Affirm 2023 Investor Forum

Okay, welcome, welcome to the 2023 Affirm Investor Forum. My name is Zay Keller, I'm head of investor relations at Affirm. Before we begin the presentation, we would like to cover three important disclosure statements. First, today's presentation may contain predictions, estimates, or other information that may be considered forward-looking statements. These forward-looking statements are subject to numerous risks, uncertainties, and assumptions, including those set forth on our filings with the SEC. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. During today's presentation, we will be conducting several panel discussions in which certain guests will participate. All statements made and opinions expressed by the panelists are solely their own and do not necessarily reflect the views of Affirm or its affiliates. You should not treat any such statements or opinions as a recommendation to make a particular investment or follow a particular investment strategy. Neither Affirm nor its affiliates have verified the accuracy or completeness of such statements and opinions. Finally, today's presentation may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in the appendix of this presentation. With the administrative stuff out of the way, we've got a lot of great content for you today. You'll be hearing first from our CEO, Max Levchin, in just a moment. We've got a lot of great presentations from our leadership here, as well as two question-and-answer sessions to get your questions answered. Perhaps most importantly, for those of you in attendance physically today, we will have a cocktail reception at the end of the presentation. To get us started, I would like to invite on stage our founder and chief executive officer, Max Levchin.

Thank you, Max. I really appreciate it. I get to—I'm Libor Mahalik, president of Affirm. I get to talk about the card, but it's still Max's baby, and so it's—I get the pleasure of speaking to it. Though one of the things I want to talk about is first how we got here, a little bit of where the product came from, how we're seeing growth within the product, the expansion that those insights are informing, and the long-term opportunity that we see within the product. The product really started more than a decade ago when Max approached me talking about this idea of building honest financial products that improve people's lives. And the idea there, rooted in that idea, was a product where the interests of the consumer are aligned with the interests of the business, where when the consumer does well, we do well, and when we get it wrong and the customer doesn't do well, we share in those outcomes. And it really, as he was describing it, sounded like a deconstructed credit card, the pieces pulled apart and delivered back to the consumer in a consumer-friendly, understandable way, in a manner that ultimately delivered on those results. We started with Affirm at the checkout, at point of sale, where customers get clear terms ahead of time so that they really understand what it is that they're getting into as a part of the purchase. They know the total cost as a part of the purchase price. There's no later fees, interest, nothing that isn't presented up front is done later. So that was the start. Obviously, consumers loved it. They used it quite a bit and continue to this day. And it was really driven from the concept of the customer understanding their purchasing power, and merchants loved it because that confidence created conversion for the merchants. It created that additional lift in AOV, in volume that they saw. And then we took that and moved to Affirm Anywhere, taking the same product, allowing people to use it outside of the merchant network so that they could then leverage it broadly wherever virtual cards were taken. Next, we developed the marketplace, which was our app, which really helped users understand their purchasing power as a beginning of a journey in their purchases. And that enabled them to also understand where and how to use the product. Is it an integrated merchant? Is it a non-integrated? Are there any deals? Are there any kind of offers that then drove incremental engagement from our customers? And we brought all of that together in the card. All those pieces come together in the card, where you still have all of those components, but you can use it everywhere and anywhere and for any purchase that you make. And that really came together in a way that customers love this card. They love the flexibility, the flexibility of being able to choose how they want to pay for each of their purchases, whether it's an everyday spend and they're going to pay for it now and draw straight from their account, whether it's a pay-later transaction where they're going to split it and they choose terms ahead of time, whether they've made the purchase and they want to decide that now that they've made it, they should have split it and are going to split it as a result. All the way through all those options, they love it because of its acceptance. They can use this product anywhere that they want. They can use it online, offline. They can use it wherever Visa cards are accepted, and they know that Affirm is there with them. And most importantly, they really love it because it gets better over time. As they use the product, it gets better. And as we develop new functionality within this product construct, we ship it over the air. They get it in their app, and next thing in the morning, they've got new features on the card that they can access and leverage. But don't take my word for it. Let's listen to some of our customers tell it in their own words.

What is your favorite card you have? I think you have four cards. You have two credit, two debit. What's your favorite card to use? The Affirm debit. Yeah. Why is that? No hidden fees. Take your time. As long as you make your payments on time, everything's all hunky-dory.

My expectation for the card was really to work better than almost a credit card because I liked what it does before the card came. So I want it to work pretty much the same way, but now it's a more convenient and accessible way to go in the store and not have to go through all the different things that they make you go through. I like that I have an actual card, but I also can just access it right in my wallet. So if I'm online, I can just grab it right from the app, and if I'm not, then I have the actual card that they sent. I feel supported by Affirm being able to offer even those smaller purchases or bigger purchases that happen to come up by accident and you need to deal with something, and Affirm is there.

