Affirm Holdings, Inc. (AFRM): 5 FORCES Analysis [Nov-2025 Updated]

You're looking for a clear-eyed assessment of Affirm Holdings, Inc.'s (AFRM) market position right now, and the short answer is they're navigating an intensely competitive space while finally proving their business model can be profitable. The near-term focus is on capital stability and defending their merchant network.

Bargaining Power of Suppliers: Low to Moderate

Affirm's funding model is defintely diversified, giving them leverage over capital providers. As of March 2025, their total funding capacity stood at a massive $23.3 billion. This scale means no single bank or institution holds all the cards, limiting their individual power.

The company relies on a wide network of institutional partners for Asset-Backed Securitizations (ABS)-a process where loans are pooled and sold as securities. The expanded partnership with New York Life, securing up to $750 million in annual loan purchases, shows they can tap multiple sources. Your funding model is your best defense against high-cost capital.

Still, high interest rates increase the cost of capital, so lenders have some leverage. What this estimate hides is the market's appetite for new ABS issuances, which can shift quickly based on macroeconomic conditions.

Bargaining Power of Customers: Moderate to High

The power here is split, and both sides-merchants and consumers-have the upper hand. Merchants, all 419,000 of them, have high switching power because they can easily integrate multiple Buy Now, Pay Later (BNPL) options on their checkout page.

For consumers, switching costs between Affirm, Klarna, or PayPal are virtually zero. Plus, consumer financial stress is showing: 42% of BNPL users made a late payment in 2025, which makes them highly sensitive to pricing and terms. Zero switching cost for consumers means you must win on experience, not just price.

Affirm's direct-to-consumer product, the Affirm Card, helps lock in users, but it's a constant battle to maintain loyalty when competitors offer similar or better 0% Annual Percentage Rate (APR) deals.

Competitive Rivalry: Very High

This is the most intense force. The market is saturated with well-capitalized fintechs like Klarna and Afterpay, plus tech giants like Apple Pay Later. Competition for major retail partners is fierce, and this is where the battle for Gross Merchandise Volume (GMV) is won or lost.

Look at the loss of the Walmart partnership to Klarna, which shifted $1.5 billion in GMV. That's a huge hit that shows the cost of losing a key partner. While Affirm is a market leader, reporting $36.7 billion in GMV for FY2025, maintaining that growth requires high marketing spend.

Traditional banks and credit card companies are also now offering their own internal installment plans, directly competing on terms and consumer trust. You're fighting a two-front war against fintechs and legacy banks.

Threat of Substitutes: High

The threat of substitutes is high because the core function-financing a purchase-is easily replicated. Traditional credit cards offering internal installment plans are a direct substitute with established consumer trust and often better rewards programs.

Merchant-specific, private-label financing options bypass third-party BNPL providers like Affirm entirely. Also, consumers can simply choose to use traditional credit lines or debit cards instead, especially for everyday purchases where the financing need is lower. If it's 0% APR, it's a commodity.

The rise of 0% APR loans in the BNPL space makes the product a near-perfect substitute for a cash purchase, which forces Affirm to compete on features and merchant network depth, not just on the financing itself.

Threat of New Entrants: Moderate

The threat is moderate, mainly because capital requirements are a high barrier. A new entrant needs massive funding capacity to compete with Affirm's scale and its $23.3 billion funding capacity. Capital is the moat, but big tech has the drawbridge.

However, US regulatory oversight remains relatively light, with the Consumer Financial Protection Bureau (CFPB) not prioritizing enforcement, which lowers the compliance barrier for new US entrants. Plus, low technology barriers exist for small-scale entrants using off-the-shelf payment APIs.

The real risk is that established tech platforms (like social media or e-commerce giants) could seamlessly embed their own lending products, leveraging their existing user base. Affirm's network of 419,000 merchants provides a significant, though not insurmountable, scale advantage against a new startup.

Affirm Holdings, Inc. (AFRM) - Porter's Five Forces: Bargaining power of suppliers

Low to Moderate

You want to know how much leverage Affirm Holdings, Inc.'s (AFRM) suppliers have to push up their prices-in this case, the suppliers are primarily the institutional investors and banks providing the capital. I'd rate the bargaining power of these suppliers as Low to Moderate. The key reason is Affirm's highly diversified and scaled funding model, which gives them significant optionality. They aren't reliant on a single source.

