Buy now, pay later (BNPL) giant Affirm is officially launching in the U.K., marking its first foray outside North America. This long-awaited entry comes at a time when U.K. lawmakers are considering new regulations to align BNPL firms with traditional consumer credit services. Although these regulations are not expected to be implemented until at least 2026, Affirm aims to establish itself and gain favor among consumers and regulators during this interim period.
Founded in 2012 by Max Levchin, a co-founder of PayPal, Affirm originated from the startup incubator HVF. Levchin took over the company’s leadership in 2014, driving its growth trajectory. After expanding into Canada in 2022, Affirm has secured lucrative partnerships with major e-commerce companies over the years, including a long-standing relationship with Shopify, Walmart, and Amazon, which selected Affirm as the first BNPL partner for Amazon Pay in the U.S. last year. Most recently, Affirm has also partnered with Apple.
Understanding the BNPL Model
The BNPL model offers customers the opportunity to purchase goods on credit, repaying the debt through several interest-free installments. The provider profits primarily through merchant fees, though loans may incur interest if a longer repayment period is needed.
The U.K. regulatory landscape has been closely monitoring the BNPL market, particularly companies like Klarna and Clearpay, which face criticism for encouraging impulsive spending and normalizing debt. While the U.K. Financial Conduct Authority (FCA) has had some power to regulate BNPL providers, key exemptions exist for interest-free credit services that stipulate repayment within 12 months.
New regulatory measures are in development that could place BNPL companies on par with traditional consumer credit firms. Last month, the Labour government announced a BNPL consultation aimed at introducing regulations to ensure consumers receive clear information, avoid unaffordable debt, and maintain strong rights in case of issues.
Positioning for Success
Affirm appears eager to position itself favorably with both customers and regulators. The company has highlighted that its interest-bearing payment options will not include compound interest; instead, the interest will be fixed and calculated based solely on the initial borrowed amount. Unlike competitors, Affirm will not impose late fees or hidden charges, differentiating itself in a crowded market.
The BNPL sector has experienced tumultuous years. Klarna, once valued at over $45 billion in 2021, saw its valuation plummet to $6.5 billion but recently rebounded to $14.6 billion. Similarly, Affirm’s journey has mirrored this volatility. After its IPO in 2021, Affirm’s market cap peaked at $47 billion but later dropped below $3 billion. However, as of 2024, Affirm’s market cap has surged to over $13 billion, following a Q4 revenue increase of 48% year-on-year, with losses shrinking from $206 million to $45 million. Levchin has projected that the company will achieve profitability by 2025.
Affirm has long been expected to target the U.K. as its next market, especially since its chief revenue officer, Wayne Pommen, has indicated a focus on markets where its major partners already operate. For its U.K. launch, Affirm has initially partnered with flight booking site Alternative Airlines and payment processor Fexco, with plans to expand its collaborations with additional UK and international brands in the future.
In preparation for the launch, Affirm has hired around 30 employees, including Ruth Spratt, who will lead the local operations. The company is also looking to further expand its workforce throughout the year while maintaining its remote-first working model.
