Update 8 November – Original post is below the image.. I had doubted Visa’s support here. But clearly this is a real product.
Affirm Debit+ is a decoupled debit on the Visa network with Evolve Bank as ODFI/Issuer. I doubt if Visa fully vetted this product.. it MUST have “slipped through”. For more info see Affirm’s investor day presentation.
Per my blog last week, my hypothesis is that the new Affirm Debit+ will be revolutionary.. which is why it is currently causing a massive firestorm amongst Banks. Today I want to drill into what I believe the value proposition will be (my hypothesis) and why Visa had to support this.
Today Affirm is “limited” in growth to the merchants it can directly integrate to. How can they solve this problem? Create a consumer “pay anyone” product that lets the consumer pick and choose what items they want to finance after they purchase them. Connect any of your bank accounts or all of them.. Finance anything you buy on improved terms. Affirm will also work with Stripe and others to create an improved checkout process, which will improve both conversion AND consumers ability to purchase (ie underwriting). The first mover advantage will be tremendous and step on much of the Neo Banks (already slim value prop).
Key Features
-
- Instant account opening
- Instant credit line, pay on your terms
- Link Any Bank (or all your banks)
- Pay with Debit+ in store or on line
- Finance anything you buy before or after the purchase
- Use Debit card in eCommerce with enhanced consumer protections and real time notifications
- Reduced credit costs
- Debit rewards
- ??
Note that Square/Afterpay will likely seek to compete in something similar as well, but Affirm has the US risk engine proven today.
Visa was smart to join this team as Affirm’s credit value proposition was a direct threat to the Visa network. While Visa only participates on the Debit+ interchange, they can both observe and make the case for Affirm to expand merchant integration (within Visa scheme).
My top question? Who is the ODFI here. If it is a small bank this will fail (PayPal had WFC and it almost failed). My guess is that someone like JPMC is contacting Affirm to get them into the tent. One core challenge of ACH is the ODFI’s responsibility to take ACH returns for 60 days. Bank customers only need to claim fraud for the RDFI to reverse transaction immediately. It is the ODFI’s responsibility to investigate. The only entity with deep experience here is PayPal, with Wells Fargo as ODFI. They have all the pieces to create a similar product in weeks. But PayPal decoupled debit + PayPal Credit (+installments) will reverse the efforts of last 4 years in striking Bank “peace agreements”.
Will this open the floodgates to other FinTechs seeking to replicate the model? Yep. Visa has to be consistent. The debit piece of this is easy.. The credit piece is very hard.. I think SoFi could follow here.. But few others. First mover advantage will be key.
The Affirm model is just brilliant.. And a revolutionary advancement over any of the NEO banks. Affirm will take all of the upside, allowing users to connect to any bank.. And deliver superior products, with better rates, and improved commerce integration.
I will never use this (no rewards), but I suppose it will appeal to people who can’t reliably manage a rewards card. It seems to me that PayPal must be wondering whether to scrap its “peace agreements” with the banks – if Visa is willing to burn them this way, maybe that provides cover for PayPal to do the same. As you say, they have the risk figured out. Before they switched to a wallet model/PayPal Credit, I used to have their prepaid debit card, and could advance myself quite a bit of money on ACH. Greenlight does it now for their student card, so whoever they are using has an engine. I think some credit cards do have the option to designate certain purchases for installment payments, although I’ve never used that feature. It will be interesting to see how this plays out.
Thanks for taking time to comment. The big news is that Visa seems willing to enable non-banks to do all of this. For the last 6 yrs they have enabled issuers to do it.. Perhaps the pace was just too slow.
Does this make Affirm another issuer of cards? A smart one with the ‘debit+’ features but from V’s point of view, isn’t this the best case scenario? That BNPL turns into another issuer, removing closed loop threat and also fragmenting the issuer landscape (lower incentives)?
NO.. issuers must be a bank in every geography. Evolve bank is the issuer of the debit in this case. Marqeta is the platform on which the card is issued and managed.
Hmm, I understand that Affirm isn’t issuing the cards itself.
I was trying to understand the impact of the Affirm+ card as relates to the card networks Vs the impact of Affirm-BNPL trying to form a closed loop network and eventually bypassing the card networks. Do you see this move as +ve or -ve for the card networks?
Great post as always, thank you.
Coming to think of it, isn’t this something Klarna did back in 2017-2018 in Europe? A card that links current accounts, and you can select which purchases to move into Klarna instalments. What is the difference in your opinion?
How do you see Curve card fit to this model? Of course it works via card rails, but the value proposition is quite close. Ability to use only your top of wallet card, and decide post-payment where you will be charged eventually.
Great question. I don’t recall Klarna having a branded Visa cards operating in Europe like this.. but they certainly leverage SEPA direct draft for eCommerce.
Here it is: https://www.klarna.com/se/kort/
Thanks!! News to me.. thus proves again the US is 5 yrs behind the EU. Sweden has always been a great innovation hub.
Thanks much for sharing..!! Exactly the interaction I would hope take place here.