Buy Now, Pay Later lending has a few market advantages over credit cards, as we noted in our recent study of the U.S. market. For example, BNPL can embrace new buyers quickly and make decisions based on limited information. The downside, however, is that the use of thin credit files can lead to high charge-offs and card-not-present-type fraud rates.
Some of those risks may soon curtail as Affirm, a top U.S. BNPL lender, supports merchants that use ACI Secure eCommerce solution by integrating Affirm at checkout. The alignment is a win for Affirm, which recently announced rapid growth in merchants and borrowers.
Gross merchandise volume (“GMV”) for the fourth quarter of fiscal 2021 was $2.5 billion, an increase of 106%, or 178% excluding Peloton; GMV for the fiscal year 2021 was $8.3 billion, an increase of 79%, or 91% excluding Peloton
Active merchants grew by 412% to nearly 29,000 for the fourth quarter of fiscal 2021, including several thousand newly integrated Shopify merchants
Active consumers grew 97% to 7.1 million
Transactions per active consumer increased 8% to approximately 2.3 as of June 30, 2021
And, for ACI Worldwide, the firm can further extend its capabilities in payment fraud technology. ACI Worldwide received another patent in September, this time for its “Innovative industry-first approach to machine learning (which) considerably enhances fraud protection for merchants and financial institutions.”
The latest patent fits well into payment technologies and will aid BNPL with its AI strategy to improve transaction monitoring, which the firm describes in the patent:
A system for detecting a fraudulent transaction, the method comprising: an electronic memory element containing a database storing an initial dataset.
Similar to the credit card industry, where ACI Worldwide has been a technology leader since 1975, BNPL requires rapid decisioning at the point of sale. ACI is a top provider in that space and has global capabilities in Enterprise Payments, Acquiring, Cross Border Payments, Disputes, Issuing, and Tokenization. A full range of capabilities can be found here.
Improved fraud mitigation is a win for Affirm. As BNPL lenders continue to mature, investors will require more accountability for all facets of risk management to build and sustain profitability.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group