Shares of Affirm Holdings Inc (NASDAQ: AFRM), a prominent buy now, pay later (BNPL) provider, displayed notable trading activity on Monday. The stock initially saw gains in early trading hours but subsequently declined as market participants assessed potential impacts stemming from a recent directive by former President Donald Trump concerning credit card interest rates.
Over the recent weekend, President Trump publicly challenged credit card issuers, mandating that they lower their interest rates to a ceiling of 10% by January 20. He characterized prevailing annual percentage rates (APRs), frequently ranging between 20% and 30%, as exploitative and abusive toward consumers. Failure to comply with this directive, he stated, would place these companies in "violation of the law" and subject them to "very severe" consequences. This aggressive stance quickly altered the landscape for financial institutions, resulting in stock price declines among major credit card and banking entities.
In contrast, the immediate effect on investors was a pivot toward alternative credit market players such as Affirm, perceived as benefiting from potential shifts away from traditional revolving credit models. Affirm operates as a leading BNPL platform, offering consumers installment loans approved at the point of sale instead of revolving balances carrying variable interest rates. This model prominently features clear cost disclosures and typically avoids late fees, differentiating it from conventional credit card products.
Affirm’s business strategy involves partnerships with substantial merchants across e-commerce, travel, and retail sectors. The company integrates its checkout solutions seamlessly both online and in physical stores. Revenue for Affirm primarily arises from merchant discount fees and, on select products, interest income derived from consumers. These consumer-financed products leverage bank partnerships and securitization processes. Key to Affirm’s approach is underwriting each transaction independently and providing fixed payment schedules, contrasting with the open-ended credit on traditional cards.
The proposed 10% APR cap has implications that could influence Affirm's competitive positioning. Should the cap be enforced, traditional card issuers might experience squeezed profit margins, prompting them to reduce reward programs, tighten credit availability, or introduce additional fees. This contraction in credit card offerings could diminish the appeal and accessibility of revolving credit options, particularly for sub-prime borrowers and younger demographics. Consequently, merchants who rely on effective financing mechanisms to facilitate sales might increasingly adopt alternative credit solutions, such as those offered by BNPL providers like Affirm.
Because Affirm's revenue model is less dependent on high consumer interest rates and more on merchant fees, it could maintain economic viability even where credit card offerings become less attractive under regulatory constraints. This dynamic positions Affirm to potentially increase its market share at the checkout stage. Furthermore, irrespective of whether President Trump's ultimatum is softened or challenged legally, the renewed political focus on credit affordability and consumer protection reinforces the perception of installment-based finance products as more transparent and consumer-friendly. Affirm, through this lens, may benefit from any structural adjustments in the U.S. credit card market.
Market analysis services display support for Affirm’s growth prospects. Benzinga Edge Rankings assigns the company high marks for growth and momentum, with scores of 98.33 and 85.55 respectively, while noting comparatively low value metrics, reflecting the market’s current pricing environment.
Financial analysts have generally expressed optimism toward Affirm Holdings. TD Cowen and Truist Securities have both reiterated "Buy" ratings on the stock, while RBC Capital maintained a "Sector Perform" view. Recent price target adjustments include TD Cowen lowering its projection to $110.00 from $115.00. Wolfe Research initiated coverage with a "Peer Perform" rating, and Freedom Capital Markets commenced coverage citing a "Buy" rating and a $90.00 price target. Notably, Truist Securities and RBC Capital revised their target prices downward to $85.00 and $87.00, respectively, reflecting a degree of cautious optimism.
On the day of reporting, Affirm’s shares were trading lower by 6.87%, closing at $76.18 according to Benzinga Pro data. Intraday prices exhibited volatility, ranging from a low of $75.25 to a high of $84.65, indicative of the market's reactive stance to emerging regulatory risks and evolving credit industry dynamics.