Affirm, which launched in early 2013 with a product that resembles a digital version of a charge card, is making its payment schedules more flexible in an effort to attract more merchants and consumers.

The company, founded by PayPal co-founder Max Levchin, initially required users of its mobile payment product to pay bills within approximately 30 days. But this model proved insufficient to meet the needs of merchants and consumers, so Affirm developed Split Pay, which allows consumers to amortize a specific payment over a period of up to six months.

"It became clear after some test marketing that [simple terms were] really attractive to both" merchants and consumers, says Brad Selby, head of revenue for Affirm.

The San Francisco-based Affirm has an aggressive pipeline of consumer services planned over the next several months, with the idea that appealing to consumers will boost activity at Affirm's merchant partners, Selby says. Affirm is targeting its new Split Pay product at consumers who would be challenged to make a large payment in one installment, but still prefer debit to credit cards, Selby says.

"It appeals to consumers because you aren't carrying around a revolving credit balance. It's clear what you will pay each month," he says. "And for the merchant it makes a lot sense for the higher ticket items that people don't purchase as frequently."

Affirm takes a cut of between 2% and 4% of each transaction, and consumer fees start at 6%, with rates varying by the merchant, the size of the purchase and the amortization schedule. Affirm's mobile commerce technology requires two "taps" from the consumer to complete a purchase. The first tap initiates a payment and the second tap confirms that the consumer wants to make the purchase.

Split Pay is designed for purchases of around $5,000 to $10,000, or for bulk purchases of a number of items, such as back-to-school supplies. Amortizing these types of mobile commerce purchases isn't common in the U.S. aside from using a credit card, Selby says.

"In places like Brazil and Europe, installment payments are common, and we are doing a lot of education here in the U.S.," Selby says. "We think it's a great alternative for credit for people who prefer debit."

There is some risk for Affirm, which will front the full amount of the purchase to the merchant at the time of settlement, while the consumer pays back in as many as six monthly installments

Affirm will use accumulated data of past transactions to manage the risk tied to its model. Product segmentation will also play a role in risk management as Affirm measures payback performance for certain types of items. Segments will become more granular with time, as household goods become subdivided into consumer electronics, tools and other categories, Selby says.

While Affirm's initial focus is on boosting merchant activity by improving consumer experience, the company is also planning features directed more squarely at merchants, Selby says.

"We have built a pretty flexible financial architecture and can put a number of financial products on top of it," Selby says.

For example, Affirm plans to let consumers automate Split Pay repayments by linking to another payment account. "We also have lots of information and data that will enable us to do marketing analysis and business intelligence for merchants," Selby says.

A number of other mobile payment companies, such as PayPal, Square and CAN Connect are extending credit directly to merchants. Affirm has no immediate plans to do so, Selby says.

"We have a pretty full [rollout schedule] at the moment. We wouldn't rule it out in the future but that product is an open horizon for us right now," Selby says. 

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