Alan's Angle
There are two key differences between Affirm & Klarna that account for this discrepancy:
- Makeup of customers
- Partnerships
First, regarding the makeup of customers, socioeconomic status really matters. The fact that Klarna only makes $1.2B on nearly 150M global customers shows not only that their clients are more low/middle income, but also that the BNPL product they sell is more challenging to monetize.
Specifically, Klarna’s BNPL product requires 25% upfront and 25% payments for two weeks (for the next 6 weeks) until the payment is paid off. They are all short term loans with no interest.
Affirm comes from a very different angle as they are focused on more of an affluent clientele and offer a variety of different BNPL packages.
Additionally, many of Affirm’s BNPL loan structures charge interest, hence, the significantly greater monetization of GMV – even from a base that is a 10th of the size.
Finally, it is important to point out that Klarna is much more vulnerable to a global recession/significant economic downturn due to the financial circumstances of many of their customers.
The second difference is in partnerships.
There is no BNPL company with the sheer size of partnerships that Klarna has throughout the world with over 400K retailers including Lululemon, Converse, Bed Bath and Beyond, Macy’s and (obviously) many more.
However, what really allows Affirm to stand apart in my eyes is their ability to create exclusive deals with some of the biggest partners in the world and customize offerings for them.
By biggest partners, I mean the two biggest partners: Amazon & Shopify.
In November of ‘21, Amazon announced that they were expanding their partnership with Affirm to be the exclusive BNPL provider for the e-commerce giant.
Interestingly, this deal expires in Jan ‘23 so will be something to watch, but the fact that Amazon made Affirm their exclusive partner for years is quite the endorsement.
In May, Shopify announced that they would be extending their current exclusive BNPL partnership with Affirm in a multi-year-deal.
Affirm also is the integrated partner with Target & Walmart.
All together, Affirm’s partners handle more than 60% of ecommerce sales in the US.
Getting deals done with the greatest gatekeepers in commerce are deals that generational companies successfully do.