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What changed in Affirm Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Affirm Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+521 added−570 removedSource: 10-K (2023-08-25) vs 10-K (2022-08-29)

Top changes in Affirm Holdings, Inc.'s 2023 10-K

521 paragraphs added · 570 removed · 358 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+26 added−35 removed102 unchanged
Biggest changeCross River Bank and Celtic Bank generally allow a consumer loan borrower to agree to any annual rate of interest up to 30% or 36%, respectively calculated in accordance with the FDIC Federal Interest Rate Authority rule discussed above and other applicable law. 16 Table o f Contents However, if the legal structure underlying our relationship with our originating bank partners was successfully challenged, we may be found to be in violation of state licensing requirements and state laws regulating interest rates and other aspects of consumer lending.
Biggest changeCross River Bank generally allows a consumer loan borrower to agree to any annual rate of interest up to 30%, and our other originating bank partners, including Celtic Bank, generally allow a consumer loan borrower to agree to any annual rate of interest up to 36%, in each case calculated in accordance with the FDIC Federal Interest Rate Authority rule discussed above and other applicable law.
Further, the variables used in the model must be supported by documented, legitimate business justifications where the model results in a disproportionate effect on applicants or consumers of certain demographic groups; • the Fair Credit Reporting Act (the “FCRA”), as amended by the Fair and Accurate Credit Transactions Act, and Regulation V promulgated thereunder, which promote the accuracy, fairness, and privacy of information in the files of consumer reporting agencies; • the Fair Debt Collection Practices Act, Regulation F promulgated thereunder, and the Telephone Consumer Protection Act, each of which provide guidelines and limitations concerning the conduct of certain creditors and third-party debt collectors in connection with the collection of consumer debts; • the Gramm-Leach-Bliley Act (the “GLBA”), which includes limitations on use and disclosure of nonpublic personal information about a consumer by a financial institution; • the Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection; • the Holder Rule, and equivalent state laws, which make Affirm or any other holder of a consumer credit contract include the required notice and become subject to all claims and defenses that a borrower could assert against the seller of goods or services; • the Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide disclosure requirements, guidelines, and restrictions on the electronic transfer of funds from consumers’ bank accounts; 18 Table o f Contents • the Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures; • the Military Lending Act and similar state laws, which provide disclosure requirements, interest rate limitations, substantive conduct obligations, and prohibitions on certain behavior relating to loans made to covered borrowers, which include both servicemembers and their dependents; • the Servicemembers Civil Relief Act and similar state laws, which allows active duty military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties; and • new requirements pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in response to the COVID-19 pandemic, including requirements relating to debt collection and credit reporting.
Further, the variables used in the model must be supported by documented, legitimate business justifications where the model results in a disproportionate effect on applicants or consumers of certain demographic groups; • the Fair Credit Reporting Act (the “FCRA”), as amended by the Fair and Accurate Credit Transactions Act, and Regulation V promulgated thereunder, which promote the accuracy, fairness, and privacy of information in the files of consumer reporting agencies; • the Fair Debt Collection Practices Act, Regulation F promulgated thereunder, and the Telephone Consumer Protection Act, each of which provide guidelines and limitations concerning the conduct of certain creditors and third-party debt collectors in connection with the collection of consumer debts; • the Gramm-Leach-Bliley Act (the “GLBA”), which includes limitations on use and disclosure of nonpublic personal information about a consumer by a financial institution; • the Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection; 18 Table of Contents • the Holder Rule, and equivalent state laws, which make Affirm or any other holder of a consumer credit contract include the required notice and become subject to all claims and defenses that a borrower could assert against the seller of goods or services; • the Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide disclosure requirements, guidelines, and restrictions on the electronic transfer of funds from consumers’ bank accounts; • the Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures; • the Military Lending Act and similar state laws, which provide disclosure requirements, interest rate limitations, substantive conduct obligations, and prohibitions on certain behavior relating to loans made to covered borrowers, which include both servicemembers and their dependents; • the Servicemembers Civil Relief Act and similar state laws, which allows active duty military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties; and • requirements pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in response to the COVID-19 pandemic, including requirements relating to debt collection and credit reporting.
Our durable funding model consists of three primary channels - warehouse facilities, programmatic issuance of term and revolving securitization transactions, and forward flow commitments. Within each channel, we endeavor to maximize our financial flexibility by partnering with a broad spectrum of counterparty profiles including depository institutions, investment banks, strategic investment funds, pension funds, asset managers, and insurance companies.
Our durable funding model consists of three primary channels — warehouse credit facilities, programmatic issuance of term and revolving securitization transactions, and forward flow commitments. Within each channel, we endeavor to maximize our financial flexibility by partnering with a broad spectrum of counterparty profiles including depository institutions, investment banks, strategic investment funds, pension funds, asset managers, and insurance companies.
There are two examples of claims that have been raised that could each, separately or jointly, result in this outcome in some or all states. First, the FDIC stated that its Federal Interest Rate Authority Rule was promulgated in part to codify the “valid when made” doctrine due to court decisions such as the one in Madden v.
There are two examples of claims that have been raised that could each, separately or jointly, result in this outcome in some or all states. The FDIC stated that its Federal Interest Rate Authority Rule was promulgated in part to codify the “valid when made” doctrine due to court decisions such as the one in Madden v.
We provide merchants with insightful analytics that help them understand how their various products are performing and other key insights to optimize conversion and customer acquisition costs. • Client success support. Our high-touch client success team partners with our merchants to analyze performance and provides custom recommendations to optimize AOVs and conversion rates. • Affirm app.
We provide merchants with insightful analytics that help them understand how their various products are performing and other key insights to optimize conversion and customer acquisition costs. • Client success support. Our high-touch client success team partners with our merchants to analyze performance and provides custom recommendations to optimize AOVs and conversion rates. • Affirm app and marketplace.
We and our originating bank partners may also be subject to state law interest rate limitations on personal consumer loans. Certain states have no such limitations, while other jurisdictions impose a maximum rate on such loans. In some jurisdictions, the maximum rate may be less than the rates applicable to the loans facilitated through our platform.
State interest rate treatment We and our originating bank partners may also be subject to state law interest rate limitations on personal consumer loans. Certain states have no such limitations, while other jurisdictions impose a maximum rate on such loans. In some jurisdictions, the maximum rate may be less than the rates applicable to the loans facilitated through our platform.
Our Diversity and Inclusion Steering Committee (“DISC”), an internal committee made up of senior leaders from across Affirm, provides oversight, support, and guidance to departments and teams on initiatives that may impact the ability to support diverse populations of key constituencies: employees, consumers and merchants.
Our Diversity and Inclusion Steering Committee (“DISC”), an internal committee made up of senior leaders from across Affirm, provides support and guidance to departments and teams on initiatives that may impact the ability to support diverse populations of key constituencies: employees, consumers and merchants.
We believe this results in fewer abandoned carts and higher conversion rates. Prequalification also personalizes the shopping experience for consumers, since once prequalified they may receive customized offers based on their approval amount. • Simple and Compliant Solution. Our direct API, designed for use by developers, allows for site integration with minimal merchant investment.
We believe this results in fewer abandoned carts and higher conversion rates. Prequalification also personalizes the shopping experience for consumers, once they are prequalified they may receive customized offers based on their approval amount. • Simple and compliant solution. Our direct API, designed for use by developers, allows for site integration with minimal merchant investment.
The application of state and provincial licensing requirements to our business model is not always clear, and while we believe we are in compliance as of June 30, 2022 with applicable licensing requirements, regulators may request or require that we obtain additional licenses or other authorizations in the future, which may subject our business to additional restrictions or requirements.
The application of state and provincial licensing requirements to our business model is not always clear, and while we believe we are in compliance as of June 30, 2023 with applicable licensing requirements, regulators may request or require that we obtain additional licenses or other authorizations in the future, which may subject our business to additional restrictions or requirements.
Licensing statutes vary from state to state and prescribe different requirements, including but not limited to: restrictions on loan origination and servicing practices (including limits on the type, amount, and manner of fees), solicitation activities, interest rate limits, disclosure requirements, periodic examination requirements, surety bond and minimum specified net worth requirements, periodic financial reporting requirements, notification requirements for changes in principal officers, stock ownership or corporate control, restrictions on advertising, and requirements that loan forms be submitted for review.
Licensing statutes vary from state to state and prescribe different requirements, including but not limited to: restrictions on loan origination and servicing practices (including limits on the type, amount, and manner of fees), solicitation activities, interest rate limits, disclosure requirements, periodic examination requirements, surety bond and minimum specified net worth requirements, periodic financial reporting requirements, notification requirements for changes in principal officers, stock ownership or corporate control, 15 Table of Contents restrictions on advertising, and requirements that loan forms be submitted for review.
We annually publish our DEI Report, which discloses certain demographic information relating to our team and outlines our DEI goals, our progress toward them, our areas for improvement, and where we expect to focus our efforts. The 2021 report is available at: www.affirm.com/diversity-inclusion.
We annually publish our DEI Report, which discloses certain demographic information relating to our team and outlines our DEI goals, our progress toward them, our areas for improvement, and where we expect to focus our efforts. The 2022 report is available at: www.affirm.com/diversity-inclusion.
By maintaining access to a diversified array of long-term funding sources and leveraging our proprietary underwriting process at the point-of-sale, we are able to monetize high-quality financial assets at scale. Our Competition Our primary competition consists of: legacy payment methods, such as credit and debit cards, including those provided by card issuing banks such as Synchrony, J.P.
By maintaining access to a diversified array of long-term funding sources and leveraging our proprietary underwriting process at the point-of-sale, we are able to monetize high-quality financial assets at scale. 9 Table of Contents Our Competition Our primary competition consists of: legacy payment methods, such as credit and debit cards, including those provided by card issuing banks such as Synchrony, J.P.
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website as soon as reasonably practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website as soon as reasonably practicable after we file such material electronically with, or furnish it to, the SEC.
In addition, on November 3, 2020, California voters approved a new privacy law, the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. Many of the CPRA’s provisions will become effective on January 1, 2023.
In addition, on November 3, 2020, California voters approved a new privacy law, the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. Many of the CPRA’s provisions became effective on January 1, 2023.
For more information on the risks relating to our regulatory environment, see the section titled “ Risk Factors – Risks Related to Our Regulatory Environment. ” Our lending programs are relatively novel and must comply with regulatory regimes applicable to consumer credit transactions.
For more information on the risks relating to our regulatory environment, see the section titled “Risk Factors – Risks Related to Our Regulatory Environment.” Our lending programs are relatively novel and must comply with regulatory regimes applicable to consumer credit transactions.
Morgan Chase, Citibank, Bank of America, Capital One, Goldman Sachs, and American Express; technology solutions provided by payment companies such as Visa and MasterCard; mobile wallets such as PayPal and Apple; and other pay-over-time solutions offered by companies such as Block and Klarna as well as new pay-over-time offerings by legacy financial and payments companies, including those mentioned above.
Morgan Chase, Citibank, Bank of America, Capital One, Bread Financial, and American Express; technology solutions provided by payment companies such as Visa and MasterCard; mobile wallets such as PayPal and Apple; and other pay-over-time solutions offered by companies such as Block and Klarna as well as new pay-over-time offerings by legacy financial and payments companies, including those mentioned above.
As of June 30, 2022, we had approximately 235,000 active merchants, ranging from small businesses to large enterprises, direct-to-consumer brands, brick-and-mortar stores, and companies with an omni-channel presence. Our merchants span a diverse range of industries, including sporting goods and outdoors, furniture and homewares, travel and ticketing, apparel, accessories, consumer electronics, and jewelry.
As of June 30, 2023, we had approximately 254,000 active merchants, ranging from small businesses to large enterprises, direct-to-consumer brands, brick-and-mortar stores, and companies with an omni-channel presence. Our merchants span a diverse range of industries, including sporting goods and outdoors, furniture and homewares, travel and ticketing, apparel, accessories, consumer electronics, and jewelry.
This structure incentivizes us to help our merchants convert sales and increase AOV through the commerce and technology solutions offered by our platform. From consumers, we earn interest income on the simple interest loans that we originate or purchase from our originating bank partners.
This structure incentivizes us to help our merchants convert sales and increase AOV through the commerce and technology solutions offered by our platform. From consumers, we earn interest income on the interest bearing installment loans that we originate or purchase from our originating bank partners.
The increasing scale is leveraged by our technology as increasing value is delivered to participants in our network of merchants, consumers, and capital partners. • Fraud detection capabilities. To assess transaction fraud risk, we first seek to establish the consumer’s identity using basic information.
The increasing scale is leveraged by our technology as increasing value is delivered to participants in our network of merchants, consumers, and capital partners. 11 Table of Contents • Fraud detection capabilities. To assess transaction fraud risk, we first seek to establish the consumer’s identity using basic information.
Meanwhile, the GDPR provides data subjects with greater control over the collection and use of their personal information (such as the “right to be forgotten”) and has specific requirements relating to cross-border transfers of personal information to certain jurisdictions, including to the United States, with fines for noncompliance of up to the greater of 20 million euros or up to 4% of the annual global revenue of the noncompliant company.
Meanwhile, the GDPR provides data subjects with greater control over the collection and use of their personal information (such as the “right to be forgotten”) and has specific requirements relating to cross-border transfers of personal information to certain jurisdictions, including to the U.S., with fines for noncompliance of up to the greater of 20 million euros or up to 4% of the annual global revenue of the noncompliant company.
Our originating bank partners also operate in a highly regulated environment, and many laws and regulations that apply directly to our originating bank partners are directly and indirectly applicable to us as a service provider to our originating bank partners. Intellectual Property Intellectual property and proprietary rights are important to the success of our business.
Our originating bank partners also operate in a highly regulated environment, and many laws and regulations that apply directly to our originating bank partners are directly and indirectly applicable to us as a service provider to our originating bank partners. 21 Table of Contents Intellectual Property Intellectual property and proprietary rights are important to the success of our business.
State and provincial licensing requirements and regulation Our operations must satisfy the laws and standards of each individual U.S. state and territory, Canadian province, and Australian state in which we operate. This means that when individual states differ in how they allow financing to be provided and used, we must operate consistently in accordance with the most comprehensive requirements.
State and provincial licensing requirements and regulation Our operations must satisfy the laws and standards of each individual U.S. state and territory and Canadian province in which we operate. This means that when individual states, territories or provinces differ in how they allow financing to be provided and used, we must operate consistently in accordance with the most comprehensive requirements.
For more information on how our risk model automates the underwriting process for our originating bank partners, see “— Regulatory Environment — State and provincial licensing requirements and regulation.” 9 Table o f Contents Deep capital markets expertise We believe our capital management strategy is a key competitive differentiator, enabling us to effectively scale our network, support GMV growth across our ecosystem, and efficiently recycle equity capital.
For more information on how our risk model automates the underwriting process for our originating bank partners, see “— Regulatory Environment — State and provincial licensing requirements and regulation.” Deep capital markets expertise We believe our capital management strategy is a key competitive differentiator, enabling us to effectively scale our network, support GMV growth across our ecosystem, and efficiently recycle equity capital.
Our platform is designed to address these problems. Our company is predicated on the principles of simplicity, transparency, and putting people first. Since our founding, we have charged $0 in late fees for missed payments. We never profit from consumers’ mistakes, and we are always transparent in our product offerings.
Our platform is designed to address these problems. Our company is predicated on the principles of simplicity, transparency, and putting people first. Since our founding, we have charged $0 in late fees for missed payments. We do not profit from consumers’ mistakes, and we are transparent in our product offerings.
The CCPA, CPRA, GDPR, and any other applicable state, federal, and international privacy laws, may increase our compliance costs and potential liability. Various regulatory agencies in the United States and in foreign jurisdictions continue to examine a wide variety of issues that are applicable to us and may impact our business.
The CCPA, CPRA, GDPR, and any other applicable state, federal, and international privacy laws, may increase our compliance costs and potential liability. Various regulatory agencies in the U.S. and in foreign jurisdictions continue to examine a wide variety of issues that are applicable to us and may impact our business.
We also have adopted an Employee Stock Purchase Plan (“ESPP”) pursuant to which eligible employees can purchase shares of our Class A common stock at a discount from the fair market value .
We also have adopted an Employee Stock Purchase Plan (“ESPP”) pursuant to which eligible employees can purchase shares o f our Class A common stock at a discount from the fair market value .
Furthermore, an increasing number of state, federal, and international jurisdictions have enacted, or are considering enacting, privacy laws, such as the CCPA, which became effective on January 1, 2020, and the EU General Data Protection Regulation (“GDPR”), which regulates the collection, control, sharing, disclosure and use and other processing of personal information of data subjects in the EU and the European Economic Area.
Furthermore, an increasing number of state, federal, and international jurisdictions have enacted, or are considering enacting, privacy laws, such as the CCPA, which became effective on January 1, 2020, and the EU GDPR, which regulates the collection, control, sharing, disclosure and use and other processing of personal information of data subjects in the EU and the European Economic Area.
Furthermore, our risk management models are designed to continuously improve over time, becoming more precise and efficient with each transaction powered by our platform. What this means for consumers is increased purchasing power and more control and flexibility. As of June 30, 2022, over 23 million consumers have trusted Affirm as their transaction partner.
