Affirm Holdings, Inc. AFRM) 2023 Barclays Financial Services Conference September 12, 2023 8:15 AM ET
Company Participants
Brooke Major-Reid – Chief Capital Officer
Rob O’Hare – SVP, Finance
Conference Call Participants
Ramsey El-Assal – Barclays
Ramsey El-Assal
Okay. Welcome, everyone. Thank you so much for joining us. It’s my pleasure and honor to welcome Brooke Major-Reid, Chief Capital Officer, Rob O’Hare, Senior Vice President of Finance at Affirm. I’m Ramsey El-Assal. I cover payments and processors and IT services at Barclays on the equity research side. Thank you so much for joining us. I appreciate it. As usual. Maybe just sort of to level set for the audience, could you give us an overview of the funding – of Affirm’s funding strategy?
Brooke Major-Reid
Sure. Thank you for having us. Good morning, everybody. So, Affirm funds its business and our loan origination business through three primary channels. We have traditional warehouse lines which we have multiple partners, large diversified global investment banks. We fund also in the ABS market. We do static and revolving deals, and we also have a forward flow or a loan sale program in which we sell loans. So, all of those channels really help us to not just access deep pools of capital, but do we do so in a sustainable way. So, from a funding perspective, we have the ability to create partnerships, but also do so sustainably to fund the business over time.
Ramsey El-Assal
Talk about the ABS market. That’s a topic that comes up once now and again with investors. How has the ABS market evolved over the past months, kind of, and maybe especially focusing on what’s been happening year-to-date?
Brooke Major-Reid
Ye. So, we’ve been active in the ABS market, but we’ve been doing so very thoughtfully. As you know, it hasn’t been as fluid given the volatility. And so it feels firmer. I think folks are being thoughtful about the deals they want to play in. So, we’re getting a lot of – we actually have a deal in the market. So, we feel that we are well supported in terms of the interest. I would say that we’re not taking anything for granted. We want to be a programmatic issuer. We want to be thoughtful about how we execute, but at the same time, we know we have to execute in different environments, whether there’s volatility, whether it’s benign. So, from an ABS perspective, it’s important for us to partner, listen to our investors, get an understanding of what structural enhancements we can make. In this particular deal for example, we went down to BB, something we hadn’t done in the prior two deals, just because of how the market was responding to investment grade and below investment grade subordinated notes. So, we want to be constructive, but we also want to be partner-like with our investors and meet the market where it is. And so, from an ABS perspective broadly, the tone definitely feels better. Actually throughout this year, we’re grateful for the support, but at the same time, we know we’re still in sort of an uncertain environment, and we continue to navigate that quite carefully and thoughtfully, partnering with investors.
Ramsey El-Assal
And what are you seeing in terms of spreads in advance rates, if I can ask.
Brooke Major-Reid
Yes. So, advance rates have gone up slightly. I think for us, it’s been an exercise of educating folks about our business, our model, and working with the rating agencies. So, we’ve seen an uptick in advance rates. We’ve also seen spreads come in. Obviously, benchmark rates are higher, but we’ve seen spreads come in and a lot more constructive around risk down the stack. So, the net of it is, right now as we are in the market executing, we’re seeing a lot of traction, and that has helped, buoyed and supported spreads to come in tighter, which is obviously good news for us. But again, it’s not something we take for granted, and it’s not something that we feel that we should hang our hat on. And every execution is unique. And like I said, we’re still in an environment where the market is not as fluid as it was pre the hiking cycle.
Ramsey El-Assal
You all had the foresight to build a pretty diverse funding mix, which I think has served you quite well. Is cost or pricing the only variable that you factor in when you kind of rotate between different funding sources? Or what are the – are there other considerations or is it just price?
