- Key insights: Buy now/pay later lender Affirm submitted applications to the Federal Deposit Insurance Corp. and the Nevada Financial Institutions Division to create Affirm Bank.
- What’s at stake: Fintechs, neobanks, crypto exchanges and finance companies have been nabbing up bank charters amid a pullback in federal regulation.
- Forward look: The charter will help Affirm reduce its funding costs, see better unit economics and have more latitude in product innovation.
UPDATE: This article includes comments from an Affirm spokesperson.
Processing Content
It’s open season for banking charters, and Affirm wants in on the action.
The buy now/pay later lender on Friday submitted applications to the Federal Deposit Insurance Corp. and the Nevada Financial Institutions Division to create Affirm Bank.
“A banking subsidiary would strengthen and diversify Affirm’s platform, and help us bring honest financial products to more people,” Affirm founder and CEO Max Levchin said in a statement. “This is about expanding what we can do for consumers and merchants, and building for the long term.”
Affirm has originated nearly $130 billion in BNPL loans to about 60 million consumers since its founding in 2012, according to the company.
The proposed bank subsidiary would complement the lender’s existing sponsor-bank partners, according to Affirm. Affirm works with six banks to issue cards, lend to consumers, and offer a savings account, including Cross River Bank, Celtic Bank, Lead Bank, Evolve Bank & Trust, Sutton Bank and Stride Bank.
“Partnerships will always be central to Affirm’s model and success,” a company spokesperson told American Banker.
John Marion, Affirm’s vice president of bank strategy, will be president of Affirm Bank, according to the company. Marion has over 25 years of experience, and has held senior leadership roles at JPMorganChase, Hatch Bank, MVB Financial and Comenity Bank.
The charter will help Affirm reduce its funding costs, see better unit economics, and have more latitude in product development, said TD Cowen analyst Moshe Orenbuch in a research note, noting that creating new products is likely the biggest reason for Affirm to seek a bank charter.
“Management has previously noted that a bank could be helpful if Affirm wants to launch a new product that it can’t partner on with a partner bank, and that having a bank is not a must for Affirm’s funding/capital strategy,” Orenbuch said.
A bank charter could also open up opportunities to capture better unit economics on its BNPL loans, because having its own bank and a deposit base would allow it to reclaim fees it is paying to its bank partners, such as origination fees and interchange fees on the Affirm Card.
An ILC would benefit Affirm’s funding costs, too, Orenbuch said. “As a new bank, Affirm Bank will likely need to offer deposits at rates comparable to online banks, so somewhere in the 3 to 4% range, though still lower than Affirm’s current funding cost, which is about 7%.”
In the near-term, a bank charter could allow Affirm to attract brokered deposits, which are “modestly cheaper” than securitization, another funding avenue for Affirm. Last year, Affirm sold $4.4 billion of its BNPL loans on the asset-backed securities market, according to Finsight, which monitors securities.
Affirm is the latest in a long line of fintechs to covet its own bank.
Neobanks, fintechs, crypto exchanges and finance companies have been nabbing up bank charters amid a new openness from federal regulators despite