As of March 31, 2025, Affirm's total funding capacity had grown to an impressive $23.3 billion. This capacity, which includes warehouse credit facilities, securitizations, and forward flow agreements, has increased for nine consecutive quarters. That kind of scale and consistent growth defintely reduces the individual supplier's power.

A Diverse and Programmatic Funding Ecosystem

Affirm's strategy, which they call Capital 2.0, is built on deepening relationships with a wide network of institutional partners, not just executing one-off transactions. This is a smart move because it creates a competitive market for their loan assets.

Their reliance on a wide network for asset-backed securitizations (ABS) is a clear strength. As a programmatic issuer, Affirm has priced 24 ABS deals totaling $12.25 billion to date, bringing in over 150 unique capital partners. This diverse group includes:

• Alternative asset managers
• Insurance companies, like New York Life
• Pension funds and sovereign wealth funds
• Hedge funds and banks

The recent expanded partnership with New York Life, announced in late October 2025, is a concrete example of this strategy. The insurer committed to purchasing up to $750 million of installment loans through December 2026, which is off-balance-sheet funding that supports approximately $1.75 billion in annual consumer loan volume. That's a massive, reliable funding stream.

The Cost of Capital is the Lever

Still, the financial suppliers are not powerless. Their main source of leverage is the prevailing interest rate environment, which directly impacts Affirm's cost of capital. When the Federal Reserve keeps rates high, it raises the benchmark for all lending, giving capital providers more negotiating power on the spread (the profit margin) they demand.

Here's the quick math: While Affirm's average annualized cost of funds declined to 6.8% in the fourth fiscal quarter of 2025 (ending June 30, 2025), that cost is still a significant input. Cash payments for interest expense were $101.586 million for the three months ended June 30, 2025, a number that reflects the cost of servicing their debt and funding obligations.

What this estimate hides is the risk premium. In a volatile market, lenders may demand higher interest rate spreads on the ABS deals, which directly increases Affirm's funding cost. For example, a $750 million ABS deal priced in June 2025 had its senior notes priced at 80 basis points over the I-curve, a spread that can fluctuate based on market risk perception.

Technology Suppliers are Marginal

The power of non-capital suppliers, like software vendors, is minimal. Affirm's core technology-its proprietary underwriting model and platform-is largely built in-house. This limits the ability of external software or data providers to demand high switching costs or steep price increases. Technology and data analytics expenses, while growing by 22% year-over-year in FQ3 2025, are more about scaling the proprietary system than paying a few dominant vendors.

Affirm Holdings, Inc. (AFRM) - Porter's Five Forces: Bargaining power of customers

Moderate to High

The bargaining power of Affirm Holdings, Inc.'s customers-which include both the merchants who pay a fee and the consumers who take out the loans-is definitively Moderate to High. This is a critical point for investors to understand. While Affirm has successfully built a massive network, the core product is increasingly commoditized, meaning both merchants and consumers have a lot of choice and very low friction to jump ship. That's a structural headwind, and it forces Affirm to constantly innovate.

Merchant Switching Power

Merchants, who are the primary source of Affirm's revenue through transaction fees, hold significant power. As of September 2025, Affirm reported having 419,000 merchants in its network. But here's the quick math: integrating a Buy Now, Pay Later (BNPL) option is now a standard e-commerce feature. Merchants can easily integrate multiple BNPL providers like Klarna, PayPal, or Afterpay, often through a single gateway. This high availability of alternatives gives them high switching power.

The merchant's main goal is conversion lift, and they will go with the provider that offers the best blend of conversion rate and lowest fee. The loss of a major partner, like Walmart shifting its exclusive BNPL deal to a competitor in 2025, highlights this risk, even if the direct financial impact was relatively contained (Walmart accounted for 5% of Gross Merchandise Volume (GMV) in the six months ended December 31, 2024).

Consumer Switching Costs and Financial Stress

Consumers have virtually zero switching costs between BNPL providers. You download the app, sign up in minutes, and you are ready to use a competitor. This intense rivalry among providers like Affirm, Klarna, and PayPal forces Affirm to compete aggressively on price and terms, which is a direct boost to consumer bargaining power.