Brooke Major-Reid
Yes, so that’s a really, really good question. Let me be clear. The primary job of the capital team is to fund the business and do so sustainably. The diversity of the channel allows us the flexibility to navigate whatever environment we’re facing. So, when it comes to evaluating funding channels and partners, pricing is important, but it’s not the primary driver of how we onboard capital. Think about – we take a very long-term partner-like approach, and that has served us because when the markets get uncertain, and they have been, you have partners who have conviction and confidence in our ability to control credit outcomes and to really be thoughtful about how we execute in terms of the various channels. So, cost is certainly important, but we look at a partner’s ability to scale, be consistent with respect to the capital they provide. There’s also the element of the alignment. We want to provide good access to good quality loans. We stand behind the loans we originate. And for our partners, we want to make sure that they’re getting the value that they are seeking. So, when we allocate across warehouse, which is largely an aggregator for ABS deals, we’re thinking about, well, how does that benefit the business over time? Which partners do we want to onboard? And we think about forward flow. We typically utilize that to the – fully utilize that. And then on the ABS side, we are always talking with investors about kind of structures and how we execute. So, it’s not always about price. Getting the access to the depths and making sure that what we’re doing is being done in a sustainable way over time.
Ramsey El-Assal
And how should we think about Affirm’s – you using – you guys using your own balance sheet as a funding source sort of over the long term?
Brooke Major-Reid
Yes. The balance sheet is available to us. I like the flexibility it provides, but let me be clear, the capital team’s job, in addition to funding the business credibly and sustainably over time, is also to be efficient with the capital that we have, the cash that we have. So, we’re always looking to manage how much capital we put to work, of our own cash and capital we put to work in originating loans and what we call equity capital required to the intensity of the capital. But there are times when we have to increase that capital commitment because of what’s going on in the market. But overall, the flexibility of the balance sheet allows us to navigate those headwinds. But at the end of the day, we are working really hard to reduce that intensity and that commitment of capital that we have to originate our loans. We also are very clear that we stand beside our partners. As they say, we eat our own cooking. We have conviction and confidence in our ability to control credit outcomes. So, we are not focused on making sure that okay, 100% loans are sold. There is a dynamic around creating capacity that the short duration of our loans will help to make sure that we have that ongoing velocity. But the balance sheet is just – is an area that we are focused on reducing the capital intensity over time and ensuring that we have the flexibility to navigate headwinds. And we can be a little bit patient and thoughtful about how we onboard new capital to reduce that intensity.
Ramsey El-Assal
And so, just following up on that for a second, so it was an interesting comment. So, your funding partners, you holding some loans on your own balance sheet is actually sort of a positive proof point for some of your funding partner, to your point, eating your own cooking, you’re basically saying, hey, we’ll put our money where our mouth is, and that should make you feel a little bit more comfortable.
Brooke Major-Reid
Yes, I think that’s always a good signal, right, like when you think about the portfolio broadly, we allocate across funding channels. You generally be looking at a vertical slice. So, there is an alignment that creates confidence and partnership, and that really helps you for the long term. When things – like I mentioned earlier, when things are volatile, uncertain, partners want to know that they can trust your ability to have good quality loans, produce good quality loans. You’re managing either duration or overall performance risk, and your ability to keep those – some of the loans on balance sheets that time and fluctuate that, I think is a really strong signal in the partnership.
Ramsey El-Assal
I guess zooming out a little bit, how are you thinking about sort of the general funding environment today? How does that impact your outlook for 2024 and going forward more broadly?
Brooke Major-Reid
So, if you look at our supplement over the last several quarters and just historically, we’ve had about 40% to 50% of loans sold and the rest through ABS static deals and revolving and then warehouse. So, the overall funding environment, and I won’t talk about fiscal ‘24 too much, but I think if you look at the approach, we are committed to maintaining the current approach through cycles. So, we will continue to have a very robust forward flow loan sale program. We want to continue to establish ourselves in the ABS market. And we feel like it’s been – we’re not taking anything for granted, but we feel like it’s a lot more constructive than it’s been over the past kind of 18 months. And we want to lean into that somewhat in a way that’s very thoughtful. And for our warehouse partners, we’ve had the support and the good fortune of having partners who have upsized and been with us through this particular cycle. So, the funding environment, the tone continues to feel constructive, but we’re not taking anything for granted. And we are kind of leaning into the fact that we have the optionality and diversity of funding. So, my team continues to add capital well ahead of the need. There’s a cost to that. So, we are also being thoughtful about how much capital and when, and obviously we’re not being basis points smart here. We’re being thoughtful about how we engage those partners also from a pricing perspective over time and trying to make sure that they have a full understanding of how we plan to run the business from a credit quality and duration perspective.