Furthermore, our risk management models are designed to continuously improve over time, becoming more precise and efficient with each transaction powered by our platform. What this means for consumers is increased purchasing power and more control and flexibility. As of June 30, 2023, almost 36 million consumers have trusted Affirm as their transaction partner.
In May 2022, the CFPB issued an Interpretive Rule to clarify the authority of states to enforce federal consumer financial protections laws under the Consumer Financial Protection Act of 2010 (“CFPA”).
In May 2022, the CFPB issued an Interpretive Rule 19 Table of Contents to clarify the authority of states to enforce federal consumer financial protections laws under the Consumer Financial Protection Act of 2010 (“CFPA”).
We will continue to evaluate expanding our platform to new markets. Merchants and consumers anywhere can benefit from a more transparent, fair, and honest way to engage in commerce, and we see an opportunity to generate value in many new markets around the world through our platform.
Merchants and consumers anywhere can benefit from a more transparent, fair, and honest way to engage in commerce, and we see an opportunity to generate value in many new markets around the world through our platform.
We believe these incentive programs allows us to be competitive with comparable companies in our industry by giving us the resources to attract, motivate and retain talented individuals. We offer comprehensive benefits, including medical, dental, vision, life insurance, paid time off, various voluntary insurance programs, and a 401(k) retirement plan for U.S. employees.
We believe these incentive programs allow us to be competitive with comparable companies in our industry by giving us the resources to attract, motivate and retain talented individuals. 14 Table of Contents We offer comprehensive benefits, including medical, dental, vision, life insurance, paid time off, various voluntary insurance programs, and a 401(k) retirement plan for U.S. employees.
Our Technology Our products are built on a cloud-first platform engineered for temporally agnostic data aggregation, schematization, management, and decisioning, which enables our products to leverage years of deep behavioral, 11 Table o f Contents financial, shopping, and payment data across all facets of our platform, from fraud and pricing, to personalization and repayment.
Our Technology Our products are built on a cloud-first platform engineered for temporally agnostic data aggregation, schematization, management, and decisioning, which enables our products to leverage years of deep behavioral, financial, shopping, and payment data across all facets of our platform, from fraud and pricing, to personalization and repayment.
We are subject to a variety of such laws, rules, directives, and regulations, as well as contractual obligations, relating to the processing of personal information. Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the collection, storage, use, disclosure, transmission, processing, and protection of information.
We are subject to a variety of such laws, rules, directives, and regulations, as well as contractual obligations, both at the state and federal level, relating to the processing of personal information. Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the collection, storage, use, disclosure, transmission, processing, and protection of information.
For the fiscal years ended June 30, 2022 and 2021, 81% and 72% of the transactions facilitated through our platform were driven by repeat consumers. • Improved direct expense efficiency enables us to create even more compelling offers for consumers and merchants, in turn attracting more consumers and merchants to our network.
For the fiscal years ended June 30, 2023 and 2022, 88% and 81%, respectively, of the transactions facilitated through our platform were driven by repeat consumers. • Improved direct expense efficiency enables us to create even more compelling offers for consumers and merchants, in turn attracting more consumers and merchants to our network.
We are also subject to data protection laws and regulations, such as the EU General Data Protection Regulation, Canada’s Personal Information Protection and Electronic Documents Act, Australia’s Privacy Act, and similar state laws such as the California Consumer Privacy Act (the “CCPA”), which includes limitations and requirements surrounding the use, disclosure, and other processing of certain personal information about California residents.
We are also subject to data protection laws and regulations, such as the EU General Data Protection Regulation (“GDPR”), Canada’s Personal Information Protection and Electronic Documents Act, the U.K.’s Data Protection Act of 2018 and similar state laws such as the California Consumer Privacy Act (the “CCPA”), which includes limitations and requirements surrounding the use, disclosure, and other processing of certain personal information about California residents.
Management regularly reports to our board of directors on human capital management topics, including corporate culture, safety, 14 Table o f Contents diversity and inclusion, employee development, and compensation and benefits. Our board of directors provides input on important decisions, including with respect to safety, talent retention and development.
Management regularly reports to our board of directors on human capital management topics, including corporate culture, safety, diversity and inclusion, employee development, and compensation and benefits. Our board of directors provides input on important decisions, including with respect to safety, talent retention and development.
The potential consequences of an adverse determination could include the inability to collect loans at the interest rates contracted for, licensing violations, the loans being found to be unenforceable or void, or the reduction of interest or principal, or other 17 Table o f Contents penalties or damages.
The potential consequences of an adverse determination could include the inability to collect loans at the interest rates contracted for, licensing violations, the loans being found to be unenforceable or void, the reduction of interest or principal, or other penalties or damages.
That is why there are no hidden fees or tricks associated with the loans facilitated through our platform. What you see is what you get. • It’s on us. We take full accountability for our actions, never shirking responsibility or passing the buck.
We are transparent and honest — with our consumers and with each other. That is why there are no hidden fees or tricks associated with the loans facilitated through our platform. What you see is what you get. • It’s on us. We take full accountability for our actions, never shirking responsibility or passing the buck.
Following the Madden decision, there have been a number of lawsuits in other parts of the country making similar allegations.
Following the Madden decision, there have been a number of lawsuits in other parts of the country making 16 Table of Contents similar allegations.
Our machine learning-based risk models are currently calibrated and validated on billions of individual data points, based on a complex set of variables, and are custom built to effectively detect fraud, price risk, and provide customized recommendations.
Our machine learning-based risk models are currently calibrated and validated on an extensive amount of data points, based on a complex set of variables, and are custom built to effectively detect fraud, price risk, and provide customized recommendations.
Certain states, provinces, and localities have adopted laws regulating and requiring licensing, registration, notice filing, or other approval by parties that engage in certain activity regarding consumer finance transactions, including facilitating and assisting such transactions in certain circumstances.
Certain states, provinces, and localities have adopted laws regulating and requiring licensing, registration, notice filing, or other approval by parties that engage in certain activity regarding consumer finance transactions, including facilitating and assisting such transactions in certain circumstances, debt collection or servicing, and/or purchasing or selling consumer loans.
This aspect of our business, including the collection, storage, use, disclosure, transfer, processing, and protection of the information, including personal information, we acquire in connection with our consumers’ and merchants’ use of our services, is subject to numerous privacy, cybersecurity, and other laws and regulations in the United States and foreign jurisdictions.
This aspect of our business, including the collection, storage, use, disclosure, transfer, processing, and protection of the information, including personal information, we acquire in connection with our consumers’ and merchants’ use of our services, is subject to numerous privacy, cybersecurity, and other laws and regulations in the U.S. and foreign jurisdictions, including the GLBA and its implementing regulations.
Regulatory Environment We operate in a rapidly evolving regulatory environment and are subject to extensive regulation, both directly and indirectly, by way of our partnership with our originating bank partners, under U.S. federal law, the laws of Canada, and Australia, and the laws of the states and provinces in which we operate, among others.
Regulatory Environmen t We operate in a rapidly evolving regulatory environment and are subject to extensive regulation, both directly and indirectly, by way of our partnership with our originating bank partners, under U.S. federal law, the laws of Canada, and the United Kingdom (“U.K.”), and the laws of the states and provinces in which we operate, among others.
Legislators and regulators are increasingly adopting or revising privacy and data protection laws, rules, directives, and regulations that could have a significant impact on our current and planned privacy and data protection-related practices; our processing of consumer or employee information; and our current or planned business activities. We are subject to the GLBA and implementing regulations and guidance.
Legislators and regulators are increasingly adopting or revising privacy and data protection laws, rules, directives, and regulations that could have a significant impact on our current and planned privacy and data protection-related practices; our processing of consumer or employee information; and our current or planned business activities.
Our proprietary risk model has consistently outperformed traditional credit models, enabling us to better help eligible consumers finance their purchases. Consumers never pay more than what they agreed to at checkout, even if they miss or are late on a payment. • Virtual card.
Our proprietary risk model has consistently outperformed traditional credit models, enabling us to better help eligible consumers finance their purchases. Consumers never pay more than what they agreed to at checkout, even if they miss or are late on a payment. 6 Table of Contents • Affirm Marketplace.
DISC is also responsible for reviewing that internal and external initiatives reflect our high bar for DEI, and the members help to amplify high-impact DEI efforts happening within their own departments.
DISC is also responsible for reviewing internal and external DEI initiatives, and DEI members help to amplify high-impact DEI efforts happening within their own departments.
We will continue marketing across new and existing channels to increase brand awareness with consumers and highlight the value of our platform. We believe this will attract new consumers to try Affirm as a payment option.
Expand consumer reach We will continue marketing to increase brand awareness with consumers and highlight the value of our platform. We believe this will attract new consumers to try Affirm as a payment option.
The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. 23 Table o f Contents
The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. 22 Table of Contents
Through the Affirm app and in partnership with Cross River Bank, we offer an FDIC-insured, interest-bearing savings account, with no minimum deposit requirements or fees. • Affirm Debit+ card.
Through the Affirm app and in partnership with Cross River Bank, we offer an FDIC-insured, interest-bearing savings account, with no minimum deposit requirements or fees. Merchant features • Affirm at Checkout .
Merchants can easily incorporate our platform into payment and product pages, and we provide a dedicated integration team to assist with issue resolution. Once a merchant has integrated our API, we handle the regulatory aspect of the loans facilitated through our platform, irrespective of state, province, or jurisdiction. • Returns management. Affirm completed its acquisition of Returnly in May 2021.
Merchants can easily incorporate our platform into payment and product pages, and we provide a dedicated integration team to assist with issue resolution. Once a merchant has integrated our API, we handle the regulatory aspect of the loans facilitated through our platform, irrespective of state, province, or jurisdiction.
In the vast majority of cases, we can complete these checks and calculations in a matter of seconds, automating the underwriting process pursuant to our originating bank partners’ underwriting policies. We use application and transaction data to train our model, including data from more than 71.0 million loans and over seven years of repayments. • Modeling improvements.
In the vast majority of cases, we can complete these checks and calculations in a matter of seconds, automating the underwriting process pursuant to our originating bank partners’ underwriting policies. We use application and transaction data to train our model, including data from almost 132 million loans. • Modeling improvements.
Unlike much of the industry, we do not capitalize on consumer misfortunes through practices such as late fees and deferred or compounding interest. Our success is aligned with our consumers’ success. In fact, we depend on it. • No fine print. We are transparent and honest — with our consumers and with each other.
This means that we do not and will not take advantage of our consumers. Unlike much of the industry, we do not capitalize on consumer misfortunes through practices such as late fees and deferred or compounding interest. Our success is aligned with our consumers’ success. In fact, we depend on it. • No fine print.
As such, we have established a business model pursuant to which we may originate loans directly through our platform under our lending, servicing, and brokering licenses across various 15 Table o f Contents jurisdictions in the United States, Canada, and Australia, and we may also purchase loans originated by our originating bank partners through our platform.
As such, we have established a business model pursuant to which we may originate loans directly through our platform under our lending, servicing, and brokering licenses across various jurisdictions in the U.S., Canada, and U.K., and we may also purchase loans originated by our originating bank partners through our platform.
As we continue to generate results for merchants, we believe more will join our platform in order to offer Affirm as an option to their customers. Expand to new markets We make our platform available to merchants and eligible consumers in the United States and Canada and, on a more limited basis, in Australia.
As we continue to generate results for merchants, we believe more will join our platform in order to offer Affirm as an option to their customers. Expand to new markets Our platform is broadly available to merchants and eligible consumers in the United States and Canada. We will continue to evaluate expanding our platform to new markets.
Merchants also have access to Affirm’s app, which provides a marketplace that allows them to efficiently reach customers. 7 Table o f Contents • Affirm website and developer documentation.
Merchants also have access to Affirm’s app, which provides a marketplace that allows them to efficiently reach customers through featured placements and personalized advertisements. 7 Table of Contents • Affirm website and developer documentation.
For fiscal year ended June 30, 2022 , Split Pay and Core 0% loans represented 22% and 21%, respectively, of total Gross Merchandise Volume (“GMV ” ) facilitated through our platform. For fiscal year ended June 30, 2021, Split Pay and Core 0% loans represented 11% and 32%, respectively, of total GMV.
For fiscal year ended June 30, 2023 , Pay-in-4 and Core 0% loans represented 19% and 13% , respectively, of total Gross Merchandise Volume (“GMV ” ) facilitated through our platform. For fiscal year ended June 30, 2022, Pay-in-4 and Core 0% loans represented 22% and 21%, respectively, of total GMV.
This momentum keeps our consumer and merchant network growing and thriving. These values have helped us to attract, inspire, and harness the collective talent of exceptional technologists and business people. Diversity, equity, and inclusion We believe that diversity, equity, and inclusion (“DEI”) are important as we scale and build our high-performing team.
These values have helped us to attract, inspire, and harness the collective talent of exceptional technologists and business people. 13 Table of Contents Diversity, equity, and inclusion We believe that diversity, equity, and inclusion (“DEI”) are important as we scale and build our high-performing team.
Our approach to risk management is core to our business model and has been proven to lead to low fraud rates, higher approval rates compared to traditional credit underwriting models, and low credit losses. Our models have been built on billions of data points, including data from over 71 million loans and over seven years of repayments.
Our approach to risk management is core to our business model and has been proven to lead to lower fraud rates, higher approval rates compared to traditional credit underwriting models, and lower credit losses. Our models have been built on extensive data points, including data from almost 132 million loans.
Consumer features • Checkout. When purchasing from one of our partner merchants, consumers can choose Affirm as a payment method, giving them the option to pay over time with terms ranging from 6 weeks to 60 months.
The current suite of solutions we provide to our consumers and merchants is outlined below: Consumer features • Affirm at Checkout. When purchasing from one of our partner merchants, consumers can choose Affirm as a payment method, giving them the option to pay over time with terms ranging from weeks to months.
While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance is given that our 20 Table o f Contents compliance policies and procedures will be effective or will be adequate as laws change or are applied in a new manner.
While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance is given that our compliance policies and procedures will be effective or will be adequate as laws change or are applied in a new manner. Other requirements We have policies and procedures designed to prevent the financing of illegal products.
Our dollar-based merchant retention rate has consistently exceeded 100% for each cohort of merchants that joined our platform since 2016. We are also able to help merchants increase demand for higher net AOV items. • Flexible offerings that address a wider range of transactions. Merchants can offer either one or a combination of 0% APR and interest-bearing pay-over-time offerings.
We are also able to help merchants increase demand for higher net AOV items. • Flexible offerings that address a wider range of transactions. Merchants can offer either one or a combination of 0% APR and interest-bearing pay-over-time offerings.
As we add more consumers to our network, our models become more efficient and robust, allowing us to provide our platform (and the loans it facilitates) to a growing spectrum of consumers.
As we add more consumers to our network, our models become more efficient and robust, allowing us to provide our platform (and the loans it facilitates) to a growing spectrum of consumers. The more consumers that we serve, the better our systems understand how to identify responsible consumers, and the more consumers we can acquire and approve.
Second, there have also been both private litigation and governmental enforcement actions seeking to recharacterize a lending transaction, claiming that the named lender was not the true lender, and that instead another entity was the true lender or the de facto lender.
Reg. 44146 (July 22, 2020). Before and after the Federal Interest Rate Authority went into effect, there have also been both private litigation and governmental enforcement actions seeking to recharacterize a lending transaction, claiming that the named lender was not the true lender, and that instead another entity was the true lender or the de facto lender.
In addition, the regulatory framework for online lending platforms is evolving and uncertain as federal and state governments consider the application of existing laws and adoption of new laws to regulate these structures. New laws and regulations, as well as continued uncertainty regarding potential new laws or regulations, may negatively affect our business.
In addition, the regulatory framework for online lending platforms is evolving and uncertain as federal and state governments consider the application of existing laws and adoption of new laws to regulate these structures. Certain banking laws and regulations may also apply to our originating bank partners.
We collect, store, use, disclose, transfer, and otherwise process a wide variety of information, including personal information, for various purposes in our business, including to help provide for the integrity of our services and to provide features and functionality to our consumers and merchants.
We maintain anti-corruption policies and procedures and have a compliance program in place to ensure compliance with these laws and regulations. 20 Table of Contents We collect, store, use, disclose, transfer, and otherwise process a wide variety of information, including personal information, for various purposes in our business, including to help provide for the integrity of our services and to provide features and functionality to our consumers and merchants.
Our programs are designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing. We are also required to maintain this program under our agreements with our originating bank partners, and certain state regulatory agencies have intimated they expect the program to be in place and followed.
We are also required to maintain this program under our agreements with our originating bank partners, and certain state regulatory agencies have intimated they expect the program to be in place and followed. The U.S.
We have already achieved significant scale, facilitating consumer purchases of $15.5 billion in GMV in fiscal year 2022. Our Platform Our business transforms the way consumers and merchants transact by creating a powerful platform built upon honest financial products. Our platform comprises three core elements: point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.
We have already achieved significant scale, facilitating consumer purchases of $20.2 billion in GMV in fiscal year 2023. Our Platform Our business transforms the way consumers and merchants transact by creating a powerful platform built upon honest financial products.
A substantial number of the loans facilitated through our platform in the U.S. are originated through our originating bank partners: Cross River Bank, an FDIC-insured New Jersey state-chartered bank, and Celtic Bank, an FDIC-insured Utah state-chartered industrial bank.