Plus, consumer financial stress is rising, which directly increases their price sensitivity. Data from 2025 shows that a concerning 42% of BNPL users made at least one late payment, a clear signal of financial strain in the market. This means consumers are more likely to seek out 0% APR offers or the lowest possible interest rate, pushing Affirm's margins down as they try to keep up with demand for cheaper financing.

• 42% of BNPL users made a late payment in 2025.
• Consumer price sensitivity is rising due to financial pressure.
• Switching between BNPL apps is nearly instant and free.

The Affirm Card Lock-In

Affirm's direct-to-consumer product, the Affirm Card, defintely helps lock in users and is a strategic move to counter high consumer power. The Card allows users to access Affirm's financing anywhere a debit card is accepted, moving the relationship beyond the point-of-sale integration with a specific merchant. This creates a stickier user base.

The numbers show this strategy is working. As of the end of fiscal year 2025 (June 30, 2025):

The Card's momentum is a huge factor. The 2.3 million active cardholders represent a growing segment that is more deeply embedded in the Affirm ecosystem. This shift from a pure point-of-sale lender to a consumer finance platform is how Affirm is fighting back against the structural reality of high customer bargaining power.

Affirm Holdings, Inc. (AFRM) - Porter's Five Forces: Competitive rivalry

Very High

The competitive rivalry in the Buy Now, Pay Later (BNPL) space is Very High, and it's getting more intense, not less. You are operating in a market where your core product is now a feature offered by nearly every major financial and technology player, meaning the battle for merchant partnerships and consumer mindshare is brutal. This isn't just a fight against other fintechs; it's a multi-front war against global tech giants and entrenched financial institutions.

Honestly, the biggest risk here is commoditization, where the terms of the loan become the only real differentiator.

The market is saturated with well-capitalized fintechs (Klarna, Afterpay) and tech giants (Apple Pay Later).

Affirm Holdings, Inc. faces direct and formidable competition from well-funded, global fintechs. Your primary rival, Klarna, is a massive player, reporting $105 billion in Gross Merchandise Volume (GMV) globally as of its recent IPO prospectus, dwarfing Affirm's reported $36.7 billion in GMV for the fiscal year ended June 30, 2025. Square's Afterpay, now part of Block, is another major force, especially in the US and Australia.

The competitive landscape is further complicated by the strategic moves of tech behemoths. Apple, after discontinuing its own BNPL service, chose to integrate both Affirm and Klarna into Apple Pay for in-store and online transactions in late 2024 and 2025. This move turns a potential threat into a distribution channel, but it also elevates Klarna as an equal partner in the Apple ecosystem, intensifying the rivalry for consumer preference at the point of sale.

Competition for major retail partners is fierce, evidenced by the loss of Walmart's partnership to Klarna, which shifted $1.5 billion in GMV.

The fight for exclusive, large-scale merchant partnerships is the most visible sign of rivalry. This is where the rubber meets the road. Affirm's loss of the exclusive partnership with Walmart to Klarna in 2025 was a significant blow, representing a shift of approximately $1.5 billion in GMV away from the platform.

Securing these enterprise-level deals is expensive and non-exclusive, forcing you into a constant cycle of high-stakes bidding. For example, the Walmart partnership accounted for approximately 5% of Affirm's GMV in the second half of the prior year, showing how much a single merchant can impact the top line. This constant churn risk means customer acquisition costs (CAC) for merchants are high.

Affirm is a market leader, reporting $36.7 billion in GMV for FY2025, but growth requires high marketing spend.

Affirm's core strength is its scale, with 23 million active consumers as of June 30, 2025, and a reported GMV of $36.7 billion for the full fiscal year 2025. That's strong growth, but it comes at a cost. To keep this momentum going against such fierce competition, the company must maintain a high level of sales and marketing investment.

Here's the quick math: Affirm's total revenue for FY2025 was $3.22 billion, and the intense marketing required to drive that GMV is significant. For instance, the marketing, selling, and general administration expenses totaled $212.4 million in Q4 2025 alone. While the company is showing improved efficiency, this high spend is the price of admission to compete with rivals who are also spending heavily to acquire and retain both merchants and consumers.

Traditional banks and credit card companies are now offering their own installment plans, directly competing on terms.

