Amazon Partners with Affirm for Buy Now, Pay Later Service Targeting Small Business Owners

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Amazon has just announced an exciting new option for small business owners who use their platform: a buy now, pay later feature. This move marks a significant expansion of their collaboration with Affirm, a leading player in the fintech industry. As a result of this partnership, Affirm’s shares surged by over 14%.

Starting from Black Friday, November 24, the service will be accessible to all eligible customers. With loan amounts ranging from $100 to $20,000, this option is designed specifically for sole proprietors and small businesses run by a single individual, which represent the most common form of business ownership in the United States.

The introduction of this feature reflects the growing popularity of buy now, pay later services, which initially gained momentum during the early stages of the pandemic. However, some concerns were raised in 2021 regarding the industry’s sustainability, attributed to rising interest rates and an increase in borrower defaults, resulting in a dip in valuations for leading players like Affirm and Klarna.

Despite these challenges, the transparency offered by this payment method remains a key selling point. Unlike credit cards, customers are aware of the precise amount of interest they’ll owe upfront. This transparency has sustained its appeal, particularly for households and businesses facing financial strain as the impact of pandemic relief programs has diminished.

According to Todd Heimes, the director of Amazon Business Worldwide, small businesses have consistently expressed the need for payment solutions to manage their cash flow. He emphasized that in addition to the existing options of using credit cards and paying by invoice, the buy now, pay later option offers an additional way for small business customers to manage their payments over time.

Amazon Business, launched in 2015, initially recognized the need for a dedicated platform for businesses seeking office supplies and bulk purchases. This division has experienced remarkable success, reaching $35 billion in sales this year and serving over 6 million customers globally.

With the buy now, pay later option, eligible Amazon customers can opt to pay for their purchases in equal installments over a period of three to 48 months. Affirm’s Chief Revenue Officer, Wayne Pommen, explained that the annualized interest rates range from 10% to 36%, determined by the perceived risk of the transaction. The companies have assured customers that there are no late fees or hidden charges associated with this payment method.

Pommen emphasized the importance of this move for small businesses, noting that the traditional financial industry often struggles to provide credit to small enterprises. For many of these businesses, securing a loan from a bank isn’t feasible until they achieve a certain scale. Hence, providing this payment solution enables businesses to foster growth and effectively manage their cash flows. The decision to initially target sole proprietors stems from the fact that they constitute the majority of small businesses in the United States, with approximately 28 million registered entities. Pommen expressed optimism about the performance of the new product and suggested that based on its success, the option might eventually be extended to a broader range of businesses.