‘Confirm is clearly a bright spot’ in the sale now, pay space later: BofA

Analysts at Bank of America (BofA) identified Affirm as a star in a new note on buy now, pay later (BNPL) services.

The note, published on October 12, raised BofA’s target price for Affirm from $119 to $160. (AFRM closed at $146.13 on Wednesday.)

“AFRM is the clear bright spot,” the analysts say. While “all other BNPL vendors saw a slowdown in app downloads in September and [monthly active users] growth compared to August and 1H, AFRM was the only provider to see growth accelerate in both metrics.”

In other words, Affirm was the only company to increase its share of monthly active users from the first half of the year, according to BofA. And unlike all other players, Affirm also saw app downloads accelerate in September.

A robotic leg is pictured at the Adidas innovation lab in Herzogenaurach, May 7, 2012. US market leader Nike and German rival Adidas are embroiled in their own Olympic battle to boost athletes.  performance and extract maximum value from the London Olympics.  According to news reports as of June 20, 2012, the Games will provide a showcase for new fashion and technological advancements that sportswear suppliers hope will boost sales at a time of economic turmoil in many of their markets.  competition story OLY-BRANDS-BATTLE/ REUTERS/Michael Dalder (GERMANY - Tags: BUSINESS SCIENCE TECHNOLOGY SPORT OLYMPICS)

A robotic leg is pictured at the Adidas innovation lab in Herzogenaurach, May 7, 2012. Adidas is one of the retailers accepting Affirm. (REUTERS/Michael Dalder)

More digital players are entering the space

Affirm is growing into an overcrowded BNPL space.

BofA noted strength in Affirm because of its recent partnerships, its product roadmap and its “great appThe bank expects Affirm to achieve 30% revenue growth “for at least the coming years, driven by a growing BNPL market and new product introductions.”

Despite their positive attitude towards the US player, BofA analysts still noticed strength in the foreign players.

“Klarna and Afterpay will remain the most popular BNPL apps in the US as of September 2021,” analysts noted. The two apps were the most downloaded BNPL apps in September. Affirm came in third but is slowly gaining market share.

The Swedish company has made an effort to push further into the US partnered with mall operator Simon Properties to offer its BNPL service in stories through the Klarna app.

The move makes sense, as Klarna’s users pointed out in a December 2020 survey that brick-and-mortar stores have been key for last-minute shoppers.

“There have been a lot of digital players who have tried to enter brick-and-mortar stores,” Klarna CEO Sebastian Siemiatkowski told Yahoo Finance Live (video above). “PayPal has tried it so many times, so have other players, but we are seeing real success with it. We are already live in 60,000 stores in the US, with Macy’s, FootLocker, Sephora. Some of them have reported up to a 65% increase in the average order value when delivering our services in stores, so we’re seeing a lot of traction.”

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BofA

‘A much better proposition than your typical credit card’

Established companies such as Mastercard (MA) and Visa (V) have also jumped into the BNPL space.

In August, Square (SQ) announced a massive $29 billion deal to buy Afterpay. Amazon (AMZN) also entered space partnering with Confirm.

Traditional banks are also keeping a close eye on the sector: In an Oct. 13 earnings call, Jamie Dimon, CEO of JPMorgan Chase (JPM), said the nation’s largest bank “will spend what we have to spend to compete with all these people in our space,” as Affirm announced its intention to offer debit cards and cash bank accounts.

Against this background, Siemiatkowski emphasized that the mission for Klarna is the broader shift towards debit and away from credit.

“We at Klarna believe that people should have debit cards, not credit cards, but occasionally they need access to credit,” said Siemiatkowski. “And if they do, buy now, pay later, because it’s interest-free. It’s a much better proposition than your typical credit card.”

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BofA

According to Siemiatkowski, apps like Klarna “don’t try to encourage you to borrow more than you need to… Our credit losses are 30%, 40% below credit card industry standards. And I think it’s proven now that this model is actually more responsible.” than traditional credit card models.”

More people in the US are starting to use BNPL, according to BofA’s survey of 1,124 BNPL users, which found that 47% of respondents had used BNPL eight or more times in the past 12 months, while 54% of respondents plan to use BNPL. eight times or several times in the next 12 months.

About 56% of respondents said BNPL’s average transaction size was less than $200.

And interestingly, 24% of BofA survey respondents said they turned to BNPL because they got the most out of their credit card.

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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