Amazon partners with Affirm to offer “buy now, pay later” checkout option to small business owners

Amazon has just unveiled its first “buy now, pay later” (BNPL) checkout option for the millions of small business owners using its online store, as detailed in a CNBC exclusive report.

Citing executives from both firms, CNBC reported that the retail giant plans to announce on Thursday that its partnership growth with Affirm will expand to include Amazon Business, the e-commerce platform tailored for companies.

The collaboration is good news for Affirm, which recently laid off 19% of its workforce due to higher interest rates affecting consumer spending, causing a slowdown in the BNPL market.

Per the report, the BPNL service will offer loans ranging from $100 to $20,000 and is slated to be available to all eligible customers by Black Friday, scheduled for Nov. 24. It’s designed particularly for sole proprietors—small businesses owned by a single individual, a prevalent business ownership structure in the U.S.

The move also signifies the increasing adoption of a fintech feature that surged in popularity during the early stages of the pandemic, along with soaring valuations of key players like Affirm and Klarna. However, as 2021 brought a downturn, industry valuations declined sharply, with rising interest rates and borrower defaults being highlighted by skeptics as obstacles to growth and profitability.

Despite these challenges, the option is promoted as a more transparent alternative to credit cards, providing customers with upfront knowledge of the interest they’ll owe. This transparency maintains its appeal for both households and businesses facing tightening budgets as surplus funds from pandemic relief programs dwindle.

Todd Heimes, director of Amazon Business Worldwide, stressed the need for payment solutions to manage cash flow among small businesses.

“We constantly hear from small businesses that say they need payment solutions to manage their cash flow. We offer the ability to use credit cards and to pay by invoice; this is another option available to small business customers to pay over time.”

Launched in 2015, Amazon Business originated from the company’s observation of businesses utilizing its retail website for office supplies and bulk purchases. This division has generated $35 billion in sales this year and boasts over 6 million global customers.

Upon approval, users can make Amazon purchases in equal installments spanning three to 48 months, with an annualized interest rate ranging between 10% and 36% based on the perceived transaction risk, as confirmed by Affirm’s Chief Revenue Officer, Wayne Pommen. Notably, there are no hidden or late fees associated with this service.

Pommen highlighted the challenge faced by small businesses in accessing credit from traditional financial institutions, emphasizing the significance of providing this payment option to foster business growth and facilitate cash flow management.

“The financial industry is not great at providing credit to really small businesses,” Pommen said. “They can’t walk into a bank branch and get a loan until they reach a certain scale. So us being able to provide this for purchases” helps business grow and manage their cash flows, he said.

For Affirm, the partnership is a big boost for its business, particularly after the decline in demand for costly Peloton bikes. Initially offering installment loans to Amazon’s retail customers in 2021, the partnership expanded to Amazon Pay earlier this year.

Affirm’s strategic decision to target sole proprietors aligns with the fact that they constitute the majority of small businesses in the U.S., with 28 million registered entities in the country, according to Pommen.

Pommen also added,“We’ll see how the product performs and if it makes sense to expand it to a wider universe of businesses. Our assessment is that we can underwrite this very successfully and have the strong performance that we need.”

Affirm was founded in 2012 by Jeffrey Kaditz, Max Levchin, and Nathan Gettings. The San Francisco fintech company offers installment loans to consumers at the point of sale. It later went public in January of this year. Its stocks popped 98% on its IPO debut.

The BNPL phenomenon has grown in popularity in recent years as customers seek alternative methods of financing. BNPL is a new payment option that allows consumers to receive their purchase right away (Buy Now), either online or in-store and then pay (Pay Later) for their purchase in installments. BNPL is now revolutionizing the customer journey by being seamlessly integrated into e-commerce as a checkout option.

So far, BNPL accounts for only a small portion of overall credit card spending. However, with the coronavirus pandemic-fueled e-commerce boom, this alternative model of financing may be poised to disrupt the $8 trillion US payment card industry.