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What changed in Affirm Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Affirm Holdings, Inc.'s 2023 and 2024 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 2024 report.

+499 added−482 removedSource: 10-K (2024-08-28) vs 10-K (2023-08-25)

Top changes in Affirm Holdings, Inc.'s 2024 10-K

499 paragraphs added · 482 removed · 412 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

89 edited+11 added−19 removed114 unchanged
Biggest changeThe greater accuracy of our risk model also generally benefits our provision for credit losses on loans we retain. Our continuously learning risk model benefits from increasing scale. As data from new transactions are incorporated into our risk algorithms, we are able to more effectively assess a given credit profile.
Biggest changeWe 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. The greater accuracy of our risk model also generally benefits our provision for credit losses on loans we retain. Our continuously learning risk model benefits from increasing scale.
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.
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; • 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.
Merchants may also elect to use the virtual card as a method to facilitate the offering of installment loans to allow their customers to pay over time. Merchants are charged an interchange fee for each successful Affirm Card transaction, and a portion of this revenue is shared with us by our card-issuing partners.
Merchants may also elect to use the virtual card as a method to facilitate the offering of installment loans to allow their customers to pay over time. Merchants are charged an interchange fee for each successful card transaction, and a portion of this revenue is shared with us by our card-issuing partners.
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.
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 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.
The flexibility of our custom-built technological infrastructure means we can incorporate new merchants, platforms, data sources, models, capital partnerships, and other elements without adding significant overhead. • Data privacy and security . We store and process data while maintaining robust physical, electronic, and procedural safeguards designed to protect that data.
The flexibility of our custom-built technological infrastructure means we can incorporate new merchants, platforms, data sources, models, capital partnerships, and other elements without necessarily adding significant overhead. • Data privacy and security . We store and process data while maintaining robust physical, electronic, and procedural safeguards designed to protect that data.
Better outcomes generated by our proprietary risk models We believe our risk model informs our ability to better assess risk. Unlike legacy payment and credit systems, we can assess risk at a transaction level, rather than relying solely on a static consumer credit score.
Better outcomes generated by our proprietary risk models We believe our risk model informs our ability to better assess risk. Unlike legacy payment and credit systems, we can assess and price risk at a transaction level, rather than relying solely on a static consumer credit score.
The CFPB, through its enforcement authority, could increase our compliance costs, potentially hinder our ability to respond to marketplace changes, impose requirements to alter products and services that would make them less attractive to consumers and impair our ability to offer products and services profitably.
The CFPB, through its supervision and enforcement authority, could increase our compliance costs, potentially hinder our ability to respond to marketplace changes, impose requirements to alter products and services that would make them less attractive to consumers and impair our ability to offer products and services profitably.
By utilizing our unique risk model predicated on sophisticated machine learning algorithms, proprietary data, and product-level underwriting, we can serve consumers across the credit spectrum and price risk across transaction types. Consumers on our platform represent a broad cross-section of society. For merchants, Affirm's commerce solutions help drive growth by enhancing demand generation and customer acquisition.
By utilizing our unique risk model predicated on sophisticated machine learning algorithms, proprietary data, and product-level underwriting, we can serve consumers across the credit spectrum and price risk across transaction types. Consumers on our platform represent a broad cross-section of society. For merchants, Affirm’s commerce solutions help drive growth by enhancing demand generation and consumer acquisition.
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.
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., 20 Table of Contents 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.
Affirm Payments is actively seeking additional licenses and certifications of this nature, but there can be no assurance we will be able to obtain them or the timeline with which this will happen. As a licensed money transmitter, we have obligations and restrictions with respect to the investments of customer funds, recurrent reporting, and bonding.
Affirm Payments is actively seeking additional licenses and certifications of this nature, but there can be no assurance we will be able to obtain them or the timeline with which this will happen. As a licensed money transmitter, we have obligations and restrictions with respect to the investments of consumer funds, recurrent reporting, and bonding.
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 provide merchants with insightful analytics that help them understand how their various products are performing and other key insights to optimize conversion and consumer 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.
There are also secondary rules that, when triggered, are designed to send a transaction to fraud investigators. • Credit check capabilities. Our risk model takes five top-of-mind data inputs and turns them into a total of over 500 data points in order to assess the credit risk of new consumers.
There are also secondary rules that, when triggered, are designed to send a transaction to fraud investigators. • Credit check capabilities. Our risk model takes five top-of-mind data inputs from the user and turns them into a total of over 500 data points in order to assess the credit risk of new consumers.
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.
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.
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.
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.
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.
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 21 Table of Contents 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.
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.
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.
Merchants also have access to Affirm’s app, which provides a marketplace that allows them to efficiently reach consumers through featured placements and personalized advertisements. 7 Table of Contents • Affirm website and developer documentation.
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.
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, and the laws of the states and provinces in which we operate, among others.
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.
The application of state and provincial licensing requirements to our business model is not always clear, and while we believe we are in material compliance as of June 30, 2024 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.
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.
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. 19 Table of Contents Other requirements We have policies and procedures designed to prevent the financing of illegal products.
Our risk model is designed to comply with our originating bank partners’ credit policies and underwriting procedures and has been proven to lead to low fraud rates and higher approval rates compared to traditional credit underwriting models.
Our risk model is designed to comply with our originating bank partners’ credit policies and underwriting procedures and has been proven to lead to lower fraud rates and higher approval rates compared to traditional credit underwriting models.
We are also subject to regulation by the Consumer Financial Protection Bureau ("CFPB") under the Dodd-Frank Act and other acts described herein, and we are subject to the CFPB’s enforcement authority with respect to our compliance with these requirements as a facilitator, servicer, acquirer, or originator of consumer credit.
We are also subject to regulation by the Consumer Financial Protection Bureau (“CFPB”) under the Dodd-Frank Act and other acts described herein, and we are subject to the CFPB’s supervision and enforcement authority with respect to our compliance with these requirements as a facilitator, servicer, acquirer, or originator of consumer credit.
In addition to acts of intentional discrimination, the ECOA has been interpreted by federal regulators and courts to prohibit creditors from maintaining policies and practices that, while facially neutral, result in a disproportionate, adverse impact on applicants or consumers in protected groups.
In addition to acts of intentional discrimination, the ECOA has been interpreted by federal regulators and courts to prohibit creditors from maintaining policies 17 Table of Contents and practices that, while facially neutral, result in a disproportionate, adverse impact on applicants or consumers in protected groups.
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.
This revenue model 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. 11 Table of Contents • 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. • Fraud detection capabilities. To assess transaction fraud risk, we first seek to establish the consumer’s identity using basic information.
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.
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.
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 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 14 Table of Contents jurisdictions in the U.S., Canada, and U.K., and we may also purchase loans originated by our originating bank partners through our platform.
While most enforcement and litigation has historically targeted high-interest rate programs (i.e. > 100% APR), which we consider to be inconsistent with our company mission and values, we nonetheless could be subject to litigation, whether private or governmental, or administrative action regarding the above claims.
While most enforcement and litigation has 16 Table of Contents historically targeted high-interest rate programs (i.e. > 100% APR), which we consider to be inconsistent with our company mission and values, we nonetheless could be subject to litigation, whether private or governmental, or administrative action regarding the above claims.
Our models are designed to enable us to adjust our models quickly and efficiently in response to changes in the environment. • Designed for constant innovation and flexibility.
Our models are designed to enable us to adjust our models quickly and efficiently in response to changes in the environment. • Designed for continued innovation and flexibility.
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.
Our Technology Our products are built on a cloud-first platform engineered for data aggregation, schematization, management, and decisioning, which enables our products to leverage years of deep behavioral, financial, shopping, and payment data across our platform, from fraud and pricing, to personalization and repayment.
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.
Our proprietary risk model has consistently outperformed traditional credit models, enabling us to better help eligible consumers finance their purchases. Under this model, consumers do not 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.
Our vertically integrated technology powers a rich data landscape across products, which drives increased efficiency that unlocks greater scale. Increasing scale powers a flywheel that further drives incremental data capture and improves the efficiency of each transaction, and that efficiency allows us to more finely price transactions, measure risk, deliver value to our customers, and personalize consumer experiences.
Our vertically integrated technology powers a rich data landscape across products, which drives increased efficiency that helps to unlock greater scale. Increasing scale powers a flywheel that further drives incremental data capture and improves the efficiency of each transaction, and that efficiency allows us to more finely price transactions, measure risk, deliver value to our consumers, and personalize consumer experiences.
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”).
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”).
