Thread by @SimonSaysStocks

#BNPL is disrupting the consumer credit ecosystem

In this thread, I'll break down how $afrm is able to offer a payment mechanism that is aligned with consumers and merchants best interests, rather than the predatory nature of banks which depend on fees and friction

The BNPL market could be worth $4 trillion by 2030

56% of US consumers are considering using BNPL solutions this holiday season

There are over 1 billion credit card transactions every day, yet the card networks/ payment processors haven't seen much innovation in the past 30 yrs

The premise behind "The Power of Pay" is that payments are highly accessible and configurable, and these trends are only increasing as payments become digitized

However, the current banking system is not aligned with the best interest of merchants and consumers

"When a credit card transaction is processed, the issuing banks generate most of the economics through interchange fees while the card networks take a small standard fee, the total fee that a merchant pays is the Merchant discount rate (MDR)."

The issuing banks are behind individual credit cards and they offer consumers rewards (Cash Back)

The higher the MDR, the higher rewards that the issuing bank can offer

BNPL offers new rails that enable merchants to access valuable SKU level data

https://twitter.com/arampell/status/1435692951800205317?s=20

Affirm handles its merchants’ payments and is responsible for default risk, so its merchants are willing to pay to Affirm a higher MDR rather than an issuing bank because Affirm enables them to generate more sales and reach more customers

"To accept a card transaction and move it to the bank account of the merchant, Affirm uses its proprietary lending capabilities to work with its bank partners to originate loans that are sent from this bank directly to the merchant’s bank through ACH.”

$MQ 👀
$PLAID 👀

As seen above, there are no card networks involved

Affirm doesn't want to create friction for the consumer, rather they want to make sure that consumers avoid friction (whether that’s late fees, overdraft fees, accruing interest on revolving credit lines, etc)

Basically, Affirm says to its merchants we offer a new payment mechanism where the fee that we charge you is directly tied to the value we generate for you. Affirm enables its merchants to process more transactions/ run better promotions because they're aligned with the consumers

Now reward programs are tied to the merchant, not the issuing bank. This is a big win for merchants because it helps retain and attract customers while increasing their average order value.

https://twitter.com/arampell/status/1435692960264323073?s=20

It all comes back to Affirm's mission to provide honest financial products that improve people's lives

https://twitter.com/SimonSaysStocks/status/1450799193568825366?s=20

https://twitter.com/SimonSaysStocks/status/1450799195414319109?s=20

For my full analysis on the BNPL Paradigm that's happening right in our wallets, check out my latest note!

Buy Now, Pay Later Is Disrupting The Consumer Credit Ecosystem seekingalpha.com/article/446133…

.@arampell @StockMarketNerd @U_nick1 @BrianFeroldi @mlevchin @gannonbreslin

@InvestiAnalyst

https://twitter.com/investwithbtm/status/1451965809463599112