Well, like I said, you can use Affirm, my Affirm debit at grocery stores. So you know, I live right near an H-E-B in my city and also near my job, there's a Kroger. So it's like, okay, let's see what they got. Like maybe get a couple of tomahawk ribeyes. Those things are usually about $40 a pop. Get two of those, some sides. Yeah, it's $100, but I can use my Affirm debit. We can eat good that week. It's the convenience of a credit card or a debit card that you can use anywhere, but you have the options of determining a payment plan for your purchase to save you in the long run on interest. I use it in between pays, and then I can just pay it back. But definitely all those gas, groceries, you know, emergency things. Like sometimes my son needs Claritin, I'll buy it with that. All with the Affirm card, and then like I said, just pay it back with either monthly payments or pay it back in full, you know, when my paycheck does arrive. This is like a credit card without the issues you would have with, you know, one of those other credit cards. You see my wallet? Yep. See what's in front.

I love that they get it. I love that it resonates with them. And the great thing about that is this idea that Max came up with and talked to me about more than a decade ago, that they understand that this idea of deconstructing and pulling the parts back together creates this really powerful card. And so that love and that understanding is what we're translating into strong demand for the product. That demand continues to be there as we roll out the product. We're up to, in October, 500,000 active users. That's where we're at as of now. Also in October, we've reached $100 million in volume for the month. And all of that continues with really strong unit economics that are consistent with the rest of our product portfolio. That is really encouraging to see as we continue to roll this product out. What we're also starting to see is that we're tapping into new areas and new categories in the merchant space. As we see customers use the product, we see it in pay now. This idea of having the ability to use the card in this multimodal way with a pay-now component is expanding usage into areas such as groceries and restaurants. And we also see pay-later take-up in areas that we haven't seen traditionally because of the offline penetration. We see really strong growth in home improvement and wholesale clubs, and that is really resonating with customers across a bunch of different categories. And as we continue to grow the product, we're also seeing consistently strong cohort performance. Each cohort, as we're layering them into the product portfolio to grow to that 500,000, is showing really consistent performance, trending at $2,200 of usage per month. And as those cohorts continue to be layered in, as the product improves seasonally adjusted, we see continued improvement in those curves. We really see customers understanding it, using the product more broadly, and delivering really strong results. And as the economics continue to improve, our cumulative contribution from the product is also growing. With each new cohort, it's performing better and better on economics and how much value is generated for each customer. So taking all of these insights, we're building on this performance as we focus on three core areas into the next year: focused on growing the user base, increasing frequency, and continuing innovation to make the product more sticky. So first, expanding the user base. Right now, that 500,000 users represents just 3% of our annual active user base. Very early still. And so we continue to layer in and distribute the product through messaging and multiple touchpoints as customers are active in the network to distribute the card and make sure customers are understanding it and continued on board. We have a long way to go, and we intend to get there. We're also bringing point-of-sale merchant-funded incentives, offers to the network, so that the benefits that customers see in our point-of-sale network—0% offers, extended limits, reduced APRs—that those same benefits are in the card. So we're working with merchant partners to bring those into the ecosystem. Next, we're looking at increasing frequency through everyday incentives that customers can benefit from as they use the product more frequently for everyday purchases. So including perks, rewards, starting to layer those in as what is available to a customer who is using the product on a regular basis. And we're also expanding checkout options, which includes new categories, making sure the product as customers use it across these categories that it is really working for them well and that those categories fit. And so category expansion, the cart sizes that we work with both on the high end and the low end, making sure that how customers are using this product is actually working for them for those purchase sizes and creating more options—pay in six, pay in two—introducing these options as a way to ensure that we're matching customers' cash flow based on the term lengths we're providing. Next, on innovation, we're announcing the launch of Affirm Account, which is a transactional account with savings APY. It is connected into—like any transactional account, it has ATM access, direct deposit, all the things that you would expect with savings APYs. And it creates a tighter experience with the Affirm Card. With the Affirm Card, you have a much cleaner experience, especially with pay now, of understanding where you're at with your payments and what you have available to spend. It results in the customer being able to have higher pay-now limits in the ecosystem. But don't take my word for it. Right after this, out in the hall, the team is going to put together demos, and they're really, really cool. It's much better to see it than listen to me talk about it. I encourage everyone to go check it out when you can because it's a really slick view into what's being done. And as far as innovations, of course, we continue to innovate on all the financial capabilities within the card to make sure that those capabilities really resonate and continue to add to the card product and what customers need to be able to manage their cash flow and really understand how the product is working for them and how to match their spend to their income. So taking all of these components and putting it together—users, frequency, innovations—we think about the long-term expansion of the card to go beyond the immediate user base. So we obviously have 500,000 users, and we have 40 million registered users. We have 16 million annual active users. So we have a lot of room within our own ecosystem. But really, we're going after the full card market. There is over a trillion dollars in revolving consumer debt in this country, and there's no reason for any of it to exist. There's no reason for customers to be revolving and paying forever for purchases that they just layer in to their credit card. Surprise, right? These are not planned revolving; they're accidental things that have happened to customers due to the circumstances of their lives. We believe that all of that can be handled through Affirm Card and individual discrete repayment for purchases where individual loans are matched to individual purchases. And so that is the market that we are going after. And as we think about the future and going after that large market, we think about the progression that we've seen. Functionality, as we introduced it, drives increases in network reach, and those then drive frequency and ultimately share of wallet. We see as the product has progressed through this curve from checkout to anywhere to card to card with the account and beyond, that we see a greater share of each individual consumer spend coming to Affirm because the product is better. So speaking of network reach, I will now hand it over to Wayne, who's going to tell you all about what we're doing on the network. Wayne.