The final layer of rivalry comes from the incumbents: traditional banks and credit card networks. They are no longer ignoring the BNPL trend; they are adopting it. Companies like Visa and Mastercard are enabling their issuer banks to offer installment plans directly on existing credit cards, often leveraging their massive customer bases and lower cost of capital.

This is a direct threat because it removes the need for a separate BNPL provider like Affirm. However, Affirm is fighting back by partnering with some of these institutions. For example, in February 2025, FIS partnered with Affirm to integrate pay-over-time capabilities for its debit issuing banking clients. This means you're seeing a mix of direct competition and strategic co-opetition (cooperation + competition).

• Action: Review your merchant contracts to identify the top 15 partners that account for over 60% of your GMV.
• Action: Defintely model the impact of a 15% price concession on your top-tier merchant discount rate to preemptively counter a Klarna-style bid.
• Action: Prioritize integration with non-Apple digital wallets to diversify platform risk.

Affirm Holdings, Inc. (AFRM) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Affirm Holdings, Inc. (AFRM) is definitively High. This is not just about competing Buy Now, Pay Later (BNPL) providers like Klarna or Afterpay-those are direct rivals, not substitutes. A true substitute is a different product or service that satisfies the same core customer need: spreading out a purchase payment over time. The fundamental challenge for Affirm is that consumers have multiple, well-established, and rapidly evolving alternatives to finance purchases, which limits Affirm's pricing power and merchant fee structure.

Traditional credit cards offering internal installment plans (a form of BNPL) are a direct substitute with established consumer trust

Traditional credit card issuers like American Express, JPMorgan Chase, and Citi have aggressively integrated their own 'Pay-in-Installments' features directly into their card products, effectively neutralizing a core BNPL advantage. This allows the 76% of US adults who hold at least one credit card to use a familiar, trusted payment method for installment financing. While the growth rate for general-purpose credit card installment use has been slow, increasing by only 0.8% annually, the sheer volume is still massive: 47.8 million US consumers used these plans through May 2025. This is a sticky substitute, as it often comes with existing card rewards and credit-building benefits that Affirm's core product may not offer.

Merchant-specific, private-label financing options bypass third-party BNPL providers entirely

Many large retailers are opting to offer their own private-label installment plans or financing options, cutting out third-party BNPL providers like Affirm. This substitute is growing fast, with private-label installment plans expanding at a compound annual growth rate (CAGR) of 4.8% over the past two years, significantly outpacing traditional card-based installment growth. As of May 2025, 30.3 million consumers used these store-card installments. This is a direct threat to Affirm's merchant network, as seen when Klarna replaced Affirm as the exclusive BNPL provider at Walmart in March 2025, a partnership that had generated about 5% of Affirm's Gross Merchandise Volume (GMV) in late 2024.

Consumers can choose to use traditional credit lines or debit cards instead, especially for everyday purchases

The simplest substitutes are cash, debit cards, or using a traditional credit card's revolving line of credit. For smaller, everyday purchases, the convenience of a debit card or the rewards from a credit card often outweigh the need for a short-term installment plan. While BNPL has expanded into essentials like groceries, this is a highly competitive space where the average BNPL loan size is small-around $135 per purchase. The total US credit card debt recorded in Q1 2025 was approximately $1.182 trillion, showing that the traditional credit mechanism is still the dominant form of consumer financing for both convenience and large balances.

The rise of 0% APR loans in the BNPL space makes the product a near-perfect substitute for a cash purchase

Affirm's own success in offering 0% Annual Percentage Rate (APR) loans highlights the intensity of the substitution threat. The 0% APR option is essentially a perfect substitute for cash, as it offers the product immediately with no financing cost. This feature is a key driver of Gross Merchandise Volume (GMV). In Q4 of fiscal year 2025 alone, Affirm saw a massive 93% surge in GMV from its 0% APR monthly installment loans. The problem is that this feature is easily copied by competitors and is now a market expectation. If a competitor offers a 0% APR plan for a longer term or a wider range of merchants, it becomes a superior substitute, forcing Affirm to keep its own terms aggressive, which puts pressure on its merchant fees and overall profitability.

• Affirm's GMV from 0% APR loans surged 93% in Q4 2025, showing this feature is critical for consumer adoption.
• The global BNPL market is projected to reach $560.1 billion in 2025, fueling more competitors to offer similar 0% APR terms.
• Banks have lost an estimated $8 billion to $10 billion in annual revenue to BNPL providers, which is why they are now fighting back with their own installment products.