Consumers can also apply for a pre-purchase installment loan via the Affirm app and, upon approval, use the Affirm Card online or in-store to complete their purchase. Consumers can transact either via a physical debit card or a virtual card. • High-yield savings account.
Consumers can also apply for a pre-purchase installment loan via the Affirm App and, upon approval, use the Affirm Card online or in-store to complete their purchase. Consumers can transact either via a physical debit card or a virtual debit card. • Affirm Money Account.
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.
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, and Lead Bank, an FDIC-insured Missouri state-chartered bank..
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.
For the fiscal years ended June 30, 2024 and 2023, 92% and 88%, respectively, of the transactions facilitated through our platform were driven by repeat consumers. • Improved expense efficiency enables us to create even more compelling offers for consumers and merchants, in turn attracting more consumers and merchants to our network.
Our Affirm app and website provides tailored and exclusive offers from merchants based on consumers’ preferences. Consumers can apply at affirm.com or via the Affirm app and, upon approval, receive a single-use virtual card to use online or in-store. During the fiscal year ended June 30, 2023, 20% of our transactions occurred on the Affirm marketplace. • Affirm Card.
Our Affirm App and website provide tailored and exclusive offers from merchants based on consumers’ preferences. Consumers can apply at affirm.com or via the Affirm App and, upon approval, receive a single-use virtual card to use online or in-store. During the fiscal year ended June 30, 2024, 23% of our transactions occurred on the Affirm marketplace. • Affirm 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 .
Through the Affirm app and in partnership with Cross River Bank, we offer an FDIC-insured, high-yield savings account, with no minimum deposit requirements or fees. Merchant features • Affirm at Checkout .
Our Growth Strategy Our multi-pronged growth strategy is designed to build upon our momentum and unlock opportunities to create even greater value for consumers and merchants. Expand solutions for merchants and consumers • Innovate on new consumer product solutions . We plan to continue to innovate and bring new honest financial products to market for consumers.
Our Growth Strategy Our multi-pronged growth strategy is designed to build upon our momentum and unlock opportunities to create even greater value for consumers and merchants. Expand solutions for merchants and consumers • Innovate on new consumer product solutions . We plan to continue to innovate and bring new financial products to market for consumers. • Increase merchant feature functionality.
We believe expanding into consumers’ daily and in-store spending will be a key in driving repeat usage 10 Table of Contents and will position us to increase engagement with both consumers and merchants. Affirm Card is an important component of this strategy because consumers using Affirm Card often have higher transactions per user and greater in-store usage.
We believe expanding into consumers’ daily and in-store spending will be key in driving repeat usage and will position us to increase engagement with both consumers and merchants. Affirm Card is an important component of this strategy because consumers using Affirm Card to date often have a higher transaction frequency per user and greater in-store usage.
ITEM 1. BUSINESS Company Overview Affirm was founded in 2012 with a mission to deliver honest financial products that improve lives. We are building the next generation platform for digital and mobile-first commerce. We believe that by using modern technology, strong engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
ITEM 1. BUSINESS Company Overview Affirm was founded in 2012 with a mission to deliver honest financial products that improve lives. We are building the next generation payment network. We believe that by using modern technology, strong engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
Following the Madden decision, there have been a number of lawsuits in other parts of the country making 16 Table of Contents similar allegations.
Following the Madden decision, there have been a number of lawsuits in other parts of the country making similar allegations.
As such, the CFPB has in the past requested reports concerning our organization, business conduct, markets, and activities, and we expect that the CFPB will continue to do so from time to time in the future. In addition, we expect the CFPB to begin to supervise us in the immediate future.
As such, the CFPB has in the past requested reports concerning our organization, business conduct, markets, and activities, and we expect that the CFPB will continue to do so from time to time in the future.
If successful, we believe that this strategy will lead to increased transaction volume on our platform, as well as the expansion of our consumer and merchant network. As of June 30, 2023, we had approximately 3.9 transactions per active consumer, an increase of approximately 30% compared to June 30, 2022 and an increase of 70% compared to June 30, 2021.
If successful, we believe that this strategy will lead to increased transaction volume on our platform, as well as the expansion of our consumer and merchant network. As of June 30, 2024, we had approximately 4.9 transactions per active consumer, an increase of approximately 26% compared to June 30, 2023 and an increase of 64% compared to June 30, 2022.
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.
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 approximately 215 million loans. 11 Table of Contents • Modeling improvements.
The CFPB’s supervision of us will enable it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in investigations, enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.
Additionally, the 18 Table of Contents CFPB’s supervision of us enables it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in investigations, enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.
We monitor merchants’ creditworthiness, consumer complaints and dispute rates, changes in consumer repayment behavior, and other data to give consumers the confidence that merchants integrated with Affirm are committed to delivering honest and delightful experiences. • Consumer first borrowing. Our frictionless solution makes it easy for consumers to apply for a loan and be approved on the spot.
We monitor merchants’ creditworthiness, consumer complaints and dispute rates, changes in consumer repayment behavior, and other data to give consumers the confidence that merchants integrated with Affirm are committed to delivering honest and delightful experiences. • Consumer first borrowing. Our products make it easy for consumers to apply for a loan and be approved instantaneously.
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.
Our approach to risk management is core to our business model and has led 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 approximately 215 million loans.
Affirm Card allows consumers to link a bank account to pay in full, or pay later by accessing credit through the Affirm App. Users can take advantage of a unique in-app post-purchase feature that allows them to instantly convert any eligible debit transaction into an installment loan.
Affirm Card allows consumers to link a bank account to pay in full, or apply to pay over time through the Affirm App. Users can take advantage of an in-app post-purchase feature that allows them to instantly apply to convert any eligible debit transaction into an installment loan.
For example, the additional data we have on repeat consumers enables us to make better underwriting decisions and therefore generally results in proportionately lower provision for credit losses expense on GMV from repeat customers than from first time customers.
For example, the additional data we have on repeat consumers enables us to make better underwriting decisions and therefore generally results in lower provision for credit losses and processing and servicing expenses from repeat consumers than from first time consumers.
Sales and Marketing Our marketing strategy includes brand marketing, communications, and co-marketing campaigns that we collaborate on with merchants and partners. We have historically relied on the strength of our merchant relationships and positive user experience to develop our brand and grow our network.
Sales and Marketing Our marketing strategy includes brand marketing, communications, and co-marketing campaigns that we collaborate on with merchants and partners. We have historically relied on the strength of our merchant relationships and positive user experience to develop our brand and grow our network. We have achieved significant merchant and consumer adoption without investing heavily in sales and marketing.
We believe we have the opportunity to significantly increase the number of integrated merchants on our network through both our dedicated sales team and business-to-business marketing efforts. Additionally, simple, direct API integration means bringing on new merchants is a seamless process.
We believe we have the opportunity to significantly increase the number of integrated merchants on our network through both our dedicated sales team and platform partner and merchant acquirer partnerships. Additionally, simple, direct API integration means bringing on new merchants can be a seamless process.
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.
This entails creating an environment where individuals from all backgrounds can thrive. 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 2024 report is available at: www.affirm.com/diversity-inclusion.
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.
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 with more control and flexibility.
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.
We pride ourselves on a culture that respects co-workers and values concern for others. 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.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good. Distinctive culture that sets us apart We believe our culture gives us a long-term, sustainable competitive advantage.
We have not experienced any work stoppages, and we consider our relations with our employees to be good. Distinctive culture that sets us apart We believe our culture gives us a long-term, sustainable competitive advantage.
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 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. These values have helped us to attract, inspire, and harness the collective talent of exceptional technologists and business people.
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.
For fiscal year ended June 30, 2024 , Pay-in-4 and 0% APR installment loans represented 15% and 11% , respectively, of total gross merchandise volume (“GMV”) facilitated through our platform. For fiscal year ended June 30, 2023, Pay-in-4 and 0% APR installment loans represented 19% and 13%, respectively, of total GMV facilitated through our platform.
Our platform is explicitly designed and engineered to integrate with a wide range of merchants. This is a point of differentiation for us, as we can accommodate and partner with merchants regardless of industry, size, average order value ( “ AOV”), or customer profile.
Our platform is explicitly designed and engineered to integrate with a wide range of merchants. This is a point of differentiation for us, as we can accommodate and partner with merchants to serve their payment needs across a wide variety of industries, size, average order value (“AOV”), or consumer profile.
The federal regulatory framework applicable to online marketplaces such as our platform is evolving and uncertain, and additional requirements may apply to our business in the future.
