very simply. We meet the customer where they are, right? Whether it's a six-week Pay in four loan out to 60 months, we're able to really offer access to credit in a way that's unique.
The second thing is that we underwrite every single transaction. We do it in a responsible way. That was the main learning for me in terms of how we use our credit models. We have a large machine learning team. We are very disciplined about not just treating the customer as, you know, a score.
Mm.
Right? We are looking at the item, we're figuring out ways to determine whether the customer is credit worthy, and there's so many pieces of data that the team uses to do that. We're running this business in a way that's good for consumers. It creates higher conversion for merchants, and that's been proven because we are able to offer access to different goods, whether it be general merchandise, everyday spend, or like a highly considered discretionary spend. We're able to create access to those products in a very responsible way. The big picture for me is how are you executing on these credit.
Mm-hmm.
products?
Mm-hmm.
How are you doing it? Are you benefiting from a customer's inability to pay? At Affirm that it's so antithetical to how we do things in that we're providing credit, but at the same time we are, we're really serious and passionate about doing that responsibly.
Mm-hmm.
Even before all of this happened, with the Fed and the volatility and all sorts of things that, you know, sound familiar but are new, we have risk management in our DNA. I think that control for the consumer, the benefit for the merchant, and the way we offer the products is very differentiated.
Got it. Okay. Reminder for folks, if you have questions, feel free to submit them through the QR code, and they'll pop up here, and I'll try to incorporate them. Great. Maybe diving a little bit deeper into the financing strategy. You already mentioned Affirm, you know, is not a bank, so it doesn't have kind of large balance sheets, so you have a relatively diverse and, let's say complicated, financing strategy. Can you give us an overview of the different types of financing that Affirm uses?
Sure. I'll do this so quickly so we can get through your questions. We fund the business across three primary channels. Warehouse funding, which everybody's very familiar with. We have bilateral forward flow agreement where we just sell whole loans, and we've got a few ABS shelves. We execute in the securitization market, and we've stood up that program now for about 2.5 years. Our funding model relies on our ability to really optimize in a very prudent way around economics, but also unit economics, but also managing the amount of cash that we use to fund loans, and that we refer to as just equity and loans, so our equity, our ECR ratio, right? Our equity capital ratio.
One of the things that the model allows us to do is really balance how much we have off balance sheet.
Mm-hmm.
On balance sheet, but doing that in a very principled way around unit eco-economics and capital efficiency. You know, heading into, you know, kind of fall of 2021, early 2022, I could not have been more grateful for two things: the model itself and how diversified it was.
Mm.
Also the fact that we have always been risk managers at heart. The portfolio duration is really short, which in this environment is a very attractive thing to all stakeholders in the funding ecosystem. The fact that we have earned our stripes with respect to demonstrating our ability to control credit outcomes by, you know, managing the profile of the book at any given time. That has really boded well for us in terms of accessing ABS.
Mm-hmm.
adding forward flow capacity and maintaining and continuing to add bilateral forward flow. We've always had excess capacity at hand because one of the things is I don't wanna be... Capital should not be a constraint to growing.
Mm-hmm.
Running the business.
Mm-hmm. Got it. Okay. Okay. Well, I wanna talk about these different types of financing maybe in a little bit more specificity. First, with a question, you mentioned you kind of balance between holding risk on balance sheet and taking risk off balance sheet. I think, I was looking about half of your kind of funding is on balance sheet, like 46% last quarter, and that number varies a bit. Talk the... I'm always curious, how do you decide at what level of risk-
Yeah.
They wanna be keeping on the balance sheet? Cause that seems like a fundamental question to kind of your model, basically. Are you holding risk or are you basically selling it off?
Like I said, going back to our risk management posture, I like all our cooking, and my job is to make sure that the vehicles I stand up, and there's few exceptions where I will set up something to fund like our Pay in four or, you know, 0%. Generically, the goal is to have all the channels open to everything that we are able to produce. I'm of two minds. The business needs to do what it needs to do, and on the end, I need to make sure that I'm not at a limiting right product or by scale. You know, from my perspective, it's really important that we kind of understand that part and the dynamicism of the model.
