Affirm (AFRM) Q2 2026: Active Merchants Surge 42% as Card and “Other” Verticals Broaden Growth Base

2026-02-05 | By EarningsIQ Research

Affirm delivered another quarter of broad-based expansion, with standout growth in active merchants and card adoption counterbalancing a shifting merchant concentration mix. Management’s focus on network effects, product simplicity, and regulatory durability is yielding operational leverage, even as GMV growth is set to moderate on tougher comps. Investors should track the evolving merchant mix, card-driven engagement, and the long-term implications of Affirm’s bank charter ambitions.

Summary

  • Merchant Base Diversification: Wallet partnerships and “other” verticals are accelerating Affirm’s merchant count and broadening its addressable market.
  • Card Momentum: Affirm Card’s rapid adoption is materially boosting GMV and deepening consumer engagement.
  • Strategic Focus on Simplicity: Zero percent offers and transparent pricing remain Affirm’s key competitive moat as rivals intensify promotions.

Business Overview

Affirm is a leading Buy Now, Pay Later (BNPL) provider, enabling consumers to split purchases into fixed payments, often at zero percent interest. The company generates revenue primarily through merchant fees, consumer interest, and interchange on its proprietary Affirm Card, with major business segments including integrated merchant financing, the Affirm Card, and a growing “other” category that aggregates wallet partnerships and long-tail merchants. Affirm’s platform is designed to maximize conversion for merchants while offering consumers transparent, fee-free credit options.

Performance Analysis

Affirm’s Q2 2026 results underscored robust network expansion and monetization, with active merchants climbing 42% year over year—a sharp acceleration driven by wallet partnerships that now contribute materially to both merchant count and volume. The “other” vertical, now 15% of GMV and growing triple digits, reflects Affirm’s success in capturing a long tail of small merchants and new categories, further diluting concentration risk from its top five merchants.

The Affirm Card stands out as a major growth engine, with GMV up nearly 160% and active cardholders up 121%, marking its transition from a niche product to a core business pillar. Zero percent loan offers, a central feature, also surged, reinforcing Affirm’s differentiation in a competitive field. Margin dynamics remain healthy, with RLTC (revenue less transaction costs) take rates guided to stay slightly above 4% for the second half, aided by favorable ABS funding markets and operational discipline. Management notes that the mix shift toward zero percent offers is intentional, driving merchant value and consumer trust even as it softens revenue take rates slightly.

  • Merchant Growth Acceleration: Wallet partnerships and long-tail merchant onboarding are fueling a step-change in active merchant count.
  • Card Adoption Drives Engagement: The Affirm Card is materially increasing GMV and deepening user frequency, now a major contributor to overall results.
  • Funding Cost Tailwinds: Recent ABS deals priced at sub-100bps spreads and below 4.6% yields, the best since 2021, are supporting margin resilience.

Affirm’s growth is increasingly diversified, with new verticals and card-driven engagement offsetting the impact of merchant transitions and competitive noise. Management’s guidance reflects confidence in operational leverage, though GMV growth rates are expected to moderate as the company laps large partner transitions.

Executive Commentary

"The card is... just continuing to grow very quickly. GMV year-over-year for the quarterly reporting was up just under 160%. Active car holders went up 121%. Zero percent deals on the card went up 190% year-over-year. It's not the only growth engine, but it's a big growth engine for our metrics. And it's now a material to the overall business. It's no longer a kind of a cool novelty product for our diehard users. It's helping us create more diehard users. So the card is doing really well. We have a lot more planned for the card, so we don't intend to slow it down, if you will."

Max Levchin, Founder & Chief Executive Officer

"The last deal we just priced was done with a spread of under 100 basis points. It's really remarkable. We haven't done that since 2021. The weighted average yield in the deal was below 4.6%. Again, we haven't seen that kind of cost of financing since the Zerp. And so we're operating and executing in a capital market. It's really the best we've seen post the rate movement part of the world. And it's a reflection of two things. One is just the continued vote of confidence that the market has in our ability to control credit outcomes and deliver the kind of returns that we sign up to deliver."

Rob O'Hare, Chief Financial Officer

Strategic Positioning

1. Network Effects and Merchant Diversification

Affirm’s expansion into wallet partnerships and the “other” GMV category is driving a step-function increase in merchant reach, reducing reliance on large partners and enabling the company to serve a broader spectrum of merchants. This diversification is critical for long-term resilience and positions Affirm as a ubiquitous payment option across verticals.

