Affirm is Max Levchin’s second big fintech start-up, after PayPal © Bloomberg

Back in 2002, a company co-founded by fintech entrepreneur Max Levchin warned of growing competition in online payments as it prepared to go public.

“The market for our product is emerging, intensely competitive and characterised by rapid technological change,” PayPal wrote in an initial public offering prospectus at the time.

Now, Mr Levchin’s second big fintech start-up, Affirm, is going up against his old company in another crowded space: the so-called “buy now, pay later” sector.

Affirm, founded in 2012, is preparing for an IPO that some insiders think could still happen by the end of the year. If Mr Levchin pulls it off, the listing would cement his reputation as one of the savviest — and wealthiest — start-up founders of his generation.

But the more difficult part could come later. While Affirm styles itself as an alternative to credit cards, it faces immediate threats from Australia’s Afterpay and Sweden’s Klarna, which have both been expanding into Affirm’s US home turf.

In a twist for Mr Levchin, PayPal has also become one of Affirm’s direct competitors, warranting a mention in the company’s IPO prospectus.

Affirm said that the new competition could “result in the need for us to alter the pricing we offer to merchants or consumers”.

Conor Witt, fintech research analyst at CB Insights, said the company could face a backlash from merchants who have grown wary about the fees they pay to process credit card transactions.

In its defence, Affirm touts a “dollar-based merchant retention rate” above 100 per cent, which effectively means that merchants stay on the platform and consistently generate more business for Affirm each successive year.

Most of Affirm’s revenue comes from fees that merchants pay the company to offer its instalment product at the point of sale. Affirm said it generally earns larger fees from merchants who provide zero-interest options to customers, and these arrangements represented 46 per cent of the total order volume through its platform in the third quarter.

However, like PayPal and many other fast-growing fintech companies before it, Affirm had yet to become profitable by the time it filed its IPO paperwork.

In another parallel to PayPal, Affirm’s IPO documents revealed that it is closely intertwined with an ecommerce company. For PayPal, it was eBay, which moved to purchase the payments group months after its IPO.

For Affirm, it is the Canadian group Shopify, which has partnered with Affirm to bring instalment loans to merchants using its software.

Shopify received equity warrants from the partnership that would give it a roughly 7 per cent stake in the company, raising the question: could Affirm, like Mr Levchin's last fintech venture, be swallowed up shortly after it goes public?

This is the last #fintechFT of 2020. We will return in January. We wish all of our readers a merry Christmas and happy new year. 

Quick Fire Q&A

Company name: Perenna

When founded: 2018

Where based: London

CEO: Arjan Verbeek

What do you sell and who do you sell it to: Perenna plans to offer all homeowners fixed-for-life mortgages that carry a static rate for the entire term.

How did you get started: We realised fixed for life mortgages would greatly benefit mortgage borrowers. Existing lenders had not cracked this code.

Amount of money raised so far: £1.7m

Valuation at latest fundraising: £1.7m

Major shareholders: Arjan Verbeek, Hamish Peacocke, Gerardine Davies, Azuro Financial Services, Colin Bell and Carrick Nominees Limited.

There are lots of fintechs out there — what makes Perenna so special: We are the only start-up building an innovative capital markets platform that can fix how UK mortgages are financed.

Further fintech fascination

Wirecard fallout: In an interview with the Financial Times, Allianz chief executive Oliver Bäte called for stricter regulation of the areas where technology meets finance in the wake of the Wirecard scandal. And Anastassia Lauterbach has resigned from the board of airline easyJet following scrutiny over her role at Wirecard, where she was also on the board.

Trendwatch: Sifted has done a deep dive into the world of neobanks, finding that there are now nearly 300 of them around the world, triple the number there were in 2017. Europe has been a hotspot for these businesses, but South Korea, Brazil and the US are catching up. Brazil’s Nubank has the most customers, with 30m users.

Stumbling blocks: Trading app Robinhood will pay $65m to settle charges from securities regulators that it did not give customers the best prices, reported the Financial Times. The company is facing tougher scrutiny as it makes the transition from a start-up to a big player in the financial services industry.

Crypto chronicles: As bitcoin continued its stellar run, the FT reported that cryptocurrency platform Coinbase filed with the US Securities and Exchange Commission to list on the stock market. It would be the first major cryptocurrency exchange to go public. Coinbase has more than 35m users in over 100 countries. Not everything is going smoothly in crypto-land though. Bloomberg reported that Robert Farkas, a co-founder of the cryptocurrency firm Centra Tech, was sentenced to a year in prison over an investment scam.

AOB: Zilch, a UK-based “buy now pay later” specialist has raised $30m in a funding round, said Finextra; the same publication reported that American Express has taken a stake in crypto trading platform FalconX; Reuters wrote that Wahed Invest, an Islamic fintech, is to buy UK digital banking app Niya.

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