Ramsey El-Assal
And what about the consumer right now? What is your view of credit performance and delinquency trends and how are things from your vantage point, which is a pretty privileged vantage point? What are you seeing in the environment?
Brooke Major-Reid
Well, as I mentioned, it’s still uncertain. The consumer is holding in. We’ve maintained delinquencies from our – we’ve reported our earnings delinquencies are 30 plus day delinquencies, ex-Peloton is in the 2% range. We’re quite proud of the fact that we’ve been able to manage that. The short duration nature of our loans is something that helps us as well. But the way we run the business from a credit perspective, first of all, we underwrite every transaction. So, we have the opportunity to create visibility from a signaling perspective as to how a consumer is doing their ability to pay. The other thing we do is we – as an executive team, we look at all the signals. We have some – a lot of data points that go into the underwriting. So, because we underwrite each transaction, because we’re looking at the data regularly, our credit team is focused on that 100% of the time. And we as an executive team go through that weekly. We have an understanding of real time what the consumer is doing. So, we are managing the credit box in a way that we feel will generate the outcomes that will allow us to continue to have access to funding. But we are not taking for granted that the delinquencies are right now very reasonable lower delinquencies. But we understand that the consumer has a ways to go with respect to the stress in the market. And so, our expectation is that we should continue to be very careful about managing that credit box, given that we’re really not out of the woods yet with respect to the current environment and the consumer.
Ramsey El-Assal
Is there any granularity that you’re seeing to credit performance in terms of types of consumers or specific verticals where there’s issues? Or is that a view that you gain from looking at your flow? Or is it more – is it is a little bit of a broader kind of take?
Brooke Major-Reid
Yes, we do go granularly because we have – internally, we have some – an internal score called ITAC. And so, we’re able to grade and assign that score based on certain performance or certain data points that we look at. So, generally speaking, we have a cohort of consumers that even for our own scoring model, we are seeing that the lower buckets are performing consistent with you would say kind of subprime, but we are generating better outcomes at the lower ITAC band. And our book is really skewed towards the higher ITAC ban. So, our performance is driven by the fact that we’re originating more kind of at the higher ITAC level. So, broadly speaking, we are seeing consumers hang in there, if you will. But at the end of the day, it’s really about how are you underwriting in order to ensure that a customer is willing to or can repay. So, we do things like downpayment boosting, other things that we can do in terms of reducing – managing approvals in a way that’s thoughtful and consistent with what we’re seeing in the consumer. So, broadly, it really is, our book is more skewed towards the higher ITAC band.
Ramsey El-Assal
One question that I sometimes get is, in a more stressed sort of macro environment, what are the puts and takes in terms of, there’s probably increased demand for the product. At the same time, maybe you have a better – as opposed to when times are really good, you have maybe more access to better customers in a sense, because you can kind of go pick up customers who might have been served by other more traditional credit – extenders of credit bank cards, et cetera. How does the model and sort of a macro stressed kind of a situation, what are the puts and takes that we should think about in terms of maybe some kind of countercyclical benefits that might accrue to the model if things kind of get a little tense?
Brooke Major-Reid
Yes. Rob will answer that one.
Rob O’Hare
Yes. I mean, I think every recession is different, right? And I think one of the nice things about the merchant network that we work with is we’re incredibly diversified, right? So, we’re not dependent on any sole vertical. And I think what we’ve seen so far on the GMB and on the consumer demand side is that consumers are prioritizing things like family travel, right? And so, travel’s been a really strong tailwind for us from a growth perspective. But there has been a bit of a retreat on some of the sort of COVID categories that benefited, things like connected fitness, consumer electronics would fall in that bucket too. So, I think we’ve seen a little bit of maybe a reprioritization with consumers, but when we look at sort of share of wallet, when we look at transaction frequency, I think both of those signals are up and growing on our side. So, it hasn’t meant that they’ve partnered with us less on the consumer side.
Ramsey El-Assal
That’s super helpful. I wanted to talk a bit about your banking partners. You’ve concentrated most of your business at Celtic Bank today. Would you prefer a diverse mix of banking partners? Are there good reasons to keep flows sort of more concentrated? How does that part of the strategy play out?