Thanks very much, Libor. Good afternoon, everybody. Wayne Pommen, chief revenue officer. So you've just heard from Libor about our consumer strategy and what we're bringing to our users with the card. This section is going to be all about our merchant network. And in our last fiscal year, 87% of our GMV came through our merchant and partner integrations. And those integrations are also the biggest source of new users for us. And so our consumer strategy is built on the foundation of the merchant network that we've been building over the years. And this is why we're laser-focused on continuing to win at checkout. So there's three main pieces to our checkout strategy, which I'll take you through. First, we're always unlocking new merchants and new segments of the market. Secondly, once we have merchants on the platform, we're looking to grow our impact for them and grow our share of cart over time. And third, we use partnerships to accelerate our distribution, especially into the long tail of the market. I'm going to tick through each of these strategies in turn. So, unlocking new merchants and segments. In the last 12 months, we signed up over 21,000 new merchants. But let's start from the beginning. Why do merchants choose Affirm? They have a choice of providers. Why do we have the market share that we have, and why are we able to keep signing up merchants at such a rapid pace? Well, there's a few reasons for it. And as chief revenue officer, in my travels, I'm out talking to merchants all the time. I see this firsthand. First of all, it's the size and profile of our consumer network. So we've got over 40 million registered users, and if you're a retailer that's constantly looking to acquire and engage users, that's a powerful network to tap into. It's also the size and quality of our existing merchant network. We're live on retailers that represent 60% of e-commerce in the United States. So almost by definition, that means we're working with the biggest, most sophisticated, most discerning names in the industry, and it means we've had to face up to the most demanding technical challenges to support those merchants. It's also our brand. We have the highest aided awareness in our industry, and directly connected to that is the mission and the values underlying the product. So as I'm sure you've heard us say many times, we've never charged a dollar of late fees, a dollar of compounding interest, a dollar of deferred interest, and we're the only one of our competitors that can say that. And merchants understand this. And merchants today don't want to put a financial product in front of their customers that's going to leave them with a bad experience. But I think the most important reason why merchants choose us and stay with us is that the product performs. Give you a few stats here. We survey our customers regularly, and we know that 76% of our users would have either delayed their purchase or not completed their purchase had Affirm not been available at checkout. We know that merchants see much higher AOVs, average order values, when Affirm is present because we're giving customers spending power on clear, friendly, easy-to-understand terms right when and where they need it. Our product converts. We have head-to-head tests showing that we have 28% fewer abandoned carts than the next competitor. And ultimately, 91% of our loan transactions are from repeat customers—customers that have used the product, liked it, and are coming back again and again within our merchant network. So again, if you're a retailer that's looking to acquire customers, drive conversion, drive funnel performance, these advantages add up very quickly. So merchants want what we've got, and we're signing them up to our platform at a rapid pace. But where do we stand in that market? Where are we in terms of market penetration? What's the opportunity that's ahead of us? Well, as you would know, last fiscal, we generated about $20 billion in GMV. That's inside of a roughly $1 trillion e-commerce market in US retail, which is inside of a $7 trillion overall retail market when you include in-store. So e-commerce has been our bread and butter over these past years. Let's double-click on that a little bit. We estimate that there are about three and a half million individual e-commerce businesses in the United States, ranging from very large down to very, very small. And we're partnered with a little under 10% of those. If we then look at it on an addressable sales basis, we estimate we're going after about a $900 billion addressable sales market. The reason that it's not a trillion is there are certain categories that we don't participate in. And if we look at the $900 billion, the partners that we are working with generate about or cover about 60% of that. So when we step back and look at this, we see a lot of room for additional penetration, especially outside the top 50, and also a lot of room for penetration in those merchants' share of spend, share of cart, which I'm going to talk more about in a second. So as I said, we signed up 21,000 merchants in the last 12 months. Here are some of the notable names that you may recognize, spanning fashion, electronics, general merchandise, and also travel, which is another historical core market for us alongside e-commerce. And as we go about this, we're also making sure we're maximizing the opportunities within those core markets. So low AOV, for example. Historically, Affirm was a bit more focused on larger purchases, but we know that 80% of e-commerce transactions in the US are below $150. So that's an opportunity we don't want to neglect. We're leaning more into addressing third-party marketplaces, which are the fastest-growing segment of e-commerce in the US, and also very importantly, side-by-side opportunities. So just because a merchant has already partnered with one of our competitors doesn't mean that that opportunity is closed to us forever. And actually, those can be very valuable opportunities for us as well. And just in the past few months, Shein and Temu are examples of where we're live side-by-side with another provider and seeing excellent performance. So everything I've just spoken about so far is in our core markets of e-commerce and travel, which is in the blue here. But when we zoom out and think about where is the US consumer spending money, there are trillions of dollars more of consumer spending where our product has applicability in the future. You already heard Libor talk about how some customers are voting with their feet with the card and using it in categories that have not been a historical focus for us. We're also going to be going after these on the merchant side, and we've already made inroads into segments like healthcare, for example. So we won't