The CFPB has not provided any additional guidance since the Interpretive Rule was issued. The federal regulatory framework applicable to online marketplaces such as our platform is evolving and uncertain, and additional requirements may apply to our business in the future.
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.
As we add more consumers to our network, we expect our models to become more efficient and robust, allowing us to provide our platform (and the loans it facilitates) to a growing spectrum of consumers.
We also facilitate the issuance of virtual cards directly to consumers through our App as well as the Affirm Card, formerly “Affirm Debit+”, which allows consumers to shop with merchants that are not integrated with Affirm.
We also facilitate the issuance of virtual cards directly to consumers through our App, allowing them to shop with merchants that are not integrated with Affirm.
However, these laws, agreements, and procedures provide only limited protection. As of June 30, 2023, we owned 14 registered trademarks and 18 trademark applications in the United States, 79 registered trademarks and 38 trademark applications in various foreign jurisdictions, and 12 issued patents, 51 pending patent applications in the United States, and 26 pending patent applications in various foreign jurisdictions.
However, these laws, agreements, and procedures provide only limited protection. As of June 30, 2024, we owned 23 registered trademarks and 2 trademark applications in the United States, 99 registered trademarks and 19 trademark applications in various foreign jurisdictions, and 22 issued patents, 39 pending patent applications in the United States, and 60 pending patent applications in various foreign jurisdictions.
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.
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 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.
For the fiscal year ended June 30, 2024 we have facilitated consumer purchases of $26.6 billion in GMV. Our Platform Our business transforms the way consumers and merchants transact by creating a powerful platform built upon honest financial products.
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.
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.
Our ability to quickly assess, price, and manage risk enables us to generate high quality assets that attract funding sources and generate predictable servicing and interest income as consumers repay over time.
As data from new transactions are incorporated into our risk algorithms, we are able to more effectively assess a given credit profile. Our ability to quickly assess, price, and manage risk enables us to generate high quality assets that attract funding sources and generate predictable servicing and interest income as consumers repay over time.
See CFPB Interpretive Rule regarding Section 1042 of the Consumer Financial Protection Act of 2010 (87 FR 31940, May 26, 2022). If the CFPB or one or more state officials find that we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on our business.
If the CFPB or one or more state officials find that we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on our business.
Cross 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.
Cross 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. 15 Table of 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.
We expect these seasonal patterns to continue in future periods, and any adverse events that occur during our second fiscal quarter could have a disproportionate effect on our financial results for the fiscal year. Human Capital Resources Our employees As of June 30, 2023, we had a total of 2,171 employees, primarily located in the United States.
Adverse events that occur during our second fiscal quarter could have a disproportionate effect on our financial results for the fiscal year. 12 Table of Contents Human Capital Resources Our employees As of June 30, 2024, we had a total of 2,006 employees, primarily located in the United States. None of our employees are represented by a labor union.
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 are focused on the effectiveness of sales and marketing spending. 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.
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. Because consumers are never charged deferred or compounding interest or late fees, we are not incentivized to profit from our consumers’ mistakes or misfortunes.
Interest rates charged to our consumers vary depending on several factors including 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.
The FCA’s strategic objective is to ensure that the relevant markets function well. The FCA’s operational objectives are (a) securing an appropriate degree of protection for consumers, (b) protecting and enhancing the integrity of the U.K. financial system, and (c) promoting effective competition in the interests of consumers.
The FCA’s operational objectives are (a) securing an appropriate degree of protection for consumers, (b) protecting and enhancing the integrity of the U.K. financial system, and (c) promoting effective competition in the interests of consumers. The FCA regulates and supervises some or all of Affirm U.K. Limited’s consumer credit activities.
These include, but are not limited to, being forced to cease doing business with residents of certain 17 Table of Contents states or territories, forced to change our business practices, or required to obtain additional licenses or regulatory approvals. Any of the aforementioned scenarios could impose substantial costs and or harm our business.
If found to have violated the laws or regulations covered under our licenses, we could be subject to liability and/or additional restrictions. These include, but are not limited to, being forced to cease doing business with residents of certain states or territories, forced to change our business practices, or required to obtain additional licenses or regulatory approvals.
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.
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% APR financing products.
As we continue to help merchants increase conversion rates, AOVs, and customer satisfaction, we plan to build new tools to help them optimize their customer acquisition strategies and achieve even greater results.
As we continue to help merchants increase conversion rates, AOVs, and customer satisfaction, we plan to build new tools to help them optimize their customer acquisition strategies and achieve even greater results. Increase Consumer Transaction Frequency and In-store Usage We have demonstrated how our solutions can successfully enable and accelerate commerce for larger and considered purchases.
We have two loan product offerings: Pay-in-4 and Core loans. Pay-in-4 is a short-term payment plan with four biweekly 0% APR installments, while Core loans include all monthly interest-bearing installment loans and 0% APR installment loans. 5 Table of Contents Our business model is designed to align with the interests of both consumers and merchants.
Pay-in-4 is a short-term payment plan with four biweekly 0% APR installments. Our business model is designed to align with the interests of both consumers and merchants. 5 Table of Contents From merchants, we typically earn a fee when we help them convert a sale and facilitate a transaction.
Consumers receive either 0% APR, where they pay no interest, or simple interest loans, where they pay fixed amounts of interest that never compound. We underwrite each transaction individually and—by never charging late fees—we do not profit when consumers fall behind. Our success is fundamentally aligned with our consumers’ success.
Consumers receive either 0% APR bi-weekly or monthly installments, where they pay no interest, or interest-bearing monthly installment loans, where they pay fixed amounts of interest that do not compound. We underwrite each transaction individually and do not charge late fees.
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.
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. Our policies and practices approach these requirements with the goal of managing the long-term viability and flexibility of our business model.
Expand merchant reach • Deepen penetration with existing merchants. Today, Affirm transactions represent a small percentage of the total transaction volume for our merchants.
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. 10 Table of Contents Expand merchant reach • Deepen penetration with existing merchants. Today, Affirm transactions represent a small percentage of the total transaction volume for our merchants.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeInternational 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.
Biggest changeInternational 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; • 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, data protection laws and regulations, such as the EU General Data Protection Regulation (GDPR), and climate disclosure frameworks, such as the Corporate Sustainability Reporting Directive (CSRD); • compliance with financial system regulations, including the U.K.
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.
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; 32 Table of Contents • 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.
Changing federal, state and local laws, as well as changing regulatory enforcement policies and priorities, including changes that may result from changes in the political landscape, may negatively impact our business, results of operations, financial condition, and future prospects. • If our originating bank partner model is successfully challenged or deemed impermissible, we could be found to be in violation of licensing, interest rate limit, lending, or brokering laws and face penalties, fines, litigation, or regulatory enforcement. • The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who hold shares of our Class B common stock, including our executive officers, employees and directors and their affiliates.
Changing federal, state and local laws and regulations, as well as changing regulatory enforcement policies and priorities, including changes that may result from changes in the political landscape, may negatively impact our business, results of operations, financial condition, and future prospects. • If our originating bank partner model is successfully challenged or deemed impermissible, we could be found to be in violation of licensing, interest rate limit, lending, or brokering laws and face penalties, fines, litigation, or regulatory enforcement. • The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who hold shares of our Class B common stock, including our executive officers, employees and directors and their affiliates.
In addition, our failure to comply (or to ensure that our agents and third-party service providers comply) with these laws or regulations may result in litigation or enforcement actions, the penalties for which could include: revocation of licenses; fines and other monetary penalties; civil and criminal liability; substantially reduced payments by borrowers; modification of the original terms of loans, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of or interest on loans; and increased purchases of loan receivables for loans originated by our originating bank partners and indemnification claims.
Our failure to comply (or to ensure that our agents and third-party service providers comply) with these laws or regulations may result in litigation or enforcement actions, the penalties for which could include: revocation of licenses; fines and other monetary penalties; civil and criminal liability; substantially reduced payments by borrowers; modification of the original terms of loans, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of or interest on loans; and increased purchases of loan receivables for loans originated by our originating bank partners and indemnification claims.
Some of our competitors, particularly the credit issuing banks set forth above, are substantially larger than we are and have longer operating histories than we do, which gives those competitors advantages we do not have, such as a more diversified products, a broader consumer and merchant base, greater brand recognition and brand loyalty, the ability to reach more consumers, the ability to cross sell their products, operational efficiencies, the ability to cross-subsidize their offerings through their other business lines, more versatile technology platforms, broad-based local distribution capabilities, and lower-cost funding.