Brooke Major-Reid
Yes, really good question. We are in the business of managing risk and being prudent about how we think about the broader business ecosystem. Onboarding, we onboarded a third bank partner. We do have most of our volume with Celtic, but the ability to diversify across banking partners is really important. It builds resilience. And I think from our perspective, our partners are a gateway into the consumer with respect to the bank originating partners. So, we think about it more from not just diversification, but a risk management perspective. And so, when we add partners, we’re thoughtful about their ability to originate the loans across the board. And with our additional lead bank, we’re quite proud to have a third banking partner in the ecosystem. It’s early days, so we don’t have a set allocation, but over time we will allocate it in accordance with what’s best for the business. But it’s really around diversification and ensuring that we have resilience in the business.
Ramsey El-Assal
And I think on the earnings call, you mentioned that you signed up a new banking partner. Maybe if you could mention how much business this new partner will eventually take on. Is that something where there’s a migration happening to some degree, or?
Brooke Major-Reid
No, we don’t have a prescriptive forecast with respect to volume. We reserve the right to allocate in accordance with the bill. We’re still ramping that partner. So, like I said, it’s early days, but you would expect that over time, they would obviously increase the volume, and depending on our origination mix, we would balance that in a way that’s beneficial for the business, but there’s no set volume mix or shift that we’re looking to do in the near term.
Ramsey El-Assal
And what about the appetite on the side of the partner banks? Has that changed at all? There have been a lot of headlines about stress in the banking system. Are they as eager to be in this business as they were previously? How does that play out in terms of contract discussions, renewal discussions, or has much changed?
Brooke Major-Reid
Yes, no, we’ve had really good conversations with prospective and current banking partners. I think when you look at the headline of compliance and just partnering to ensure that you are compliant and from a regulatory perspective, we’ve had a great track record. And so, that gives them confidence. This is a very accretive model as well for the banks. So, I think the primary focus is, are we aligned from a compliance, approvals, regulatory risk perspective? And that’s something we’ve always been great about in terms of partnering with our banks. And so, our ability to onboard partner banks is just a matter of one bandwidth, but also the ability for them to feel comfortable that we are going to adhere from a compliance perspective and partner in the right way. And I think that’s been pretty consistent and we’re well aligned. So, the appetite, I think – the universe is fairly small, and I think the appetite has been very constructive with respect to partnering with us on that front. So, we’re not necessarily looking to add a ton more partners, but we are being thoughtful about adding to the ecosystem that creates re resiliency over time.
Ramsey El-Assal
I should have mentioned in advance, but I divided my questions into half for you upfront and then half for Rob on that. But having said that, please, both of you feel free to chime in at any time. But this is a question about Affirm Card, a little bit more of a general topic. On the other hand, it has a little bit of A Brooke bent to it because it’s about sort of loan performance. And maybe I want to talk about, about Affirm Card a little bit more, but it’s obviously gaining traction. Does the loan activity on the card differ from Affirm’s typical profile? Are card loans larger or more frequent? Do these customers have different credit profiles? How do you look at it from a capital perspective? Yes, maybe you could start and then I have a couple more Affirm Card questions or actually – go ahead on the product a bit more generally. Yes, please, please.
Rob O’Hare
Affirm Card is part of our broader direct-to-consumer strategy. And I think with all of our direct-to-consumer products, typically they’re a second or third or fourth phone for a consumer. So, this is a base of consumers that we already know. We’re really starting with the base of 16-ish million consumers that we have today. It’s not – the direct-to-consumer offerings are typically not an onboard onto Affirm. And so, I think that colors the credit performance, certainly, right, because if you don’t pay back your first loan, you won’t get a second from Affirm. So, we do have a higher mix of credit with the direct-to-consumer offerings as a result. We shared some stats in the most recent shareholder letter. I think we’re seeing 80% interest bearing loan mix in terms of the overall transactions. That’s higher. I think we’re at about 72% for the business at large. So, we are seeing a higher skew towards interest-bearing. Interest-bearing tends to be higher average order values than our Pay in 4 products. So, that’ll drive AOVs up as well. But I think the most exciting thing that we’re seeing is just more frequency. We said, I think three times more overall frequency versus the platform at large. That puts us at about 12 transactions per user per year. And not all of those will be lending. We are seeing a lot of what we call pay now transactions, which is really great because that opens up a new on ramp and a new area where we can play in terms of supporting the consumer.
