According to the Federal Reserve Bank, there were nearly $1.38 trillion of consumer loans at all commercial banks in the US as of July 2017. The global consumer lending balances at the beginning of 2016 are estimated to be $42.3 trillion. A TransUnion report estimates the personal loan balance was at $107 billion at the end of the second quarter of 2017, recording a 11% growth over the previous year. Billion Dollar Unicorn Affirm is helping simplify and automate the consumer loan industry.

Affirm’s Offerings

San Francisco-based Affirm was founded in 2012 by Jeffrey Kaditz, Nathan Gettings, and PayPal co-founder Max Levchin. It is a financial services company that provides loans to consumers at the point of sale. Consumers can shop for goods they want to buy and use Affirm’s offering to help finance those products through personal loans.

Affirm wants to improve the banking industry by being more accountable and accessible to consumers. It only provides credit to consumers who can afford the purchases. The company prides itself in offering a service that offers no hidden fees or compounding interest. Unlike traditional credit cards, Affirm loans are offered at a simple-interest and are free of any penalty fees – annual, late, deferred, or otherwise.

Last year, Affirm released an app that makes it easier for consumers to pay for large purchases in monthly payments and provide them information on what their financial obligations would look like. It counts the millennials as its major demographic as the group is not only more likely to make a purchase over a mobile app, but are also more open to newer financing offerings.

The company had initially focused on online purchases. It has tie-ups with more than 1,200 online stores. But it is now expanding to make itself available for payments in-store as well. The product is well-liked by the consumers. As of April last year, it had processed its one millionth instalment loan. Overall, it has processed more than $1 billion in loans which range from 3-12 month payback periods with an annual median percentage of 19%. Affirm loan rates vary between 10% and 30% APR simple interest for its consumers.

Affirm’s Financials

Affirm has raised $720 million in equity and debt so far and does not disclose its financials. Its investors include Founders Fund, GIC, Lightspeed Venture Partners, Spark Capital, Caffeinated Capital, Ribbit Capital, Khosla Ventures, Morgan Stanley, Andreessen Horowitz, Founders Fund, and HVF Labs. Its last funding round was held in December last year, when it raised $200 million at a valuation of $1.8 billion. Valuation has nearly doubled from the $800 million that it was valued at in 2016.

Affirm is not the only alternative financing solution available to people. Among alternate financing options, there are several crowd funding and peer-to-peer services available for consumers. Then, there is FlexShopper, a company very similar to Affirm. FlexShopper allows consumers to buy products they like through low, affordable, and weekly payments. FlexShopper has been around since 2008, and it went public in 2010. But with annual revenues of $67 million and a net loss of $8.3 million, FlexShopper is trading at a market capitalization of $16.7 million. FlexShopper does not disclose the total loans that it has processed so far, but in the previous quarter, it had reported lease origination of $9.2 million. Although it appears that Affirm is overvalued, more details are needed to justify its multi-billion dollar valuation.