When we think about on or off balance sheet, I'm grateful to my finance partners that we don't guide or put out a number. Because it limits the flexibility, right? If something has happened in the market, which a lot has happened and continues to happen, we want the ability to make disciplined decisions about, you know, how we fund. There are times when I may have to lean into warehouse funding on, you know, like we did in Q2. Maybe that's a little higher. It runs a little hotter than I'd like to, and I want a normalized level. At the same time, I wanna be disciplined about adding capital in the right way, and that may, you know, in forward flow, it might take a little bit longer, so you're onboarding new people.
In ABS markets, the pockets may not be available. Fall of 2022, unfortunately, we ended up in a pocket where we weren't able to execute a deal. In January, guess what? It was 9:00 A.M. on a Tuesday, and the market said it was fine.
Mm.
that sort of dynamic in the market, the model helps us to make those decisions without being beholden-
Mm-hmm.
To having to make a decision about maybe adding capital at a cost that may not be good for the business in the long term. That's not to say that we aren't market takers of capital because things have changed. The way in which we do that, Our ability to kind of lean in and out and balance things over time.
Mm-hmm.
As opposed to being, you know, restricted or constrained. We believe that the fact that we have had to prove to the market, rightly so, that we can control credit outcomes. We've maintained short duration. We've done all the things that we can control to deepen that access.
Maybe, strategically, philosophically is that 50% on, 50% off. Is that the general marker that Affirm has and we should be expecting? Is that more an outcome of, you know, the current financing environment that might significantly change?
Yeah. I think as we scale, we reserve the right to manage it. You know, at the end of the day, I'd want to continue to be capital efficient, for example, with our cash. Coming off before we actually got to the last couple of quarters, we were at, like, 2%.
Mm-hmm.
People would ask, "Is that sustainable?" You know, I would say that probably wasn't, at the same time, where we are today is a lot higher, do we wanna manage that? At the end of the day, you're trying to create a balanced approach in a very difficult market. You're looking at capital efficiency as well as unit economics. It's that optimization that you.
Mm-hmm.
You constantly have to be attending to rather than just the pure split of on versus off.
Mm-hmm.
I really don't wanna have a lot of cash going into funding loans. I also wanna make sure that from an economic perspective, you know, if we keep a loan on balance sheet, like I said, we like the risk profile of our loans. Partners get a vertical slice. We don't cherry-pick. There's no kind of adverse selection or anything going on. It's a vertical slice. We keep the it looks the same. If we keep an interest-bearing loan on the sheet, we get the benefit over time.
Yeah.
Right? When we sell a loan, we pull forward that revenue and get the gain on sale. It's actually more accretive to us to hold a loan on balance sheet.
Yeah.
I just think in these markets, you have to have a level of both flexibility.
Yeah.
discipline around unit economics and capital efficiency.
Yeah. Got it. Okay. Let's talk about your outside financing. I'd be curious maybe to start with hearing your thoughts on when you go out into the market, whether it be ABS, maybe for flow agreements, maybe a little different, maybe the same. What differentiates Affirm? What do third party investors like about Affirm paper?
Yeah.
or opportunity to get exposed to Affirm?
In this market, I think historically, our weighted average duration is pretty short, five months. As Rob likes to say, and others internally, we get to work our way through any sort of, you know, footballs we have made around credit, which that has been something we've been very, very disciplined around. Job number one, folks like the fact that we are really good at underwriting.
Mm-hmm.
That we have proven quarter-over-quarter, over many quarters now, that we control the credit outcome. We define what the tolerance, and the fact that we underwrite every item. It's not a open line like a revolving credit card. Unfortunately, at times, when we think it's the right thing to do to say no to a customer, we do that. That approach really from a partner perspective creates this, like, alignment of interest. Nobody wants to be heady with risk in a time where, you know, the consumer and the fitness or the state of the consumer is being questioned. We are now waiting for this proverbial shoe to drop for now 18 months.
Yeah.
like I like to say, nobody knows whether it's gonna be a sandal that just gets your hair blown or is it gonna be a construction boot that.
Right.
us all out, right? No one wants to take that bet. When you can prove to investors that you really have a handle on credit and that your duration is short, even if they don't always believe that it will stay that way, your duration's short. The fact that they understand the model is differentiated around risk and that there's a risk management posture across the board, I think that really attracts and maintains the stickiness of the current investor base.
Mm-hmm.