The high threat of substitutes means Affirm must defintely continue to innovate, particularly through its direct-to-consumer offerings like the Affirm Card and its AI-powered underwriting, to differentiate itself from the growing number of alternatives.

Affirm Holdings, Inc. (AFRM) - Porter's Five Forces: Threat of new entrants

The threat of new entrants into the Buy Now, Pay Later (BNPL) market against Affirm Holdings, Inc. is Moderate. While the low regulatory burden and readily available technology make small-scale entry easy, the massive capital requirements and the time needed to build a competitive merchant network create a formidable barrier to achieving scale.

Capital requirements are a high barrier; a new entrant needs massive funding capacity to compete with Affirm's scale

A new entrant needs deep pockets to compete with Affirm's existing funding structure and balance sheet. Affirm's total assets were $11.15 billion and total stockholders' equity was $3.07 billion at the end of fiscal year 2025 (June 30, 2025). More importantly, the company has built a sophisticated capital platform with over $22 billion in funding capacity as of December 31, 2024, which allows it to fund more than $44 billion in annual volume. A new player must match this funding capacity to offer competitive loan volumes and terms to large merchants.

Here's the quick math: Affirm's Equity Capital Required (ECR) ratio-the portion of the total platform portfolio funded by its own equity-dropped to 3.8% in the fourth quarter of fiscal 2025, down from 5.4% the prior year. This shift to a capital-light model means Affirm can scale GMV (Gross Merchandise Volume) faster without needing a proportional increase in its own equity capital. A new entrant cannot achieve this efficiency overnight; they would need to hold a much higher percentage of loans on their balance sheet, tying up billions in capital.

US regulatory oversight remains relatively light, lowering the compliance barrier for new US entrants

To be fair, the regulatory environment in the US is currently favorable for new BNPL entrants. In May 2025, the Consumer Financial Protection Bureau (CFPB) announced it would not prioritize enforcement actions based on its interpretive rule that would have treated certain BNPL products like credit cards under Regulation Z. This decision, and the subsequent contemplation of rescinding the rule entirely, significantly reduces the immediate compliance burden and the associated legal costs for any company starting a BNPL operation in the US. This light touch on regulation defintely lowers the non-financial barrier to entry.

Low technology barriers exist for small-scale entrants using off-the-shelf payment APIs

The core technology to offer a simple 'Pay-in-4' product is no longer a major barrier. Off-the-shelf payment APIs and cloud-based lending infrastructure have made it possible for small fintechs or even individual e-commerce platforms to embed basic installment payment options quickly. However, this only enables small-scale entry. The real technological barrier is Affirm's proprietary, AI-driven underwriting model, which allows it to offer a diverse product mix (including 0% APR and interest-bearing loans) while managing risk effectively. Affirm's technology and data analytics expenses increased by 17% in Q4 2025, showing the continuous investment required to maintain this core advantage.

Established tech platforms could seamlessly embed their own lending products

The most credible threat comes from established tech giants and e-commerce platforms that already have massive user bases and transaction data. These companies can seamlessly embed a lending product, bypassing the need to build a merchant network from scratch. Affirm has already seen the impact of this competitive dynamic, notably with the loss of a major partner, Walmart, which shifted approximately $1.5 billion in GMV away from the platform in fiscal year 2025. To counter this, Affirm is aggressively building its direct-to-consumer (DTC) channel:

• DTC GMV grew 61% to $3.1 billion in Q4 2025.
• Affirm Card GMV skyrocketed 132% to $1.2 billion in Q4 2025.
• Active cardholders nearly doubled to 2.3 million in Q4 2025.

This DTC strategy is a defensive action to reduce dependence on any single large merchant or platform.

Affirm's network of 419,000 merchants provides a significant, though not insurmountable, scale advantage

Affirm's vast merchant network is a key competitive moat. As of September 2025, Affirm had approximately 419,000 active merchants. This scale provides a powerful network effect: more merchants attract more consumers (active consumers reached 24.1 million in September 2025), and more consumers attract more merchants. A new entrant must spend a significant amount of capital and time to replicate this coverage, especially securing high-volume enterprise partners.