Billion Dollar Unicorns: Is Affirm Overvalued?

According to the Federal Reserve Bank, there were nearly $1.38 trillion of consumer loans at all commercial banks in the US as of July 2017. The global consumer lending balances at the beginning of 2016 are estimated to be $42.3 trillion. A TransUnion report estimates the personal loan balance was at $107 billion at the end of the second quarter of 2017, recording a 11% growth over the previous year. Billion Dollar Unicorn Affirm is helping simplify and automate the consumer loan industry.

Affirm’s Offerings

San Francisco-based Affirm was founded in 2012 by Jeffrey Kaditz, Nathan Gettings, and PayPal co-founder Max Levchin. It is a financial services company that provides loans to consumers at the point of sale. Consumers can shop for goods they want to buy and use Affirm’s offering to help finance those products through personal loans.

Affirm wants to improve the banking industry by being more accountable and accessible to consumers. It only provides credit to consumers who can afford the purchases. The company prides itself in offering a service that offers no hidden fees or compounding interest. Unlike traditional credit cards, Affirm loans are offered at a simple-interest and are free of any penalty fees – annual, late, deferred, or otherwise.

Last year, Affirm released an app that makes it easier for consumers to pay for large purchases in monthly payments and provide them information on what their financial obligations would look like. It counts the millennials as its major demographic as the group is not only more likely to make a purchase over a mobile app, but are also more open to newer financing offerings.

The company had initially focused on online purchases. It has tie-ups with more than 1,200 online stores. But it is now expanding to make itself available for payments in-store as well. The product is well-liked by the consumers. As of April last year, it had processed its one millionth instalment loan. Overall, it has processed more than $1 billion in loans which range from 3-12 month payback periods with an annual median percentage of 19%. Affirm loan rates vary between 10% and 30% APR simple interest for its consumers.

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Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs ...

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