It attracts new folks who say, "You know, I'm not... You know, even if I'm not heavy into consumer, here is a place that the Affirm portfolio is well structured. Our ABS deals are well structured." It creates this kind of, you know, virtual, virtuous cycle in terms of alignment of interest and a risk.
Mm-hmm.
period of volatility and also, attractive returns.
Mm-hmm. Got it. Okay. Okay. Maybe now, since we've lived through, a lot of volatility over the last couple of years, I'd be curious if you can give us a little bit of a kind of historical time. I think you've been there for two years-
Yeah.
you said, right? Maybe since the time you came, I guess. But right we went through your hot period kinda at the end of 2021, markets were open, then starting to close out, then into the crisis, bank crisis that we had this spring. It'd be very helpful to hear as you're interacting day to day with kinda third party providers, how has that evolved? How has that changed?
Just in terms of-
Their willingness, their demand.
Yeah.
Their willingness to how difficult it is for you to basically get them interested, yeah.
Yeah. It's interesting because on the bank side, we've actually had quite a bit of interest. We added a couple of net.
Uh-huh.
-partners on the bank side. Our spreads on warehouse have held in tremendously well. If you look at our queue, we've got the range. The higher range is actually the one outlier. Our spreads and the quality, you know, the attraction of folks to provide warehouse capital has been very, very robust. Forward flow, like I said, we continue to have those conversations. Folks are very interested, but I would say the difference maybe, you know, 12-ish + months ago was that it's just taken more time for us to do our jobs-
Mm-hmm.
-and kind of deliver the story, to, you know, for folks to get comfortable given the uncertainty of the macro. We've had a lot of interest there. I would say it's the tail and then making sure that folks understand from an economic perspective, how we can be competitive for net new.
Mm-hmm.
With respect to the ABS market, you're absolutely right. There's just been windows and pockets of volatility that were sometimes unexplainable, and sometimes we ended up in a pocket where, you know, CPI, we're in the middle of a Fed, you know, a pre-Fed meeting or CPI print. What we've actually learned throughout this is that if you're scaling a program, and then this is kind of a basic first principle, you have to be able to weather the storm. We wanna be programmatic. We've issued just under $5 billion in ABS. We are called what people refer to as an A, esoteric issuer in a nascent market.
In order to build that liquidity and depth, we need to be able to provide more paper to the market and be more programmatic, that's something we're willing to do in a disciplined way. While we're not overly reliant on any one channel, I think what's changed is the, is the kind of the bringing along of folks around how why we're differentiated, how we manage the business from a credit perspective. I think just people have to answer to somebody. They wanna make sure that they truly have the picture straight, and they're convinced that, you know, of all the things that we're doing, that risk management is going to be.
Mm-hmm.
Continue to be at the forefront.
Mm-hmm.
We've deepened the investor base in ABS, but we've got a ways to go.
Mm-hmm.
In terms of managing the program for scale and being more programmatic.
Mm-hmm. Mm-hmm. Got it. On the, as you doing this work to generate demand, especially over the past kind of 12 months, we're going through volatility, what changes did you need to make to the, you know, the actual product, meaning to the actual loans? I'm thinking, for example, the pricing changes that have been implemented. Like, how much of that was the requirement that basically came from the financing markets, you know, where you needed basically to raise the prices on your interest-bearing loans to get demand?
Yeah. You wanna?
Yeah.
Sure. Yeah. I mean, I think, you know, one of the jokes internally is that our largest supplier raised prices on us pretty well-
Right.
You know, over the last 18 months, right? I think using APR as a way to offset the interest rate increases that we've seen, I think that we feel like that's the lowest friction way to get a pricing increase rolled out en masse. We also think that, you know, we're doing it in a way that is still healthy for the consumer, right? When you take our $300 average order value and think about a 12-month loan, which is about our average, moving from a 30% APR to a 36% APR ends up being about another $0.75 a month.
Mm-hmm.
for our consumers. We think it's a change that's gonna be really impactful for our economics and good for our P&L, good for our funding partners too. Also one that isn't gonna hurt, you know, consumers' monthly cash flow and also isn't gonna hurt merchants' take-up rates or growth.
Got it. Did that move help generate demand for your ABS product, the price increases?
Yeah. I would say so. It wasn't. I mean, I think when you think about the units and the economics you have to share, certainly.
Mm-hmm.
it has led to, a very robust, constructive conversation.
Mm-hmm.
