Affirm (AFRM) Q4 2025: 0% Loan Volume Doubles as Merchant Adoption Hits 7%
Affirm’s merchant-funded 0% APR programs doubled adoption to 7% of its merchant base, driving a surge in product mix and reinforcing the company’s data-driven moat. The firm’s focus on AI-powered checkout optimization and disciplined credit standards underpinned resilient profitability, even as a major enterprise partner winds down. Investors should watch for continued penetration of offline and international channels as Affirm leans into configurable, merchant-centric solutions.
Summary
- Merchant-Funded 0% Penetration Accelerates: Affirm’s 0% APR programs are now funded by 7% of merchants, with management projecting eventual near-universal adoption.
- AI-Driven Checkout Optimization: Adapt AI deployments are boosting conversion and GMV, highlighting Affirm’s technology edge in merchant configurability.
- Offline and International Expansion: Affirm is pushing into UK and offline channels, leveraging platform reuse and key partnerships for scalable growth.
Performance Analysis
Affirm’s business model centers on facilitating buy now, pay later (BNPL) loans at the point of sale, earning revenue from both merchants (merchant discount rate, or MDR, a fee for increasing conversion) and consumers (through interest-bearing loans). The quarter saw a marked shift in product mix: monthly 0% APR loans grew over 90% year over year, and merchant-funded 0% offers now reach 7% of the merchant base, up from 3.5% last year. This mix shift is directly aligned with Affirm’s strategy to move marketing spend “to the bottom of the funnel,” as CEO Max Levchin described, making financing a conversion lever rather than a broad promotional tool.
Take rate stability was a focal point, with management guiding to the high end of their 3% to 4% revenue-less-transaction-cost (RLTC) range, even as mix shifts toward 0% loans. Affirm’s disciplined credit risk management remains a core differentiator, enabling the company to maintain funding partner confidence and resist the temptation to chase undisciplined volume as capital markets loosen. The wind-down of a major enterprise merchant is expected to be completed by the end of Q1, with zero volume assumed in the fiscal 2026 outlook, reflecting a conservative approach to guidance.
- Mix Shift Drives Growth: Monthly 0% loan volume expanded over 90% YoY, reinforcing Affirm’s merchant-centric strategy.
- RLTC Take Rate at High End: Affirm expects to maintain a high RLTC take rate despite mix changes, reflecting product and funding discipline.
- Major Merchant Wind-Down Priced In: The loss of a large enterprise partner is fully reflected in the outlook, with zero volume assumed post-integration.
Underlying these results is Affirm’s ability to flexibly configure product terms for merchants and consumers, using AI-powered tools to optimize conversion and cost efficiency. The company’s funding strategy and credit discipline remain central to its long-term profitability and resilience.
Executive Commentary
"Our advantage is we live better through mathematics... consumers get the benefit of reduced APRs as merchants subsidize them... It's a massive multivariate problem, and we love math here more than just about anything else."
Max Levchin, Co-founder & Chief Executive Officer
"The quality of the credit isn't really a decision. It's something we constrain the business with and then we operate from that point. And that's not lost on our capital partners."
Zane Keller, Chief Financial Officer
Strategic Positioning
1. Merchant-Funded 0% APR as a Conversion Engine
Affirm’s merchant-funded 0% APR programs are rapidly scaling, with the number of merchants funding these offers doubling to 7% of the base. Levchin emphasized that the long-term vision is near-universal adoption, as merchants realize that bottom-funnel financing offers are more efficient than traditional marketing spend. The company’s Adapt AI technology enables precise, real-time offer customization, making the value proposition increasingly compelling for merchants with varying margin profiles.
2. AI-Powered Checkout and Conversion Optimization
Adapt AI, Affirm’s machine learning-driven checkout configurator, has delivered early GMV increases of 5%, automating the process of tailoring financing offers to individual consumers. This not only improves merchant ROI but also deepens Affirm’s moat by embedding the platform within merchant workflows and making the solution less replicable for competitors. The company expects further gains as more merchants adopt full AI-driven optimization.
3. Channel Diversification: Offline and International
Affirm is expanding into offline and international markets, leveraging reusable platform infrastructure and deep integrations with key partners like Shopify and Stripe. The Stripe Terminal integration brings BNPL to physical retail, addressing a greenfield market that is 8 to 10 times larger than e-commerce by volume. In the UK, Affirm is live in testing with Shopify merchants and expects a mix of interest-bearing and 0% loans, with plans to expand further across Europe using a repeatable playbook and multinational merchant relationships.
