Young people have a much different relationship with credit, requiring retailers to find different ways to enable financing to encourage larger purchases.
By partnering with Shopify, Affirm is seeking a way to reach merchants targeting young consumers by offering alternative financing options.
"My father said you have to build up to a credit card," said Brad Selby, vice president of merchant services for Affirm. "This younger generation is focused on debit, most of them don’t have a credit card."
By integrating with Affirm, Shopify's U.S. merchants can offer installment financing at checkout. Buy with Affirm provides real-time financing at checkout.
Affirm's installment payments are available at several hundred e-commerce sites, and the company contends average order values have increased up to 80% and conversion rates have grown more than 20% where installment financing is used.
Affirm charges merchants 2% to 3% of each transaction, and shoppers' fees start as low as 6% depending on payment history, dollar amount being financed and the number of monthly installments. The finance fees are built into each payment notice.
"It's not a revolving credit, it's more transparent," Selby said. "It's easier to split the payments up over several months rather than having compounding interest. It works well with younger folks."
Retailers use Shopify's platforms to design, set up and manage stores across multiple challenges. The mix of Shopify retailers includes many that appeal to younger consumers, such as Boosted, which sells electric skateboards.
"Generally we see a lot of smaller merchants that are building a following. Shopify has a rich field of retailers that appeal to a younger group," Selby added. "A lot of these guys will be the next generation of large online retailers."
Affirm was founded about three years ago by a team that includes PayPal co-founder Max Levchin, using tools from application programming interface provider Stripe to enable mobile payments and Facebook to help authenticate first-time users.
Shopify has proven a popular way for companies to build a base of retailers for an m-commerce play. Facebook has used Shopify to build users for its "buy" buttons, and Google has also turned to Shopify to boost its mobile payment ventures. It's also added processing and sales analytics to its services.
Affirm's focus on younger consumers requires an alternative to credit, since nearly two thirds of millennials do not have credit cards.
It also gives the company a dedicated niche in a crowded marketplace of m-commerce payment providers.
"For any product, it's important to have clear customer profiles and targets in order to increase the efficiency of the marketing effort and to help refine messaging," said Thad Peterson, a senior analyst at Aite Group. "This is particularly true in categories where there is a good deal of commoditization and a number of different competitors.”
Affirm appears to be targeting a demographics that may not have ready access to other credit alternatives, which “applies to a younger demographic that has yet to achieve a higher earnings level in their careers," Peterson added.