Some of our competitors, particularly the credit card issuing banks set forth above, are substantially larger than we are and have longer operating histories than we do, which gives those competitors advantages we do not have, such as more diversified products, a broader consumer and merchant base, greater brand recognition and brand loyalty, the ability to reach more consumers, the ability to cross sell their products, operational efficiencies, the ability to cross-subsidize their offerings through their other business lines, more versatile technology platforms, broad-based local distribution capabilities, and lower-cost funding.
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.
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; • 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.
Despite these higher GMV levels, in fiscal 2023 and 2022, we generated less in period revenue as a percentage of GMV during our second fiscal quarter due to the comparatively higher proportion of interest bearing loans originated in the latter half of the period, which typically results in lower merchant network revenue, which is recognized in period, and higher levels of interest income, which is recognized over a longer time horizon.
Despite these higher GMV levels, in fiscal 2024, 2023 and 2022, we generated less in period revenue as a percentage of GMV during our second fiscal quarter due to the comparatively higher proportion of interest bearing loans originated in the latter half of the period, which typically results in lower merchant network revenue, which is recognized in period, and higher levels of interest income, which is recognized over a longer time horizon.
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.
Our future success is aided by 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.
Further, our debt financing and loan sale forward flow facilities are generally fixed term in nature, with term lengths ranging between one to three years, during which we have access to committed capital pursuant to such facilities.
Further, our debt financing and loan sale forward flow facilities are generally fixed term in nature, with term lengths ranging between one to three years, during which we have access to committed and uncommitted capital pursuant to such facilities.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that adversely affect our business.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties of which we are currently unaware or that we currently deem immaterial may also become important factors that adversely affect our business.
In such an event, we may be required, or may choose, to expend significant additional resources in order to correct the problem. 42 Table of Contents 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.
In such an event, we may be required, or may choose, to expend significant additional resources in order to correct the problem. 43 Table of Contents 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.
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.
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.
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.
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.
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 commercial partner actions, and damage to our reputation and brand, all of which could have a material adverse effect on our business.
The termination of our registration due to failure to comply with the applicable requirements of Visa or other payment processors, or any changes in the payment processors’ rules that would impair our registration, could require us to stop providing payment services to Visa or other payment processors, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
The termination of our registration due to failure to comply with the applicable requirements of Visa or other payment networks or payment processors, or any changes in the payment networks’ or payment processors’ rules that would impair our registration, could require us to stop providing payment services to Visa or other payment networks or payment processors, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
Accordingly, these merchant partners may have, or may enter into in the future, similar agreements with our competitors, which could adversely affect our ability to drive the level of transaction volume and revenue growth that we seek to achieve or to otherwise satisfy the high expectations of our investors and financial analysts relating to those relationships.
Accordingly, these commercial partners may have, or may enter into in the future, similar agreements with our competitors, which could adversely affect our ability to drive the level of transaction volume and revenue growth that we seek to achieve or to otherwise satisfy the high expectations of our investors and financial analysts relating to those relationships.
We believe that one of our competitive advantages is the ability of our risk model, deployed in accordance with our originating bank partners’ credit model and its underwriting guidelines when loans are made, to efficiently score and price credit risk within seconds at point-of-sale based on five top-of-mind data inputs.
We believe that one of our competitive advantages is the ability of our risk model, deployed in accordance with our originating bank partners’ credit model and their underwriting guidelines when loans are made, to efficiently score and price credit risk within seconds at point-of-sale based on five top-of-mind data inputs.
The identification, evaluation, and negotiation of potential acquisition or strategic investment transactions may divert the attention of management and entail various expenses, whether or not such transactions are ultimately completed. There can be no assurance that we will be successful in identifying, negotiating, and consummating favorable transaction opportunities.
The identification, evaluation, and negotiation of potential acquisition or strategic investment or other transactions may divert the attention of management and entail various expenses, whether or not such transactions are ultimately completed. There can be no assurance that we will be successful in identifying, negotiating, consummating and integrating favorable transaction opportunities.
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.
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; other pay-over-time solutions offered by companies such as Block and Klarna; and pay-over-time offerings by legacy financial and payments companies, including those mentioned above.
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.
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.
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.
If we are unable to enter into an alternative arrangement with different banks to fully replace or supplement our relationship with any Primary Originating 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.
The information we use in developing the risk model and price risk may be inaccurate or incomplete as a result of error or fraud, both of which may be difficult to detect and avoid. Numerous factors, many of which can be unexpected or beyond our control, can adversely affect a customer’s credit risk and our risks.
The information we use in developing the risk model and price risk may be inaccurate or incomplete as a result of error or fraud, both of which may be difficult to detect and avoid. Numerous factors, many of which can be unexpected or beyond our control, can adversely affect a consumer’s credit risk and our risks.
Further, during the pendency of a divestiture, we may be subject to risks such as a decline in the business to be divested, loss of employees, customers, or suppliers and the risk that the transaction may not close, any of which would have a material adverse effect on the business to be divested and our retained business.
Further, during the pendency of a divestiture, we may be subject to risks such as a decline in the business to be divested, loss of employees, consumers, or suppliers and the risk that the transaction may not close, any of which would have a material adverse effect on the business to be divested and our retained business.
In our asset-backed securitizations, warehouse credit facilities, and forward flow agreements, we make numerous representations and warranties concerning the characteristics of the loans we transfer and/or sell (depending on the type of facility), including representations and warranties that the loans meet certain eligibility requirements of those facilities and investors.
In our asset-backed securitizations, warehouse credit facilities, and forward flow agreements, we make numerous representations and warranties concerning the characteristics of the loans we pledge and/or sell (depending on the type of facility), including representations and warranties that the loans meet certain eligibility requirements of those facilities and investors.
If the AI/ML models are incorrectly designed, the data we use to train them is incomplete, inadequate, or biased in some way, or we do not have sufficient rights to use the data on which our AI/ML models rely, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws, third-party privacy, or other rights, or contracts to which we are a party.
If the AI/ML models are incorrectly designed, the data we use to train them is incomplete, inadequate, or biased in some way, or we do not have sufficient rights to use the data on which our AI/ML models rely, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the 28 Table of Contents violation of laws, third-party privacy, or other rights, or contracts to which we are a party.
In addition, if the risk model we use contains errors or is otherwise ineffective, our reputation and relationships with consumers, our funding sources, our originating bank partners, and our merchants could be harmed, we may be subject to liability, and our ability to access our funding sources may be inhibited.
In addition, if the risk model we use contains errors or is otherwise ineffective, our reputation and relationships with consumers, our funding sources, our originating bank partners, and our commercial partners could be harmed, we may be subject to liability, and our ability to access our funding sources may be inhibited.
We rely on these vendors to protect their systems and facilities against damage or service interruptions from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm these systems, criminal acts, and similar events.
We rely on these vendors to protect their systems and facilities against damage or service interruptions from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or malicious attempts to harm or compromise these systems, criminal acts, and similar events.
In addition, if a merchant closes some or all of its locations, ceases its e-commerce operations, or becomes subject to a voluntary or involuntary bankruptcy proceeding (or if there is a perception that it may become subject to a bankruptcy proceeding), consumers may have less incentive to pay their outstanding balances on loans facilitated through our platform, which could result in higher charge-off rates than anticipated.
In addition, if a commercial partner closes some or all of its locations, ceases its e-commerce operations, or becomes subject to a voluntary or involuntary bankruptcy proceeding (or if there is a perception that it may become subject to a bankruptcy proceeding), consumers may have less incentive to pay their outstanding balances on loans facilitated through our platform, which could result in higher charge-off rates than anticipated.
The measures we have put in place may not prevent misappropriation, infringement, or other violation of our intellectual property or other proprietary rights or information and any resulting loss of competitive advantage, and we may be required to litigate to protect our intellectual property or other proprietary rights or information from misappropriation, infringement, or other violation by others, which is expensive, could cause a diversion of resources, and may not be successful, even when our rights have been infringed, misappropriated, or otherwise violated.
The measures we have put in place may not prevent misappropriation, infringement, or other violation of our intellectual property or other proprietary rights or information and any resulting loss of competitive advantage, and we may be required to litigate to protect our intellectual property or other proprietary rights or information from misappropriation, infringement, or other violation by others, which is expensive, could cause a diversion of resources, and may not be successful, even when 45 Table of Contents our rights have been infringed, misappropriated, or otherwise violated.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our 55 Table of Contents Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
In addition, a material modification in the production levels (including supply chain issues impacting component parts of products sold by our merchant partners) and/or financial operations of any significant merchant partner could affect the results of our operations, financial condition, and future prospects.