4. Disciplined Funding and Credit Risk Management
Affirm’s approach to funding remains highly selective, prioritizing long-term partnerships with capital providers who value credit discipline. Management underscored that their credit box is non-negotiable, and that performance through recent market turmoil has attracted top-tier investors. The company’s funding cost sensitivity to interest rate changes is modest and lagged, mitigating risk in both rising and falling rate environments.
5. Product Expansion and Frequency Growth
Affirm’s product suite is evolving to drive higher frequency of use, with new products like the Affirm Card and “Affirm Anywhere” targeting everyday spend and lowering average order value (AOV). This strategy aims to position Affirm as a viable credit card replacement, capturing more wallet share as consumers season on the platform.
Key Considerations
Affirm’s quarter was defined by acceleration in merchant-funded 0% adoption, technology-driven conversion gains, and disciplined risk management, but also by a prudent approach to a major merchant transition. Investors should weigh the following factors:
Key Considerations:
- Merchant Penetration Trajectory: The doubling of 0% merchant funding signals growing acceptance of BNPL as a conversion tool, with significant runway remaining.
- AI and Configurability as Differentiators: Adapt AI’s early results validate Affirm’s investment in machine learning for checkout optimization, deepening the merchant value proposition.
- Offline and International Greenfield: Physical retail and European expansion represent large, largely untapped growth vectors, with platform reuse and multinational merchant partnerships as accelerators.
- Funding and Credit Discipline: Affirm’s refusal to chase undisciplined volume, even as capital becomes more plentiful, preserves long-term margin and funding partner trust.
- Major Partner Transition: The wind-down of a large enterprise merchant is fully reflected in guidance, reducing near-term volume but de-risking the outlook.
Risks
Affirm faces execution risk in scaling merchant-funded 0% programs and AI-powered checkout, as well as potential volatility from the loss of a major enterprise partner. International and offline expansion bring regulatory, competitive, and localization challenges, while macroeconomic shifts could impact consumer demand or funding costs. Management’s conservative guidance and credit discipline mitigate some risk, but competitive intensity and channel penetration remain key watchpoints.
Forward Outlook
For Q1 2026, Affirm guided to:
- Stable RLTC take rate at the high end of the 3% to 4% range
- Zero volume from the winding-down enterprise merchant, fully reflected in outlook
For full-year 2026, management maintained guidance:
- Continued mix shift toward merchant-funded 0% loans, with profitability discipline
Management highlighted several factors that shape the outlook:
- Ongoing acceleration in merchant-funded 0% adoption and AI-driven checkout
- Conservative approach to partner transitions and volume forecasting
Takeaways
Affirm’s Q4 2025 results reinforce its strategic pivot toward AI-powered, merchant-configurable BNPL, with the 0% loan engine and disciplined funding as durable differentiators. The company is de-risking near-term volume by fully baking in the loss of a major partner, while investing in high-conviction growth levers across offline and international channels.
- Merchant-Funded 0% Adoption Unlocks Sustainable Growth: Doubling penetration to 7% highlights merchant appetite for bottom-funnel conversion tools and positions Affirm for long-tail expansion.
- AI and Platform Flexibility Deepen Moat: Adapt AI’s early success in conversion and GMV improvement validates Affirm’s technology-first approach and differentiates from less configurable competitors.
- Next Leg of Growth Hinges on Channel Diversification: Investors should track Affirm’s progress in offline and international markets, as well as continued merchant adoption of AI-driven programs.
Conclusion
Affirm’s Q4 2025 marks a decisive step toward scalable, merchant-centric BNPL, with AI-driven configurability and disciplined risk management at the core. While the loss of a major enterprise partner tempers near-term growth, the company’s strategic levers in product mix, technology, and channel expansion remain firmly in play for long-term value creation.
Industry Read-Through
Affirm’s rapid scaling of merchant-funded 0% APR programs and AI-powered checkout optimization signals a broader BNPL industry shift toward conversion-focused, data-driven solutions. As more merchants seek to move marketing spend to the point of sale, competitors lacking deep configurability and risk discipline may struggle to keep pace. The opening of offline and international channels, especially through partnerships with payment service providers like Stripe, suggests that physical retail and multinational expansion will be the next battlegrounds for BNPL providers. Investors should watch for increased merchant demand for AI-optimized, flexible financing across the payments landscape.