Substantially all of the loans facilitated through our platform in the U.S. are originated through Celtic Bank, an FDIC-insured Utah state-chartered industrial bank.
As of June 30, 2022, we owned 9 registered trademarks and 20 trademark applications in the United States, 24 registered trademarks and 36 trademark applications in various foreign jurisdictions, and 7 issued patent, 36 pending patent applications in the United States, and 4 pending patent applications in various foreign jurisdictions. 22 Table o f Contents Although we take steps to protect our intellectual property and proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other proprietary information, including by third-parties who may use our technology or other proprietary information to develop services that compete with ours.
Although we take steps to protect our intellectual property and proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other proprietary information, including by third-parties who may use our technology or other proprietary information to develop services that compete with ours.
Our solutions use machine learning, artificial intelligence, cloud-based technologies, and other modern tools to create differentiated and scalable products. We prioritize building our own technology and investing in engineering talent, as we believe these are enduring competitive advantages that are difficult to replicate. Our direct API also allows merchant partners to easily integrate Affirm.
We prioritize building our own technology and investing in engineering talent, as we believe these are enduring competitive advantages that are difficult to replicate. 8 Table of Contents Our direct API also allows merchant partners to easily integrate Affirm.
We 12 Table o f Contents also have deployed physical access controls to our buildings, and our policies authorize access to personal information only for those employees or agents who require it to fulfill the responsibilities of their jobs.
We maintain physical security measures designed to guard against unauthorized access to systems and use safeguards such as firewalls and data encryption. We also have deployed physical access controls to our buildings, and our policies authorize access to personal information only for those employees or agents who require it to fulfill the responsibilities of their jobs.
The net result is that we are building a consumer and merchant ecosystem on our platform that we expect to continue to grow and monetize over time. 8 Table o f Contents Engineering and technology infrastructure Technology is at the core of everything we do.
The net result is that we are building a consumer and merchant ecosystem on our platform that we expect to continue to grow and monetize over time. Engineering and technology infrastructure Technology is at the core of everything we do. Our solutions use machine learning, artificial intelligence, cloud-based technologies, and other modern tools to create differentiated and scalable products.
Merchant fees depend on the individual arrangement between us and each merchant and vary based on the terms of the product offering; we generally earn larger merchant fees on 0% annual percentage rate (“APR ”) financing products. We have two loan product offerings: Split Pay and Core loans.
From merchants, we typically earn a fee when we help them convert a sale and power a payment . Merchant fees depend on the individual arrangement between us and each merchant and vary based on the terms of the product offering; we generally earn larger merchant fees on 0% annual percentage rate (“APR ”) financing products.
We started our business with our core pay-over-time solution at checkout, and have since continued to innovate and expand our product suite by building and acquiring solutions that address the needs of both consumers and merchants. We plan to further add to our solutions over time so that we may offer more benefits to our consumers and merchants.
We started our business with our foundational pay-over-time solution at checkout, and have since continued to innovate and expand our product suite by building and acquiring solutions that address the evolving needs of both consumers and merchants. Our platform comprises three core elements: point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.
Affirmers own problems and solutions, and we hold each other accountable. 13 Table o f Contents • Simpler is better. We make complex things simple and clear. Financial products and payments have traditionally been fraught with complexity.
Affirmers own problems and solutions, and we hold each other accountable. • Simpler is better. We make complex things simple and clear. Financial products and payments have traditionally been fraught with complexity. We found a better way, a way that brings consumers the simplicity they need and merchants the results they want. • Push the envelope.
Our technology-driven platform also faces competition from a variety of players, including those who enable transactions and commerce via digital payments. Technology-enabled companies like ours are increasingly gaining market share from legacy financial institutions. We believe that we compete favorably based on our competitive advantages and are well-positioned to succeed in the market.
Additionally, merchants are increasingly offering proprietary pay-over-time options to customers, and in some cases, these are presented parallel to our offerings at checkout. Our technology-driven platform also faces competition from a variety of players, including those who enable transactions and commerce via digital payments. Technology-enabled companies like ours are increasingly gaining market share from legacy financial institutions.
We are focused on the effectiveness of sales and marketing spending and will continue to be strategic in maintaining efficient consumer and merchant acquisition. We also utilize dedicated sales teams to grow our merchant base in the United States and Canada, and leverage strategic partnerships with other platforms to expand our merchant and consumer base.
We also utilize dedicated sales teams to grow our merchant base in the United States and Canada, and leverage strategic partnerships with other platforms to expand our merchant and consumer base. 12 Table of Contents Seasonality We experience seasonal fluctuations in our business as a result of consumer spending patterns.
We believe our proprietary risk model has translated this advantage into the ability to increase approval rates without deterring consumers with higher APRs or increasing our rate of expected credit losses, enabling us to facilitate a greater volume of transactions from a wider and more diverse segment of consumers.
Our integration with our merchant partners allows us to consider the product that the consumer is purchasing when we assess a credit application. We believe our proprietary risk model has translated this advantage into the ability to facilitate a greater volume of transactions from a wider and more diverse segment of consumers.
We found a better way, a way that brings consumers the simplicity they need and merchants the results they want. • Push the envelope. We never stop innovating, taking smart risks, and raising the bar. Talented people are attracted to Affirm because we empower them to innovate, create robust systems, and take smart risks.
We never stop innovating, taking smart risks, and raising the bar. Talented people are attracted to Affirm because we empower them to innovate, create robust systems, and take smart risks. This momentum keeps our consumer and merchant network growing and thriving.
We aim to continue driving further repeat use of our platform as we serve consumers beyond their initial purchase via our consumer-centric tools, offerings and the increased diversity of merchants on our network. Expand merchant reach • Deepen penetration with existing merchants. Today, Affirm transactions represent a small percentage of the total transaction volume for our merchants.
Increase Consumer Transaction Frequency We have demonstrated how our solutions can successfully enable and accelerate commerce for larger and considered purchases. We aim to continue driving repeat use of our platform as we serve consumers beyond their initial purchase via our consumer-centric tools and offerings, and the increased diversity of merchants on our network.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, incremental charge-offs may affect future credit decisioning, growth of transaction volume, and the amount of provisions for underperforming loans we will need to take. We rely on Cross River Bank and Celtic Bank to originate a substantial majority of the loans facilitated through our platform and to comply with various federal, state, and other laws.
Biggest changeAs of the end of the second quarter of fiscal 2023, we relied on Cross River Bank and Celtic Bank to originate a majority of the loans facilitated through our platform and to comply with various federal, state, and other laws, with the balance of the loans facilitated on our platform being originated directly under our lending, servicing, and brokering licenses in Canada and across various states in the United States through our consolidated subsidiaries.
Risk Factor Summary The risks and uncertainties to which our business is subject, include, but are not limited to, the following: • If we are unable to attract additional merchant partners and/or commerce platforms (collectively “merchants” or “merchant partners,” as applicable), retain our existing merchant partners, and grow and develop our relationships with new and existing merchant partners, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • If we are unable to attract new consumers and retain and grow our relationships with our existing consumers, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our business, results of operations, financial condition, and future prospects. • We rely on a small number of merchant partners and e-commerce platforms, and the loss of any of these significant relationships would adversely affect our business, results of operations, financial condition, and future prospects. • We may not be able to sustain our revenue and GMV growth rates, or our growth rate of related key operating metrics, in the future. • The success of our business depends on our ability to work with our originating bank partners to enable effective underwriting of loans facilitated through our platform and accurately price credit risk.
Risk Factor Summary The risks and uncertainties to which our business is subject, include, but are not limited to, the following: • If we are unable to attract additional merchant partners and/or commerce platforms (collectively “merchants” or “merchant partners,” as applicable), retain our existing merchant partners, and grow and develop our relationships with new and existing merchant partners, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • If we are unable to attract new consumers and retain and grow our relationships with our existing consumers, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our business, results of operations, financial condition, and future prospects. • We rely on a small number of merchant partners and e-commerce platforms, and the loss of any of these significant relationships would adversely affect our business, results of operations, financial condition, and future prospects. • We may not be able to sustain our revenue and GMV growth rates, or our growth rate of related key operating metrics, in the future. • The success of our business depends on our ability to work with originating bank partners to enable effective underwriting of loans facilitated through our platform and accurately price credit risk.
If we need to enter into alternative arrangements with a different bank to replace our existing arrangements, we may not be able to negotiate a comparable alternative arrangement in a timely manner or at all.
If we need to enter into alternative arrangements with a different bank to replace our existing arrangement, we may not be able to negotiate a comparable alternative arrangement in a timely manner or at all.
In addition to transaction and opportunity costs, these transactions involve large challenges and risks, whether or not such transactions are completed, any of which could harm our business and negatively impact our results of operations, including risks that: • the transaction may not advance our business strategy or may harm our growth (or profitability); • we may not be able to secure required regulatory approvals or otherwise satisfy closing conditions for a proposed transaction in a timely manner, or at all; • the transaction may subject us to additional regulatory burdens that affect our business in potentially unanticipated and significantly negative ways; • we may not realize a satisfactory return or increase our revenue; • we may experience difficulty, and may not be successful in, integrating technologies, IT or business enterprise systems, culture, or management or other personnel of the acquired business; • we may incur significant acquisition costs and transition costs, including in connection with the assumption of ongoing expenses of the acquired business; 32 Table o f Contents • we may not realize the expected benefits or synergies from the transaction in the expected time period, or at all; • we may be unable to retain key personnel; • acquired businesses or businesses that we invest in may not have adequate controls, processes, and procedures to ensure compliance with laws and regulations, including with respect to data privacy, data protection, and data security, and our due diligence process may not identify compliance issues or other liabilities; • we may fail to identify or assess the magnitude of certain liabilities, shortcomings, or other circumstances prior to acquiring or investing in a business, which could result in additional financial, legal, regulatory, or tax exposure and may subject us to additional controls, policies, procedures, liabilities, litigation, costs of compliance or remediation, or other adverse effects on our business, operating results, or financial condition; • we may have difficulty entering into new geographic territories; • we may be unable to retain the consumers, vendors, and partners of acquired businesses; • there may be lawsuits or regulatory actions resulting from the transaction; • there may be risks associated with undetected security weaknesses, cyberattacks, or security breaches or incidents at companies that we acquire or with which we may combine or partner; • there may be local and foreign regulations applicable to the international activities of our business and the businesses we acquire; and • acquisitions could result in dilutive issuances of equity securities or the incurrence of debt.
In addition to transaction and opportunity costs, these transactions involve large challenges and risks, whether or not such transactions are completed, any of which could harm our business and negatively impact our results of operations, including risks that: • the transaction may not advance our business strategy or may harm our growth (or profitability); • we may not be able to secure required regulatory approvals or otherwise satisfy closing conditions for a proposed transaction in a timely manner, or at all; • the transaction may subject us to additional regulatory burdens that affect our business in potentially unanticipated and significantly negative ways; • we may not realize a satisfactory return or increase our revenue; • we may experience difficulty, and may not be successful in, integrating technologies, IT or business enterprise systems, culture, or management or other personnel of the acquired business; • we may incur significant acquisition costs and transition costs, including in connection with the assumption of ongoing expenses of the acquired business; • we may not realize the expected benefits or synergies from the transaction in the expected time period, or at all; • we may be unable to retain key personnel; • acquired businesses or businesses that we invest in may not have adequate controls, processes, and procedures to ensure compliance with laws and regulations, including with respect to data privacy, data protection, and data security, and our due diligence process may not identify compliance issues or other liabilities; • we may fail to identify or assess the magnitude of certain liabilities, shortcomings, or other circumstances prior to acquiring or investing in a business, which could result in additional financial, legal, regulatory, or tax exposure and may subject us to additional controls, policies, procedures, liabilities, litigation, costs of compliance or remediation, or other adverse effects on our business, operating results, or financial condition; • we may have difficulty entering into new geographic territories; • we may be unable to retain the consumers, vendors, and partners of acquired businesses; 32 Table of Contents • there may be lawsuits or regulatory actions resulting from the transaction; • there may be risks associated with undetected security weaknesses, cyberattacks, or security breaches or incidents at companies that we acquire or with which we may combine or partner; • there may be local and foreign regulations applicable to the international activities of our business and the businesses we acquire; and • acquisitions could result in dilutive issuances of equity securities or the incurrence of debt.
Negative publicity about us or our industry, including the transparency, fairness, user experience, quality, and reliability of our platform or point-of-sale lending platforms in general, effectiveness of our risk model, our ability to effectively manage and resolve complaints, our privacy and security practices, litigation, regulatory activity, misconduct by our employees, funding sources, originating bank partners, service providers, or others in our industry, the experience of consumers and investors with our platform or services or point-of-sale lending platforms in general, or use of loan proceeds by consumers that have obtained loans facilitated through our platform or other point-of-sale lending platforms for illegal purposes, even if inaccurate, could adversely affect our reputation and the confidence in, and the use of, our platform, which could harm our reputation and cause disruptions to our platform.
Negative publicity about us or our industry, including the transparency, fairness, responsible lending, user experience, quality, and reliability of our platform or point-of-sale lending platforms in general, effectiveness of our risk model, our ability to effectively manage and resolve complaints, our privacy and security practices, litigation, regulatory activity, misconduct by our employees, funding sources, originating bank partners, service providers, or others in our industry, the experience of consumers and investors with our platform or services or point-of-sale lending platforms in general, or use of loan proceeds by consumers that have obtained loans facilitated through our platform or other point-of-sale lending platforms for illegal purposes, even if inaccurate, could adversely affect our reputation and the confidence in, and the use of, our platform, which could harm our reputation and cause disruptions to our platform.
International expansion subjects our business to risks associated with international operations, including: • adjusting the proprietary risk algorithms that we use to account for the differences in information available in different jurisdictions on consumers; • conformity of our platform with applicable business customs, including translation into foreign languages and associated expenses; • potential changes to our established business model; • the need to support and integrate with local vendors and service providers; • competition with vendors and service providers that have greater experience in the local markets than we do or that have pre-existing relationships with potential consumers and investors in those markets; 33 Table o f Contents • difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and consumers and merchants, and the increased travel, infrastructure, and legal and compliance costs associated with international operations; • compliance with multiple, potentially conflicting, and changing governmental laws and regulations, including banking, anti-money laundering, securities, employment, tax, privacy, and data protection laws and regulations, such as the EU General Data Protection Regulation; • compliance with U.S. and foreign anti-bribery laws, including the Foreign Corrupt Practices Act; • difficulties in collecting payments in multiple foreign currencies and associated foreign currency exposure; • potential restrictions on repatriation of earnings; • expanded compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and • regional economic and political conditions.
International expansion subjects our business to risks associated with international operations, including: • adjusting the proprietary risk algorithms that we use to account for the differences in information available in different jurisdictions on consumers; • conformity of our platform with applicable business customs, including translation into foreign languages and associated expenses; • potential changes to our established business model; • the need to support and integrate with local vendors and service providers; • competition with vendors and service providers that have greater experience in the local markets than we do or that have pre-existing relationships with potential consumers and investors in those markets; 33 Table of Contents • difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and consumers and merchants, and the increased travel, infrastructure, and legal and compliance costs associated with international operations; • compliance with multiple, potentially conflicting, and changing governmental laws and regulations, including banking, anti-money laundering, securities, employment, tax, privacy, and data protection laws and regulations, such as the EU General Data Protection Regulation; • compliance with U.S. and foreign anti-bribery laws, including the Foreign Corrupt Practices Act; • difficulties in collecting payments in multiple foreign currencies and associated foreign currency exposure; • potential restrictions on repatriation of earnings; • expanded compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and • regional economic and political conditions.
We must comply with various international, federal and state regulatory regimes, including those applicable to consumer credit transactions, such as, but not limited to, those described in “ Business — Regulatory Environment — U.S. federal consumer protection requirements .” In addition, the U.S. and international governments, states, and provinces may pass new laws, or may amend existing laws, to regulate further the consumer finance industry or loans of the type provided through our platform, or to reduce the finance charges or other fees that may be imposed with respect to consumer loans.
We must comply with various international, federal and state regulatory regimes, including those applicable to consumer credit transactions, such as, but not limited to, those described in “ Business — Regulatory Environment — U.S. federal consumer protection requirements .” In addition, the U.S., U.K. and other international governments, states, and provinces may pass new laws, or may amend existing laws, to further regulate the consumer finance industry or loans of the type provided through our platform, or to reduce the finance charges or other fees that may be imposed with respect to consumer loans.
Any acquisitions, strategic investments, or alliances and other transactions could fail to achieve strategic objectives, disrupt our ongoing operations or result in operating difficulties, liabilities and expenses, harm our business, and negatively impact our results of operations. In pursuing our business strategy, we routinely conduct discussions and evaluate opportunities for possible acquisitions, strategic investments, joint ventures and other transactions.
Any acquisitions, strategic investments, alliances, divestitures and other transactions could fail to achieve strategic objectives, disrupt our ongoing operations or result in operating difficulties, liabilities and expenses, harm our business, and negatively impact our results of operations. In pursuing our business strategy, we routinely conduct discussions and evaluate opportunities for possible acquisitions, strategic investments, joint ventures and other transactions.
