Affirm's Strategic Resilience: Turning Partnership Losses into Growth Opportunities in the BNPL Sector

The buy now, pay later (BNPL) sector has long been a battleground for innovation and market dominance. Yet, few stories in 2025 encapsulate the tension between vulnerability and resilience as vividly as Affirm Holdings. The company's loss of Walmart—a once-critical partner—to Klarna in early 2025 sent ripples through its financials and investor sentiment. Yet, rather than signaling decline, this setback has catalyzed a recalibration of Affirm's strategy, revealing a company adept at transforming adversity into opportunity. For investors, the question is not whether Affirm can endure, but how it might leverage its structural strengths to outpace rivals and redefine its value proposition.

Strategic Diversification: Mitigating Concentration Risk

Affirm's reliance on a handful of large merchants has always been a double-edged sword. Walmart's departure, which accounted for 5% of its GMV and 2% of adjusted operating income in late 2024, exposed the fragility of such concentration. However, the company's response has been to accelerate diversification. By 2025, Affirm's merchant network had expanded to 360,000 partners, including a landmark collaboration with New Look Vision Group in Canada, which bolstered its presence in the eyewear market. Simultaneously, it deepened ties with Shopify, WooCommerce, and Apple Pay, ensuring a broader base of recurring revenue.

This diversification is not merely quantitative but qualitative. Affirm's partnerships now span sectors—from travel to e-commerce—reducing exposure to any single industry's volatility. For instance, a five-year deal with a major travel player in 2025 underscores its ability to secure long-term commitments, a critical differentiator in a sector prone to short-term churn. Such moves align with a broader trend: BNPL providers are no longer just payment facilitators but embedded financial partners, offering tailored solutions to merchants.

Financial Fortitude: Capitalizing on Liquidity and Innovation

Affirm's ability to secure $4 billion in loan purchases from Sixth Street—a private equity firm—has been a masterstroke. This partnership, which enables Affirm to deploy $20 billion in loans over three years, addresses a core challenge in the BNPL sector: liquidity constraints. By offloading risk to capital-rich partners, Affirm can scale without overleveraging. As of September 2024, its funding capacity had surged 50% to $16.8 billion, a buffer that rivals like Klarna, still pre-IPO, may lack.

Equally significant is Affirm's product innovation. The introduction of “Pay in 2” and “Pay in 30” options, alongside a 44% year-over-year rise in 0% APR plans, reflects a customer-centric approach. These tools not only attract price-sensitive shoppers but also foster loyalty. In Q3 2025, 94% of transactions came from returning customers, a testament to the stickiness of Affirm's ecosystem. Such metrics are critical in a sector where customer acquisition costs are rising and margins are thin.

Navigating Risks: Debt, Competition, and Regulatory Scrutiny

Despite its strengths, Affirm faces headwinds. Its long-term debt-to-capital ratio of 72.8%—far above the industry average of 12.9%—raises concerns about financial stability. While this leverage has fueled growth, it also amplifies vulnerability to interest rate hikes or economic downturns. The first-quarter 2025 GDP contraction and rising BNPL default rates (with 66% of loans extended to high-risk borrowers) further complicate the outlook.

Competition, too, is intensifying. Klarna's U.S. IPO plans and Walmart's shift signal a new era of aggressive pricing and underwriting. Meanwhile, traditional banks and private credit firms are entering the fray, offering alternative funding models. Affirm's response? A focus on differentiation. Its Affirm Card program, which saw 115% GMV growth in 2025, leverages BNPL as a gateway to broader financial services. By converting short-term BNPL users into long-term cardholders, Affirm is building a moat around its customer base.

Investment Implications: A Case for Strategic Patience

For investors, Affirm's trajectory offers both caution and optimism. The stock's 29% discount to the average Wall Street price target implies a potential 60% upside, but this assumes the company can sustain its current pace of innovation and diversification. Key metrics to monitor include:
- GMV Growth: Affirm's Q3 2025 GMV of $8.6 billion (up 36% YoY) suggests resilience, but Q4 guidance of $9.4–$9.7 billion must be met to reassure skeptics.
- Debt Management: A reduction in the debt-to-capital ratio, or at least a stable trend, would signal improved financial discipline.
- International Expansion: The UK launch and plans for Western Europe could unlock new revenue streams, but execution risks remain.

Conclusion: Resilience as a Competitive Advantage

Affirm's journey in 2025 is a case study in strategic resilience. By diversifying its merchant base, securing critical liquidity, and innovating its product suite, the company has turned a partnership loss into a catalyst for long-term value creation. While risks persist—particularly in debt and competition—its financial metrics and market adaptability position it as a compelling long-term investment. For those willing to look beyond short-term volatility, Affirm's story is not one of decline, but of reinvention.