Ramsey El-Assal
And so, this is a product that you guys have announced a while back, but have basically done the work in terms of getting it just so, and it feels like there’s a bit of an inflection point potentially in the marketplace. What was the kind of the secret sauce in terms of where you started and where you ended, and what do you think is driving that uptake?
Rob O’Hare
I mean, I think there were several, to be honest, right? It was a lot of product and engineering optimization work. I mean, everything from – I mentioned the pay now transactions. That’s sort of a new service area for Affirm to support. The way the card works, Affirm Card sits on top of your existing bank account, and then we’ll pull funds for a pay now transaction about 48 hours after the transaction occurs. And so, there is some float risk there that happens in transactions like that, and that’s a very different type of risk than what we see on the credit or the underwriting side for finance transactions. So, we needed to get that right. We needed to be thoughtful about how we set limits for new card users early in their journey, how those limits ebb and flow over the course of a month because most consumers’ cash flows ebb and flow over the course of a month. So, really getting that right so that we can really lean in to supporting, again, what we call pay now transactions, that was a new risk vector that we needed to sort of get our arms around. And I think we’ve sort of crossed the chasm on that. We feel really good about those transactions. We’re seeing a really high uptake of in-store pay now transactions. So, that’s a really exciting sort of addressable market that we’re now playing in. And then similarly, I think there’s just been a lot of education. We’ve done a lot of sort of focus groups and talk to the consumers that are using the card in the early pilot to make sure that they understand how it works and that when we go to the step of mailing out a card, that it gets used and it doesn’t end up sitting in a drawer somewhere. So, I think just making sure that sort of the funnel conversion from top to bottom was there and that we could really lean in on starting to scale and open up some new cohorts to drive growth.
Ramsey El-Assal
And what about the distribution strategy? Maybe talk a little bit about how you get these cards into customers’ hands. Is it a kind of a cross-sell of existing customers? Is it a net new ad? How does that work?
Rob O’Hare
Yes. As I mentioned, it really is a card that I think deepens the relationship and deepens the engagement with our existing base of consumers. So, I think point-of-sale is going to continue to be the primary on-ramp. We’ve got an amazing set of, of point-of-sale partners where we’re fully integrated. That tends to drive most of our, what we call new to Affirm consumers. And then the card and the other direct-to-consumer offerings are really an extension of that relationship once a consumer has already taken out that first loan.
Ramsey El-Assal
I see. Talk about Adaptive Checkout a little bit. First, kind of maybe explain to the audience what that is, and then just give us an update on sort of the traction with merchants.
Rob O’Hare
Sure. And yes, just for the audience, Adaptive Checkout is a financing program package that we offer to merchants where in most cases, we show three options to the consumer. And with Adaptive Checkout, one of those options, typically the shortest term that we put in front of a consumer, is a Pay in 4 loan, and then we typically have two longer duration monthly installment loans alongside. So, if you think back two or three years ago, we sort of had Pay in 4-only programs and we had monthly installment programs. And so, Adaptive Checkout merges those two streams and puts a unified offering in front of the consumer. Adaptive Checkout has had really great uptake. I mean, we’re using Adaptive Checkout at Shopify. That’s probably our largest Adaptive Checkout partner today. But we’ve effectively been able to roll out Adaptive Checkout to all of our merchants that we’re Pay in 4-only. And that helps add economics to those overall programs, because interest-bearing loans typically are more profitable for us. So, it’s been great. It’s been great to sort of bring the breadth of products that we have to all of our merchants, and it allows us to scale and support much higher AOVs, because Pay in 4, while it’s great and no interest to the consumer because you’re dividing the transaction into four payments, it only has sort of marginal utility given it’s so short-dated. So, it’s nice to be able to offer longer terms when the average order values sort of support it.
Ramsey El-Assal
And how should we think about the penetration of kind of the existing merchant book in terms of this product? Is it something where there’s a lot of runway for more adoption of Adaptive Checkout?