Our high-velocity, capital efficient funding model is integral to the success of our commerce platform. To support this model and the growth of our business, we must maintain a variety of funding arrangements, including warehouse facilities, securities repurchase agreements, securitization trusts, and forward flow arrangements with a diverse set of funding sources.
Our high-velocity, capital efficient funding model is integral to the success of our commerce platform. To support this model and the growth of our business, we must maintain a variety of funding arrangements, including warehouse credit facilities, securities repurchase agreements, securitization trusts, and forward flow arrangements with a diverse set of funding sources.
In addition, non-performance, or even significant underperformance, of the loan receivables that we own could have an adverse effect on our business. Additionally, our funding model relies on a variety of funding arrangements, including warehouse facilities, securitization trusts, and forward flow arrangements with a variety of funding sources.
In addition, non-performance, or even significant underperformance, of the loan receivables that we own could have an adverse effect on our business. Additionally, our funding model relies on a variety of funding arrangements, including warehouse credit facilities, securitization trusts, and forward flow arrangements with a variety of funding sources.
The loss of any one of our significant merchant partner or e-commerce platform relationships, such as with Amazon or Shopify, due to a lapse in exclusivity or otherwise, would adversely affect our business.
The loss of, or decrease in business with, any one of our significant merchant partner or e-commerce platform relationships, such as with Amazon or Shopify, due to a lapse in exclusivity or otherwise, would adversely affect our business.
From time to time, we may also be involved in, or the subject of, reviews, requests for information, investigations, and proceedings (both formal and informal) by state and federal governmental agencies, including banking regulators, the FTC, the CFPB, and the SEC, regarding our business activities and related disclosure practices and our qualifications to conduct our business in certain jurisdictions, which could subject us to fines, penalties, obligations to change our business and/or disclosure practices, and other requirements resulting in increased expenses and diminished earnings.
From time to time, we may also be involved in, or the subject of, reviews, requests for information, investigations, and proceedings (both formal and informal) by state and federal governmental agencies, both domestic and abroad, including banking regulators, the FTC, the CFPB, and the SEC, regarding our business activities and related disclosure practices and our qualifications to conduct our business in certain jurisdictions, which could subject us to fines, penalties, obligations to change our business and/or disclosure practices, and other requirements resulting in increased expenses and diminished earnings.
For example, a significant natural disaster in the San Francisco Bay Area or any other location in which we have offices or facilities or employees working remotely, such as an earthquake, fire, or flood, could have a material adverse effect on our business, results of operations, financial condition, and future prospects, and our insurance coverage may be insufficient to compensate us for losses that may occur.
For example, a significant natural disaster in the San Francisco Bay Area or any other location in which we have offices or facilities or employees working remotely, such as an earthquake, fire, flood, hurricane or tornado, could have a material adverse effect on our business, results of operations, financial condition, and future prospects, and our insurance coverage may be insufficient to compensate us for losses that may occur.
In addition, our revolving credit facility contains (a) certain covenants and restrictions that limit our and our subsidiaries’ ability to, among other things: incur additional debt; create liens on certain assets; pay dividends on or make distributions in respect of their capital stock or make other restricted payments; consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; and enter into certain transactions with their affiliates, and (b) certain financial maintenance covenants that require us and our subsidiaries to not exceed a specified leverage ratio, to maintain a minimum tangible net worth, and to maintain a minimum level of unrestricted cash while any borrowings under the revolving credit facility are outstanding.
In addition, our revolving credit facility contains (a) certain covenants and restrictions that limit our and our subsidiaries’ ability to, among other things: incur additional debt; create liens on certain assets; pay dividends on or 29 Table of Contents make distributions in respect of their capital stock or make other restricted payments; consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; and enter into certain transactions with their affiliates, and (b) certain financial maintenance covenants that require us and our subsidiaries to not exceed a specified leverage ratio, to maintain a minimum tangible net worth, and to maintain a minimum level of unrestricted cash while any borrowings under the revolving credit facility are outstanding.
For further discussion on the CFPB's enforcement authority, see “ Business — Regulatory Environment — U.S. federal consumer protection requirements .” In conducting an investigation, the CFPB or state attorneys general may issue a civil investigative demand requiring a target company to prepare and submit, among other items, documents, written reports, answers to interrogatories, and deposition testimony.
For further discussion on the CFPB's enforcement authority, see “Business — Regulatory Environment — U.S. federal consumer protection requirements.” In conducting an investigation, the CFPB or state attorneys general may issue a civil investigative demand requiring a target company to prepare and submit, among other items, documents, written reports, answers to interrogatories, and deposition testimony.
In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • our dual class common stock structure, which provides holders of our Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding common stock; • our board of directors is classified into three classes of directors with staggered three-year terms and directors may only able to be removed from office for cause; • certain amendments to our amended and restated certificate of incorporation require the approval of 66 2/3% of the then-outstanding voting power of our capital stock; • our amended and restated bylaws provide that the affirmative vote of 66 2∕3% of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our bylaws; • our stockholders may only take action at a meeting of stockholders and not by written consent; • vacancies on our board of directors may be filled only by our board of directors and not by stockholders; • no provision in our amended and restated certificate of incorporation or amended and restated bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; • only our chairman of the board of directors, our lead independent director, our chief executive officer, or a majority of the board of directors are authorized to call a special meeting of stockholders; • our amended and restated bylaws provide that certain litigation against us can only be brought in Delaware; • nothing in our amended and restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our Class A common stock; • our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and 53 Table o f Contents • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • our dual class common stock structure, which provides holders of our Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding common stock; • our board of directors is classified into three classes of directors with staggered three-year terms and directors may only able to be removed from office for cause; • certain amendments to our amended and restated certificate of incorporation require the approval of 66 2/3% of the then-outstanding voting power of our capital stock; • our amended and restated bylaws provide that the affirmative vote of 66 2∕3% of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our bylaws; • our stockholders may only take action at a meeting of stockholders and not by written consent; • vacancies on our board of directors may be filled only by our board of directors and not by stockholders; • no provision in our amended and restated certificate of incorporation or amended and restated bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; 53 Table of Contents • only our chairman of the board of directors, our lead independent director, our chief executive officer, or a majority of the board of directors are authorized to call a special meeting of stockholders; • our amended and restated bylaws provide that certain litigation against us can only be brought in Delaware; • nothing in our amended and restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our Class A common stock; • our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and • the number of director nominees a stockholder may nominate is limited to the number of directors to be elected at the annual meeting of stockholders.
Our failure, or the failure of any third-party with whom we work, to comply with privacy and data protection laws could result in potentially significant regulatory investigations and government actions, litigations, fines, or sanctions, consumer, funding source, bank partner, or merchant actions, and damage to our reputation and brand, all of which could have a material adverse effect on our business.
Our failure, or the failure of any third-party with whom we work, to comply with privacy and data protection laws could result in potentially significant regulatory investigations and government actions, litigation, fines, or sanctions, consumer, funding source, bank partner, or merchant actions, and damage to our reputation and brand, all of which could have a material adverse effect on our business.
A change in these laws that enables our credit scoring and pricing model, including our ability to export interest rates across state lines, could have a material impact on our business model and financial position. New laws or regulations could also require us to incur significant expenses and devote significant management attention to ensure compliance.
A change in these laws that enable our credit scoring and pricing model, including our ability to export interest rates across state lines, could have a material impact on our business model and financial position. New laws or regulations could also require us to incur significant expenses and devote significant management attention to ensure compliance.
The stock market in general has, from time to time, experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. We are subject to securities litigation, as described further in Note 9.
The stock market in general has, from time to time, experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. We are subject to securities litigation, as described further in Note 8.
In addition, a number of participants in the consumer finance industry have been the subject of putative class action lawsuits; state attorney general actions and other state regulatory actions; federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive, or abusive acts or practices; violations of state licensing and lending laws, including state interest rate limits; actions alleging discrimination on the basis of race, ethnicity, gender, or other prohibited bases; and allegations of noncompliance with various state and federal laws and regulations relating to originating and servicing consumer finance loans.
In addition, a number of participants in the consumer finance industry have been the subject of putative class action lawsuits; state attorney general actions and other state regulatory actions; federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive, or abusive acts or practices; violations of state 36 Table of Contents licensing and lending laws, including state interest rate limits; actions alleging discrimination on the basis of race, ethnicity, gender, or other prohibited bases; and allegations of noncompliance with various state and federal laws and regulations relating to originating and servicing consumer finance loans.
Such regulatory actions could result in penalties and reputational harm to us and a loss of consumers participating in our platform, and our compliance costs and litigation exposure could increase if the CFPB, for instance, or other regulatory agencies enact new regulations, change regulations that were previously adopted, modify, through supervision or enforcement, past regulatory guidance, or interpret existing regulations in a manner different or stricter than have been previously interpreted, any of which could adversely affect our ability to perform.
In addition, investigations and other regulatory actions could result in penalties and reputational harm to us and a loss of consumers participating in our platform, and our compliance costs and litigation exposure could increase if the CFPB, for instance, or other regulatory agencies enact new regulations, change regulations that were previously adopted, modify, through supervision or enforcement, past regulatory guidance, or interpret existing regulations in a manner different or stricter than have been previously interpreted, any of which could adversely affect our ability to perform.
Risks Related to Our Reliance on Third Parties Our results depend on more prominent presentation, integration, and support of our platform by our merchants.
Risks Related to Our Reliance on Third Parties Our results depend on prominent presentation, integration, and support of our platform by our merchants.
Our solution is a technology-driven platform that relies on innovation to remain competitive. The process of developing new technologies and products, such as Affirm Debit+ with pay-over-time functionality, is complex, and we build our own technology using the latest in artificial intelligence and machine learning (“AI/ML”), cloud-based technologies, and other tools to differentiate our products and technologies.
Our solution is a technology-driven platform that relies on innovation to remain competitive. The process of developing new technologies and products, such as Affirm Card with pay-over-time functionality, is complex, and we seek to build our own technology using the latest in artificial intelligence and machine learning (“AI/ML”), cloud-based technologies, and other tools to differentiate our products and technologies.
While we and our vendors have taken steps to protect the confidential, proprietary, and sensitive information to which we have access and to prevent data loss, our security measures or those of our vendors could be breached resulting in the loss of, or unauthorized access to, our or our consumers’ data, our intellectual property, or other confidential, proprietary, or sensitive business information and could expose us to liability related to the loss of the information, time-consuming and expensive litigation, and negative publicity.
While we and our vendors have taken steps to protect the confidential, proprietary, and sensitive information to which we have access and to prevent data loss, our security measures or those of our vendors could be breached resulting in the loss of, or unauthorized access to, our or our consumers’ data, our intellectual property, or other confidential, proprietary, or sensitive business information and could expose us to liability related to the loss of the information, time-consuming and expensive litigation, potential regulatory scrutiny and negative publicity.
In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, or criminal or civil sanctions, all of which may have an adverse effect on our reputation, business, results of operations, and financial condition.
In addition, if our practices are not consistent or viewed as 47 Table of Contents not consistent with legal and regulatory requirements, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, or criminal or civil sanctions, all of which may have an adverse effect on our reputation, business, results of operations, and financial condition.
In the event that our issuer processor becomes unable or unwilling to facilitate the disbursements to merchants and we are unable to reach an agreement with another vendor, such loans would no longer be able to be facilitated through our platform. 41 Table o f Contents We partially rely on card issuers or payment processors.
In the event that our issuer processor becomes unable or 41 Table of Contents unwilling to facilitate the disbursements to merchants and we are unable to reach an agreement with another vendor, such loans would no longer be able to be facilitated through our platform. We partially rely on card issuers or payment processors.
In such an event, we could be required to re-engineer all or a portion of our technologies, seek licenses from third-parties in order to continue offering our products, discontinue the use of our platform in the event re-engineering cannot be accomplished, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products.
In such an event, we could be required to re-engineer all or a portion of our technologies, seek licenses from third-parties in order to 45 Table of Contents continue offering our products, discontinue the use of our platform in the event re-engineering cannot be accomplished, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products.
Our future success depends on our ability to identify, hire, develop, motivate, and retain highly qualified personnel for all areas of our organization, in particular, a highly experienced sales force, data scientists, and engineers. Competition for these types of highly skilled employees is extremely intense, particularly in the San Francisco Bay Area.
Our future success is aided by on our ability to identify, hire, develop, motivate, and retain highly qualified personnel for all areas of our organization, in particular, a highly experienced sales force, data scientists, and engineers. Competition for these types of highly skilled employees is extremely intense, particularly in the San Francisco Bay Area.
Any exclusion from indices or criticism of our corporate governance practices by stockholder advisory firms could result in a less active trading market for our Class A common stock. The market price of our Class A common stock has been and may continue to be volatile, which could cause the value of your investment to decline.
Any exclusion from indices or criticism of our corporate governance practices by stockholder advisory firms could result in a less active trading market for our Class A common stock. 51 Table of Contents The market price of our Class A common stock has been and may continue to be volatile, which could cause the value of your investment to decline.
The concentration of a significant portion of our business and transaction volume with a limited number of merchant partners or e-commerce platforms, or type of merchant or industry, exposes us disproportionately to any of those merchants choosing to no longer partner with us or choosing to partner with a competitor, to the economic performance of those merchants or industry or to any events, circumstances, or risks affecting such merchants or industry.
The concentration of a significant portion of our business and transaction volume with a limited number of merchant partners or e-commerce platforms, or type of merchant or industry, exposes us disproportionately to any of those merchants choosing to no longer partner with us or choosing to partner with a competitor, to the economic performance of those merchants or industry or to any events, circumstances, or risks affecting such merchants or 26 Table of Contents industry.
In addition, we may not be able to effectively implement new technology-driven products and services, including Affirm Debit+, as quickly as competitors or be successful in marketing these products and services to consumers and merchants.
In addition, we may not be able to effectively implement new technology-driven products and services, including Affirm Card, as quickly as competitors or be successful in marketing these products and services to consumers and merchants.
If our revenue and GMV growth rates decline, we may not achieve profitability as expected, and our business, financial condition, results of operations and the price of our Class A common stock would be adversely affected. The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
If our revenue and GMV growth rates decline, we may not achieve sustained profitability, and our business, financial condition, results of operations and the price of our Class A common stock would be adversely affected. The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
For a more complete discussion of the material risks facing our business, see below. 25 Table o f Contents Risks Related to Our Business and Industry If we are unable to attract additional merchant partners, retain our existing merchant partners, and grow and develop our relationships with new and existing merchant partners, our business, results of operations, financial condition, and future prospects would be materially and adversely affected, as could the market price of our Class A common stock.
For a more complete discussion of the material risks facing our business, see below. 24 Table of Contents Risks Related to Our Business and Industry If we are unable to attract additional merchant partners, retain our existing merchant partners, and grow and develop our relationships with new and existing merchant partners, our business, results of operations, financial condition, and future prospects would be materially and adversely affected, as could the market price of our Class A common stock.
If our risk model does not effectively and accurately model the credit risk of potential loans facilitated through our platform, greater than expected losses may result on such loans and, as a result, our business, results of operations, financial condition, and future prospects could be materially and adversely affected.
If our risk model does not effectively and accurately model the credit risk of potential loans facilitated 30 Table of Contents through our platform, greater than expected losses may result on such loans and, as a result, our business, results of operations, financial condition, and future prospects could be materially and adversely affected.
Additionally, the laws of some foreign countries may not be as protective of intellectual property and other proprietary rights as those in the United States, and the mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate. Furthermore, third-parties may challenge, invalidate, or circumvent our intellectual property and proprietary rights, including through administrative processes or litigation.
Additionally, the laws of some foreign countries may not be as protective of intellectual property and other proprietary rights as those in the United States, and the mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate. 44 Table of Contents Furthermore, third-parties may challenge, invalidate, or circumvent our intellectual property and proprietary rights, including through administrative processes or litigation.
If those representations and warranties are incorrect, we may be required to repurchase certain of the financed loans. Failure to repurchase so-called “ineligible loans” when required could constitute an event of default under our financing agreements and lead to the potential termination of the applicable facility.
If those representations and warranties are incorrect, we may be 37 Table of Contents required to repurchase certain of the financed loans. Failure to repurchase so-called “ineligible loans” when required could constitute an event of default under our financing agreements and lead to the potential termination of the applicable facility.
If we fail to retain our relationship with existing consumers, if we do not attract new consumers to our platform and products, or if we do not continually expand usage and volume from consumers on our platform, our business, results of operations, financial condition, and prospects would be materially and adversely affected. 26 Table o f Contents We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our business, results of operations, financial condition, and future prospects.
If we fail to retain our relationship with existing consumers, if we do not attract new consumers to our platform and products, or if we do not continually expand usage and volume from consumers on our platform, our business, results of operations, financial condition, and prospects would be materially and adversely affected. 25 Table of Contents We operate in a highly competitive industry, and our inability to compete successfully would materially and adversely affect our business, results of operations, financial condition, and future prospects.
Many factors may contribute to 27 Table o f Contents declines in our revenue and GMV growth rates, including increased competition, slowing demand for our products from existing and new consumers, transaction volume and mix (particularly with our significant merchant partners), lower sales by our merchants (particularly those with whom we have significant relationships), general economic conditions, a failure by us to continue capitalizing on growth opportunities, changes in the regulatory environment and the maturation of our business, among others.
