The option to buy now, pay later has grown popular in recent years as consumers seek alternatives to credit card debt. Affirm CFO Michael Linford explained on Yahoo Finance’s Wealth! that consumers are still feeling uneasy about their financial choices. Lindford saying, “Consumers have a strong sense of unease and uncertainty about the economy right now.” He adds that Affirm (AFRM) gives “consumers certainty,” noting that his firm “offers what credit cards can’t.” “Predictability and control are really important to them [consumers] right now,” Lindford says.
Well, more than half of Americans believe the US is currently in a recession according to a Harris poll.
And that’s despite the fact that we’re actually not in a recession and to help alleviate the pressure of inflation and higher cost of living, more people are turning to buy.
Now pay later services.
76% of people believe that buy now pay later helps them improve their overall financial situation to discuss what the rise of buy.
Now pay later services signal about the state of the consumer, Michael Linford, who is the affirm CFO here on Yahoo Finance to discuss with us, Michael.
I mean, there’s a lot of thought that buy now pay later, helps you offset or at least relieve some pressure where there’s this existing thought of where inflation is impacting cost of living where higher rents or even home costs are impacting what you can actually go out and buy in discretionary spend.
So what is the real time calculus that you’re seeing households and individuals work through right now that pushes them towards buy.
Now, pay later.
See, you know, look so long as consumers feel like we’re in a recession, it actually doesn’t matter if we’re in one, our survey that we recently conducted shows that consumers have a strong sense of unease and uncertainty about the economy right now and what a firm offers is a sense of certainty and control in these very uncertain times.
It’s not surprising but nearly all consumers cite having predictable expenses as a key part in maintaining their household budgets.
And that’s what a firm offers and what credit cards can’t.
And so we feel like we’re really well positioned to help consumers manage their financial outcomes in these very uncertain times, Michael.
I mean, I’m sure you’ve just heard our conversation around mcdonald’s and what their struggles are with the consumer.
I mean, I doubt people are doing buy now pay later on their mcdonald’s fries.
But I mean, it seems like we’re, we’re getting to this point where we’re trying to figure out exactly where the consumer is leveraging buy now pay later the most.
In our last quarter, we grew at a growth rate that was four times that of us e commerce.
Consumers are still in the early stages of what we consider to be a secular shift away from credit cards, away from revolving debt with uncertain outcomes and moving towards certain outcomes with we deliver with the firm.
Um And, and so I think we’re, we’re pretty early in, in that cycle.
And so some of the macroeconomic trends aren’t necessarily showing up in our category data.
You know, all of our categories were growing last quarter except for sporting goods.
But what’s clear to us is that consumers are looking for more control and more certainty as they look around and see some uncertain times and, and it’s a feeling more than it is a fact.
I mean, you, you pointed out the top, the, the the data indicates consumers think that we’re in a recession and you know, credit to Kyla Scanlan for coining the phrase vibe session.
That’s where we’re at.
There’s a vibe here and, and consumers are trying to, to be reactive to that.
Um and, and so predictability and control are really important to them right now.
You know, 11 choice uh merchants have is to use discounting as you discuss with, with some fast food chains.
Another approach is to give consumers certainty.
Um It’s not surprising that half of consumers say that a 0% financing offer from a, from a company like a firm will impact their decision to make a purchasing decision.
That’s because we give consumer certainty and, and when they look around the economy right now and they see lots of uncertainty everywhere and they see somebody providing that certainty that encourages them to continue to engage Michael while we have you.
And I, I think, you know, you and I talk about this uh uh time and time again here, but I think it’s more prevalent even more so given some of the data that we’re rattling off here and thinking about the near term relief versus long term risk for consumers for buy now, pay later and the impact to consumer credit scores.
How are we ensuring that, you know, if people are looking for that near term relief that they’re not layering on long term risk and pricing themselves out because of the impact to a credit score later on down the line.
If they’re unable to pay on one of the buy now pay later purchases that they’re making.
Yeah, I, I think it’s really important to think about the buy now pay later industry in, in long term and short term um obligations in the, in the short term sense where where the pay and for product is so profitable.
There’s really little risk in accumulating long term liabilities just because those things move so quickly, they turn over 17 times a year.
But for longer term obligations, it’s true that consumers need to be very aware of these obligations are taking on.
What’s important about firm though is our business model is such that we’re so aligned with the consumer, we can’t win unless the consumer wins because we offer consumers immutable uncertainty.
When they check out the total obligation is known they can’t revolve, there are no late fees with our product.
We can’t win unless the consumer is, is also winning.
And so our company is built behind making sure that we can reliably predict and deliver credit outcomes for our consumers, which is really important for our merchant partners who want, who want us to help them grow their business and for our capital partners who are investing in the loans.
You know, it’s interesting.
We were having a conversation with the conference board’s chief economist who said that this is a consumer that is battle weary.
How would you describe the consumer right now?
Yeah, I think the consumer is experiencing a lot of mixed signals.
So inflation is cooling and yet prices remain very high.
Real wages have actually kept up really strong over the past 12 months.
But unemployment is beginning to tick up and everybody on shows like this have been talking about a recession now for a very long time.
And as the adage goes, economists have predicted nine of the past five recessions.
I do think that the consumer is, is bombarded with all of these mixed messages.
And our data suggests that the consumer more than anything is just uncertain and, and they’re looking to somebody like a firm to provide that certainty.
And just lastly while we have you here, I mean, when we think about the business itself for a firm, I know we’re in quiet period, we can’t get into any financials, we don’t want to get anybody in trouble here.
But you know, even as we’re thinking about this earnings season and margins as a whole right now, I mean, companies like buy now pay later companies like a firm.
You know, how do you guys go about pulling certain levers to ensure investors that the margins are secure, that they can come to expect what this company has been able to show them in its own growth rate.
Over time, a firm has done a phenomenal job in pivoting the the economics of the business into this current macro environment.
The past 12 years, in my opinion, has been a clinic on how to how to manage the macroeconomic risk in the business and create really strong units.
We did that through uh really strong control of credit outcomes.
We did that through pricing initiatives with merchants and consumers.
If you look at last quarter, we posted extremely strong unit economics and an incredible amount of operating leverage and we feel like we’re, we’re gonna continue to do that from, from here on out.