get to all of it overnight, but when I think about our runway to keep penetrating US consumer spending and building that network, I get very excited. So that's on the merchant penetration side. Now let's talk about growing share of cart. So when we sign up and onboard a merchant, that's just the beginning of the story, the beginning of our opportunity to expand our impact with those merchants over time. So we have quite an extensive playbook that we built over time to continue building our impact by rolling out features and enhancements after the initial launch. And I'll give you some examples. Our pre-qualification feature is all about showing customers what their spending power is with Affirm before they get to checkout, and that gives customers the confidence to convert and, where appropriate, to build their basket. Adaptive checkout is a product we launched a couple of years ago, which gives customers a choice of installment plans, of financing plans, that they can decide what is right for that purchase they're making and for their budget and for their cash flow. That also drives conversion for retailers. Financing plan customization—very important. Things like 0% APR promotions, longer terms that might better suit the purchase price of the product. Sometimes 0% promotions and longer terms together—these are very, very powerful tools for merchants to use that we have in our toolkit. And related to that, brand-sponsored promotions. We're spending more and more time facilitating underlying brands or vendors or manufacturers to be the ones to fund those 0% offers at retailers and drive performance. So these are four examples among many others, and these strategies are often developed in partnership with our biggest and most important partners. And then when we see what works, we roll it out more widely to the merchant base. So let's look at some more examples of this in action. What we've done on this chart is aggregated a number of our travel partners and tracked our share of cart in terms of our percentage of their sales that we are covering, that we're funding, from the first quarter of launch through to the 13th quarter. And so what you can see is that over those 13 quarters, we've steadily and dramatically increased our share of that merchant spending. So again, that's as we roll out things like 0% APR campaigns, optimizing the financing plans. We've also had great success starting in one category with the merchant and expanding it over time. So in travel, let's imagine that we start with flights, then we'll add car rentals, vacations, hotels, and so on, and keep expanding the amount of that merchant's business that we're covering. Channels as well—we might initially launch on web, but then later on we can be added to an app or to, let's say, a POS sales channel. And we've done a similar analysis with some of our largest general merchandise retailers, and the pattern and the tactics are very much the same. So when we put all this together, when we add our share-of-cart playbook to our track record of retaining those merchant relationships over time, what we end up with is a very strong net expansion rate, which sat at 115% in the quarter that we just reported. And then if we zoom out and think about the historical annual cohorts of merchants that we've acquired and track their growth over time, we're driving very strong compound annual growth rates in each of those cohorts. So the last pillar I'm going to talk about is accelerating distribution. So you saw a minute ago how many merchants there are in that long tail outside of the top 50 merchants that we have still to penetrate. So the question for us is, how do we do that quickly and efficiently? And a big part of the answer is through partnerships. So our partnerships fall into broadly three categories. First, e-commerce platforms. The most small merchants are using a third-party e-commerce platform to run their site, and we can be added easily as a payment method within those platforms, and it makes it easy for merchants to take advantage of what we have. And so we currently have 75 e-commerce platform partnerships, which collectively cover hundreds of thousands of merchants. The next main partnership category is payment service providers. These are increasingly important platform partners for us as retailers look to have all of their payment methods packaged up through a single provider. And so we have 14 PSP partnerships today, and we're putting more and more effort behind that channel. And the third leg of our distribution partnership strategy is wallets—getting integrated into wallets and also browser extensions, which is another means of allowing customers to check out with us. So again, let's take a couple of examples. BigCommerce is an example of an e-commerce platform where we've been partnered since 2016. We've driven strong growth in active merchants and GMV in that time, and we took a big step forward in the partnership last year when we became the preferred provider on the platform. And we've been working more and more closely with the BigCommerce team to streamline merchant onboarding and make it faster and easier for merchants to adopt Affirm. And on the PSP side, we're very excited about our Stripe partnership. We've only been live for about a year and a half, but we've got rapid and accelerating adoption and GMV growth, and we've already expanded the partnership from the US to Canada. So the last partnership case study I'll mention is a wallet case study, wallet partnership, and this is one of the partnerships we are most proud of at Affirm. This is Shop Pay Installments, which is a powerful offering we built with Shopify inside of Shop. So we launched this in June of 2021, and since then, the program has grown and grown as we've been working hand-in-hand with the Shopify team to keep developing the program and rolling out new features. When it first launched in June of '21, it was a pay-in-four product. A year later, we launched adaptive checkout, which I spoke about, giving customers the choice of plans to drive additional conversion. In December of '22, we launched marketing tools to allow retailers to feature installments throughout the customer journey. And then just this year, we've launched in-store installments and also made it really easy for merchants to offer things like 0% promos at will through the Shopify platform. And this is just a sampling of a non-exhaustive list of the things we've done together with Shopify, and we're not stopping here. We have a really robust roadmap to keep growing this partnership. So for our next segment, we're very lucky to have with us Kaz Nejatian, who's the COO of Shopify. He's here, and he's going to sit down with Max to talk about this partnership in more detail.