Given the fact that there's more yield now in the asset, and therefore that will help with loan sales pricing. I think generally speaking, yes, it did help, but I don't think people were so focused on, you know, when and how much is flowing through. It happened to be something that made the asset more attractive, but I wouldn't say that we had less demand before and more demand now as a result.
Got it.
I think it just creates a healthier construct for folks to, you know, see the discipline that we wanna have around pricing. We wanna be competitive, but at the same time, we wanna make sure that we are being disciplined around the economics of the asset itself.
Got it.
-which that helps with.
Yeah.
Yeah.
Makes sense. Makes sense. Okay, great. Last question on this topic, then I wanted to hit two other ones. Forward looking, I guess, as you sit here and you're looking at the current environment, obviously nobody has the crystal ball and who knows with the economy, how do you assess the current environment? Your job, I think, is very forward-looking because you're trying to make sure that the capital is available. What's your outlook, and what actions are you taking to make sure that Affirm remains in the strong position that it has?
Job number one is credit risk management. The folks say we're being too conservative and there's room to run. We are not gonna go out and sacrifice credit, you know, for the benefit of growth relative to access to capital. We understand that our ability to control credit outcomes and demonstrate outperformance is what's paramount in this environment and also duration. The way I'm thinking about the next several months is how do I press the advantage, do our jobs a lot better with respect to communicating the value, you know, reinforcing the fact that we are fully in control as we are, and that's been proven out, and really adding capital in a way that's thoughtful and disciplined, but also flexible.
You know, I may not be able to do the two-year agreement, but I could do a one-year with some sort of evergreen. Really taking the model in a way and refining it so that it remains resilient, but that we are also not, you know, sacrificing anything around, you know, credit and underwriting in a way that, you know, that would benefit growth and have a trade-off or downside effect on capital access.
Yeah. Got it. Okay. Okay. Brooke, you mentioned you also oversee the bank relationships. I just want to spend a couple of minutes on that. First, maybe to level set, you know, what's the need for the bank partnership, just for those who may be not as familiar with the model. I mean, you're not a bank, but why do you need a bank to do what you do?
We originate most of our loans. I mean, the Pay in four we have Affirm Loan Services, which we originate through, we have, you know, different licenses that we state licenses that we can originate certain loans through ALS. For the vast majority of our loans, we need a lender of record from a regulatory perspective, we use bank originators. Banks basically provide banking as a service, we partner with them to originate our loans. They originate the loan, within a few days, we repurchase. We purchase the loans, it sits on our sheet for a hot minute, or it goes.
Mm-hmm.
-directly into a funding channel. We have two bank partners. We have line of sight to adding another one as we've announced. It really does create resiliency with more than one bank partner. The ability to go up to 36% is also very important to us in this environment. Managing kind of an ecosystem of banks that have that ability is paramount in terms of, you know, how we scale and grow the business.
Got it. You mentioned you're adding, I think the two major ones you had is Cross River and Celtic Bank.
Yes.
Right? You're thinking about adding a third one. Is your relationship with these two remains strong as well? Are you using both of them?
Yeah.
Is it shifting around?
Most of our volume is with Celtic.
Mm-hmm.
Celtic, can go to 36%.
Mm-hmm.
because they're domiciled in Utah. We have Cross River whose New Jersey State chartered, and they can only go to 30%. A vast majority of the volume has shifted to Celtic Bank. As we add bank partners, that will be an important part of.
Mm-hmm.
Of the consideration. We also do savings through Cross River. We maintain partnerships in a way that's kind of, beneficial for the business in terms of what we're trying to accomplish.
Got it. Any possibility that Affirm would move to get a banking license and become a bank, or is that kind of fundamentally counter to your long-term strategy in the last thing?
I think in the long run, it may make sense for us. I think in the short run, there's definitely some blockers to that. You know, I think even if we were to have a banking charter and have some sort of depository base, I think we would keep our existing three funding channels.
Mm-hmm.
That would be the fourth. Just at the scale point where we are today and the scale point that we envision in the future, I don't know that it would ever be the majority of sort of the funding that we would rely on, but I think it could sort of help maybe take a bit of volatility out of the system.