Rob O’Hare
Yes. I think it’s going to be case by case, right? We still have some large programs with some general merchandise merchants that are still interest-bearing only, but we’re really excited about the conversion lift that comes with adding Pay in 4 to an otherwise interest-bearing program. So, it’s definitely on the roadmap for us. I think, again, it depends on how you segment the business. If you look at what was previously a Pay in 4-only cohort of merchants, we’ve penetrated that base really nicely with Adaptive. We still have some headroom on the interest-bearing-only side from a merchant perspective
Ramsey El-Assal
Again, changing channels a little bit, I thought the RLTC guide in the quarter came in above Street expectations, I think certainly buy-side expectations. Give us kind of a pretty detailed puts and takes kind of discussion in terms of RLTC headwinds and tailwinds this year, sort of what fed into that expectation of consistency year-over-year?
Rob O’Hare
Yes. I mean, I think most of the puts and takes sort of stem from either changes that we made over the course of the last fiscal year, fiscal ‘23, or macro changes that happened over the course of fiscal ‘23. So, to maybe take them in a bit more detail. If you think about the positives, obviously we’ve been pretty vocal about the fact that we’re raising consumer APR caps from 30% to 36% at most of our programs. I think we’ve made good headway there over the course of fiscal ‘23. And so, we’ll see the benefits of that in terms of higher interest income per dollar of GMB in fiscal ‘24. So, that’ll be a positive from a margin perspective. The other positive that we would expect to see in 2024, we have seen our sort of monthly 0%, so our longer dated 0% loans, we’ve seen that proportion shrink over the course of fiscal ‘23, and that’s the program that tends to drive a pretty arcane line item on our income statement called loss on loan purchase commitment, which is a cost. And so, as 0% loans go down in terms of mix, we should see less loss on loan purchase commitment as a percentage of GMB. So, those would both be accretive to revenue, less transaction costs. And then on the other side, we have been using warehouse facilities, which are on balance sheet. And so, that will drive up funding costs in the year. We’re also, of course, looking at higher blended rates over the course of the year in fiscal ‘24 versus what we saw in fiscal ‘23. So, that’ll be a drag from a margin perspective. But again, we think that we’re doing a good job of maintaining a really healthy spread when you look at our interest income versus our funding costs. So, nothing to worry about there, but there will be increased funding costs as a result. So, I think those are sort of the primary ones, but again, we’ve guided that RLTC margins will be similar in 2024 to what we saw in 2023.
Ramsey El-Assal
Maybe I’ll pause momentarily and just see if anybody has any questions in the audience. Otherwise, I have a couple more, but any takers? If we could have a microphone here.
Question-and-Answer Session
Q – UnidentifiedAnalyst
Thank you. I was just curious on the Affirm Card. I think you gave some new stats on the most recent call about how – what the consumer’s choosing, particularly around the pay later function, which I think was half of – roughly half the pie.
Rob O’Hare
60, yes.
UnidentifiedAnalyst
60, yes. Was that – so that’s – that behavior looks like a credit card behavior, right, a credit card usage behavior. Were you expecting that? Do you expect consumers to use this more as a credit card and carry the balance, or what was your expectation? How did that compare and how does that change the calculus around the product for you guys?
Rob O’Hare
Yes. I mean, if you think about the transactions the card can support, the lending products, so particularly longer dated interest-bearing loans, those are the most profitable transactions that we support. We don’t expect to make a large margin on the pay now transaction. So, the mix that we saw and the mix that we shared in the last shareholder letter is what helped us drive, I think, a really profitable program. So, I would say we were – the cohorts are still really small, right? So, I don’t want to make too many conclusions based on the early data. But yes, we did see a slightly higher proportion of particularly interest-bearing loans in the mix than what we would expect. But again, I think we have an opportunity through education, just through having an experience that consumers enjoy to drive more of the pay now transactions too. I mean, pay now was, I believe 40% of our overall transaction. So, not a small percentage, but we have some room to go and we really want to drive frequency such that Affirm Card is a top of wallet, sort of everyday spend card, and it also has the credit extension when consumers use it.
UnidentifiedAnalyst
The funding strategy for the balance is different from your other products or the same?