Yeah, we had actually started down this path of building a competitive product ourselves. And as we got deeper and deeper into it, you realize like three things. One, first of all, this is insanely difficult engineering to do this well. Like to do this at scale, with performance, without losing your shirt, is just insanely difficult engineering. Which at first, you know, didn't appear to us that way, but it is very—like in order to do this cool, we have to have as many engineers as Affirm has just to build it for ourselves, which is not an investment that we were like looking forward to making. Second, underwriting just tends to be a large-scale problem, and we have more scale than most people. But obviously, Affirm is the best company in the world at underwriting consumers. And third, it just became about like, you know, what do you want to work on on any given day, in and out. And we wanted to spread commerce for our merchants rather than build consumer lending products. And Affirm just—we just launched way faster, way better, and are in a green path of perpetually improving the product without having to always invest in it.

No, it's—you have partnerships like most companies end up having partnerships with other companies to just get bits of what they need. But the Affirm and Shopify partnership is a special one because I frequently get on calls and I don't know who's from which company. I can't quite tell who's on our team, who's on Affirm's team. And I remember like—I think it was a week before we were launching, we had to onboard—I don't remember how many thousands of merchants it was. We had to onboard 900,000 merchants in one day, basically. Which is, you know, more merchants than every other lending, like, paying-for company combined had, like, times probably seven. And we're like, 'Hey, we have this problem.' And I remember the thing that you guys did, which is still my favorite thing any partner has ever done. I think the entire Affirm team started reviewing merchants for a weekend, and it all got done. Which is like not a thing. Like this is, honestly, Affirm is a core part of Shopify infrastructure at this point, and it's hard to imagine the product without Affirm.

Yeah, it's—look, our job is to help merchants have down-funnel conversion. It's like the key to direct-to-consumer. It doesn't work without it. And Shopify's checkout is the best-performing checkout on the internet. You don't have to take my word for it. Like one of the top three consulting firms, which for some reason I'm not allowed to name, did a study and found that ours performed 15% better on average and 36% better than one of the enterprise solutions. So it's, you know, meaningful. And a good chunk of that is because Shop Pay Installments is so good at converting. Right? You want to offer buyers choice, but what you don't want to do is have a buyer reach the last step of the checkout and get that, you know, spinning wheel of death, which happens with almost every other solution. But the way we're able to—or Affirm is able to—pre-qualify buyers, put buyers through a funnel, offer adaptive checkout, offer the same product online and in-store, follow the consumer along the journey of that consumer, makes this product just—it's not like every other product. Comparing it to every other product, it's comparing like, you know, a Tesla to a horse. It's a good line. So speaking of competitive products, we have a preferred relationship, but you didn't exactly turn the switch off, and the rest of the pay-for and pay-whatever providers are still available on Shopify. But without revealing any proprietary, confidential information, it's pretty clear that even without thumbing the scale, Shop Pay is gaining share very rapidly. Why do you think that is?

Yeah, and obviously, you know, it helps to be directly integrated and deeply integrated. But I think there are deeper reasons, or at least in our opinion. I think Shopify, by merchant count, is the single largest installment place on the internet for every single one of the installment providers. It's not like—I think it's true. Pretty sure. But the reason, like, merchants have overwhelmingly adopted Shop Pay Installments is because it integrates so deeply into their day-to-day flows that it's not yet another thing to have to do, yet another thing they have to manage. The money lands at the same time, accounting works the same way, order fulfillment works the same way. They don't have to have competing systems in back offices. And like the buyer side is really obvious. It's very obvious on a buyer side why Shop Pay Installments is the best installment product. Just that purple button is a purple button everyone loves. But if you're a merchant, you don't appreciate how much easier it is on the merchant side to not only increase conversion but just day-to-day run the business. And I think that has been a large part of it.

One of the things that has happened is like CMOS just see conversion, right? CMOS see down-funnel conversion of Shop Pay installments versus alternatives, and they frequently run them side by side to figure out which one works best. And over and over again, you know, like the intuition of my mom's a Shopify merchant, my mom's intuition just happens to match the data science team of a large enterprise company. Like I think that works, tends to work. So even when we go on like long A/B tests, it just tends to by the facts help Shopify. And the other thing that happens is I think like we're relatively transparent with our roadmap with our merchants. We're going to work with Affirm on cross-B, on international roadmap, and like they believe that this is the bet on the future. Like being on Shop Pay installments is a bet on the future, and it's a bet that you'll never be off the green path and have to, you know, uninstall something.

Good glimpse into the future. Speaking of future and going international and new markets, thank you, Kaz. And I think my job is to invite Pat on stage to tell us about the next set of big markets.

Thanks, great. Thank you, Kaz. We appreciate your time and you're taking the time to join us today. I'd like to now invite on stage Pat... not sure who that is. I'd like to now invite on stage Pat to describe our plan to enter new markets.