Many factors may contribute to declines in our revenue and GMV growth rates, including increased competition, slowing demand for our products from existing and new consumers, transaction volume and mix (particularly with our significant merchant partners), lower sales by our merchants (particularly those with whom we have significant relationships), general economic conditions, a failure by us to continue capitalizing on growth opportunities, changes in the regulatory environment and the maturation of our business, among others.
Over time such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which are critical to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, to foster a creative environment, to hire new team members, and to retain existing team members.
Over time such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which contribute to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, foster a creative environment, hire new team members, and retain existing team members.
If so, in addition to the possibility of fines, lawsuits, regulatory investigations, and other claims and penalties, we could be required to change our business activities and practices or modify our products or services, any of which could have an adverse effect on our business.
If so, in 49 Table of Contents addition to the possibility of fines, lawsuits, regulatory investigations, and other claims and penalties, we could be required to change our business activities and practices or modify our products or services, any of which could have an adverse effect on our business.
If any vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy controls and electronic security systems, or suffers a cyber-attack or other security breach, we could be subject to CFPB, Federal Trade Commission (“FTC”) and other regulatory enforcement actions, claims from third-parties, including our consumers, and suffer economic and reputational harm that could have an adverse effect on our business.
If any vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy controls and electronic security systems, or suffers a cyber-attack or other security breach, we could be subject to CFPB, FTC and other regulatory enforcement actions, claims from third-parties, including our consumers, and suffer economic and reputational harm that could have an adverse effect on our business.
Moreover, the profile of potential consumers using our new products and technologies also may not be as attractive as the profile of the consumers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced.
Moreover, the profile of potential consumers using our new products and technologies also may not be as attractive as the profile of the consumers that we currently serve or have served in the past, which may lead to higher levels of delinquencies or defaults than we have historically experienced.
The profile of potential consumers using our new products and technologies also may not be as attractive as the profile of the consumers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced.
The profile of potential consumers using our new products and technologies also may not be as attractive as the profile of the consumers that we currently serve or have served in the past, which may lead to higher levels of delinquencies or defaults than we have historically experienced.
We may also be required to support the variables used in our loan decisioning model with documented, legitimate business justifications in the event the model results in a disproportionate effect on applicants or consumers of certain demographic groups.
We may also be required to support the variables used in our 50 Table of Contents loan decisioning model with documented, legitimate business justifications in the event the model results in a disproportionate effect on applicants or consumers of certain demographic groups.
Morgan Chase, Citibank, Bank of America, Capital One, Goldman Sachs and American Express; technology solutions provided by payment companies such as Visa and MasterCard; mobile wallets such as Apple and PayPal; and other pay-over-time solutions offered by companies such as Block and Klarna, as well as new pay-over-time offerings by legacy financial and payments companies, including those mentioned above.
Morgan Chase, Citibank, Bank of America, Capital One, Bread Financial and American Express; technology solutions provided by payment companies such as Visa and MasterCard; mobile wallets such as Apple and PayPal; other pay-over-time solutions offered by companies such as Block and Klarna; and new pay-over-time offerings by legacy financial and payments companies, including those mentioned above.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our Class A common stock or securities convertible into shares of our Class A common stock or offering debt or other securities.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our Class A common stock or securities convertible into shares of our Class A common stock or 52 Table of Contents offering debt or other securities.
We may not be able to sustain our revenue and GMV growth rates, or our growth rate of related key operating metrics, in the future. There can be no assurances that our revenue and GMV will continue to grow as they have in recent periods, and we expect our revenue and GMV growth rates to decline in future periods.
We may not be able to sustain our revenue and GMV growth rates, or our growth rate of related key operating metrics, in the future. There can be no assurance that our revenue and GMV will continue to grow as they have in prior periods, and we expect our revenue and GMV growth rates to decline in future periods.
Failure to retain Mr. Levchin would have a material adverse effect on our business, results of operations, financial condition, and future prospects. Our business depends on our ability to attract and retain highly skilled employees.
Failure to retain Mr. Levchin would have a material adverse effect on our business, results of operations, financial condition, and future prospects. Our business benefits from our ability to attract and retain highly skilled employees.
We cannot ensure that we have not incorporated open source software in our software in a manner that is inconsistent with the terms of the 45 Table o f Contents applicable license or our current policies, and we may inadvertently use open source in a manner that we do not intend or that could expose us to claims for breach of contract or intellectual property infringement, misappropriation, or other violation.
We cannot ensure that we have not incorporated open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies, and we may inadvertently use open source in a manner that we do not intend or that could expose us to claims for breach of contract or intellectual property infringement, misappropriation, or other violation.
This control may adversely affect the trading price of our Class A common stock. Further, as of June 30, 2022, Max Levchin, our Founder, Chairman and Chief Executive Officer, had voting control over approximately 35.4% of the voting power of our outstanding capital stock. As a stockholder, Mr.
This control may adversely affect the trading price of our Class A common stock. Further, as of June 30, 2023, Max Levchin, our Founder, Chairman and Chief Executive Officer, had voting control over approximately 35.2% of the voting power of our outstanding capital stock. As a stockholder, Mr.
We could in the future have disagreements or disputes with Cross River Bank and/or Celtic Bank, which could negatively impact or threaten our relationship with other originating banks with whom we may seek to partner.
We could in the future have disagreements or disputes with Celtic Bank, which could negatively impact or threaten our relationship with other originating banks with whom we may seek to partner.
The failure by our merchants to effectively present, integrate, and support our platform would have a material and adverse effect on our business, results of operations, financial condition, and future prospects. 40 Table o f Contents If our merchants fail to fulfill their obligations to consumers or comply with applicable law, we may incur remediation costs.
The failure by our merchants to effectively present, integrate, and support our platform would have a material and adverse effect on our business, results of operations, financial condition, and future prospects. If our merchants fail to fulfill their obligations to consumers or comply with applicable law, we may incur remediation costs.
In addition, transitioning loan originations to a new bank is untested and may result in delays in the issuance of loans or, if our platform becomes inoperable, may result in the inability to facilitate loans through our platform.
In addition, transitioning loan originations to a new bank may result in delays in the issuance of loans or, if our platform becomes inoperable, may result in the inability to facilitate loans through our platform.
If our existing funding arrangements are not renewed or replaced or our existing funding sources are unwilling or unable to provide funding to us on terms acceptable to us, or at all, it could have a material adverse effect on our business, results of operations, financial condition, cash flows, and future prospects. • If loans facilitated through our platform do not perform, or significantly underperform, we may incur financial losses on the loans we purchase and we hold on our balance sheet, or lose the confidence of our funding sources. 24 Table o f Contents • To the extent we seek to grow through future acquisitions, or other strategic investments or alliances, we may not be able to do so effectively. • The loss of the services of our Founder and Chief Executive Officer, as well as our inability to attract and retain highly skilled employees, could materially and adversely affect our business, results of operations, financial condition, and future prospects. • We have a history of operating losses and may not achieve or sustain profitability in the manner and timeframe we have publicly communicated. • Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business. • Litigation, regulatory actions and compliance issues could subject us to fines, penalties, judgments, remediation costs, requirements resulting in increased expenses and reputational harm. • Changes in market interest rates could have an adverse effect on our business. • Our revenue is impacted, to a significant extent, by the general economy, the creditworthiness of the U.S. consumer and the financial performance of our merchants. • If our collection efforts on delinquent loans are ineffective or unsuccessful, the performance of the loans would be adversely affected. • Any significant disruption in, or errors in, service on our platform or relating to vendors, including events beyond our control, could prevent us from processing transactions on our platform or posting payments and have a material and adverse effect on our business, results of operations, financial condition, and future prospects. • Our ability to protect our confidential, proprietary or sensitive information, including the confidential information of consumers on our platform, may be adversely affected by cyber-attacks, employee or other internal misconduct, computer viruses, physical or electronic break-ins or similar disruptions. • Our business is subject to extensive regulation, examination, and oversight in a variety of areas, all of which are subject to change and uncertain interpretation.
If our existing funding arrangements are not renewed or replaced or our existing funding sources are unwilling or unable to provide funding to us on terms acceptable to us, or at all, it could have a material adverse effect on our business, results of operations, financial condition, cash flows, and future prospects. • If loans facilitated through our platform do not perform, or significantly underperform, we may incur financial losses on the loans we purchase and we hold on our balance sheet, or lose the confidence of our funding sources. 23 Table of Contents • To the extent we seek to execute acquisitions, strategic investments, alliances, divestitures or other transactions, we may be unable to achieve the strategic objectives of these transactions, and such transactions may be disruptive to our ongoing operations. • The loss of the services of our Founder and Chief Executive Officer, as well as our inability to attract and retain highly skilled employees, could materially and adversely affect our business, results of operations, financial condition, and future prospects. • We have a history of operating losses and may not achieve sustained profitability. • Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business. • Litigation, regulatory actions and compliance issues could subject us to fines, penalties, judgments, remediation costs, requirements resulting in increased expenses and reputational harm. • Further increases in market interest rates could have an adverse effect on our business. • Our revenue is impacted, to a significant extent, by the general economy, the creditworthiness of the U.S. consumer and the financial performance of our merchants. • If our collection efforts on delinquent loans are ineffective or unsuccessful, the performance of the loans would be adversely affected. • Any significant disruption in, or errors in, service on our platform or relating to vendors, including events beyond our control, could prevent us from processing transactions on our platform or posting payments and have a material and adverse effect on our business, results of operations, financial condition, and future prospects. • Our ability to protect our confidential, proprietary or sensitive information, including the confidential information of consumers on our platform, may be adversely affected by cyber-attacks, employee or other internal misconduct, computer viruses, physical or electronic break-ins or similar disruptions. • Our business is subject to extensive regulation, examination, and oversight in a variety of areas, all of which are subject to change and uncertain interpretation.
Cross River Bank and/or Celtic Bank could decide not to work with us for any reason, could make working with us cost-prohibitive, or could decide to enter into an exclusive or more favorable relationship with one or more of our competitors. In addition, Cross River Bank and/or Celtic Bank may not perform as expected under our loan program agreements.
Celtic Bank could decide not to work with us for any reason, could make working with us cost-prohibitive, or could decide to enter into an exclusive or more favorable relationship with one or more of our competitors. In addition, Celtic Bank may not perform as expected under our loan program agreement.
If a consumer neglects his or her 38 Table o f Contents payment obligations on a loan facilitated through our platform or chooses not to repay his or her loan entirely, it will have an adverse effect on our business, results of operations, financial condition, future prospects, and cash flows.
If a consumer neglects his or her payment obligations on a loan facilitated through our platform or chooses not to repay his or her loan entirely, it will have an adverse effect on our business, results of operations, financial condition, future prospects, and cash flows.
We currently operate in the United States, Canada, Australia, Poland and Spain (we do not facilitate loans in Poland or Spain) and plan to further expand our business internationally. Managing our new and existing international operations requires us to comply with new regulatory frameworks and additional resources and controls.
We currently operate in the United States, Canada, the United Kingdom, Poland and Spain (we do not currently facilitate loans in the United Kingdom, Poland or Spain) and may further expand our business internationally in the future. Managing new and existing international operations requires us to comply with new regulatory frameworks and additional resources and controls.
The Consumer Financial Protection Bureau (“CFPB”) has issued guidance stating that institutions under its supervision may be held responsible for the actions of the companies with which they contract. Accordingly, we could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered.
The CFPB has issued guidance stating that institutions under its supervision may be held responsible for the actions of the companies with which they contract. Accordingly, we could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered.
If the legal structure underlying our relationship with our originating bank partners was successfully challenged, we may be 47 Table o f Contents found to be in violation of state licensing requirements and state laws regulating interest rates and other aspects of consumer lending.
If the legal structure underlying our relationship with our originating bank partners was successfully challenged, we may be found to be in violation of state licensing requirements and state laws regulating interest rates and other aspects of consumer lending.
We may not have any recourse against merchants if they do not prominently present our platform as a payment option or if they more prominently present solutions offered by our competitors.
We may not have any recourse against merchants if they do not prominently present our platform as a payment option or if they more prominently 40 Table of Contents present solutions offered by our competitors.
In addition, our investment of resources to develop new products and technologies and make changes or updates to our platform may either be 28 Table o f Contents insufficient or result in expenses that exceed the revenue actually generated from these new products.
In addition, our investment of resources to develop new products and technologies and make changes or updates to our platform may either be insufficient or result in expenses that exceed the revenue actually generated from these new products.
We anticipate that our operating expenses will increase in the foreseeable future as we seek to continue to grow our business, attract consumers, merchants, funding sources, and additional originating bank partners, and further enhance and develop our products and platform.
Our operating expenses may increase in the future as we seek to continue to grow our business, attract consumers, merchants, funding sources, and additional originating bank partners, and further enhance and develop our products and platform.
Our dual class structure may also depress the trading price of our Class A common stock due to negative perception by market participants and other stakeholders. Certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. Similarly, several stockholder advisory firms have announced their opposition to the use of multiple class structures.
Our dual class structure may also depress the trading price of our Class A common stock due to negative perception by market participants and other stakeholders. Certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes.
While some of our agreements with our merchant partners, including Amazon, do provide for a period of exclusivity, those periods may be limited in duration, and we may not be able to negotiate extensions of those exclusivity periods on reasonable terms, if at all.
While some of our agreements with our merchant partners have provided for a period of exclusivity, those periods may be limited in duration, and we may not be able to negotiate extensions of those exclusivity periods on reasonable terms, if at all.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 2026 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 0% convertible senior notes due 2026 (the “2026 Notes”), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
If our estimates prove incorrect, we may incur net charge-offs in excess of our reserves, or we may be required to increase our provision for credit losses, either of which would adversely affect our results of operations.
If our estimates and assumptions prove incorrect and our allowance for credit losses is insufficient, we may incur net charge-offs in excess of our reserves, or we could be required to increase our provision for credit losses, either of which would adversely affect our results of operations.
If we are not able to achieve profitability in this manner or in the timeframe that we have publicly communicated due to the potential for operating expense increases, challenges in the macroeconomic environment, and factors discussed elsewhere in this report, our reputation may be harmed and the market price of our Class A common stock could be materially and adversely impacted.
If we are not able to achieve sustained profitability due to the potential for operating expense increases, challenges in the macroeconomic environment, and factors discussed elsewhere in this Report, our reputation may be harmed and the market price of our Class A common stock could be materially and adversely impacted.
The satisfactory performance, reliability, and availability of our technology and our underlying 42 Table o f Contents network and infrastructure are critical to our operations and reputation and the ability of our platform to attract new and retain existing merchants and consumers.
The satisfactory performance, reliability, and availability of our technology and our underlying network and infrastructure are critical to our operations and reputation and the ability of our platform to attract new and retain existing merchants and consumers.
For a further discussion of our relationships with Cross River Bank and Celtic Bank, particularly the regulations applicable to this relationship, see “ Business — Regulatory Environment .” If Cross River Bank and/or Celtic Bank were to suspend, limit, or cease their operations, or if our relationship with Cross River Bank and/or Celtic Bank were to otherwise terminate for any reason (including, but not limited to, its failure to comply with regulatory actions), we may need to implement an additional substantially similar arrangement with another bank, obtain additional state licenses, or curtail our operations.
For a further discussion of our relationship with Celtic Bank, particularly the regulations applicable to this relationship, see “ Business — Regulatory Environment. ” 28 Table of Contents If Celtic Bank were to suspend, limit, or cease its operations or loan origination activities for any reason, or if our relationship with Celtic Bank were to otherwise terminate for any reason (including, but not limited to, its failure to comply with regulatory actions), we may need to implement an additional substantially similar arrangement with another bank, obtain additional state licenses, or curtail our operations.
Debt securities convertible into equity securities could be subject to adjustments in the conversion 52 Table o f Contents ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
Debt securities convertible into equity securities could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
The attractiveness of our platform to consumers depends upon, among other things: the number and variety of merchants and the mix of products available through our platform; our brand and reputation; consumer experience and satisfaction, including the trustworthiness of our services; consumer trust and perception of our solutions; technological innovation; and services and products offered by competitors.
The attractiveness of our platform to consumers depends upon, among other things: the number and variety of merchants and the mix of products available through our platform; the manner in which consumers may use our products, including the ease of use relative to competitor products; our brand and reputation; consumer experience and satisfaction, including the trustworthiness of our services; consumer trust and perception of our solutions; technological innovation; and services and products offered by competitors.
In addition, our results of operations could be below the expectations of public market analysts and investors due to a number of potential factors, including: variations in our quarterly or annual results of operations; additions or departures of key management personnel; the loss of an originating bank partner or key funding sources or merchants; the growth and development of key merchant partner relationships, including our relationship with 51 Table o f Contents Amazon; and changes in our earnings estimates (if provided).
In addition, our results of operations could be below the expectations of public market analysts and investors due to a number of potential factors, including: variations in our quarterly or annual results of operations; additions or departures of key management personnel; the loss of an originating bank partner or key funding sources or merchants; adverse economic conditions resulting in decreased consumer demand; the growth and development of key merchant partner relationships, including our relationship with Amazon; and changes in our earnings estimates (if provided).
In addition, upon the occurrence of certain early termination events, either we or either of Cross River Bank and Celtic Bank may terminate the applicable loan program agreements immediately upon written notice to the other party.