In addition, a material modification in the production levels (including supply chain issues impacting component parts of products sold by our commercial partners) and/or financial operations of any significant commercial partner could affect the results of our operations, financial condition, and future prospects.
If the loans subject to any existing or future risk sharing agreements underperform the expectations set forth in those agreements, we would be required to make payments under the agreements in proportion to the loan 31 Table of Contents underperformance, which may have a material adverse effect on our business, results of operations, financial condition, and our relationships with existing and prospective third party loan buyers.
If the loans subject to any existing or future risk sharing agreements underperform the expectations set forth in those agreements, we would be required to make payments under the agreements in proportion to the loan underperformance, which may have a material adverse effect on our business, results of operations, financial condition, and our relationships with existing and prospective third-party loan buyers.
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.
While some of our agreements with our commercial 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.
Such potential transactions may also delay achievement of our strategic objectives, cause us to incur additional expenses, disrupt customer or employee relationships, and expose us to unanticipated or ongoing obligations and liabilities, including as a result of our indemnification obligations.
Such potential transactions may also delay achievement of our strategic objectives, cause us to incur additional expenses, disrupt consumer or employee relationships, and expose us to unanticipated or ongoing obligations and liabilities, including as a result of our indemnification obligations.
We experience seasonal fluctuations in our business as a result of consumer spending patterns. 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 experience seasonal fluctuations in our business as a result of consumer spending and savings patterns. 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 depend on our merchants, which generally accept most major credit cards and other forms of payment (which may include pay-over-time solutions offered by our competitors), to present our platform as a payment option and to integrate our platform into their website or in their store, such as by prominently featuring our platform on their websites or in their stores and not just as an option at website checkout.
We depend on our commercial partners, which generally accept most major credit cards and other forms of payment (which may include pay-over-time solutions offered by our competitors), to present our platform as a payment option and to integrate our platform into their website or in their store, such as by prominently featuring our platform on their websites or in their stores and not just as an option at website checkout.
In addition, because many of our competitors are large financial institutions that fund themselves through low-cost insured deposits and continue to own the loans that they originate, they have certain revenue and funding opportunities not available to us. Increased competition could result in the need for us to alter the pricing we offer to merchants or consumers.
In addition, because many of our competitors are large financial institutions that fund themselves through low-cost insured deposits and continue to own the loans that they originate, they have certain revenue and funding opportunities not available to us. Increased competition could result in the need for us to alter the pricing we offer to commercial partners or consumers.
While we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may adversely affect the performance of the loans facilitated through our platform. There is risk of fraudulent activity associated with our platform, originating bank partners, consumers, and third-parties handling consumer information.
While we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may adversely affect the performance of the loans facilitated through our platform. There is risk of fraudulent activity associated with our platform, originating bank partners, card issuing banks, consumers, and third parties handling consumer information.
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 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 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.
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.
This could damage our reputation and relationships with consumers, our funding sources, our originating bank partners, and our merchants, which could have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
This could damage our reputation and relationships with consumers, our funding sources, our originating bank partners, and our commercial partners, which could have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
We may not be able to make technological improvements as quickly as demanded by our consumers and merchants, or we may not be able to accurately predict the demand or growth of our technological investments, which could harm our ability to attract consumers and merchants and have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
We may not be able to make technological improvements as quickly as demanded by our consumers and commercial partners, or we may not be able to accurately predict the demand or growth of our technological investments, which could harm our ability to attract consumers and commercial partners and have a material and adverse effect on our business, results of operations, financial condition, and future prospects.
Further, we use AI/ML in many aspects of our business, including fraud, credit risk analysis, and product personalization. The AI/ML models that we use are trained using various data sets.
Further, we use AI/ML in many aspects of our business, including fraud, credit risk analysis, consumer support and product personalization. The AI/ML models that we use are trained using various data sets.
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.
The failure by our commercial partners 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 commercial partners fail to fulfill their obligations to consumers or comply with applicable law, we may incur remediation costs.
In addition, as we did when we initially formed our partnership with Shopify and when we entered into the Amended and Restated Installment Financing Services Agreement with Amazon, we may issue additional shares of our Class A common stock or securities convertible into shares of Class A common stock as a means of initiating, developing, strengthening or preserving key merchant relationships.
In addition, as we did when we initially formed our partnership with Shopify and when we entered into the Amended and Restated Installment Financing Services Agreement with Amazon, we may issue additional shares of our Class A common stock or securities convertible into shares of Class A common stock as a means of initiating, developing, strengthening or preserving key commercial partner relationships.
If we are unable to successfully compete, the demand for our platform and products could stagnate or substantially decline, and we could fail to retain or grow the number of consumers or merchants using our platform, which would reduce the attractiveness of our platform to other consumers and merchants, and which would materially and adversely affect our business, results of operations, financial condition, and future prospects.
If we are unable to successfully compete, the demand for our platform and products could stagnate or substantially decline, and we could fail to retain or grow the number of consumers or commercial partners using our platform, which would reduce the attractiveness of our platform to other consumers and commercial partners, and which would materially and adversely affect our business, results of operations, financial condition, and future prospects.
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.
In addition, non-performance, or even significant underperformance, of the loan receivables that we own could have an adverse effect on our business. 31 Table of Contents 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.
Such effects may adversely affect the productivity of our team members and overall operations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects. 34 Table of Contents Furthermore, we have at times undertaken workforce reductions to better align our operations with our strategic priorities.
Such effects may adversely affect the productivity of our team members and overall operations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects. Furthermore, we have at times undertaken workforce reductions to better align our operations with our strategic priorities.
We maintain an allowance for credit losses at a level sufficient to estimate expected credit losses based on evaluating known and inherent risks in our loan portfolio. This estimate is highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies.
We maintain an allowance for credit losses at a level sufficient to estimate expected credit losses based on evaluating known and inherent risks in our loan portfolio. This estimate is highly dependent upon the reasonableness 37 Table of Contents of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies.
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.
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 three related derivative actions, Quiroga v. Levchin, et al., Jeffries v. Levchin, et al., and Vallieres v.
Moreover, if the financial condition of a merchant deteriorates significantly or a merchant becomes subject to a bankruptcy proceeding, we may not be able to recover amounts due to us from the merchant. We are subject to both natural and man-made events that may unexpectedly disrupt our operations and adversely impact our business.
Moreover, if the financial condition of a commercial partner deteriorates significantly or a commercial partner becomes subject to a bankruptcy proceeding, we may not be able to recover amounts due to us from the commercial partner. We are subject to both natural and man-made events that may unexpectedly disrupt our operations and adversely impact our business.
As is common in our industry, and with technology-focused companies more broadly, unauthorized parties regularly attempt to gain access to our systems and facilities through various means, including, among others, 43 Table of Contents hacking into our or our partners’ or consumers’ systems or facilities, or attempting to fraudulently induce our employees, partners, consumers or others into disclosing usernames, passwords, or other sensitive information, which may in turn be used to access our information technology systems and gain access to our or our consumers’ data or other confidential, proprietary, or sensitive information.
As is common in our industry, and with technology-focused companies more broadly, unauthorized parties regularly attempt to gain access to our systems and facilities through various means, including, among others, hacking into our or our partners’ or consumers’ systems or facilities, or attempting to fraudulently induce our employees, partners, consumers or others into disclosing usernames, passwords, or other sensitive information, which may in turn be used to access our information technology systems and gain access to our or our consumers’ data or other confidential, proprietary, or sensitive information.
We may, therefore, be compelled to renegotiate our agreements with merchant partners from time to time, possibly upon terms significantly less favorable to us than the terms included in our existing agreements with those merchant partners.
We may, therefore, be compelled to renegotiate our agreements with commercial partners from time to time, possibly upon terms significantly less favorable to us than the terms included in our existing agreements with those commercial partners.
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.
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.
Our vendor relationships subject us to a variety of risks, and the failure of third-parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business, results of operations, financial condition, and future prospects.
Our third-party supplier relationships subject us to a variety of risks, and the failure of third parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business, results of operations, financial condition, and future prospects.
This issuer processor issues single-use virtual cards through its issuing bank partner which allow loans facilitated through our platform to be processed over the card network.
This issuer processor issues single-use virtual cards through Evolve Bank & Trust, its issuing bank partner, which allow loans facilitated through our platform to be processed over the card network.
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.
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.
