Amazon, Which is founded by Jeff Bezos, is introducing its first buy now, pay later checkout option on their website. They are teaming up with a company called Affirm to offer this service. This new payment option is not just for regular Amazon shoppers but is also going to be available for small businesses that use Amazon to sell their products.
The tech giant Affirm confirmed on Thursday, Affirm’s stock price went up by 19% when this news came out.
Buying Now and Paying Later with Amazon
This new service will allow customers to buy now, pay for them later. You can get a loan to buy now on Amazon, and the loan can be as small as $100 or as big as $20,000. This option will be available to eligible customers by Black Friday, which is on November 24th. It’s designed for small businesses that are owned by one person, which is the most common type of business in the United States.
This shows that more and more people are using a financial technology feature that became very popular at the start of the pandemic. Companies like Affirm and Klarna, When boom turned to bust in 2021, and valuations in the industry dropped steeply, However, in 2021, the popularity went down, and the value of these companies dropped. Some people were worried because interest rates were rising, and more people were having trouble paying back the money they borrowed.
But many users like this option because it’s seen as more clear than using credit cards. With this, you know exactly how much interest you have to pay from the beginning. This makes it appealing for households and businesses that are facing financial challenges as the extra money from pandemic aid programs is running out.
Todd Heimes, who works at Amazon Business Worldwide, said that many small businesses have told them they need different ways to pay later and manage their money. They already offer the option to use credit cards and pay later, and now they are adding this new way for small businesses to pay later over time.
Simplifying Payments for Small Businesses
Amazon Business started in 2015 when Amazon noticed that many businesses were using its regular online store to buy office supplies and large quantities of items. This part of Amazon has made $35 billion in sales this year and has more than 6 million customers around the world.
If this new payment option is given the green light, users will be able to pay for their Amazon purchases in equal parts over a period of three to 48 months. The interest they are charged each year can range from 10% to 36%, depending on how risky the purchase is seen by Affirm Chief Revenue Officer Wayne Pommen. It’s important to note that there are no fees for paying late, and there are no hidden charges, as the two companies have stated.
Wayne Pommen also pointed out that the traditional banking industry doesn’t do a good job of offering credit to really small businesses. These small businesses can’t easily go to a bank and get a loan until they reach a certain size. So, being able to provide this new payment option for their purchases can help these small businesses grow and manage their money better.
This is a positive development for Affirm, as it strengthens an important partnership. Affirm had been looking for ways to increase its revenue after the demand for expensive Peloton exercise bikes dropped. In 2021, Affirm started providing installment loans to Amazon’s regular shoppers, and it expanded to Amazon in Canada in 2022. This year, it was also integrated with Amazon Pay.
Expanding Affirm’s Loan Options
Affirm has its own methods for deciding whether to give out loans for each purchase it facilitates. They decided to start with sole proprietors because they make up the majority of small businesses in the U.S., with around 28 million registered, according to Wayne Pommen.
He mentioned, “We will assess how well this product does, and if it works out, we may consider offering it to a wider range of businesses. Our initial assessment suggests that we can successfully provide these loans and achieve the strong performance we aim for.”
Amazon and Affirm are teaming up to provide a new way to pay for purchases. It’s not just for regular shoppers, small businesses can use it too. You can buy now and pay for them later with loans ranging from $100 to $20,000. This partnership reflects the increasing use of financial technology, offering clear payment terms. It’s beneficial for businesses dealing with financial challenges after the pandemic. Affirm is starting with sole proprietors and may expand to more businesses in the future. This partnership is important for both Amazon and Affirm, as it helps them grow.