Amazon is taking action to provide the millions of small businesses who utilize its online store with its first buy now, pay later checkout option. The tech giant confirmed on Thursday that it is broadening its partnership with Affirm to include Amazon Business, an e-commerce platform geared toward companies. This move is a significant benefit for Affirm, which had been looking for other sources of revenue after sales of pricey Peloton bikes plummeted.
Amazon has confirmed that its partnership with Affirm will extend to Amazon Business, allowing the platform's small business owners to take advantage of the 'buy now, pay later' option. Affirm's shares rose more than 15% as a result. By Black Friday, all eligible customers will have access to loans ranging from $100 to $20,000. This service is especially beneficial for sole proprietors, the most common form of business ownership in the US.
The increasing adoption of 'buy now, pay later' services, such as Affirm and Klarna, especially during the pandemic, is notable. However, there have been worrying discrepancies in the growth prospects and valuations of the industry due to rising interest rates and borrower defaults. Yet, these services remain attractive to households and businesses, who are running out of cash from pandemic stimulus programs, due to the lack of hidden costs.
Todd Heimes, director of Amazon Business Worldwide, discussed the advantages of the payment solution: "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." Amazon Business originally debuted in 2015, and its success is evident, having generated $35 billion in sales and gained 6 million customers this year.
Should it be approved, Amazon shoppers can pay for their purchases in instalments of three to 48 months, an annualized interest rate between 10% and 36% based on their perceived risk being charged, according to Affirm Chief Revenue Officer Wayne Pommen. Moreover, the companies noted there would be no hidden or late fees. "The banking sector does not usually provide credit to small businesses," Pommen mentioned. "These companies don't usually get a loan from a bank until they have reached a certain size, so our being able to offer these instalments help businesses to grow and manage their cash accordingly," he added.
This new move represents a major achievement for Affirm, since the company needed to find other sources of income after the collapsed demand of expensive Peloton bikes. In 2021, Affirm started offering loans to Amazon's clients, and expanded to Canada in 2022 by joining Amazon Pay. Since most small businesses in the US are sole proprietorships, with 28 million registered in the country, Affirm used its own models to underwrite loans for each transaction. "We'll see the outcome of the product and evaluate if it makes sense to increase it to a wider range of businesses", Pommen mentioned. "In our opinion, we can underwrite this with great success and have the strong performance we need," he concluded.
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