Thank you, Zay, and good afternoon. My name is Pat. I am the Senior Vice President for Revenue at Affirm, and I've been at Affirm almost nearly nine years. And I have to say I've never been more excited about what we're doing here at Affirm. You heard Leore and you heard Wayne talk about what we're doing on both the consumer side as well as the merchant side. I'm here to talk about where we're taking our value proposition and scaling that into new markets. So very excited to talk to you about that today. So I'm going to talk about two opportunities: number one, international, and really our disciplined approach in approaching these markets; and number two, B2B, and how we're taking our offering to the business buyer and extending our TAM. So let's talk about international first. Obviously, international is a large opportunity. 60% of e-commerce, if we exclude China, takes place outside of the US. So for us, that actually represents close to a trillion and a half of opportunity near-term. And then we're already working with a number of US, Canadian multinational companies today. And why are we seeing this demand? We're actually seeing this demand coming from both sides: our merchants, our consumers, and including our platform partnerships. And the reason they're talking to us, you know, why we're constantly getting these questions, is really across a few different dimensions. So number one, they recognize that honest financing, on-demand financing for consumers is a global demand, is something that has universal appeal, and they're asking for us to expand that. Two, they know they want to offer a wealth of offerings, more than just pay-in-4, and they're looking for a financial provider that can do that. Three, they know we can execute. We've worked with them, many of these partners, for over a decade where we've worked with them on growing their business, and they know we can execute. We've been able to reliably and quickly deploy solutions with them, and they see our teams as extensions of their own teams. And then lastly, as you just heard from Max and Kaz, when we can partner together, when we can work together, understand each other's businesses, they know that we can deliver more value. So with all this, I do want to talk about the disciplined approach, since you all are investors, that we take into entering new markets. So first, total opportunity, kind of talked about the adjustable market here. Two, we look at market share. We look at the presence of our existing merchants and partners within different regions that allows us to de-risk our expansion there as well as accelerate our time to market. Three, we certainly look at economics. We want to make sure that there's a reasonable mix of profitable products as we enter these markets and there's an appetite for them. And lastly, obviously, speed of execution, product integration requirements, etc. And so I wanted to walk you through a quick example. I think Canada is an excellent example of how we expanded both with a partner and scaled for growth. So back in 2019, we actually launched with Peloton Canada. Peloton had asked us at the beginning of 2019 to move into Canada and extend the 0% program that we had been working on in the US that was very successful for the last four years. And in six months, we mobilized our teams to launch this before holiday. So in 2019, we expanded. Over the next several quarters, we saw expansion into the various provinces and territories. And then in 2021, we decided to accelerate our growth within Canada. We saw traction in the market, and we acquired PayBright, who was the leading financial service provider at the time. Shortly thereafter, 2021 second half, we launched with a major consumer retailer, and then in 2022, a major enterprise retailer. And finally, just this past year in the first half, we completed our integration and migration of the users, so everyone's on a single platform, and we are ready for the next stage of scale. Now, as we look beyond Canada, our largest partners actually already have significant market share outside of the US that we think will really service well. So when we look at our top client relationships, again leveraging that playbook that we look at, we see that, you know, anywhere from 20 to 38% of our largest client relationships have significant market share in Europe. And this regional market share is really our opportunity to rapidly expand with those partners, and it leverages the existing pre-existing relationships that we've had. So based on these factors, Max announced our entry into the UK. And when we look at our playbook again, we look at those four factors, right? TAM, $133 billion TAM for the UK. Two, penetration of existing partners, we see 20% penetration in the UK. There's proven customer demand and really an opportunity to go beyond pay-in-4. So when we look at the economics and we look at the speed and the demand within those markets, we think the UK is such an attractive market. Even the Brits want honest financing programs without those late fees and gotchas. And so we've continued our UK expansion. We have hired a seasoned team, we have a country manager, we have the licenses, we've been having active conversations with a number of partners, and so we're very excited about announcing some new news over time in the UK markets. Okay, now for B2B. And before I get into it, you know, the demand I'm seeing actually in the B2B space is just very exciting. It's, I haven't seen this type of traction since my early days at Affirm back in 2015. So this is a very exciting time to kind of be in this space. And so we have an immediate opportunity within the sole prop B2B market. And so let me back up talking about what B2B means. We're first focusing on the SMB financing market, and this is business buyers buying on behalf of their companies, and this can be anything from laptops to toilet paper. And we already know that this is a large market, $700 billion market. Now, when we focus on the sole prop space, that's already still a very large market, $300 billion, and over 28 million sole props in the US alone. So when we think about the near-term opportunity, taking the sole prop market, expanding that further into what we think is the addressable SMB financing market, which existing credit offerings we think Affirm's solutions can fulfill. And then when we look further, we see the broader US B2B. So that's our disciplined approach and entry, again, with taking a measured approach in how we expand our addressable market. And so why do we have a right to play? I think this stat is just very important: 69% of sole props that are less than two years old are declined for financing. And I think that's really powerful because that presents just a real opportunity for Affirm. As you know, we've been over a decade working on our underwriting technology. We're best in class. We've improved our technologies around fraud, checkout, and obviously our brand recognition. And so we believe that we can address this dire need within the B2B space and sole prop specifically. So in addition to, you know, the approval rates, it's sort of exacerbated by the pain points that both buyers and sellers are having. So buyers, on one hand, in addition to not being approved for financing, they just have limited options to acquire that financing, and it takes some time to get. If you've ever applied for an SBA loan, those things do take time. And obviously, during certain seasonal periods, there's cash capacity constraints. And then for the seller and the retailers, you know, there are poor credit options, and they've seen how Affirm has been able to unlock growth both in conversion, average order values, and they want that for their business-to-business buyer as well. Now, just talking about case study, Amazon. You've seen the announcement about two weeks ago. They launched with us on November 2nd. They felt the same sort of pain points where they had millions of sole proprietors not being approved for credit. We launched a pilot in early '23 where we tested out the conversion, and we saw extremely strong demand from our sole props. And then finally, you know, we saw this as a great opportunity to extend the partnership and leverage also our network of 40 million registered users to enhance the sole prop approval experience. And so again, speaking back to that playbook, and we look at the addressable market and TAM for the SMB financing market and for sole props, we see actually with our pilot partners and our Affirm merchants, one-third of that market is actually covered by our existing merchant partners today. So I think that's very powerful as we look to expand into the sole prop business over the next year. And then we're tackling these initial industries that we think we have applicability. And so now I am very pleased to announce that our second B2B partner is Best Buy for Business. And I'm thrilled to have JY Holtz, who's the VP of Financial Services for Best Buy, here today to join me. And I'll be chatting with him about how Best Buy is using Affirm for the sole prop buyer. Please welcome JY Holtz to the stage.