In addition, upon the occurrence of certain early termination events, either we or Celtic Bank may terminate the loan program agreement immediately upon written notice to the other party.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business. Our quarterly results, including revenue, expenses, GMV, consumer metrics, and other key metrics, have fluctuated significantly in the past and are likely to do so in the future. Accordingly, the results for any one quarter are not necessarily an indication of future performance.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business. Our quarterly results, including revenue, expenses, GMV, consumer metrics, and other key performance metrics, have fluctuated significantly in the past and are likely to do so in the future.
In addition, as of June 30, 2022, we had stock options and restricted stock units outstanding that, if fully exercised or settled, would result in the issuance of an aggregate of 53,158,233 shares of our Class A common stock.
In addition, as of June 30, 2023, we had stock options and restricted stock units outstanding that, if fully exercised or settled, would result in the issuance of an aggregate of 52,572,230 shares of our Class A common stock.
If we are unable to enter into an alternative arrangement with different banks to fully replace or supplement our relationship with Cross River Bank and/or Celtic Bank, we would potentially need to obtain additional state licenses to enable us to originate loans directly, as well as comply with other state and federal laws, which would be costly and time consuming, and there can be no assurances that any such licenses could be obtained in a timely manner or at all. 29 Table o f Contents We rely on a variety of funding sources to support our business model.
If we are unable to enter into an alternative arrangement with different banks to fully replace or supplement our relationship with Celtic Bank, we would potentially need to obtain additional state licenses to enable us to originate loans directly, as well as comply with other state and federal laws, which would be costly and time consuming, and there can be no assurances that any such licenses could be obtained in a timely manner or at all.
Our platform and our internal systems rely on software that is highly technical and complex. In addition, our platform and our internal systems depend on the ability of such software to store, retrieve, process, and manage immense amounts of data.
In addition, our platform and our internal systems depend on the ability of such software to store, retrieve, process, and manage immense amounts of data.
Our use of vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. We regularly use vendors and subcontractors as part of our business. We also depend on our substantial ongoing business relationships with our originating bank partners, merchants, and other third-parties.
We regularly use vendors and subcontractors as part of our business. We also depend on our substantial ongoing business relationships with our originating bank partners, merchants, and other third-parties.
If our agreements with Cross River Bank or Celtic Bank are terminated, and we are unable to replace the commitments of these originating bank partners, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • We rely on a variety of funding sources to support our business model.
If our agreement with Celtic Bank is terminated, and we are unable to replace their commitments, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. • We rely on a variety of funding sources to support our business model.
In the ordinary course of business, we have been named as a defendant in various legal actions, including arbitrations and other litigation. In addition, we are currently a defendant in a putative securities class action, Toole v. Affirm Holdings, Inc., et al., and a related derivative action, Vallieres v. Levchin, et al. For more information, see Note 9.
In the ordinary course of business, we have been named as a defendant in various legal actions, including arbitrations and other litigation. In addition, we are currently a defendant in a putative securities class action, Kusnier v. Affirm Holdings, Inc., et al., and two related derivative actions, Quiroga v. Levchin, et al., and Jeffries v. Levchin, et al.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our facilities are adequate to meet our current needs. 55 Table o f Contents
Biggest changeWe believe that our facilities are adequate to meet our current needs.
ITEM 2. PROPERTIES. We lease facilities under operating leases with various expiration dates through 2030. Our corporate headquarters are located in San Francisco, California. We also lease office space in New York, New York; Pittsburgh, Pennsylvania; Salt Lake City, Utah; Chicago, Illinois; Las Vegas, Nevada; and Toronto, Ontario. We do not own any real property.
ITEM 2. PROPERTIES. We lease facilities under operating leases with various expiration dates through 2030. Our corporate headquarters are located in San Francisco, California. We also lease office space in New York, New York; Pittsburgh, Pennsylvania; Chicago, Illinois; Las Vegas, Nevada; and Toronto, Ontario. We do not own any real property.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Biggest changeThe results of any current or future litigation cannot be predicted with certainty, and 55 Table of Contents regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 56 Table of Contents PART II
Item 3. Legal Proceedings Please refer to Note 9. Commitments and Contingencies of the accompanying notes to our consolidated financial statements. From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business.
Item 3. Legal Proceedings Please refer to Note 8. Commitments and Contingencies of the accompanying notes to our consolidated financial statements. From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeBecause many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. As of August 22, 2022, there were 237 stockholders of record of our Cl ass B common stock.
Biggest changeHolders of Record As of August 21, 2023 , there wer e 291 stockholders of record of our Class A common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
The graph uses the closing market price on January 13, 2021 of $97.24 per share as the initial value of our Class A common stock. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance.
The graph uses the closing market price on January 13, 2021 of $97.24 per share as the initial value of our Class A common stock. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance. 57 Table of Contents
Recent Sale of Unregistered Securities None. 57 Table o f Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC, for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or be deemed “filed” with the SEC, for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our Class A common stock has been listed on the Nasdaq Global Select Market under the symbol "AFRM" since January 13, 2021. Prior to that time, there was no public market for our stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our Class A common stock is traded on the Nasdaq Global Select Market under the symbol "AFRM". Our Class B common stock is not listed on any stock exchange nor traded on any public market.
Dividend Policy We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends for the foreseeable future. Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any of our equity securities during the fourth quarter of 2023.
Removed
Our Class B common stock is not listed on any stock exchange nor traded on any public market.
Added
As of August 21, 2023, there were 207 stockholders of record of our Cl ass B common stock. Dividend Policy We have never declared or paid cash dividends on our capital stock.
Removed
Holders of Record As of August 22, 2022, there wer e 270 stockholders of record of our Class A common stock, and the closing price of our Class A common stock was $29.49 per share as reported on the Nasdaq Global Select Market.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents information with respect to the Company’s repurchases of shares of Class A common stock during the quarter ended June 30, 2022.
Removed
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs April 1 - 30 225 $ 8.80 — — May 1 - 31 — — — — June 1 - 30 — — — — Total 225 $ 8.80 — — (1) The shares purchased were repurchases of unvested shares of our Class A common stock that had been issued upon early exercise of stock options.
Removed
Pursuant to the associated option award agreements, upon termination of employment of a person holding unvested shares, we were entitled to repurchase the unvested shares.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIncome Tax Expense Our Income tax expense (benefit) consists of U.S. federal and state income taxes, Canadian federal and provincial income taxes, and income taxes attributable to other foreign jurisdictions. 67 Table o f Contents Results of Operations The following tables set forth selected consolidated statements of operations and comprehensive loss data for each of the periods presented in dollars: Year ended June 30, 2022 2021 2020 (in thousands) Revenue Merchant network revenue $ 458,511 $ 379,551 $ 256,752 Virtual card network revenue 100,696 49,851 19,340 Total network revenue 559,207 429,402 276,092 Interest income (1) 527,880 326,417 186,730 Gain on sales of loans (1) 196,435 89,926 31,907 Servicing income 65,770 24,719 14,799 Total Revenue, net $ 1,349,292 $ 870,464 $ 509,528 Operating Expenses (2) Loss on loan purchase commitment $ 204,081 $ 246,700 $ 161,452 Provision for credit losses 255,272 65,878 105,067 Funding costs 69,694 52,700 32,316 Processing and servicing 157,814 73,578 49,831 Technology and data analytics 418,643 249,336 122,378 Sales and marketing 532,343 182,190 25,044 General and administrative 577,493 383,749 121,230 Total Operating Expenses 2,215,340 1,254,131 617,318 Operating Loss $ (866,048) $ (383,667) $ (107,790) Other (expense) income, net 141,217 (59,703) (4,432) Loss Before Income Taxes $ (724,831) $ (443,370) $ (112,222) Income tax expense (benefit) (17,414) (2,343) 376 Net Loss $ (707,417) $ (441,027) $ (112,598) Excess return to preferred stockholders on repurchase — — (13,205) Net Loss Attributable to Common Stockholders $ (707,417) $ (441,027) $ (125,803) Other Comprehensive Income (Loss) Foreign currency translation adjustments $ (5,900) $ 7,046 $ (302) Unrealized gain (loss) on securities available for sale, net (8,022) 29 — Net Other Comprehensive Income (Loss) (13,922) 7,075 (302) Comprehensive Loss $ (721,339) $ (433,952) $ (112,900) (1) Upon purchase of a loan from our originating bank partners at a price above the fair market value of the loan or upon the origination of a loan with a par value in excess of the fair market value of the loan, a discount is included in the amortized cost basis of the loan.
Biggest changeThis was primarily due to platform growth and a higher frequency of repeat users driven by consumer engagement. 64 Table of Contents Results of Operations The following tables set forth selected consolidated statements of operations and comprehensive loss data for each of the periods presented: Year ended June 30, 2023 vs 2022 2022 vs 2021 2023 2022 2021 $ Change % Change $ Change % Change (in thousands) Revenue Merchant network revenue $ 507,600 $ 458,511 $ 379,551 $ 49,089 11 % $ 78,960 21 % Card network revenue 119,338 100,696 49,851 18,642 19 % 50,845 102 % Total network revenue 626,938 559,207 429,402 67,731 12 % 129,805 30 % Interest income (1) 685,217 527,880 326,417 157,337 30 % 201,463 62 % Gain on sales of loans (1) 188,341 196,435 89,926 (8,094) (4) % 106,509 118 % Servicing income 87,489 65,770 24,719 21,719 33 % 41,051 166 % Total revenue, net $ 1,587,985 $ 1,349,292 $ 870,464 $ 238,693 18 % $ 478,828 55 % Operating expenses (2) Loss on loan purchase commitment $ 140,265 $ 204,081 $ 246,700 $ (63,816) (31) % $ (42,619) (17) % Provision for credit losses 331,860 255,272 65,878 76,588 30 % 189,394 287 % Funding costs 183,013 69,694 52,700 113,319 163 % 16,994 32 % Processing and servicing 257,343 157,814 73,578 99,529 63 % 84,236 114 % Technology and data analytics 615,818 418,643 249,336 197,175 47 % 169,307 68 % Sales and marketing 638,280 532,343 182,190 105,937 20 % 350,153 192 % General and administrative 586,398 577,493 383,749 8,905 2 % 193,744 50 % Restructuring and other 35,870 — — 35,870 NM * — NM * Total operating expenses 2,788,847 2,215,340 1,254,131 573,507 26 % 961,209 77 % Operating loss $ (1,200,862) $ (866,048) $ (383,667) $ (334,814) 39 % $ (482,381) 126 % Other (expense) income, net 211,617 141,217 (59,703) 70,400 50 % 200,920 (337) % Loss before income taxes $ (989,245) $ (724,831) $ (443,370) $ (264,414) 36 % $ (281,461) 63 % Income tax benefit (3,900) (17,414) (2,343) 13,514 (78) % (15,071) 643 % Net loss $ (985,345) $ (707,417) $ (441,027) $ (277,928) 39 % $ (266,390) 60 % * Not meaningful (1) Upon purchase of a loan from our originating bank partners at a price above the fair market value of the loan or upon the origination of a loan with a par value in excess of the fair market value of the loan, a discount is included in the amortized cost basis of the loan.
Generally, interest income is correlated with the changes in the average balance of loans held for investment, as we recognize interest on loans held for investment using the effective interest method over the life of the loan.
Generally, interest income is correlated with changes in the average balance of loans held for investment, as we recognize interest on loans held for investment using the effective interest method over the life of the loan.
Our primary uses of cash from operating activities are for general and administrative, technology and data analytics, funding costs, processing and servicing, and sales and marketing expenses.
Our primary uses of cash from operating activities are for general and administrative expenses, technology and data analytics expenses, funding costs, processing and servicing costs, and sales and marketing expenses.
These factors include historical performance, the age of the receivable balance, seasonality, customer credit-worthiness, changes in the size and composition of the loan portfolio, delinquency levels, bankruptcy filings, actual credit loss experience.
These factors include historical performance, the age of the receivable balance, seasonality, customer credit-worthiness, changes in the size and composition of the loan portfolio, delinquency levels, bankruptcy filings and actual credit loss experience.
Securitization and Variable Interest Entities of the accompanying notes to our consolidated financial statements for more information. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. U.S.
Securitization and Variable Interest Entities of the accompanying notes to our consolidated financial statements for more information. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.
As we scale the number of transactions on our network and grow GMV, we maintain a variety of funding relationships in order to support our network. Our diversified funding relationships include warehouse facilities, securitization trusts, forward flow arrangements, and partnerships with banks.
As we scale the number of transactions on our network and grow GMV, we maintain a variety of funding relationships in order to support our network. Our diversified funding relationships include warehouse credit facilities, securitization trusts, forward flow arrangements, and partnerships with banks.
When we originate a loan directly or purchase a loan originated by our originating bank partners, we often utilize warehouse facilities with certain lenders to finance our lending activities or loan purchases.
When we originate a loan directly or purchase a loan originated by our originating bank partners, we often utilize warehouse credit facilities with certain lenders to finance our lending activities or loan purchases.
Unless the context otherwise requires, all references in this report to “Affirm,” the “Company,” “we,” “our,” “us,” or similar terms refer to Affirm Holdings, Inc. and its subsidiaries. A discussion regarding our financial condition and results of operations for the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021 is presented below.
Unless the context otherwise requires, all references in this Report to “Affirm,” the “Company,” “we,” “our,” “us,” or similar terms refer to Affirm Holdings, Inc. and its subsidiaries. A discussion regarding our financial condition and results of operations for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022 is presented below.
A discussion regarding our financial condition and results of operations for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
A discussion regarding our financial condition and results of operations for the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
The originating bank partner also retains an interest in the loans purchased by us through a loan performance fee that is payable by us on the aggregate principal amount of a loan that is paid by a consumer. See Note 14. Fair Value of Financial Assets and Liabilities for more information on the performance fee liability.
The originating bank partner also retains an interest in the loans purchased by us through a loan performance fee that is payable by us on the aggregate principal amount of a loan that is paid by a consumer. See Note 13. Fair Value of Financial Assets and Liabilities for more information on the performance fee liability.
For off-balance sheet loan sales where servicing is the only form of continuing involvement, we would only experience a loss if we were required to repurchase such a loan due to a breach in representations and warranties associated with our loan sale or servicing contracts.
For off-balance sheet loan sales where servicing is the only form of continuing involvement, we could experience a loss if we were required to repurchase a loan due to a breach in representations and warranties associated with our loan sale or servicing contracts.
For example, the Company considers the impact of current economic and environmental factors at the reporting date that did not exist over the period from which historical experience was used. When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for credit losses.
For example, we consider the impact of current economic and environmental factors at the reporting date that did not exist over the period from which historical experience was used. When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for credit losses.
Mix of Business on Our Platform The mix of products that our merchants offer and our consumers purchase in any period affects our operating results. In addition, shifts in volume among merchants in any period also affects our operating results. These mix impacts affect GMV, revenue, our financial results, and our key operating metric performance for that period.
Mix of Business on Our Platform The shifts in volume among merchants and the products that our merchants offer and our consumers purchase in any period affects our operating results. These mix impacts GMV, revenue, our financial results, and our key operating metric performance for that period.
Overview We are building the next generation platform for digital and mobile-first commerce. We believe that by using modern technology, the very best engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
Overview We are building the next generation platform for digital and mobile-first commerce. We believe that by using modern technology, superior engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
We also take into consideration certain qualitative factors where we adjust our quantitative baseline using our best judgement to consider the inherent uncertainty regarding future economic conditions and consumer loan performance.
We also take into consideration certain qualitative factors, in which we adjust our quantitative baseline using our best judgement to consider the inherent uncertainty regarding future economic conditions and consumer loan performance.
Under the terms of the agreement, we are generally required to pay the principal amount plus accrued interest for such loans. In certain instances, our originating bank partner may originate loans with zero or below market interest rates that we are required to purchase.
Under the terms of the agreements with our originating bank partners, we are generally required to pay the principal amount plus accrued interest for such loans. In certain instances, our originating bank partners may originate loans with zero or below market interest rates that we are required to purchase.
The mix of on-balance sheet and off-balance sheet funding is a function of both how we choose to allocate loan volume and the available supply of capital, both of which may also impact our results in any given period.
The mix of on-balance sheet and off-balance sheet funding is a function of how we choose to allocate loan volume, which is determined by the economic arrangements and supply of capital available to us, both of which may also impact our results in any given period.
However, the cumulative value of the loss on loan purchase commitment or loss 68 Table o f Contents on origination, the interest income recognized over time from the amortization of discount while retained, and the release of discount into gain on sales of loans, together net to zero over the life of the loan.
However, the cumulative value of the loss on loan purchase commitment or loss on loan origination, the interest income recognized over time from the amortization of discount while retained, and the release of discount into gain on sales of loans, together net to zero over the life of the loan.
Securitizations In connection with asset-backed securitizations, we sponsor and establish trusts to ultimately purchase loans facilitated by our platform. Securities issued from our asset-backed securitizations are senior or subordinated, based on the waterfall criteria of loan payments to each security class.
Other Funding Sources Securitizations In connection with asset-backed securitizations, we sponsor and establish trusts (deemed to be VIEs) to ultimately purchase loans facilitated by our platform. Securities issued from our asset-backed securitizations are senior or subordinated, based on the waterfall criteria of loan payments to each security class.