Got it. Okay. Okay, great. This is a very interesting discussion on the funding. I do have a number of other questions that I did wanna hit, so I'll start going through them. Maybe taking us back to some of the short-term issues, so your earnings report from a couple of weeks ago. A lot of interesting developments, two things I specifically wanted to ask about that are kinda top of mind for me. One is just GMV growth. In the quarter, it decelerated to about 20% year-over-year, which I know there's a lot of factors, you know, that are influencing it.
Kind of taking a step back all of us are watching BNPL industry and really wondering, you know, what's the growth trajectory of the overall like are people actually interested in this product? When we're seeing a deceleration, that's a little bit of a little bit of an alarming, you know, sign that, hey, you know, is the interest in BNPL industry decelerating? I was curious if, you know, Rob O'Hare or Brooke, you can talk a little bit about how you're thinking about it, what's caused this deceleration, and what do you believe is trajectory to maybe re-acceleration. I'm talking about not necessarily next quarter, but kind of over the next 12 months.
Yeah. I mean, I think, when you sort of double-click into the quarter, I think there were a lot of really positive signals from a GMV growth perspective. I think the first one that comes to mind for me is we did see actually a re-acceleration in Shopify growth.
Mm-hmm.
Like we grew faster in the March quarter than we did on a year-over-year basis in the December quarter. Shop's been a really amazing partner for us, but also a partner that's driven a large share of our new to Affirm users, right? It's been a really great consumer on-ramp for us. To see a pickup in acceleration, you know, a year and a half into that program, I think is a really positive signal just in terms of, you know, this is a way that consumers want to interact.
Mm-hmm.
I think that's been a positive, we're continuing to do, I think, really good work, within the Amazon program and obviously the potential of that program is almost unbounded, just given how important they are, to e-commerce at large. I think, you know, we've got a lot of headroom in our, in our sort of marquee programs. Also I think like other lenders, consumer lenders in particular, we had tightened our credit posture over the last 18 months, and we're comping against, looser credit periods. As we start to sort of have a normal, you know, like-for-like comparison period, I think you'll see a natural, re-acceleration as a result of that.
Got it. Okay. Okay. The second, kind of metric that we are watching very closely, I know you guys as well, and all investors are, is your Revenue Less Transaction Costs yield. It's a mouthful, RLTC yield. Again, a lot of factors go into it, but it's an important metric of your unit economics at a kind of variable level. That actually has done very well this quarter. It was up to, you know, about 3.5%, your guide, I think, for the fourth quarter indicated that it's gonna dip below 3%, if I did our math correctly. Kind of 3% - 4% is your, is the level that you set for the medium term. When it kind of...
We're seeing it dip again below three, it begs some questions. My question actually maybe you can help us understand what causes the volatility of it, because that's I think one of the.
Yeah
... things folks are uncomfortable with. Why is it 3.6% one quarter and then down to 2.9% just the quarter after?
Yeah, I mean, I think there's a lot of, there's a lot of drivers and there's a lot of mix shifts that go on, at Affirm from quarter to quarter. I think one of the biggest drivers that's impacting the Q4 guide is just frankly the sequential growth in GMV. I think at the midpoint, we were guiding to something like 18%, quarter-over-quarter growth. Where we have periods of sort of pretty significant sequential growth, that will compress margins because for loans that we hold to maturity, we take an allowance against those loans on day one, and then we need to hold those loans, you know, to the end of their life to sort of fully, recognize the revenue and profitability from those loans.
When you're only looking at a quarterly slice, you're gonna see all of the provision, all the expense, and not all of the interest income that we'll collect. It creates a bit of a J curve.
Mm-hmm.
We've had a similar dynamic in the December quarter for the last two years where it's been more pronounced. That's sort of the biggest driver that's going on here in Q4. The good news is that I think Q3, the March quarter, was a good example of this, where we did have sort of the seasonal low in Revenue Less Transaction Costs yield in the December quarter. We got the benefit of sort of, the interest income from those loans that we originated in December, and we got the benefit of that in the March quarter. We would expect a bit of a rebound or a normalization in the September quarter.
Interesting
... coming out of this sort of seasonally high-
Got it.
... quarter.
Got it. For investors in Affirm or folks who are watching the company closely, would your gonna recommendation be to pull away maybe from really looking at the quarterly level of RLTC and start looking over like a 12-month period? What's the right way to approach this?
That's the dream. I mean, you know, we're originating loans that have roughly a 12-month weighted average life.
Yeah.