Our business is subject to increased risks of litigation and regulatory actions as a result of a number of factors and from various sources, including as a result of the highly regulated nature of the financial services industry and the focus of state and federal enforcement agencies on the financial services industry in general and consumer financial services in particular.
Our business is subject to increased risks of litigation and regulatory actions as a result of a number of factors and from various sources, including as a result of the highly regulated nature of the financial services 36 Table of Contents industry and the focus of state and federal enforcement agencies on the financial services industry in general and consumer financial services in particular.
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 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 we are unable to successfully and timely innovate and continue to deliver a superior merchant and consumer experience, we could experience reputational damage and decreased demand for our products and technologies and our growth, business, results of operations, financial condition, and future prospects could be materially and adversely affected.
If we are unable to successfully and timely innovate and continue to deliver a superior commercial partner and consumer experience, we could experience reputational damage and decreased demand for our products and technologies and our growth, business, results of operations, financial condition, and future prospects could be materially and adversely affected.
We offer an FDIC-insured, interest-bearing savings account, which is provided by Cross River Bank, on the Affirm app. Under the terms of our program agreement with Cross River Bank as well as the deposit account agreements between participating consumers and Cross River Bank, the savings account is opened and maintained by Cross River Bank.
We offer an FDIC-insured, interest-bearing savings account, which is provided by Cross River Bank, on the Affirm app. Under the terms of our program agreement with Cross River Bank as well as the deposit account 51 Table of Contents agreements between participating consumers and Cross River Bank, the savings account is opened and maintained by Cross River Bank.
Furthermore, if we do not comply with the payment processors’ requirements (e.g., their rules, bylaws, and charter documentation), the payment processors could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their networks.
Furthermore, if we do not comply with the payment processors’ or payment networks’ requirements (e.g., their rules, bylaws, and charter documentation), the payment processors or payment networks, as applicable, could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their networks.
Our business involves the collection, storage, use, disclosure, processing, transfer, and other handling (collectively, “processing”) of a wide variety of information, including personally identifiable information, for various purposes in our business, including to help support the integrity of our services and to provide features and functionality to our consumers and merchants.
Our business involves the collection, storage, use, disclosure, processing, transfer, and other handling (collectively, “processing”) of a wide variety of information, including personally identifiable information, for various purposes in our business, including to help support the integrity of our services and to provide features and functionality to our consumers and commercial partners.
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 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.
The processing of the information we acquire in connection with our consumers’ and merchants’ use of our services, particularly on our internet applications for consumers, is subject to numerous privacy, data protection, cybersecurity, and other laws and regulations in the United States and foreign jurisdictions.
The processing of the information we acquire in connection with our consumers’ and commercial partners’ use of our services, particularly on our internet applications for consumers, is subject to numerous privacy, data protection, cybersecurity, and other laws and regulations in the United States and foreign jurisdictions.
New products and technologies are inherently risky, due to, among other things, risks associated with: the product or technology not working, or not working as expected; consumer and merchant acceptance; technological outages or failures; increased regulatory scrutiny; and the failure to meet consumer and merchant expectations.
New products and technologies are inherently risky, due to, among other things, risks associated with: the product or technology not working, or not working as expected; consumer and commercial partner acceptance; technological outages or failures; increased regulatory scrutiny; and the failure to meet consumer and commercial partner expectations.
Weak economic conditions or a significant deterioration in economic conditions, including the current inflationary environment and possibility of a recession, reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified consumers to take out loans.
Weak economic conditions or a significant deterioration in economic conditions, including the current inflationary environment and possibility of a recession, reduce the amount of disposable income consumers have, which in turn 38 Table of Contents reduces consumer spending and the willingness of qualified consumers to take out loans.
If an exclusivity period with a merchant partner lapses, we may experience a decrease in GMV with the merchant partner, which may adversely impact our results of operations.
If an exclusivity period with a commercial partner lapses, we may experience a decrease in GMV with the commercial partner, which may adversely impact our results of operations.
Increased interest rates have had, and may continue to have, an adverse impact on the spending levels of consumers and their ability and willingness to borrow money.
Elevated interest rates have had, and may continue to have, an adverse impact on the spending levels of consumers and their ability and willingness to borrow money.
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.
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 derive a significant portion of our revenue from our relationships with merchant partners and the transactions they process through our platform, and as more merchants are integrated into our network, there are more reasons for consumers to shop with us.
We derive a significant portion of our revenue from our relationships with commercial partners and the transactions they process through our platform, and as more commercial partners are integrated into our network, there are more reasons for consumers to shop with us.
Certain of these covenants are tied to our consumer default rates, which may be significantly affected by factors, such as economic downturns or general economic conditions, that are beyond our control and beyond the control of individual consumers.
Certain of these covenants are tied to our consumer default rates, which may be significantly affected by factors, such as economic downturns, inflationary conditions, elevated interest rates and/or general economic conditions, that are beyond our control and beyond the control of individual consumers.
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.
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 third-party partners fail to comply with the legal requirements applicable to the particular products or services being offered.
Furthermore, having a diversified mix of merchant partners is important to mitigate risk associated with changing consumer spending behavior, economic conditions and other factors that may affect a particular type of merchant or industry.
Furthermore, having a diversified mix of commercial partners is important to mitigate risk associated with changing consumer spending behavior, economic conditions and other factors that may affect a particular type of commercial partner or industry.
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, we would need to secure additional sources of funding or reduce our operations significantly.
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, we would need to secure additional 29 Table of Contents sources of funding or reduce our operations significantly.
Although our merchants are obligated to fulfill their contractual commitments to consumers and to comply with applicable law, including in marketing our products, from time to time, they might not, or a consumer might allege that they did not.
Although our commercial partners are obligated to fulfill their contractual commitments to consumers and to comply with applicable law, including in marketing our products, from time to time, they might not, or a consumer might allege that they did not.
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.
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.
Despite the steps taken to date by U.S. and foreign agencies and institutions, the follow-on effects of this instability are unknown and may lead to disruptions to the businesses and operations of our funding sources.
Despite the steps taken to date by U.S. and foreign agencies and institutions, the follow-on effects of this instability and the potential impact of further instability are unknown and may lead to disruptions to the businesses and operations of our funding sources.
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.
From time to time, we are involved in, or the subject of, reviews, requests for information, regulatory examinations, 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, 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.
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, wildfire, heatwave, flood, hurricane, tornado or severe winter storm, 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 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.
Biggest changeITEM 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; and Toronto, Ontario. We do not own any real property. We believe that our facilities are adequate to meet our current needs.
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We believe that our facilities are adequate to meet our current needs.

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 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
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. Item 4. Mine Safety Disclosures Not applicable. 58 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 56 Part II 88 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 57 Item 6. [Reserved] 58 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 59 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 77 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 58 Part II 90 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 59 Item 6. [Reserved] 60 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 61 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 78 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
Biggest changeHolders of Record As of August 23, 2024 , there wer e 252 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. 57 Table of Contents
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. 59 Table of Contents
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.
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 2024.
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.
As of August 23, 2024, there were 174 stockholders of record of our Cl ass B common stock. Dividend Policy We have never declared or paid cash dividends on our capital stock.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeAs of June 30, 2024, Affirm Card represented approximately 8% of the total number of transactions compared to approximately 2% as of June 30, 2023. 66 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, 2024 vs 2023 2023 vs 2022 2024 2023 2022 $ Change % Change $ Change % Change (in thousands) Revenue Merchant network revenue $ 674,607 $ 507,600 $ 458,511 $ 167,007 33 % $ 49,089 11 % Card network revenue 151,401 119,338 100,696 32,063 27 % 18,642 19 % Total network revenue 826,008 626,938 559,207 199,070 32 % 67,731 12 % Interest income (1) 1,204,355 685,217 527,880 519,138 76 % 157,337 30 % Gain on sales of loans (1) 197,153 188,341 196,435 8,812 5 % (8,094) (4) % Servicing income 95,483 87,489 65,770 7,994 9 % 21,719 33 % Total revenue, net $ 2,322,999 $ 1,587,985 $ 1,349,292 $ 735,014 46 % $ 238,693 18 % Operating expenses (2) Loss on loan purchase commitment $ 180,395 $ 140,265 $ 204,081 $ 40,130 29 % $ (63,816) (31) % Provision for credit losses 460,628 331,860 255,272 128,768 39 % 76,588 30 % Funding costs 344,253 183,013 69,694 161,240 88 % 113,319 163 % Processing and servicing 343,249 257,343 157,814 85,906 33 % 99,529 63 % Technology and data analytics 501,857 615,818 418,643 (113,961) (19) % 197,175 47 % Sales and marketing 576,405 638,280 532,343 (61,875) (10) % 105,937 20 % General and administrative 525,291 586,398 577,493 (61,107) (10) % 8,905 2 % Restructuring and other 6,768 35,870 — (29,102) (81) % 35,870 NM * Total operating expenses 2,938,846 2,788,847 2,215,340 149,999 5 % 573,507 26 % Operating loss $ (615,847) $ (1,200,862) $ (866,048) $ 585,015 (49) % $ (334,814) 39 % Other income, net 100,320 211,617 141,217 (111,297) (53) % 70,400 50 % Loss before income taxes $ (515,527) $ (989,245) $ (724,831) $ 473,718 (48) % $ (264,414) 36 % Income tax expense (benefit) 2,230 (3,900) (17,414) 6,130 (157) % 13,514 (78) % Net loss $ (517,757) $ (985,345) $ (707,417) $ 467,588 (47) % $ (277,928) 39 % * 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.
