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Buy now, pay later (BNPL) firm Affirm ends Australian partnership but continues with US and UK expansion plans, doubling down on its core businesses.
A lot is happening in the Australian BNPL scene. Last month, the country’s Treasury closed a consultation on how to best regulate the sector just as fast-growing BNPL provider Openpay collapsed amid rising interest rates that made its operations unsustainable.
Now California-based Affirm has announced that it has decided “to begin an orderly wind-down of our operations in Australia”.
“If you are an existing loan holder, your financing plan will remain unaffected, and you will continue to pay for your product as agreed upon in your financing agreement with Affirm, unless otherwise stated," the company says on its website.
This comes seven months after the company said in its annual report that it will continue to evaluate expanding its platform to new markets.
Speaking to VIXIO, a spokesperson for Affirm confirmed that “international expansion is a key part of Affirm’s long-term growth plans to scale our network”.
The company will “continue to prioritise North America, where the opportunity remains massive, and invest in our UK expansion”.
Australia was one of the three markets where Affirm offered BNPL products, alongside the United States and Canada where its partners include e-commerce giant Amazon. The company also operates in Poland and Spain, although it does not facilitate loans there.
In an interview with Bloomberg, Affirm founder and CEO Max Levchin said it is also “investing heavily in our UK expansion”.
The decision to leave Australia comes less than a year and a half after Affirm entered the market via a partnership with the interactive fitness platform Peloton. The team-up enabled consumers to purchase Peloton Bike or Bike+ products using Affirm’s BNPL offering.
However, as Affirm noted in its 2022 annual report, the company's operations in Australia remained “on a more limited basis”.
Specifically, the annual report shows that the vast majority, $1.3bn, of Affirm’s revenue comes from the US, followed distantly by Canada with $44.8m. “Other” countries, presumably Australia, represented just $0.13m in revenue.
The spokesperson said the company had decided to pull out “as we continue to sharpen our focus to drive growth and profitability”.
Rising interest rates threaten BNPL profitability
The BNPL sector has been among those hit hardest by the macroeconomic changes in 2022.
Many BNPL firms are operating without ever making profits. Depending on their business models, rocketing interest rates could have serious consequences for the future viability of some firms.
For the ill-fated Openpay, rising interest rates meant its funding costs tripled from A$5.6m to A$17.6m in 12 months, while its users paid no interest on instalment loans.
In the case of Affirm, which originates loans via its partner banks with fixed interest rates disclosed at the checkout, it is somewhat shielded from the full exposure to the rising cost of borrowing.
Nonetheless, even for BNPL firms that charge interest, rising rates can reduce consumer ability or appetite to shop, and cause higher delinquency rates and defaults.
When Affirm announced the layoff of 19 percent of its staff in February, Levchin said that “everything changed in mid-2022”.
The sharp increase in the US benchmark rate dampened consumer spending and increased Affirm’s cost of borrowing dramatically, according to the CEO.
Although Affirm saw its revenue grow by 39 percent to $364m in the fiscal year ending June 2022, its operating losses also surged from $383m to $866m.
At that point, the company acknowledged that it has “a history of operating losses and may not achieve or sustain profitability in the manner and timeframe we have publicly communicated".
Later, in an early 2023 shareholder letter, Levchin said that “in a period of increased economic uncertainty, we are doubling down on our core businesses, delaying projects with less certain revenue timelines, and aligning our operating expenses with revenue”.
In addition to reducing the workforce, Levchin said the company is “sunsetting several initiatives, such as Affirm Crypto”.
“We will emerge from this moment a tougher, leaner team, while remaining unwaveringly true to our mission of improving lives through honest financial products.”