I think it's really hard to sort of focus on a 90-day vertical slice. I mean, when we make underwriting decisions, when we make credit decisions, we do tend to take a horizontal view of the quality of the loans.
Yeah.
Just given some of the vagaries of US GAAP, like, you know, there's a lot of expenses on the front end and the revenue recognition just takes time in our business. Yeah, I think our full year guide is still comfortably in the 3%-4% range for RLTC. That's how we try to run the business. I think though being in that range is really important to us from a capital markets perspective. We don't think that sort of anything's been impaired in terms of the profitability of the portfolio, and we would encourage investors to maybe take a longer view if possible.
Yeah. Got it. Okay. Okay. Pulling back up a little bit more to two key strategic questions I have on my list. One kind of hot button issue is competition, I think in BNPL. Of course you have your kind of specialist competitors like Klarna and Afterpay of the world, but you also have, you know, Apple coming out with a BNPL solution. You have PayPal that does have a BNPL solution. You have, you know, Walmart that's getting into consumer, you know, finance and potentially talking about maybe something like that. I think the competitive question is top of mind for folks who are watching this space. Maybe say two words about what's your current view of Affirm's kind of positioning against this big set of competitors.
What gives you confidence that you can still win, you know, when the environment is getting so competitive and players like Apple, you know, are getting into it?
Yeah. I mean, I think for me, the differentiation starts at just the aperture and the breadth of products that we can bring to market, right? We can finance loans anywhere from $50 in size up to nearly $20,000 in size. We can go from six weeks - 60 months, and we can do 0% consumer interest all the way up to 36%. I think when you sort of double-click in to that matrix of offerings that we have, there's a lot of complexity underneath the hood, right? We just spent 35 minutes talking about sort of the funding markets.
Yeah, yeah.
... and the complexity there. I think we do see a lot of competition, in what I would call the less complicated part of the market. Pay in four is probably the best example where, you know, it tends to be lower average order values. It tends to be a six-week loan. There's not the same, underwriting and financing considerations in that pocket of the market. You know, more than two-thirds of our business is actually happening in loans that are three months or longer and tend to be at higher average order values as a result. I think we definitely see the competition thin quite a bit in that segment of the market.
Mm-hmm.
I think, you know, for some of our enterprise partners, Walmart included, frankly, I think it's really important to them that we can offer financing across a really broad range of consumer purchases, because the last thing that they want is for a consumer to rely on financing and then, oh, you know, they put an expensive good into their basket and suddenly that financing falls away. Having that broad aperture, I think is really important and has been a real differentiator for us, especially with enterprise partners.
Yeah. Got it. Makes sense. Okay. A question came in from the audience, so, I have to be true to my IP here and ask it. It's related, it's a kinda follow-up to my competition question, and I think the premise of the question is, look, some of your competitors are humongous enterprises, Apple, PayPal, you know, et cetera. You can argue some of the banks are indirectly competing with you. You know, frankly, direct question is, how confident or what gives you confidence that you can survive as a kinda standalone company in this environment? You know, could there be an interesting possibility for you to, let's say, merge with somebody or become part of a larger entity that would preserve, you know, the enterprise that you built but make you stronger through that?
Yeah. I mean, I think what gives us confidence that we're on the right path is that we've had a tremendous amount of traction with sort of a who's who list of enterprise partners, Apple included, Walmart included. We've got really deep relationships across those programs. On the consumer side, we've been able to grow our consumer base at pretty incredible rates while also increasing frequency at the same time. I think the latter point really speaks to, you know, a demographic shift in the U.S. around how consumers want to engage with financial products. I think buy now, pay later is a category that isn't a fad. I mean, it's a real way that consumers wanna transact at the point of sale.
What we've seen, in other geographies outside of the U.S. is that you know, this sort of tender type can be a quarter of sort of e-commerce at large, and there's no reason to believe that we won't sort of get to those sort of levels in the U.S. as well. I think that gives us confidence that we're on the right track, both with merchants and consumers, to build a real business. I think we're reaching a scale point where profitability is starting to come into focus for us. I think, with that, you know, we control our own destiny. Obviously, we're a public company, and to some degree, every public company is for sale every day.
We wanna do the right things for our shareholders, but we're really heads down on sort of a standalone path, and I think we're on the right path.