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.
However, the cumulative value of the loss on loan purchase commitment or loss 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.
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.
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.
In addition, interest income includes the amortization of any discounts or premiums on loan receivables created upon either the purchase of a loan from one of our originating bank partners or the origination of a loan.
In addition, interest income includes the amortization of any discounts or premiums on loan receivables created upon either the purchase of a loan from one of our originating bank partners or our direct origination of a loan.
While 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% APR financing 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% APR financing products.
We empower consumers to pay over time rather than paying for a purchase entirely upfront. This increases consumers’ purchasing power and gives them more control and flexibility. Our platform facilitates both true 0% APR payment options and interest-bearing loans. On the merchant side, we offer commerce enablement, demand generation, and customer acquisition tools.
We empower consumers to pay over time rather than paying for a purchase entirely upfront. This increases consumers’ purchasing power and gives them more control and flexibility. Our platform facilitates both true 0% APR payment options and interest-bearing loans. On the merchant side, we offer commerce enablement, demand generation, and consumer acquisition tools.
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.
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, 2024 compared to the fiscal year ended June 30, 2023 is presented below.
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.
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 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, 2023.
Our solutions, which are built on trust and transparency, make it easier for consumers to spend responsibly and with confidence, easier for merchants to convert sales and grow, and easier for commerce to thrive. Our point-of-sale solutions allow consumers to pay for purchases in fixed amounts without deferred interest, late fees, or penalties.
Our solutions, which are built on trust and transparency, are designed to make it easier for consumers to spend responsibly and with confidence, easier for merchants and commerce platforms to convert sales and grow, and easier for commerce to thrive. Our point-of-sale solutions allow consumers to pay for purchases in fixed amounts without deferred interest, late fees, or penalties.
The facility contains certain covenants and restrictions, including certain financial maintenance covenants. As of June 30, 2023, we were in compliance with all applicable covenants in the agreements. Refer to Note 9. Debt in the notes to the consolidated financial statements for further details on our revolving credit facility.
The facility contains certain covenants and restrictions, including certain financial maintenance covenants. As of June 30, 2024, we were in compliance with all applicable covenants in the agreements. Refer to Note 9. Debt in the notes to the consolidated financial statements for further details on our revolving credit facility.
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.
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 and fees. In certain instances, our originating bank partners may originate loans with zero or below market interest rates that we are required to purchase.
Sale and Repurchase Agreements We have various sale and repurchase agreements pursuant to our retained interests in our off-balance sheet securitizations where we have sold these securities to a counterparty with an obligation to repurchase at a future date and price.
Sale and Repurchase Agreements We entered into various sale and repurchase agreements pursuant to our retained interests in our off-balance sheet securitizations where we have sold these securities to a counterparty with an obligation to repurchase at a future date and price.
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.
To allow for flexible staffing to support overflow and seasonal traffic, we partner with several sub-servicers to manage consumer care, first priority collections, and third-party collections in accordance with our policies and procedures.
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.
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 trust certificates, including any retained interests held by Affirm, then any amounts we contributed to the securitization reserve accounts may be depleted. See Note 10.
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.
These factors include historical performance, the age of the receivable balance, seasonality, consumer credit-worthiness, changes in the size and composition of the loan portfolio, delinquency levels, bankruptcy filings and actual credit loss experience.
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.
For the years ended June 30, 2024, 2023, and 2022, interest bearing loans represented 74%, 68%, and 58% 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.
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.
Loans are charged-off in accordance with our charge-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.
Regulatory Developments We are subject to the regulatory and enforcement authority of the Consumer Financial Protection Board (the “CFPB”) as a facilitator, servicer, acquirer or originator of consumer credit.
Regulatory Developments We are subject to the regulatory and enforcement authority of the Consumer Financial Protection Bureau (the “CFPB”) as a facilitator, servicer, acquirer or originator of consumer credit.
The increase was primarily due to a high retention rate of existing consumers and the acquisition of new consumers through an expanding active merchant base. 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.
The increase was primarily due to a high retention rate of existing consumers and the acquisition of new consumers through an expanding active merchant base, Affirm Card and platform partnerships. 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.
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.
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, maturing between 2028 and 2030.
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.
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.
The average total of funding debt from warehouses and securitizations for the year ended June 30, 2023 was $2.5 billion compared to $2.2 billion during the same period in 2022, an increase of $326.0 million, or 15%. The increase was also attributable to a larger volume of on-balance sheet loans being retained during the period.
The average total of funding debt from warehouses and securitizations for the year ended June 30, 2024 was $4.5 billion compared to $2.5 billion during the same period in 2023, an increase of $2.0 billion, or 81%. The increase was also attributable to a larger volume of on-balance sheet loans being retained during the period.
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.
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 such, the CFPB has in the past requested reports concerning our organization, business conduct, markets, and activities, and we expect that the CFPB will continue to do so from time to time in the future. In addition, we expect the CFPB to begin to supervise us in the immediate future.
As such, the CFPB has in the past requested reports concerning our organization, business conduct, markets, and activities, and we expect that the CFPB will continue to do so from time to time in the future.
Funding costs for a given period are driven by the average outstanding balance of funding debt and notes issued by securitization trusts as well as our contractual interest expense, net of the impact of any designated cash flow hedges.
Funding costs for a given period are driven by the average outstanding balance of funding debt and notes issued by securitization trusts as well as our contractual interest rate and distribution of loans across funding facilities, net of the impact of any designated cash flow hedges.
Additionally, the average transactions per consumer increased from 3.0 as of June 30, 2022 to 3.9 as of June 30, 2023. The increase in consumers and average transactions per consumer is partially offset by a decrease in AOVs. For the year ended June 30, 2023 AOV was $318 down from $374 for the same period in fiscal 2022.
Additionally, the average transactions per active consumer increased from 3.9 as of June 30, 2023 to 4.9 as of June 30, 2024. The increase in consumers and average transactions per active consumer is partially offset by a decrease in AOVs. For the year ended June 30, 2024 AOV was $292 down from $318 for the same period in fiscal 2023.
In particular, merchant network revenue as a percentage of GMV typically increases with longer-term, non-interest-bearing loans with higher AOVs, and decreases with shorter-term, interest-bearing loans with lower AOVs. Merchant network revenue for the year ended June 30, 2023 increased by $49.1 million, or 11%, compared to the same period in 2022.
In particular, merchant network revenue as a percentage of GMV typically increases with longer-term, non interest-bearing loans with higher AOVs, and decreases with shorter-term, interest-bearing loans with lower AOVs. Merchant network revenue for the year ended June 30, 2024 increased by $167.0 million, or 33%, compared to the same period in 2023.
As of June 30, 2023, we had $2.1 billion in cash and cash equivalents and available for sale securities, $2.1 billion in available funding debt capacity, excluding our purchase commitments from third party loan buyers, and $205.0 million in borrowing capacity available under our revolving credit facility.
As of June 30, 2024, we had $2.1 billion in cash and cash equivalents and available for sale securities, $3.8 billion in available funding debt capacity, excluding our purchase commitments from third-party loan buyers, and $330 million in borrowing capacity available under our revolving credit facility.
Our warehouse credit facilities allow us to borrow up to an aggregate of $3.3 billion, mature between 2024 and 2029 and subject to covenant compliance, generally permit borrowings up to 12 months prior to the final maturity date. As of June 30, 2023, we have drawn an aggregate of $1.4 billion on our warehouse credit facilities.