Brooke Major-Reid
Yes, no, the way we’ve structured our facilities is that for the most part, our facilities fund the same loans that we originated funds across the board. We have a couple of facilities that are specific to specific products, but we’re able to fund the Affirm Card loans the same with the rest of the portfolio.
UnidentifiedAnalyst
I have one for you. You mentioned on that RLTC response just the pricing, moving merchants to the higher pricing cap, the 36%. I know you mentioned, yes, I think you guys were at 70% on the earnings call. And so, what happens to that last, say, third of customers? Is it a kind of a stubborn third that there’s reasons that they’re not – or should we expect sort of that penetration level to keep increasing at a similar rate, or?
Rob O’Hare
Yes, I think we signaled in the letter that we have another 5% that’s sort of agreed but not yet launched. So, we’ll have some continued momentum there. Will it get to 100% of GMB? Probably not, right? 100% is hard for anything. But I think we’ve got a good line of sight to continue to take that number up over time, and we expect to continue to report on it on a quarterly basis.
Ramsey El-Assal
It’ll keep drifting up. I wanted to ask too about your view on the competitive environment right now. Obviously, we’ve been through a cycle where capital is really cheap and you had some – my comment, not yours, some irrational competition perhaps, or cost fintech, not just in your sort of pay later sub-sector, but how has the competitive environment sort of evolved over the past couple of years? Where do things – how do things today look versus 2020?
Rob O’Hare
I think maybe one thought just mechanically, it was a really aggressive environment two or three years ago in buy now, pay later as there was a push to sign up some of these larger enterprise programs. And I think in most cases, the structure of those agreements when they were signed was that there was typically a period of two or three years of exclusivity. So, I think we’re starting to anniversary those exclusivity dates, and I think that’s an opportunity for us. Most of that competition was in the Pay in 4 part of the market. We chose a slightly different path. We chose to pursue the Shopify partnership and aggregate scale on that platform in Pay in 4 versus some of the direct deals that were done with larger enterprises in Pay in 4. And so, I think it’s an opportunity for us to sort of – obviously we expect to maintain the Shopify relationship, but to add some incremental growth as these programs come up for renewal.
Ramsey El-Assal
And I guess that this partially answers the question that I had for you as well, but just about pipeline. So, you’d mentioned that there are deals that are coming up that were signed a little while ago from your competitors, but how do you think about what’s left out there for this product versus what’s already been signed? Is there – how does the pipeline look like?
Rob O’Hare
Yes, I mean, I think the answer there I think is twofold. So, I think if you look at buy now, pay later’s penetration of US e-commerce, we’re probably in the mid-single digits 6-ish. I think the last thing I’ve seen, we’re certainly not at those penetration rates in any of our large programs. So, there’s a lot of Greenfield opportunity just within our existing merchant base. And then we have a team in-house that’s always out talking to merchants and building a pipeline. And so, we’ve got healthy pipeline as we sit here today for net new merchants. But when you look across the partnership that we have, there’s also an incredible opportunity to continue to take what we call share of cart within those programs.
Ramsey El-Assal
And then maybe also then dovetailing on that response, just the growth algorithm in terms of what’s coming from existing customers and further penetrating those books versus signing new merchants. And how is that – maybe it’s revolved over the past stretch as you rolled out these, as you had these big customers that you signed?
Rob O’Hare
Yes, I mean, I think the trends there, and this has been consistent for several years now, is that merchant – we grow with our merchants, right? And it takes merchants time to optimize the program and to scale the programs. We always – we share the anecdote with a large partner that was signed four or five years ago, and then they opened us up to a new surface, and that drove an acceleration in growth. So, there’s definitely a playbook that we have. We’ve got a great customer success team that’s working with our merchant partners to continue to deepen the relationship, to find optimizations, to drive incremental conversion on behalf of the merchant. And so, that results in basically net new merchants are never a meaningful part of the growth. It really takes a while for those relationships to really scale and continue to bear fruit.
Ramsey El-Assal
I see. I think we’re just about out of time, but I greatly appreciate you joining. Thank you so much. It was a pleasure.
Brooke Major-Reid
Thanks for having us.
Read the full article here