All right, try not to fall down. Right, they don't make these very sturdy.

How are you?

I'm good, how are you today?

Thank you for joining us.

Happy to be here.

And I think for the sake of the audience, maybe you can start with an introduction and a little bit about your background, JY.

Yeah, so JY Holtz. As Pat said, I lead the Financial Services business at Best Buy, which is both consumer and business. Prior to that, I've spent 20 years with other retailers kind of supporting their financial services business. So most of that time was at Sears, but I've also been at a couple fintechs in that time also.

Great. And so maybe you could describe also Best Buy for Business. I don't know, some of the folks here in the room may be familiar with it, but maybe you can talk a little bit about the service you're providing.

Yeah, so much like our consumers, there's millions of consumers out there that think about Best Buy first when it comes to electronics, comes to appliances. And not surprising, so do the businesses. The first thing that they think of when they're trying to outfit themselves is Best Buy. And so we have a huge breadth of customers that use Best Buy for Business, anywhere from large hospitalities that are outfitting every single one of their new rooms with a new big screen TV, to home builders that are looking for packages for their home buyers, and then even those small companies that just need a handful of laptops to really outfit their space that they're using.

That's great. And I know that there's a lot of physical goods. I know some you had mentioned at one point maybe even some services might be involved.

Yeah, so you know, when we think about it, what you're seeing is a demand not only for the product but really the service that Best Buy can provide that no one else can with our Geek Squad. So they're looking for us to come in, hook everything up, wire everything. So really, we can do it from soup to nuts when you think about what the businesses need.

That's great. And then let's turn a little bit, I guess, towards the sole prop and sole proprietorships within the business. Is that an important segment for Best Buy?

You know, so for about two years ago, we added the Best Buy for Business credit application online. It's really opened a brand new set of customers for us. So what we're seeing now is thousands of applications every single month that are coming in. And if you think about the customer that's going online to Best Buy for Business to apply, it isn't your large corporations. We have sales teams that support those folks. It really is the smaller companies, think of the sole proprietorships, the LLCs, you know, the companies that have 100 or less individuals working for them are the ones that are really coming online and applying with us. And so it's a huge opportunity as we think about how do we continue to grow these relationships with these businesses.

Yeah, and you mentioned they're applying on the site today. What sort of financing options are available to these sole props and businesses?

Yeah, you know, it's been a struggle for retailers for many years. We have financing. We can finance a large corporation with no problem, right? There's more than enough lenders willing to do that with us. When it comes to the LLCs, comes to the sole proprietorships, they're just an underserved market. There is not a lot of national players out there that are providing opportunities. And when you think about it, you know, if they don't get the opportunity with us, they're going somewhere else at a much higher expense, much less convenience.

That makes sense. So that's a big pain point in terms of them being able to apply and get financing.

Correct, it is. And not only a pain point from, you know, can they get approved, but it's a pain point from the experience. You know, if you go to these big lenders, you know, they look at these folks and they want all these, their financials, they want the financials of, you know, the owners and so forth, and the experience just becomes very poor for them. And it's a lot of work to come in and buy five, six, seven laptops, right? And so how do we make that experience better, get more approvals, and help not only them but help our sales.

Now, those the pain points that you see Affirm addressing?

It is. You know, and as we look at it, and it's going to be a growth, you know, over the years, but you know, we know the experience that Affirm provides, which is top of its class. And so we're looking now to add that to the business side.

Okay, great. And now what percentage of Best Buy for Business customers are financing their purchases today?

Yeah, we don't exactly provide those exact numbers, but what I can tell you is majority of our Best Buy for Business transactions are financed. And as you can imagine, you know, the last three, four years with the pandemic and now with some of the economic stress, that percentage has only increased. And so you're not only seeing consumers need more support financing, but you're starting to see these businesses, especially the small ones, need that support from us.