Yeah. Got it. Okay. Another key strategic topic I wanted to hit is direct-to-consumer that was highlighted in a big way last quarter. Max talked about it a lot. Obviously, you've been working on the Debit+ offering for a while. That's a big topic that we're not gonna hit over the next two minutes. two kinda highlight questions I wanted to ask. One is, yeah, give us or give us a little bit of like what should we expect on that, you know, in terms of the timeline, what should we look for, the kinda milestones as investors, as this product develops?
Two, you know, how important it is to the, to your strategy to like how important is the success of direct-to-consumer strategy to your overall strategy over the next, call it, couple of years?
Yeah, I mean, I think internally, you know, I think we've been pretty vocal about focusing on profitability. Profitability both at a transaction level, but also profitability from an overall enterprise perspective as well. With that focus, I think we've set a higher bar for what needs to occur for us to launch a new product, you know. We've really focused first and foremost on getting the profitability of Debit+, to a point where it's not meaningfully dilutive to our overall portfolio. I think with the current cohort that we have in the pilot, we're making really good progress there, and that gives us confidence that we're gonna be able to take the next step of accelerating the penetration into our existing base.
I think it's really important to remember that we view, we view Debit+ as sort of a second or third transaction product. It's not gonna be necessarily a new on-ramp, at least in the short run, for consumers to find Affirm, but it's a way to deepen the engagement with our current base. In some ways it'll be the second iteration of the direct-to-consumer strategy we already have, which is a product we call Affirm Anywhere, which allows users to transact with a virtual card, you know, anywhere that Visa is accepted.
We have a really strong and engaged core base that uses Affirm Anywhere with great frequency, and we think that Debit+ can sort of replicate that, but also, you know, unlock a lot of brick-and-mortar spend where buy now, pay later as a category in the U.S. isn't really participating in any meaningful way. That's what gives us the excitement, is that it's a way to deepen engagement with our base, but also to unlock a really big TAM with brick-and-mortar spend. In terms of milestones, I think we haven't given any guide beyond sort of the June quarter that we're currently in. All we can ask for is a little bit more patience from you on that front.
Got it. Okay. Okay. Okay, great. Well, we're within five minutes. I wanted to just ask both you kind of the same lightning round question, which is, as you think about the next 12 months, let's say, in your role, both Brooke and Rob, you know, what are the couple of critical priorities for you personally in the areas that you're working to kind of further Affirm's mission and to make sure that the company is successful?
Yeah, I know, top priority for me is working with our team to ensure that we're kind of managing risk in the business. When it comes to capital, it's being thoughtful about scaling our capital program such that it can continue to be flexible, continue to serve our consumers and our merchants. The other big priority for me is making sure that we are managing the ecosystem well in a complementary fashion. There's still so much uncertainty, volatility, who knows what's going to drive what. We need to be able to see around corners and respond thoughtfully. When you think about the next iteration of what we are experiencing today, I don't think anybody thinks that it's going to get any easier to execute in the market.
All we can do is continue to double down on the business we're building, the fundamentals of that business, which are pretty strong, and to start the attractiveness of what we're producing and providing for the entire ecosystem. We're helping consumers manage their daily lives well. We are providing value to our capital partners in a way that's kind of multifaceted. We're also ensuring that from a merchant perspective, we are delivering value in a tough time. My priority will be around how do I press the advantage that we have thoughtfully with empathy around what the broader market is experiencing. Investors are having to make decisions about different risks that they are perceiving or expecting.
How do we still grow and leg into that in a way that's partner-like so that folks can kind of get the confidence that we have, in what we're doing so that we're scaling efficiently and fine-tuning the model in a way that's both thoughtful and well-managed.
Got it.
Yeah. I think on my side, I mean, we're coming to the tail end of our fiscal 2024 budgeting exercise internally. We've been spending a lot of time talking about the next 12 months. I think what I'm most excited about is getting as much of the portfolio as possible to 36.
Mm.
you know, that unlocks a lot of goodness.
Mm.
-on, on multiple fronts for us from a profitability perspective, from a capital markets perspective. You know, really being able to show our work a bit more on Debit+. I mean, I think that's a big strategic initiative for us internally, and I think the milestones, I think we've got some important ones that hopefully we can share as we get into FY 2024.
Great. Well, we'll look forward to that. Awesome. Well, thank you very much, Brooke and Rob.
Absolutely.
Thank you.
Appreciate it.