NOTE: Bloomberg Second Measure launched a new and exclusive transaction dataset in July 2022. Our data continues to be broadly representative of U.S. consumers. As a result of this panel change, however, we recommend using only the latest posts in assessing metrics, and do not support referring to historical blog posts to infer period-over-period comparisons.
A new industry is aiming to take the pain out of paying for holiday gifts (and many other things). And if trends from the last several months hold up, it is on track to have a very big season.
Point-of-sale lenders such as Affirm and Afterpay have become a prominent part of the retail scene in the last few years. They allow shoppers to pay for purchases in a specified number of installments, sometimes even partnering with brands. And they are becoming increasingly popular. In October, the payments made to the five point-of-sale lenders in our analysis were nearly four times what they were in January 2018.
Point-of-sale lenders offer sign-up portals directly on the checkout pages of the shopping websites and even in-store, and they frequently grant loans with instant approval, sometimes without interest.
Affirm is the largest lender in the bunch. In October, payments to Affirm were more than four times payments to Afterpay, the second-largest lender. But unlike most of the other companies in this analysis, Affirm is often used to pay for big-ticket items over extended periods of time.
Peloton, for example, is one of Affirm’s marquee partners. This holiday season, it’s offering the roughly $2,300 bike for interest-free monthly payments of $58 over 39 months. The Affirm financing option has proven attractive to Peloton buyers in the past. In the third quarter of 2019, 32 percent of Peloton subscribers also made a least one payment to Affirm. (Though Second Measure’s analysis doesn’t determine whether these payments were for Peloton products or other purchases).
Affirm boasts many other well-known partners, too, including Macy’s, TheRealReal, StockX, bed-in-a-box companies Casper and Purple, and the biggest retailer of them all: Walmart. The mega-store even posts signs in stores advertising the monthly costs of different items, plus interest, if customers buy with Affirm.
Bi-weekly lenders also surge in popularity
Although Affirm is tops when it comes to customers and payments collected, there are several competing services that divide the cost of a purchase into just four bi-weekly payments that are interest-free if paid on time.
Afterpay, Klarna, Sezzle, and QuadPay all use this bi-weekly payment model, and, combined, they’ve attracted more new U.S. customers than Affirm. (Klarna, which is headquartered in Sweden, also offers longer-term financing plans comparable to Affirm’s.)
Afterpay, an Australian firm, is the largest bi-weekly lender in the United States. Afterpay partners with big-name retailers like Anthropologie, Cost Plus World Market, and Ulta.
Bi-weekly lenders have lower average payments
Because Affirm is often used to pay for expensive items, it’s not surprising that it had the highest average payment ($97) among point-of-sale lenders in October. Klarna, which offers different loan types, had the second-highest ($54).
QuadPay, Afterpay, and Sezzle had considerably lower average payments. Because their loans are designed to be repaid in four bi-weekly installments, the October average payments indicate that the purchases financed with these companies averaged around $100.
Shoppers not afraid to take loans with multiple companies
As point-of-sale lenders partner with different retailers, it’s not uncommon for shoppers to take loans from more than one lender. At least 15 percent of each of the other companies’ borrowers also had loans with the industry giant, Affirm, in the third quarter of 2019.
QuadPay’s users are the most likely to use other lenders. Most notably, more than one in three of them also made payments to Afterpay in the third quarter.
Room for many more consumers to buy in
This industry has shown massive growth in less than two years, and there are still many more shoppers to capture. Through October, just 2 percent of U.S. consumers had ever used Affirm, the biggest point-of-sale lender. But that number that could climb quickly in a holiday season that easily lends itself to loans.
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