Now, when you looked at providers here, did you see any other providers being able to scale or handle the types of pain points that we were talking about?

So I've been trying to find the right partners for 20 years, you know. And so today, I don't believe that person exists for us to be able to take care of these customers in a national standpoint. And that is really why we will be launching soon with Affirm to be able to hopefully overcome these challenges that have plagued the industry for years.

That's great. And then what other expansion opportunities do you see between Best Buy and Affirm?

Yeah, I think this is where I'm most excited. Truly, you know, right now we're announcing and we're taking care of the sole proprietorship, but you guys have much bigger plans. How do we take care of that small business that just isn't being taken care of today? Whether it's a sole proprietor, whether it's an LLC, whether it's just a small corporation that doesn't have that financing or the depth of a credit file that they need, how do we grow into those customers as we continue to grow into our partnership?

Terrific. Well, JY, thank you so much for your participation here. We appreciate your time, and thank you for coming from Minneapolis today. And thank you everyone. Thank you, let's give JY a round of applause. Thank you again.

Great. Well, I would now like to invite Max back on stage to discuss and describe the future of Affirm.

Thank you, Max. Okay, I'd like to now invite Leore, Wayne, and Pat to join Max on stage for our first question and answer session. We will accept questions from both the online audience as well as those of you in the room with us today. We ask that you please defer any questions related to financial matters until the second question and answer session, after which Michael will have presented the guidance or that financial model, excuse me. I think we're ready. Let's do this. So we'll go ahead and kick it off. If you have any questions, please raise your hand. We also ask if you do ask a question, state both your name and the company that you represent. God, we start with you.

Hi, it's Brian Keane, DeM. I guess two questions. One, the everyday purpose kind of Affirm card, they're new competitors and they're competitors doing similar things. How does that differ from what Affirm offers? And then secondly, as you get more into underwriting kind of general purpose cards, how do you differentiate yourself from regular bank underwriting on that? Thanks.

Yeah, I mean, I think one thing just to make sure it's really clear is it's not a line of credit. The product is still the same consistent product that we've been building and iterating on, including underwriting, where for every single transaction that is made, we are looking at user signals, merchant signals, point-in-time signals to really decide if this particular purchase is one that we can extend credit for. And that, like Max said, I think that continues to be a unique differentiator. It leads to better outcomes for the consumer, leads to better outcomes, I think, on a credit side as well, that we're able to really do that every single time in real time.

I think we have the next question from Dan.

Just scream for the webcast. Looks like we're having some mic difficulties. You got it. Let's try a different mic. Or tell you, just scream or just shout. Now it's going to... Okay, Dan Mizrahi. Great stuff. Can you maybe dig a little deeper into the Affirm account? Very interesting development on the transactional account. What are the opportunities? You know, how does Affirm look like in two to three years with that account in terms of the traction you're getting? Thank you.

Yeah, Pat and Wayne, something... I think we had a question from a viewer online.

Yes, Andrew Windram asked, it's rarely spoken about at Affirm, but could you unpack how your SKU-level data presents an opportunity for brands and merchants to drive conversion and success there?

I can add a little bit on SKU information and how merchants are using it. Even a mattress merchant, which has just a limited number of SKUs, we have some of our mattress providers having 11 different financing programs depending on, you know, the price point or potentially bundles. So having that SKU, that ability to do a financing program to a SKU is very powerful. Other merchants, like our OTAs and our travel group, having information about when a flight will take place or when a trip will complete actually has some signals into how well that individual will repay. And so that actually feeds into our underwriting. So we've been able to leverage some of that data to enhance our underwriting and actually approve more for some of our OTAs. So SKU-level information just in itself, when you add it in addition to our technology, it's just very powerful. Even using it for inventory management, when they want, they have got too much of something and wanting to move product, they can create offers for it.

Andrew B from Wells Fargo. You had one slide where you showed the progression of share of cart within the travel industry, and then I believe the other was general merchandise, and they both had their own little inflection points at certain periods in the life cycle. I think it was quarter seven. So what are the drivers of that inflection, and is there kind of a roadmap on how you penetrate these verticals that ultimately starts to drive the flywheel effect?

Yeah, I think the lumping as you see in those charts really is tied to when we might have launched some particular initiative with some particular merchant. So let's imagine in travel, maybe that was the quarter that we went from flights to vacations, for example, or in general merchandise it...

Hi, Jason Kupperberg from Bank of America. I just had two questions. The first one is international versus B2B. I'm curious if you're taking a three to five year view, which of those two do you think will be generating a greater degree of volume and revenue for Affirm? And the second question is just on the Affirm Card. Are you seeing any meaningful amount of cannibalization at all versus the traditional Affirm platform, and if so, any way to quantify that?

Yeah, average card usage is more frequent than the highest frequency of pre-card users. So it stands to reason that the substitution, whatever happens, is an accretive, not destructive. I mean, and a little bit of inside baseball, I mean, as we're rolling the product out, these are the things that we're looking for, right? That the substitution is positive, and that's where we have this measured pace from cohort to cohort to really understand exactly what's happening.