Affirm’s Revenue Model: Debit & Credit Card Profits & GMV Growth

Affirm Holdings is navigating a period of modest growth, marked by a strategic shift towards diversifying its revenue streams and a notable surge in its debit card business. While the company recently reported revenue growth of 30% to February 5, 2026, reaching $1.12 billion, weaker-than-expected guidance for the coming quarter sent its stock down 9% in after-hours trading. The company’s performance reflects broader economic shifts impacting the Buy Now, Pay Later (BNPL) sector.

Diversifying Beyond Point-of-Sale Financing

Affirm’s core business model revolves around providing financing options at the point of sale, both online and in stores. Traditionally, the company has earned revenue through Merchant Discount Rates (MDR), a percentage of the total sale price paid by retailers for using the service. This fee, ranging from 2% to 8% depending on the financing plan, provides retailers with immediate payment and shifts the risk of non-payment to Affirm. However, the company is actively working to expand beyond this model. A key component of this strategy is the growth of its debit and credit card offerings.

The company’s debit card gross merchandise volume (GMV) climbed 159% to $2.2 billion, with active Affirm cardholders more than doubling year-over-year to 3.7 million. This growth is a deliberate effort to diversify revenue beyond traditional point-of-sale integrations, and strategic partnerships with e-commerce giants like Amazon and Shopify are accelerating this process. These alliances dramatically increase the GMV flowing through the platform.

Financial Performance and Key Metrics

Affirm’s second quarter of fiscal year 2026 saw GMV growth of 36% year-over-year, reaching $13.8 billion. Net income reached $130 million, a 62% increase compared to the same period last year. Operating income also turned positive, reaching $118 million, with an operating margin of 10.5%. Revenue less transaction costs (RLTC) as a percentage of GMV came in at 3.93%, at the high end of the company’s long-term target range of 3-4%.

The company’s top five merchants experienced GMV growth of 23%, although management cautioned that this metric was impacted by changes in the merchant subset due to a large partner transition. Active merchant count increased by 42%, attributed to wallet partnership integrations. The “other” GMV category, representing numerous smaller merchants, now accounts for 15% of total GMV, making it Affirm’s second-largest vertical.

Guidance and Market Headwinds

Despite the strong second-quarter results, Affirm’s guidance for the third quarter of fiscal year 2026 was below analyst expectations. The company forecasts GMV between $11.0 and $11.25 billion and revenue between $970 and $1,000 million. This guidance reflects headwinds from the loss of a major merchant, but management did not specify other drivers for the deceleration. The projected operating margin for the third quarter is 4.5-6.0%, and for the full fiscal year, it’s expected to be 7.7-8.6%.

Funding Costs and Consumer Credit

Affirm has also been benefiting from favorable funding conditions. The company recently priced an asset-backed security (ABS) deal with a spread under 100 basis points and a weighted average yield below 4.6%, representing its lowest funding costs since 2021. Chief Executive Officer Max Levchin stated that the consumer base remains healthy, with no notable changes in credit trends quarter-to-date, adding that consumers are “able and willing to pay us back.”

Strategic Implications

Affirm’s strategic focus on diversifying revenue streams, particularly through its debit and credit card offerings, appears to be gaining traction. The significant growth in Affirm card GMV and active cardholders demonstrates the potential of this strategy. However, the company’s reliance on partnerships and its vulnerability to the loss of major merchants remain key risks. The weaker-than-expected guidance for the third quarter underscores the challenges of maintaining high growth rates in a dynamic economic environment. The company is guiding for GMV growth of 30% in the third quarter and 25% in the fourth quarter.

The company’s ability to navigate these challenges and continue to innovate will be crucial for its long-term success in the increasingly competitive BNPL landscape. The focus on maintaining a healthy consumer base and securing favorable funding costs will also be essential for sustaining profitability and growth.