Affirm's 0% APR Strategy: Balancing Growth and Profitability in the BNPL Sector

Affirm’s 0% APR strategy has emerged as a cornerstone of its growth in the Buy Now, Pay Later (BNPL) sector, but its long-term viability hinges on balancing low-margin customer acquisition with sustainable monetization. In 2025, Affirm reported a 70% year-over-year surge in 0% APR loans, driven by merchant-subsidized promotions that stimulate consumer spending without eroding pricing power [4]. This approach has fueled a 35% increase in Gross Merchandise Volume (GMV) to $10.1 billion in Q2 2025, alongside a 23% rise in active users to 21 million [3]. However, the strategy’s profitability depends on converting these low-margin customers into higher-margin users of Affirm’s broader financial products, such as its Affirm Card, which saw a 136% growth in active users to 1.7 million [3].

The fintech industry’s average customer acquisition cost (CAC) of $1,450 [2] contrasts sharply with Affirm’s 2025 CAC of $43.58 for its lending niche [1], suggesting a more efficient model. This efficiency is partly attributed to AI-driven tools that reduce CAC by up to 50% [2], enabling Affirm to scale without inflating costs. Yet, the broader trend of rising CAC—up 222% over eight years—poses a risk if Affirm’s cost advantages narrow. The company’s 94% repeat transaction rate in Q3 2025 [2] and 60% of “Pay in 2” users returning within 30 days [1] underscore strong retention, which mitigates CAC pressures by spreading acquisition costs across multiple transactions.

Critically, Affirm’s profitability has improved, with Q2 2025 net income of $80 million—a stark turnaround from a $167 million loss in the prior year [3]. This success is underpinned by a 44% YoY growth in 0% APR loans, which now account for 13% of total GMV [2]. However, the low-margin nature of these offers raises questions about scalability. For instance, while 0% APR loans drive initial adoption, Affirm’s ability to monetize lies in cross-selling higher-margin products, such as its Affirm Card, which contributed a 115% YoY GMV surge [2].

International expansion into the UK and partnerships with Shopify, Apple Pay, and GoodRx [3] further diversify Affirm’s risk and open new revenue streams. Yet, the company must navigate regulatory complexities and competitive pressures in these markets. The key to long-term success will be maintaining pricing integrity while leveraging data-driven insights to optimize CAC and retention.

In conclusion, Affirm’s 0% APR strategy has proven effective in acquiring customers at lower costs than industry benchmarks, supported by robust retention metrics. However, its path to sustained profitability requires a delicate balance: scaling low-margin promotions while transitioning users to higher-margin offerings and expanding into new markets. For investors, the company’s ability to innovate and adapt to rising CAC trends will be critical indicators of its long-term resilience.

Source:
[1] Affirm’s 2025 CAC for lending niche [https://focus-digital.co/average-customer-acquisition-cost-for-fintech-industry/]
[2] Fintech CAC trends and Affirm’s retention rates [https://www.amraandelma.com/customer-acquisition-cost-statistics/]
[3] Affirm Q2 2025 financial results and international expansion [https://investors.affirm.com/news-releases/news-release-details/affirm-reports-second-fiscal-quarter-2025-results]
[4] Merchant-subsidized 0% APR growth [https://www.ainvest.com/news/affirm-q2-2025-earnings-call-contradictions-surface-rltc-margins-0-loans-international-strategy-2502/]