2. Affirm Card as a Platform

The Affirm Card is no longer a side bet but a central pillar, driving outsized GMV and user engagement. The card’s flexibility—usable at any merchant that accepts cards—enables Affirm to capture spend both within and outside its direct merchant network, building brand stickiness and facilitating cross-sell into other Affirm products.

3. Zero Percent and Transparency Moat

Affirm’s “no interest, no fees” positioning remains its core competitive moat, especially as rivals escalate complex promotions. Management emphasized that simplicity and trust are winning with both merchants and consumers, and that zero percent offers drive conversion without the need for convoluted incentives.

4. Regulatory Durability and Bank Charter Path

The application for a bank charter signals a long-term investment in regulatory certainty, with management viewing it as a hedge against shifting compliance environments. While any direct financial impact is years away, this move underpins Affirm’s intent to operate at scale and potentially unlock new product avenues down the road.

5. Data-Driven Category Expansion

Affirm’s approach to new verticals is grounded in consumer demand signals, leveraging card data to identify and prioritize categories like auto repair, home improvement, and services. This data-driven expansion supports the long-term vision of Affirm as a universal acceptance network, mirroring legacy card brands but with a modern, digital-first twist.

Key Considerations

This quarter marks a strategic inflection for Affirm, as the company leverages its network and product innovation to drive broad-based growth and operational leverage. Investors should weigh the following:

  • Merchant Mix Evolution: The shift toward wallet-enabled merchants and “other” verticals is boosting diversification but may introduce new revenue and risk profiles.
  • Card-Driven Engagement: The Affirm Card is now a material GMV contributor, with evidence that cardholders are highly engaged and cross-pollinate across Affirm’s ecosystem.
  • Funding Market Dynamics: Favorable ABS pricing and strong forward flow demand are supporting margins, but sustained access and pricing will be key as macro conditions evolve.
  • Regulatory Positioning: The bank charter application is a proactive move for long-term stability, but approval and operationalization remain distant and uncertain.
  • Competitive Simplicity: Affirm’s commitment to transparent, easy-to-understand offers is resonating in a noisy market, but the company must continue to prove its value to both merchants and consumers as rivals intensify promotions.

Risks

Affirm faces several risks, including potential regulatory changes at both state and federal levels, especially as BNPL products attract more scrutiny. While management reports no imminent threats of rate caps, the regulatory environment remains fluid. GMV growth is set to decelerate as the company laps a major partner transition, and the rapid expansion into new merchant segments and product lines could introduce unforeseen credit or operational risks. Competitive intensity is rising, and although Affirm’s zero percent offers provide a moat, sustained differentiation will be tested as incumbents and fintechs evolve their own offerings.

Forward Outlook

For Q3, Affirm guided to:

  • GMV growth of approximately 30% year over year
  • RLTC (revenue less transaction costs) take rates slightly above 4%

For full-year 2026, management maintained guidance:

  • Continued margin expansion and operational leverage

Management highlighted several factors that will shape the coming quarters:

  • GMV growth moderation as large partner transitions are lapped
  • Further ramp in card adoption and wallet-driven merchant activity

Takeaways

  • Network Expansion Drives Resilience: Affirm’s broadening merchant base and card adoption are reducing concentration risk and fueling diversified growth, positioning the company for greater stability.
  • Margin and Funding Strength Support Investment: Favorable ABS pricing and strong demand for Affirm’s assets are enabling the company to maintain attractive margins and reinvest in product innovation.
  • Long-Term Bets on Regulatory Certainty and Platform Model: The bank charter application and focus on universal acceptance signal Affirm’s ambition to become a foundational payments network, with future product optionality as a key upside lever.

Conclusion

Affirm’s Q2 2026 results reflect a business in multi-dimensional expansion, with card and merchant diversification offsetting legacy partner transitions and competitive noise. The company’s focus on simplicity, network effects, and regulatory foresight positions it well, but investors should monitor the pace of GMV growth, regulatory developments, and the evolving economics of new verticals and funding channels.

Industry Read-Through

Affirm’s results offer clear signals for the BNPL and broader payments sector: Network breadth and product simplicity are emerging as key differentiators as the field crowds with complex promotions and new entrants. Wallet partnerships and embedded finance are driving merchant aggregation, suggesting that scale and platform integration will be critical for future winners. The rapid adoption of proprietary cards and expansion into “other” verticals highlight the value of flexible, cross-channel product strategies. Affirm’s proactive regulatory posture and funding execution set a high bar for peers, while the evolving consumer credit environment and regulatory scrutiny remain sector-wide watchpoints.

AFRM Technology Fintech BNPL Payments Card Merchant Network Regulation