Affirm's Quiet Revolution: How Embedded Finance and Strategic Alliances Are Fueling Long-Term Growth

The buy-now-pay-later (BNPL) sector has long been viewed as a niche player in fintech, but Affirm Holdings (NASDAQ: AFRM) is quietly rewriting the rules. While the company's stock has surged 140% in the past year, many investors remain fixated on short-term volatility—particularly around Walmart-related volume risks—while overlooking the structural tailwinds reshaping its business. Morgan Stanley's recent upgrade of its price target to $70 (from $60) and its bullish commentary on Affirm's fiscal 2025 outlook suggest the market is underestimating the company's long-term potential. Here's why investors should act now before the broader market catches up.

Strategic Expansion: From E-Commerce to Physical Retail

Affirm's dominance in e-commerce has been well-documented, but its foray into physical retail is a game-changer. By partnering with Stripe to integrate BNPL options into Stripe Terminal devices for U.S. and Canadian merchants, Affirm is capturing a previously underserved segment of the $5 trillion retail market. This move not only diversifies its revenue streams but also positions Affirm as a critical infrastructure provider for small and mid-sized businesses.

The company's recent Q4 2024 results underscore this momentum: transaction volume surpassed $10 billion for the first time, driven by a 42.5% year-over-year revenue increase. Meanwhile, its international expansion into the U.K. in November 2024 has shown early signs of success, with repayment rates aligning with internal projections. This geographic diversification is a critical hedge against U.S.-specific headwinds and a catalyst for long-term GMV growth.

Embedded Finance: The New Frontier

Affirm's partnerships with FIS and Google Pay exemplify its pivot toward embedded finance—a sector projected to grow to $1.5 trillion by 2030. By embedding its BNPL solutions into debit cards via FIS's Visa Flex platform, Affirm is creating a hybrid product that appeals to mid-sized banks lacking credit card offerings. This innovation not only expands Affirm's distribution but also taps into the $1.2 trillion U.S. debit card market.

Equally compelling is its collaboration with Google Pay, which enables Affirm's payment options to appear in Chrome's autofill feature. This integration simplifies the checkout process for 2.5 billion monthly active users of Google Pay, reducing friction and boosting conversion rates. Such partnerships are not just incremental—they're foundational to Affirm's vision of becoming a universal payment layer.

Consumer Adoption: Beyond the “Walmart Effect”

Critics often cite Walmart's potential reduction in BNPL volume as a risk, but this narrative misses the bigger picture. Affirm's card product—now with 1.7 million active users—is proving to be a durable growth engine. These cardholders spend an average of $2,500 annually, with a clear path to $7,500 through credit optimization. The product's non-cannibalizing nature (it complements, rather than replaces, point-of-sale financing) suggests a sustainable cross-sell opportunity.

Moreover, macroeconomic conditions remain favorable. Tight interest rates have created a “Goldilocks” environment where Affirm can offer competitive 0% financing terms without sacrificing margins. This dynamic is particularly potent in a post-pandemic world where consumers are increasingly prioritizing flexibility over upfront costs.

Morgan Stanley's Bullish Case: A Calculated Bet

Morgan Stanley's revised $70 price target—despite Affirm's current $77 share price—reflects confidence in the company's ability to navigate near-term challenges. The firm acknowledges that Walmart-related headwinds are already priced into the stock, but it emphasizes Affirm's strategic moats: a 42.5% revenue growth rate, a robust balance sheet, and a first-mover advantage in embedded finance.

While the firm maintains an “Equalweight” rating, its analysis highlights a key asymmetry: if Affirm meets or exceeds its Q4 2025 guidance (out on August 28), the stock could see a re-rating. This is especially true if the company demonstrates progress in scaling its card product and expanding its international footprint.

Why Act Now?

Affirm's stock may appear fully valued, but its intrinsic worth lies in its ability to monetize the shift toward embedded finance—a trend still in its infancy. The company's partnerships with Stripe, FIS, and Google Pay are not just incremental; they're foundational to a future where BNPL is seamlessly integrated into every digital and physical transaction.

For investors, the calculus is clear: Affirm's current valuation reflects optimism about its near-term results but underestimates its long-term potential. With a $77 share price still below its peak and a $10 billion transaction volume milestone achieved, the company is in a position to compound growth for years to come.

In a sector where first-movers often dominate, Affirm's strategic foresight and operational execution make it a compelling long-term play. The market may not fully appreciate its value until it's too late—so now is the time to act.