Other Income and Expenses Other (Expense) Income, Net Other (expense) income, net consists primarily of interest earned on our money market funds included in cash and cash equivalents and restricted cash, interest earned on securities available for sale, gains and losses incurred on derivative agreements, amortization of convertible debt issuance cost and revolving debt facility issuance costs, and fair value adjustments resulting from changes in the fair value of our contingent consideration liability, primarily driven by changes in the market price of our Class A common stock.
Other (Expense) Income, net Other (expense) income, net includes interest earned on our money market funds included in cash and cash equivalents and restricted cash, interest earned on securities available for sale, gains on derivative agreements driven by increases in fair value, amortization of convertible debt issuance cost as well as gains (losses) on extinguishment, revolving credit facility issuance costs, and fair value adjustments resulting from changes in the fair value of our contingent consideration liability, primarily driven by changes in the market price of our Class A common stock.
For unconsolidated securitization transactions where Affirm is the sponsor and risk retention holder, Affirm could experience a loss of up to 5% of both the senior notes and residual certificates. As of June 30, 80 Table o f Contents 2022, the aggregate outstanding balance of loans held by third-party investors or off-balance sheet VIEs was $4.5 billion.
For unconsolidated securitization transactions where Affirm is the sponsor and risk retention holder, Affirm could experience a loss of up to 5% of both the senior notes and residual certificates. As of June 30, 2023, the aggregate outstanding balance of loans held by third-party investors for off-balance sheet VIEs was $4.1 billion.
Loans are charged-off in accordance with our charge-off policy, as the contractual principal becomes 120 days past due. Subsequent recoveries of the unpaid principal balance, if any, are credited to the allowance for credit losses.
Loans are charged-off in accordance with our charge- 76 Table of Contents off policy, as the contractual principal becomes 120 days past due or meets other charge-off policy requirements. Subsequent recoveries of the unpaid principal balance, if any, are credited to the allowance for credit losses.
In these instances, we may be required to purchase the loan for a price in excess of the fair market value of such loans, which results in a loss on loan purchase and is recognized as loss on loan purchase commitment in our consolidated statements of operations.
In these instances, we may be required to purchase the loan for a price in excess of the fair market value of such loans, which results in a loss. These losses are recognized as loss on loan purchase commitment in our consolidated statements of operations and comprehensive loss. These costs are incurred on a per loan basis.
The average balance of loans held for investment increased by 27% to $2.3 billion for the year ended June 30, 2022, compared to the same period in the prior fiscal year.
The average balance of loans held for investment increased by 50% to $3.4 billion for the year ended June 30, 2023, compared to the same period in fiscal 2022.
For example, we expect that transactions per active consumer may increase while revenue as a percentage of GMV may decline in the medium term to the extent that a greater portion of our GMV comes from Split Pay and other low-AOV offerings.
For example, we expect that transactions per active consumer may increase while revenue as a percentage of GMV may decline in the medium term to the extent that a greater portion of our GMV comes from Pay-in-4 and other low-AOV offerings. Seasonality We experience seasonal fluctuations in our business as a result of consumer spending patterns.
We define an active consumer as a consumer who engages in at least one transaction on our platform during the 12 months prior to the measurement date.
Active consumers are the primary measure of the size of our network. We define an active consumer as a consumer who engages in at least one transaction on our platform during the 12 months prior to the measurement date.
Recent Accounting Pronouncements Refer to Note 2. Summary of Significant Accounting Policies within the notes to the consolidated financial statements. 82 Table o f Contents
Recent Accounting Pronouncements Refer to Note 2. Summary of Significant Accounting Policies within the notes to the consolidated financial statements.
This increase was primarily due to an increase in the average unpaid principal balance of loans owned by third-party loan owners, which increased from $1.8 billion during the year ended June 30, 2021 to $3.6 billion during the year ended June 30, 2022.
The increase was primarily due to the average unpaid principal balance of loans owned by third-party loan owners, which increased from $3.6 billion during the year ended June 30, 2022 to $4.5 billion during the year ended June 30, 2023.
We act as the servicer on all loans that we originate directly or purchase from our originating bank partners and earn a servicing fee on loans we sell to our funding sources. We do not sell the servicing rights on any of the loans, allowing us to control the consumer experience end-to-end.
We act as the servicer on all loans that we originate directly or purchase from our originating bank partners and earn a servicing fee on loans we sell to our funding sources. In the normal course of business, we do not sell the servicing rights on any of the loans.
Merchant mix shifts are driven in part by the products offered by the merchant, the economic terms negotiated with the merchant, merchant-side activity relating to the marketing of their products, whether the merchant is fully integrated within our network, and general economic conditions affecting consumer demand. Our revenue as a percentage of GMV in any given period varies across products.
Merchant mix shifts are driven in part by the products offered by the merchant, the economic terms negotiated with the merchant, merchant-side activity relating to the marketing of their products, whether or not the merchant is fully integrated within our network, and general economic conditions affecting consumer demand.
As of June 30, 2022, we had approximately 3.0 transactions per active consumer, an increase of approximately 31% compared to June 30, 2021 and an increase of 41% compared to June 30, 2020.
As of June 30, 2023, we had approximately 3.9 transactions per active consumer, an increase of 30% compared to June 30, 2022 and an increase of 70% compared to June 30, 2021.
Refer to Note 11. Debt for further information. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.
The 2026 Notes mature on November 15, 2026. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.
As of June 30, 2022, our principal sources of liquidity were available for sale securities and cash and cash equivalents, available capacity from revolving debt facilities, revolving securitizations, forward flow loan sale arrangements, and certain cash flows from our operations.
Our principal sources of liquidity are cash and cash equivalents, available for sale securities, available capacity from warehouse and revolving credit facilities, revolving securitizations, forward flow loan sale arrangements, and certain cash flows from our operations.
To allow for flexible staffing to support overflow and seasonal traffic, we partner with several sub-servicers to manage customer care, first priority collections, and third-party collections in accordance with our policies and procedures. Our Funding Sources We maintain a capital-efficient model through a diverse set of funding sources.
To allow for flexible staffing to support overflow and seasonal traffic, we partner with several sub-servicers to manage customer care, first priority collections, and third-party collections in accordance with our policies and procedures.
You should review the sections titled “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For the periods presented, references to originating bank partners are to Cross River Bank and Celtic Bank.
You should review the section titled “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
In the event that our loans outperform expectation and/or we reduce our expectation of credit losses in future periods, we may release reserves and thereby reduce the allowance for credit losses, yielding income in the provision for credit losses. The provision is determined by the change in estimates for future losses and the net charge-offs incurred in the period.
In the event that our loans outperform expectation and/or we reduce our expectation of credit losses in future periods, we may release reserves and thereby reduce the allowance for credit losses, yielding income in the provision for credit losses.
GMV Year ended June 30, 2022 2021 2020 (in thousands) Gross Merchandise Volume $ 15,483,237 $ 8,292,031 $ 4,637,220 We measure GMV to assess the volume of transactions that take place on our platform. We define GMV as the total dollar amount of all transactions on the Affirm platform during the applicable period, net of refunds.
Year ended June 30, 2023 2022 2021 (in billions) Gross merchandise volume (GMV) $ 20.2 $ 15.5 $ 8.3 GMV We measure GMV to assess the volume of transactions that take place on our platform. We define GMV as the total dollar amount of all transactions on the Affirm platform during the applicable period, net of refunds.
In addition, our commercial agreement with Shopify to offer Shop Pay Installments powered by Affirm and our Split Pay offering, a short-term payment plan with 0% APR, will continue to impact the mix of our shorter duration, low AOV products. Differences in the mix of high versus low AOV will also impact our results.
In addition, our commercial agreement with Shopify to offer Shop Pay Installments powered by Affirm and our Pay-in-4 offering may continue to impact the mix of our shorter duration, low AOV products. 61 Table of Contents Differences in the mix of high versus low AOV may also impact our results.
GAAP requires us to make certain estimates and judgments that affect the amounts reported in consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because certain of these accounting policies require significant judgment, our actual results may differ materially from our estimates.
GAAP and requires us to make certain estimates and judgments that affect the amounts reported in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
We believe our innovative approach uniquely positions us to define the future of commerce and payments. Technology and data are at the core of everything we do. Our expertise in sourcing, aggregating, and analyzing data has been what we believe to be the key competitive advantage of our platform since our founding.
Technology and data are at the core of everything we do. Our expertise in sourcing, aggregating, and analyzing data has been what we believe to be the key competitive advantage of our platform since our founding. We believe our proprietary technology platform and data give us a unique advantage in pricing risk.
In these instances, the par value of the loans originated is in excess of the fair market value of such loans, resulting in a loss, which we record as a reduction to merchant network revenue. In certain cases, the losses incurred on loans originated for a merchant may exceed the total network revenue earned on those loans.
In these instances, the par value of the loans originated is in excess of the fair market value of such loans, resulting in a loss, which we record as a reduction to network revenue.
Similar to our warehouse credit facilities, borrowings under these agreements are referred to as funding debt, and proceeds from the borrowings may only be used for the purposes of facilitating loan funding and origination.
Similar to our U.S. warehouse credit facilities, borrowings under these agreements are referred to as funding debt, and proceeds from the borrowings may only be used for the purposes of facilitating loan funding and origination. These facilities are secured by Canadian loan receivables pledged to the respective facility as collateral, mature between 2025 and 2029.
We are also able to originate loans directly under our lending, servicing, and brokering licenses in Canada and across various states in the U.S. through our consolidated subsidiaries. We originated approximately $817.1 million and $257.7 million of loans in Canada f or the years ended June 30, 2022 and June 30, 2021 , respectively.
We are also able to originate loans directly under our lending, servicing, and brokering licenses in Canada and across several states in the U.S. through our consolidated subsidiaries. We directly originated approximatel y $3.7 billion, or 18%, and $3.3 billion, or 21%, of loans for the years ended June 30, 2023 and June 30, 2022, respectively.
Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace. Our company is predicated on the principles of simplicity, transparency, and putting people first. By adhering to these principles, we have built enduring, trust-based relationships with consumers and merchants that we believe will set us up for long-term, sustainable success.
Our Company is predicated on the principles of simplicity, transparency, and putting people first. By adhering to these principles, we have built enduring, trust-based relationships with consumers and merchants that we believe will set us up for long-term, sustainable success. We believe our innovative approach uniquely positions us to define the future of commerce and payments.
As such, as we continue to expand our network to include more merchants, revenue as a percentage of GMV will vary.
Our revenue as a percentage of GMV in any given period varies across products. As such, as we continue to expand our network to include more merchants, revenue as a percentage of GMV may vary.
Transactions per Active Consumer We believe the value of our network is amplified with greater consumer engagement and repeat usage, highlighted by increased transactions per active consumer. Transactions per active consumer is defined as the average number of transactions that an active consumer has conducted on our platform during the 12 months prior to the measurement date.
Transactions per active consumer is defined as the average number of transactions that an active consumer has conducted on our platform during the 12 months prior to the measurement date.
To date, we have purchased all of the loans facilitated through our platform and originated by our originating bank partners. When we purchase a loan from an originating bank partner, the purchase price is equal to the outstanding principal balance of the loan, plus a fee and any accrued interest.
When we purchase a loan from an 60 Table of Contents originating bank partner, the purchase price is equal to the outstanding principal balance of the loan, plus a fee and any accrued interest.
Additionally, there was a $51.9 million or 132%, increase in data infrastructure and hosting costs for the year ended June 30, 2022, compared to the year ended June 30, 2021, due to increased capacity requirements of our technology platform driven by increase in active users and transactions per active consumer.
Infrastructure and hosting costs increased by $20.6 million, or 23%, and data provider costs increased by $11.5 million, or 38%, for the year ended June 30, 2023, compared to the same period in 2022, due to increased capacity requirements of our technology platform driven by increases in active users and transactions per active consumer.
When the loan is purchased, the liability is included in the amortized cost basis of the purchased loan as a discount, which is then amortized into interest income over the life of the loan. 81 Table o f Contents Allowance for Credit Losses The allowance for credit losses on loans held for investment is determined based on management’s current estimate of expected credit losses over the remaining contractual term, historical credit losses, consumer payment trends, estimates of recoveries, and future expectations as of each balance sheet date.
Allowance for Credit Losses The allowance for credit losses on loans held for investment is determined based on management’s current estimate of expected credit losses over the remaining contractual term, historical credit losses, consumer payment trends, estimates of recoveries, and future expectations as of each balance sheet date.
Seasonality We experience seasonal fluctuations in our revenue as a result of consumer spending patterns. Historically, our revenue has been the strongest during the second quarter of our fiscal year due to increases in retail commerce during the holiday season.
Historically, our GMV has been the strongest during the second quarter of our fiscal year due to increases in retail commerce during the holiday season.
We sell the loans we originate or purchase from our originating bank partners to whole loan buyers and securitization investors through forward flow arrangements and securitization transactions, and earn servicing fees from continuing to act as the servicer on the loans. 61 Table o f Contents Key Operating Metrics We collect and analyze operating and financial data of our business to assess our performance, formulate financial projections, and make strategic decisions.
We sell the loans we originate or purchase from our originating bank partners to whole loan buyers and securitization investors through forward flow arrangements and securitization transactions, and earn servicing fees from continuing to act as the servicer on the loans.
Interest rates charged to our consumers vary depending on the transaction risk, creditworthiness of the consumer, the repayment term selected by the consumer, the amount of the loan, and the 60 Table o f Contents individual arrangement with a merchant.
From consumers, we earn interest income on the simple interest loans that we originate or purchase from our originating bank partners. Interest rates charged to our consumers vary depending on the transaction risk, creditworthiness of the consumer, the repayment term selected by the consumer, the amount of the loan, and the individual arrangement with a merchant.
We believe these estimates have the greatest potential effect on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information, our significant accounting policies are described in Note 2. Summary of Significant Accounting Policies within the notes to the consolidated financial statements.
We evaluate our significant estimates on an ongoing basis. We believe the estimates, discussed below, have the greatest potential effect on our consolidated financial statements and are therefore deemed critical in understanding and evaluating our financial results. For further information, our significant accounting policies are described in Note 2.
For example, our low average order value (“AOV”) products generally benefit from shorter duration, but also have lower revenue as a percentage of GMV when compared to high AOV products.
Differences in loan product mix result in varying loan durations, APR, and mix of 0% APR and interest-bearing financings. Product and economic terms of commercial agreements vary among our merchants. For example, our low average order value (“AOV”) products generally benefit from shorter duration, but also have lower revenue as a percentage of GMV when compared to high AOV products.
This decrease was due to a decrease in the volume of long-term 0% APR loans purchased from our originating bank partners compared to the prior period, which are purchased above fair market value.
Loss on loan purchase commitment for the year ended June 30, 2023 decreased by $63.8 million, or 31%, compared to the same period in 2022. The decrease was due to a decrease in the volume of long-term 0% APR loans purchased from our originating bank partners compared to the prior period, which are purchased above fair market value.
This increase was primarily due to a $56.1 million or 163% increase in payment processing fees related to increased servicing activity and payments volume for the year ended June 30, 2022. Additionally, processing fees paid to our platform partners increased by $5.4 million or 104%, for the year ended June 30, 2022.
Processing and servicing expense for the year ended June 30, 2023 increased by $99.5 million, or 63%, compared to the same period in 2022. This increase was primarily due to a $46.0 million, or 51%, increase in payment processing fees related to increased servicing activity and payment volume for the year ended June 30, 2023.
As of June 30, 2022, we had four off-balance sheet VIEs, the 2021-Z1, 2021-Z2, 2022-X1, and 2022-Z1 securitization trusts. In the unlikely event payments on the loans backing any off-balance sheet securitization are insufficient to pay note holders, including any retained interest, then any amounts the Company contributed to the securitization reserve accounts may be depleted. See Note 12.
In the unlikely event principal payments on the loans backing any off-balance sheet securitization are insufficient to pay holders of senior notes and residual certificates, including any retained interests held by Affirm, then any amounts the Company contributed to the securitization reserve accounts may be depleted. See Note 10.
When an originating bank partner originates a loan, it funds the loan through its own funding sources and may subsequently offer and sell the loan to us. Pursuant to our agreements with these partners, we are obligated to purchase the loans facilitated through our platform that our partner offers us and our obligation is secured by cash deposits.
Pursuant to our agreements with these partners, we are obligated to purchase the loans facilitated through our platform that such partner offers us and our obligation is secured by cash deposits. To date, we have purchased all of the loans facilitated through our platform and originated by our originating bank partners.
This reflects our net loss of $707.4 million, adjusted for non-cash charges of $525.8 million, net cash inflows of $29.4 million from the purchase and sale of loans held for sale, and net cash outflows of $9.9 million provided by changes in our operating assets and liabilities.
This reflects our net loss of $985.3 million, adjusted for non-cash charges of $967.4 million and net cash inflows of $30.1 million provided by changes in our operating assets net of operating liabilities.
Cash used in operating activities for the year ended June 30, 2022 was $162.2 million, a decrease of $30.9 million from cash used in operating activities of $193.1 million for the year ended June 30, 2021.
Cash provided by operating activities for the year ended June 30, 2023, was $12.2 million, an increase of $174.4 million from cash used in operating activities of $162.2 million for the year ended June 30, 2022.
