Focus: Buy now, pay later lender Affirm pushes into elective medical procedures

Weave Communications

23/04/2024 11:00

By Hannah Lang
       April 23 (Reuters) - Fintech lender Affirm  AFRM.O  has
started quietly offering "buy now, pay later" (BNPL) loans for
elective medical procedures, in a major push beyond its core
e-commerce market, the company told Reuters.  
    Over the past year, Affirm has more than doubled the number
of elective medical merchants on its network, reaching around
130 at of the end of 2023. The San Francisco-based company is
hoping to tap growing consumer demand for financing for cosmetic
treatments, dental services, medical devices and veterinary
procedures. 
    "A lot of these price points are about $2,000 and above, so
that suits our installment product... really well," Pat Suh,
Affirm's senior vice president of revenue, said in an interview.
    While Affirm has been adding elective medical providers
since the middle of last year, it has not previously discussed
or publicized its push into the sector, the first by a major
BNPL provider in the U.S. market, the company said.     
    Affirm's installment product charges between 0% and 36%,
depending on the purchase price and a borrower's credit profile.
    "It's a smart growth strategy," said Ted Rossman, senior
industry analyst at Bankrate, a consumer finance publisher.
"They're already doing a lot with e-commerce, and that'll
continue to grow, but it's always about the next big thing."
    In 2022, the global market for cosmetic procedures and
dental services combined was worth more than half a trillion
dollars, market research firm Grand View Research estimated.
       Global veterinary services were worth $124.37 billion in
2023, according to Precedence Research.
    Buy now, pay later exploded in popularity as the COVID-19
pandemic forced more shoppers online.
    The move into medical highlights how lenders in the space
are trying to expand beyond what Affirm Chief Executive Max
Levchin described to analysts in November as the "e-commerce
cage." 
    It could also fuel concerns among regulators and advocacy
groups that BNPL lending, which has grown rapidly, is leading
consumers to borrow more than they can afford.
    As part of the expansion, Affirm has partnered with Weave
 WEAV.N , a customer relationship management platform for small
and medium-sized healthcare businesses, as a distribution
partner.  
    BNPL providers partner with retailers like Amazon.com
 AMZN.O  and Walmart  WMT.N  to finance customer purchases,
earning a commission on the sale and interest on the loan, which
shoppers repay in a handful of installments. BNPL loans drove
$75 billion in online spending in 2023, up 14.3% from 2022,
according to Adobe Analytics. 
    Despite that growth, some fintech lenders have been
pressured by high interest rates and inflation, which have
driven up their borrowing costs and customer delinquencies,
though Affirm's 30-day delinquencies are currently steady
compared to the year prior. 
    The company's shares are down more than 30% from its initial
public offering price in January 2021.
    While most BNPL purchases are for discretionary consumer
goods like clothes and beauty, spending on services, travel,
healthcare and even education has been growing since 2019,
according to a 2022 U.S. Consumer Financial Protection Bureau
(CFPB) report. 
        Affirm is marketing elective medical procedure loans as
an alternative to medical credit cards, like Synchrony
Financial's CareCredit, and installment loans. Those products
typically waive interest payments for a promotional period after
which annual interest is on average 27%, according to the CFPB. 
    "Being able to shift consumers away from paying these types
of high interest and deferred rates into a product like ours, we
think there's a lot of value to that," Suh said. 
    Affirm declined to disclose the average interest rate it
charges customers for elective medical purchases, but said that
nearly half of its transactions in the category are at 0% APR -
a higher proportion compared to other categories. 
    The company has been tightening credit standards and said in
a Feb. 8 earnings report that 30-day delinquencies on monthly
loans were flat from a year earlier at 2.4%. 
    
    'FINANCIAL DISTRESS'
    Still, some consumer advocates worry the growth of BNPL may
contribute to a consumer debt crisis. 
    BNPL borrowers are more likely to have lower credit scores
and lower savings on average, according to the CFPB. U.S.
borrowers on lower incomes are increasingly struggling to keep
up with their loan payments, Reuters reported on Monday.  
        Because many BNPL lenders do not provide comprehensive
data to credit reporting agencies, consumer advocates have
warned that the firms have little insight into borrowers'
indebtedness.
    "One of our long standing concerns is a cumulative impact of
multiple buy now, pay later loans on top of other expenses and
debt obligations, which could really push the consumer over into
over-indebtedness and financial distress," said Delicia Hand, a
senior director at Consumer Reports. 
        Affirm mostly lends to near-prime and prime -- credit
scores between about 620 and 719 -- borrowers. The company says
it only lends what customers are able to repay, total charges
are disclosed upfront, and there are no late or hidden fees. 
    Affirm looks at every customer's financial position, Suh
said, "in order to offer them an appropriate amount of credit."

 (Reporting by Hannah Lang in New York; editing by Michelle
Price and Bill Berkrot)
 ((Hannah.Lang@thomsonreuters.com;))