Affirm CEO Max Levchin aims to differentiate his buy now, pay later offering from a herd of competitors, specifically the larger Swedish rival Klarna.

Affirm focuses on making money from individual transactions, whereas Klarna and some other BNPL companies bring in marketing revenue, Levchin said during a question and answer session at the Goldman Sachs Communacopia + Technology conference in San Francisco on Sept. 12.

Levchin invoked his Swedish competitor in response to a question about the mix of products and revenue streams that buy now, pay later companies draw from. Affirm is based in San Francisco.

“I think Klarna has a construct that allows them to underprice and not care about making money, perhaps at all, on these [buy now, pay later] transactions, because there’s an advertising engine underneath that resells that user [data] to other merchants,” he said.

The bulk of Klarna’s revenue comes from transactions, with a smaller portion drawn from marketing, a spokesperson for the Stockholm-based company said in an email.

Levchin was quick to clarify that his comments were not an attack on Klarna.

“I’m not criticizing – it’s not my place to decide those are bad businesses,” he said. “But I love ours, and ours is built around the idea that, ultimately, every transaction needs to make sense financially.”

Affirm doesn’t monetize transactions through marketing or advertising, Levchin said.

Klarna makes money through marketing, but that revenue is a supplement to the money it makes from buy now, pay later transactions, the Klarna spokesperson said.

“The vast majority of our revenue comes from merchants paying us a small fee to offer their customers Klarna’s smooth payment services,” the spokesperson said.

Marketing made up 10% of Klarna’s total revenue in the fourth quarter of 2022, according to a quarterly earnings report. It was the last quarter Klarna released that information.

An Affirm spokesperson declined to provide additional comment.

Affirm also has a mix of revenue streams, Levchin said at the conference. The company has a range of ways to pay. Consumers, for example, can choose the traditional “pay in four” model, or they can pay for an item two weeks after the purchase in a single lump sum.

The company also gives customers the option to pay in monthly installments, but charges interest of up to 36% APR, depending on the customer’s credit history, on those transactions.

By Patrick Cooley on Sep 19, 2024
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