Our Loan Origination and Servicing Model When a consumer applies for a loan through our platform, the loan is underwritten using our proprietary risk model. Once approved for the loan, the consumer then selects his/her/their preferred repayment option. The substantial majority of these loans are funded and issued by our originating bank partners.
When these cards are used over established card networks, we earn a portion of the interchange fee from the transaction. Our Loan Origination and Servicing Model When a consumer applies for a loan through our platform, the loan is underwritten using our proprietary risk model. Once approved for the loan, the consumer then selects their preferred repayment option.
General and administrative expenses also include costs related to fees paid for professional services, including legal, tax and accounting services, allocated overhead, and certain discretionary expenses incurred from operating our technology platform.
General and administrative expenses also include costs related to fees paid for professional services, including legal, tax and accounting services, allocated overhead, and certain discretionary expenses incurred from operating our technology platform. 69 Table of Contents General and administrative expense for the year ended June 30, 2023 increased by $8.9 million or 2%, compared to the same period in 2022.
These costs are incurred on a per loan basis. Funding Costs Funding costs consist of interest expense and the amortization of fees for certain borrowings including on balance sheet VIEs and sale and repurchase agreements, and other costs incurred in connection with funding the purchases and originations of loans.
Funding Costs Funding costs consist of interest expense and the amortization of fees for certain borrowings collateralized by our loans including warehouse credit facilities and consolidated securitizations, sale and repurchase agreements collateralized by our retained securitization interests, and other costs incurred in connection with funding the purchases and originations of loans.
During the year ended June 30, 2022, we purchased $3,251.5 71 Table o f Contents million, of 0% APR loan receivables from our originating bank partners, representing a decrease of $33.1 million or 1% compared to the year ended June 30, 2021.
During the year ended June 30, 2023, we purchased $1.4 billion, of long-term 0% APR loan receivables from our originating bank partners, which represented a decrease of $0.7 billion, or 33%, compared to the same period in 2022 .
Active Consumers June 30, 2022 June 30, 2021 June 30, 2020 (in thousands, except per consumer data) Active Consumers 13,980 7,121 3,618 Transactions per Active Consumer (x) 3.0 2.3 2.1 We assess consumer adoption and engagement by the number of active consumers across our platform. Active consumers are the primary measure of the size of our network.
No other single merchant or platform partner exceeded 20% of total GMV for the year ended June 30, 2023. 63 Table of Contents June 30, 2023 June 30, 2022 June 30, 2021 (in thousands, except per consumer data) Active consumers 16,469 13,980 7,121 Transactions per active consumer (x) 3.9 3.0 2.3 Active Consumers We assess consumer adoption and engagement by the number of active consumers across our platform.
In addition to revenue, net (loss) income, and other results under accounting principles generally accepted in the United States (“U.S. GAAP”), the following tables set forth key operating metrics we use to evaluate our business.
Key Operating Metrics We focus on several key operating metrics to measure the performance of our business and help determine our strategic direction. In addition to revenue, net loss, and other results under U.S. GAAP, the following tables set forth key operating metrics we use to evaluate our business.
Revolving Credit Facility On February 4, 2022, we entered into a revolving credit agreement with a syndicate of commercial banks for a $165.0 million unsecured revolving credit facility, maturing on February 4, 2025. On May 16, 2022, we increased unsecured revolving commitments under the facility to $205.0 million.
Revolving Credit Facility In February 2022, we entered into a revolving credit agreement for a $165.0 million unsecured revolving credit facility, maturing on February 4, 2025, which was subsequently amended to increase the unsecured revolving commitments to $205.0 million. As of June 30, 2023, there are no borrowings outstanding under the facility.
Given the short duration and strong performance of our assets, funding can be recycled quickly, resulting in a high-velocity, capital efficient funding model. We have continued to reduce the percentage of our equity capital required to fund our total platform portfolio from approximately 4% as of June 30, 2021, to approximately 3% as of June 30, 2022.
Given the short duration and strong performance of our assets, funding can be recycled quickly, resulting in a high-velocity, capital efficient funding model.
We expect that our sales and marketing expense will continue to increase as we expand our sales and marketing efforts to drive our growth, expansion, and diversification. General and Administrative General and administrative expenses consist primarily of expenses related to our finance, legal, risk operations, human resources, and administrative personnel.
General and Administrative General and administrative expenses consist primarily of expenses related to our finance, legal, risk operations, human resources, and administrative personnel.
Amortization of debt issuance costs totaled $16.2 million, $6.4 million, and $2.3 million for the years ended June 30, 2022, 2021, and 2020, respectively. 65 Table o f Contents Processing and Servicing Processing and servicing expense consists primarily of payment processing fees, third-party customer support and collection expense, salaries and personnel-related costs of our customer care team, platform fees, and allocated overhead.
The average loan balance on-balance sheet was $3.4 billion for the year ended June 30, 2023, an increase of 53% compared to $2.2 billion during the same period in 2022. 68 Table of Contents Processing and Servicing Processing and servicing expense consists primarily of payment processing fees, third-party customer support and collection expense, salaries and personnel-related costs of our customer care team, platform fees, and allocated overhead.
The increase is primarily due to an increase of $7.2 billion or 87% in GMV on our platform during the year, from $8.3 billion for the year ended June 30, 2021 to $15.5 billion for the year ended June 30, 2022.
For the year ended June 30, 2023, GMV was $20.2 billion, an increase of approximately 30% from $15.5 billion for the year ended June 30, 2022 and an increase of approximately 144% from $8.3 billion for the year ended June 30, 2021.
For the years ended June 30, 2022, 2021, and 2020, Split Pay and Core 0% loans represented 22% and 21%, 11% and 32%, and 6% and 37%, respectively, of total GMV facilitated through our platform. From consumers, we earn interest income on the simple interest loans that we originate or purchase from our originating bank partners.
For the years ended June 30, 2023, 2022, and 2021, Pay-in-4 represented 19%, 22%, and 11%, respectively, of total GMV facilitated through our platform and 0% APR Core loans represented 13%, 21%, and 32%, respectively, of total GMV facilitated through our platform.
Virtual card network revenue for the year ended June 30, 2022 increased by $50.8 million or 102%, compared to the year ended June 30, 2021.
Interest Income Interest income for the year ended June 30, 2023 increased by $157.3 million, or 30%, compared to the year ended June 30, 2022.
Provision for Credit Losses Year ended June 30, Change 2022 2021 $ % (in thousands, except percentage) Provision for credit losses $ 255,272 $ 65,878 $ 189,394 287 % Percentage of total revenue, net 19 % 8 % Provision for credit losses generally represents the amount of expense required to maintain the allowance for credit losses on our consolidated balance sheet, which represents management’s estimate of future losses.
Provision for Credit Losses Provision for credit losses generally represents the amount of expense required to maintain the allowance for credit losses on our consolidated balance sheet, which represents management’s estimate of future losses.
For the year ended June 30, 2022, we saw a $83.1 million or 48% increase in personnel costs compared to the year ended June 30, 2021 primarily due to an increased headcount as we continue to support our growth and technology platform as a whole.
This increase is primarily driven by an increase of $100.4 million, or 39%, in stock-based compensation and payroll and personnel-related costs for the year ended June 30, 2023, compared to the same period in 2022, partially due to an increased average headcount as we continue to support our growth and technology platform, despite a reduction in force in connection with the 2023 Restructuring Plan .
Loss on Loan Purchase Commitment We purchase certain loans from our originating bank partners that are processed through our platform and our originating bank partners put back to us. Under the terms of the agreements with our originating bank partners, we are generally required to pay the principal amount plus accrued interest for such loans.
Summary of Significant Accounting Policies within the notes to the consolidated financial statements. Loss on Loan Purchase Commitment and Loss on Loan Origination We purchase certain loans from our originating bank partners that are processed through our platform that our originating bank partner puts back to us.
Virtual card network revenue is also impacted by the mix of merchants as different merchants can have different interchange rates depending on their industry or size, among other factors. Interest income for the year ended June 30, 2022 increased by $201.5 million or 62%, compared to the year ended June 30, 2021.
This was driven by increased card activity as well as growth in existing and new merchants using our card platform, growing from approximately 1,100 merchants as of June 30, 2022 to approximately 1,300 merchants as of June 30, 2023. 66 Table of Contents Card network revenue is also impacted by the mix of merchants as different merchants can have different interchange rates depending on their industry or size, among other factors.
These partnerships allow us to benefit from our partners’ ability to originate loans under their banking licenses while complying with various federal, state, and other laws. Under this arrangement, we must comply with our originating bank partners' credit policies and underwriting procedures, and our originating bank partners maintain ultimate authority to decide whether to originate a loan or not.
Under this arrangement, we must comply with our originating bank partners' credit policies and underwriting procedures, and our originating bank partners maintain ultimate authority to decide whether to originate a loan or not. When an originating bank partner originates a loan, it funds the loan through its own funding sources and may subsequently offer and sell the loan to us.
In order to accelerate our ubiquity, we facilitate the issuance of virtual cards directly to consumers through our app, allowing them to shop with merchants that may not yet be fully integrated with Affirm. When these virtual cards are used over established card networks, we earn a portion of the interchange fee from the transaction.
For the years ended June 30, 2023, 2022, and 2021, interest bearing loans represented 68%, 58%, and 57% of total GMV facilitated through our platform, respectively. In order to accelerate our ubiquity, we facilitate the issuance of virtual cards directly to consumers through our app, allowing them to shop with merchants that may not yet be fully integrated with Affirm.
GMV does not represent revenue earned by us. However, the GMV processed through our platform is an indicator of the success of our merchants and the strength of our platform. For the year ended June 30, 2022, GMV was $15.5 billion, which represents an increase of approximately 87% as compared to $8.3 billion for the year ended June 30, 2021.
GMV does not represent revenue earned by us; however, it is an indicator of the success of our merchants and the strength of our platform.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeTherefore, higher interest rates may lead to increased delinquencies, charge-offs, and allowances for loans and interest receivable, which could have an adverse effect on our operating results. We rely on a variety of funding sources with varying degrees of interest rate sensitivities. Certain of our funding arrangements bear a variable interest rate.
Biggest changeHigher interest rates may lead to higher payment obligations on our future credit products but also for consumers’ other financial commitments, including their mortgages, credit cards, and other types of loans. Therefore, higher interest rates may lead to increased delinquencies, charge-offs, and allowances for loans and interest receivable, which could have an adverse effect on our operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have operations within the United States, Canada and Australia, and we are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and interest rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have operations within the United States and Canada, and we are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and interest rates.
Because our investment policy is to invest in conservative, liquid investments and because our business strategy does not rely on generating material returns from our investment portfolio, we do not expect our market risk exposure on marketable debt securities to be material.
Because our investment policy is to invest in conservative liquid investments and because our business strategy does not rely on generating material returns from our investment portfolio, we do not expect our market risk exposure on marketable debt securities to be significant.
A rise in interest rates would have an adverse impact on the fair market value of our fixed rate securities while floating rate securities would produce less income than expected if interest rates were to decrease.
An increase in interest rates would have an adverse impact on the fair market value of our fixed rate securities while floating rate securities would produce less income than expected if interest rates were to decrease.
Our market risk exposure is primarily the result of fluctuations in interest rates. Foreign currency exchange rates do not pose a material market risk exposure, as most of our revenue is earned in U.S. dollars.
Our market risk exposure is primarily the result of fluctuations in interest rates. Foreign currency exchange rates do not pose a material market risk exposure, as our current operations are primarily in the U.S.
Continued volatility in interest rates and potentially inflation, which may persist longer than previously expected, may adversely impact our customers’ spending levels and ability and willingness to pay outstanding amounts owed to us. Higher interest rates may lead to higher payment obligations on our future credit products, or to their lenders under mortgage, credit card, and other loans.
Continued volatility in interest rates and inflation, which may persist longer than previously expected, may adversely impact our customers’ spending levels, and ability and willingness to pay outstanding amounts owed to us.
Given the fixed interest rates charged on the loans that we purchase from our originating bank partners or originate ourselves, a rising variable interest rate would reduce our interest margin earned in these funding arrangements. Additionally, certain of our loan sale agreements are repriced on a recurring basis using a mechanism tied to interest rates as well as loan performance.
We rely on a variety of funding sources with varying degrees of interest rate sensitivities. Certain of our funding arrangements bear a variable interest rate. Given the fixed interest rates charged on the loans that we purchase from our originating bank partners or originate ourselves, a rising variable interest rate would reduce our interest margin earned in these funding arrangements.
Factoring in this program, as of June 30, 2022, we estimate that a hypothetical instantaneous 100 basis point upward parallel shock to interest rates would have a less than $30.0 million adverse impact on our annual financial results over the next 12 months. 83 Table o f Contents
Factoring in the interest rate risk management program and the repricing of investment securities, as of June 30, 2023, we estimate that a hypothetical instantaneous 100 basis point upward parallel shock to interest rates would have a less than $40.0 million adverse impact on our cash flows associated with our market risk sensitive instruments over the next 12 months.
The fair value of our cash and cash equivalents and certain restricted cash would not be significantly affected by a change in interest rates due to their short-term nature. Our securities available for sale at fair value as of June 30, 2022 included $1,595.4 million of marketable debt securities with maturities greater than three months.
Interest Rate Risk Our securities available for sale at fair value as of June 30, 2023 included $1.2 billion of marketable debt securities with maturities greater than three months.
Increases in interest rates could reduce our loan sale economics. We also rely on securitization transactions, with notes typically bearing a fixed coupon. Increases in interest rates may result in higher coupons using refinancing. We maintain an interest rate hedging program which eliminates some, but not all, of the interest rate risk.
Additionally, certain of our loan sale agreements are repriced on a recurring basis using a mechanism tied to interest rates as well as loan performance. Increases in interest rates could reduce our loan sale economics. We also rely on securitization transactions, with notes typically bearing a fixed coupon. For future securitization issuances, higher interest rates could have several outcomes.
Removed
Interest Rate Risk Our cash and cash equivalents and certain of our restricted cash as of June 30, 2022 were held primarily in checking, money market, and savings accounts.
Added
For consolidated securitizations, higher interest rates may result in higher coupons paid and therefore higher funding costs. For transactions that are not consolidated, higher interest rates may impact overall deal economics which are a function of numerous transaction terms.
Removed
As of June 30, 2022, we had $162.5 million of cash equivalents invested in money market funds, certificates of deposit, corporate bonds, and other commercial paper with maturities less than three months. Our cash and cash equivalents are held for working capital purposes.
Added
We maintain an interest rate risk management program which measures and manages the potential volatility of earnings that may arise from changes in interest rates. We use interest rate derivatives to mitigate the effects of changes in interest rates on our variable rate debt, which eliminates some, but not all, of the interest rate risk.
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Some of these contracts are designated as cash flow hedges for accounting purposes. For those contracts designated as cash 77 Table of Contents flow hedges, the effective portion of the gain or loss on the derivatives is recorded in other comprehensive income (loss) and is reclassified into funding costs in the same period the hedged transaction affects earnings.
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This measure projects the changes in cash flows associated with all assets and liabilities, including derivatives, based on contractual market rate-based repricing conditions over a twelve-month time horizon. It considers forecasted business growth and anticipated future funding mix. Credit Risk We have credit risk primarily related to our consumer loans held for investment.
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We are exposed to default risk on both loan receivables purchased from our originating bank partners and loan receivables that are directly originated. The ultimate collectability of a substantial portion of the loan portfolio is susceptible to changes in economic and market conditions.
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To manage this risk, we utilize our proprietary underwriting models to make lending decisions, score, and price loans in a manner that we believe is reflective of the credit risk. Other credit levers, such as user limits and/or down payment requirements, are used to determine the likelihood of a consumer being able to pay.
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To monitor portfolio performance, we utilize a wide range of internal and external metrics to review user and loan populations. Each week, management reviews performance for each customer segment, typically split by ITACs model score, financial product originated, age of loan, and delinquency status.
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Internal performance trendlines are measured against external factors such as unemployment, CPI, and consumer sentiment to determine what changes, if any, in risk strategy is warranted. As of June 30, 2023 and June 30, 2022, we were exposed to credit risk on $4.4 billion and $2.5 billion, respectively, of loans held on our consolidated balance sheet.
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Loan receivables are diversified geographically. As of June 30, 2023 and June 30, 2022, approximately 11% and 12%, respectively, of loan receivables related to customers residing in the state of California, respectively. No other states or provinces exceeded 10%.
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We are also exposed to credit risk in the event of nonperformance by the financial institutions holding our cash and the issuers of our cash equivalents and available for sale securities. We maintain our cash deposits and cash equivalents in highly-rated, federally-insured financial institutions in excess of federally insured limits.
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We manage this risk by conducting business with well-established financial institutions, diversifying our counterparties and having guidelines regarding credit rating and investment maturities to safeguard liquidity.
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Although, we are not substantially dependent on a single financing source and have not historically experienced any credit losses related to these financial institutions, since the beginning of March 2023, there have been public reports of instability at certain financial institutions.
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If multiple financing sources were to be unable to fulfill their funding obligations to us, it could have a material adverse effect on our financial condition, results of operations and cash flows. 78 Table of Contents

Other AFRM 10-K year-over-year comparisons