Affirm's Pivot to Everyday Payments: A Path to BNPL Dominance or a Crowded Race?

Affirm (AFRM) has long been synonymous with financing big-ticket purchases, but its recent strategic shift toward everyday transactions—driven by partnerships like Costco and rising repeat customer engagement—has sparked debate about its long-term viability in a crowded BNPL (Buy Now, Pay Later) market. Can this pivot secure Affirm's dominance, or will rising competition and structural challenges undercut its growth?

The Growth Lever: Repeat Transactions and Everyday Partnerships
Affirm's third-quarter fiscal 2025 results highlighted a critical shift: 94% of transactions originated from repeat customers, with total transactions surging 45.6% YoY to 31.3 million. This momentum stems from partnerships with retailers like Costco, which now offers Affirm's flexible payment plans for purchases over $500. The collaboration targets high-frequency, lower-ticket items—such as appliances or seasonal gear—while maintaining Affirm's core value proposition of transparency (no hidden fees, clear APR discounts) and credit discipline (real-time eligibility checks).

This strategy contrasts sharply with rivals like PayPal (PYPL) and Block (SQ), whose BNPL offerings (PayPal's “Pay in 4” and Block's Afterpay) often prioritize volume over unit economics. Affirm's focus on repeat customers reduces reliance on costly customer acquisition, while its Revenue Less Transaction Costs (RLTC) margin of 4.1%—exceeding its 3-4% long-term target—reflects stronger profitability per transaction.

Competitive Advantages: Transparency and Merchant Partnerships
Affirm's edge lies in its brand equity as a “honest” financial partner. Unlike peers, it avoids aggressive marketing of high-interest loans, instead subsidizing 0% APR plans through merchant partnerships (e.g., Apple, Amazon). This model aligns with consumer demand for clarity, as seen in its Affirm Card's 136% YoY user growth. Meanwhile, Block and PayPal have faced criticism for opaque fee structures and higher default rates.

However, Affirm's merchant network (now over 358,000 partners) faces risks. Costco's Q2 2025 sales growth (9.1% YoY) underscores the partnership's potential, but retaining top retailers in a competitive landscape—where rivals are aggressively expanding—remains a challenge.

Valuation and Growth Outlook: A Mixed Picture
Affirm's forward price-to-sales (P/S) ratio of 5.66 trades slightly below the fintech industry average of 5.81, suggesting undervaluation relative to its 101.8% FY25 earnings growth forecast (Zacks). Yet, its debt levels ($2.3 billion in convertible notes) and reliance on merchant subsidies (which could erode margins) pose headwinds. CFO Rob O'Hare's emphasis on “core business fundamentals” over one-time gains (e.g., $60M debt repurchase) is reassuring, but profitability targets for Q4 2025 remain ambitious.

Risks on the Horizon
- Debt Overhang: Affirm's $17.4 billion market cap is dwarfed by its debt, raising liquidity concerns if credit conditions tighten.
- Margin Pressures: As BNPL matures, Affirm may face pricing wars or regulatory scrutiny over APR disclosures.
- Merchant Retention: Costco's partnership is a win, but smaller retailers could defect to cheaper BNPL providers.

Investment Thesis: Hold for Now, but Watch for Margin Proof
Affirm's pivot to everyday purchases is strategically sound, leveraging repeat customers and transparency to differentiate itself. Its valuation offers a margin of safety, and Zacks' bullish earnings forecast is encouraging. However, marginal profitability and debt management will determine if this growth is sustainable.

For investors, a “Hold” stance makes sense until Affirm demonstrates consistent margin expansion and reduced reliance on debt. A “Buy” signal could emerge if its Q4 results hit 4% GMV growth guidance and merchant partnerships continue to scale. In a saturated BNPL market, Affirm's long-term dominance hinges on execution—not just ambition.

Final Call: Hold for now, but monitor margin trends and debt resolution closely. Affirm's future is tied to proving it can grow profitably in a space where cost discipline is key.