Earlier this month the fintech company Affirm posted its fiscal Q2 2021 results that included some signs that the pandemic-induced eCommerce boom may be losing a little steam. PayPal co-founder Max Levchin launched Affirm in 2012 to provide online buying power to those without credit histories or any savings. This original mission evolved into what we now know of as buy now, pay later.
BNPL has attracted multiple players in recent years. The likes of Affirm, Afterpay, and Klarna are among the biggest players. But new entrants have been popping up over the past few years. And in particular during the pandemic. Multiple BNPL players have emerged around the world, offering some version of the “pay in four” model. This involves consumers making an online purchase through a merchant offering a BNPL option. The consumer agrees to pay off the purchase through equal payments at low-interest or interest-free payments. Affirm does charge simple interest, but it doesn’t assess late fees or charge compound interest.
Granted, the pandemic has accelerated BNPL adoption as more consumers shopped online overall. But the model’s real driver is changing in attitudes about credit. This is particularly the case among Millennials and GenZs who increasingly prefer debit over credit transactions.
“The stats are astounding in terms of the [declining] rate of millennials and Gen Z-ers owning credit cards. And all of that is driven by them having grown up during the 2008-2009 financial crisis, where people looked at credit with a great aversion,” explained Anuscha Iqbal, Co-founder and CEO of Spotii, a Dubai-based BNPL platform. Iqbal launched the company in April 2020, in the midst of the pandemic.
“There are a lot of people who are affected by that [financial] crisis. And I think that has had a lasting impact on how credit is viewed generally among the younger generation.”
A Soft GMV Forecast
While Affirm’s Q2 numbers were generally positive, it grew its active customer base by 52% and cut its EPS loss roughly in half over the prior year. Yet the company’s stock has sagged since the earnings call. Why? Its forecast for Q3 gross merchandise volume (GMV) sent a signal that online shopping may be softening. If only a little. Affirm forecast that its GMV would come in between $1.8 billion and $1.85 billion for its FYQ3 2021 (three months ending March 31). Affirm’s GMV was $2.1 billion in the prior quarter.
After opening at 140 on February 11, the day of its earnings announcement, the company’s share price closed at 104.83 yesterday. That’s about a 25% slide. Affirm’s competitor Afterpay will release its earnings on Thursday and it will be interesting to see if it forecasts similar softening in its GMV.
Is the Boom Over?
This one signal from Affirm is hardly enough to declare the pandemic-induced eCommerce boom over. We’ve said before and still believe that consumer behavior changes accelerated by the pandemic will remain accelerated after the pandemic. And despite fits and starts, the end does appear to be in sight. So naturally, we would expect online sales to soften as we emerge from this nightmare. But we’d be surprised if they cratered.
Measuring Acceleration: eCommerce Tops 21% of Retail Sales in 2020
As we reported last week, eCommerce as a percent of total retail sales accelerated dramatically last year. In fact, is the first time in history that retail sales grew entirely because of eCommerce. We cited a report from Digital Commerce 360 that showed eCommerce accounted for 21.2% of retail sales in 2020, compared with 15.8% in 2019. We’d expect that share figure to grow dramatically in 2021 as well. Though if Affirm’s signal reflects the broader market, perhaps the rate of increase will not match 2020’s.