Our warehouse credit facilities allow us to borrow up to an aggregate of $5.0 billion, mature between 2025 and 2027 and subject to covenant compliance, generally permit borrowings from to 4 - 12 months prior to the final maturity date. As of June 30, 2024, we have drawn an aggregate of $1.4 billion on our warehouse credit facilities.
The subordinated 72 Table of Contents residual interests issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria.
The subordinated residual interests issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria.
Funding costs for the year ended June 30, 2023 increased by $113.3 million or 163%, compared to the same period in 2022. The increase was primarily due to higher benchmark interest rates and an increase of funding debt and notes issued by securitization trusts during the year ended June 30, 2023.
Funding costs for the year ended June 30, 2024 increased by $161.2 million or 88%, compared to the same period in 2023. The increase was primarily due to higher benchmark interest rates and an increase of funding debt and notes issued by securitization trusts during the year ended June 30, 2024.
Card network revenue growth is correlated with the growth of GMV processed by our issuer processors. As such, the increase is primarily driven by the $5.9 billion of GMV processed through our issuer processors, an increase of 25% for the year ended June 30, 2023, as compared to the same period in 2022.
Card network revenue growth is correlated with the growth of GMV processed by our issuer processors. As such, the increase is primarily driven by $8.2 billion of GMV processed through our issuer processors, an increase of 40% for the year ended June 30, 2024, as compared to the same period in 2023.
The decrease in AOV due to the diversification of our merchant base and our initiative to drive repeat usage of our platform beyond one-time high AOV purchases. Card Network Revenue Card network revenue for the year ended June 30, 2023 increased by $18.6 million, or 19%, compared to the same period in 2022.
The decrease in AOV is due to the diversification of our merchant base and our initiative to drive repeat usage of our platform beyond one-time high AOV purchases. Card Network Revenue Card network revenue for the year ended June 30, 2024 increased by $32.1 million, or 27%, compared to the same period in 2023.
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 average on-balance sheet loan balance was $5.1 billion for the year ended June 30, 2024, respectively, an increase of 49% compared to$3.4 billion during the same periods in 2023, respectively. 70 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.
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.
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. Summary of Significant Accounting Policies within the notes to the consolidated financial statements.
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.
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.
Additionally, our platform fees increased by $30.8 million, or 290%, for the year ended June 30, 2023 due to an increase in our platform partner volume with a large enterprise partner.
Additionally, our platform fees increased by $37.5 million, or 91%, for the year ended June 30, 2024 due to an increase in our volume with a large enterprise partner.
We expect these seasonal patterns to continue in future periods, and any adverse events that occur during our second fiscal quarter could have a disproportionate effect on our financial results for the fiscal year. Macroeconomic Environment We regularly monitor the direct and indirect impacts of the current macroeconomic conditions on our business, financial condition, and results of operations.
Adverse events that occur during our second fiscal quarter could have a disproportionate effect on our financial results for the fiscal year. Macroeconomic Environment We regularly monitor the direct and indirect impacts of the current macroeconomic conditions on our business, financial condition, and results of operations.
The following table summarizes our cash, cash equivalents and investments in debt securities (in thousands): June 30, 2023 June 30, 2022 Cash and cash equivalents (1) $ 892,027 $ 1,255,171 Investments in short-term debt securities (2) 915,003 1,295,811 Investments in long-term debt securities (2) 259,650 299,562 Cash, cash equivalent and investments in debt securities $ 2,066,680 $ 2,850,544 (1) Cash and cash equivalents consist of checking, money market and savings accounts held at financial institutions and short term highly liquid marketable securities, including money market funds, government bonds, and other corporate securities purchased with an original maturity of three months or less.
The following table summarizes our cash, cash equivalents and investments in debt securities (in thousands): June 30, 2024 June 30, 2023 Cash and cash equivalents (1) $ 1,013,106 $ 892,027 Investments in short-term debt securities (2) 865,766 915,003 Investments in long-term debt securities (2) 265,862 259,650 Cash, cash equivalent and investments in debt securities $ 2,144,734 $ 2,066,680 (1) Cash and cash equivalents consist of checking, money market and savings accounts held at financial institutions and short-term highly liquid marketable securities, including money market funds, government bonds, and other corporate securities purchased with an original maturity of three months or less.
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.
As a result, while we expect that transactions per active consumer may increase, 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, Affirm Card and other low-AOV offerings.
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.
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.
We discuss our valuation methodology and significant Level 3 inputs for servicing assets and liabilities within Note 13. Fair Value of Financial Assets and Liabilities. Servicing income for the year ended June 30, 2023 increased by $21.7 million, or 33%, compared to the same period in 2022.
We discuss our valuation methodology and significant Level 3 inputs for servicing assets and liabilities within Note 13. Fair Value of Financial Assets and Liabilities of the accompanying notes to our consolidated financial statements. Servicing income for the year ended June 30, 2024 increased by $8.0 million, or 9%, compared to the same period in 2023.
A detailed description of each of our borrowing arrangements is included in Note 9. Debt in the notes to the consolidated financial statements. The following table summarizes our funding debt facilities as of June 30, 2023.
Funding Debt Funding debt as of June 30, 2024 primarily includes our warehouse credit facilities and sale and repurchase agreements. A detailed description of each of our borrowing arrangements is included in Note 9. Debt in the notes to the consolidated financial statements. The following table summarizes our funding debt facilities as of June 30, 2024.
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.
Overview We are building the next generation payment network. We believe that by using modern technology, strong engineering talent, and a mission-driven approach, we can reinvent payments and commerce.
Our solutions empower merchants to more efficiently promote and sell their products, optimize their customer acquisition strategies, and drive incremental sales. We also provide valuable product-level data and insights — information that merchants cannot easily get elsewhere — to better inform their strategies. Finally, our consumer app unlocks the full suite of Affirm products for a delightful end-to-end consumer experience.
Our solutions empower merchants to more efficiently promote and sell their products, optimize their consumer acquisition strategies, and drive incremental sales. We also provide valuable product-level data and insights — information that merchants cannot easily get elsewhere — to better inform their strategies.
Sales and marketing expense for the year ended June 30, 2023 increased by $105.9 million or 20%, compared to the same period in 2022.
Sales and marketing expense for the year ended June 30, 2024 decreased by $61.9 million or 10%, compared to the same period in 2023.
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.
These activities involve transactions with unconsolidated VIEs, including our sponsored securitization transactions, which we contractually service. 76 Table of Contents 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.
The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases. (2) Purchase obligations amounts include minimum purchase commitments for cloud computing web services entered into in the ordinary course of business. (3) The 2026 Notes have an aggregated principal balance of $1,425.9 million and do not bear interest.
The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases. (2) Purchase obligations amounts primarily include minimum purchase commitments for cloud computing web services entered into in the ordinary course of business.
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.
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. Technology and data are at the core of everything we do.
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.
Product and economic terms of commercial agreements vary among our merchants, which may impact our results. 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.
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.
The average unpaid principal balance of loans owned by third-party loan owners increased from $4.5 billion during the year ended June 30, 2023 to $4.9 billion during the year ended June 30, 2024, an increase of 7%.
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 year ended June 30, 2024, GMV was $26.6 billion, an increase of approximately 32% from $20.2 billion for the year ended June 30, 2023, and an increase of approximately 72% from $15.5 billion for the year ended June 30, 2022.
As of June 30, 2023, we had approximately 16.5 million active consumers inclusive of 1.0 million active consumers who only transacted on Returnly, which represented an increase of 18% compared to approximately 14.0 million as of June 30, 2022, and 131% compared to approximately 7.1 million as of June 30, 2021.
As of June 30, 2024, we had approximately 18.7 million active consumers, which represented an increase of 14% compared to approximately 16.5 million as of June 30, 2023, and 34% compared to approximately 14.0 million as of June 30, 2022.
Off-Balance Sheet Arrangements In the ordinary course of business, we engage in activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities involve transactions with unconsolidated VIEs, including our sponsored securitization transactions, which we contractually service.
Off-Balance Sheet Arrangements In the ordinary course of business, we engage in activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements.
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.
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.
Financing Activities For the year ended June 30, 2023, net cash provided by financing activities of $1.3 billion, was primarily attributable to net cash inflows from funding debt of $1.1 billion, and the issuance and repayment of notes and certificates issued by securitization trust of $0.5 billion, partially offset by net cash outflows related to the repayment of a portion of our convertible senior notes of $206.6 million.
Net cash provided by financing activities was $1.3 billion for the year ended June 30, 2023, primarily consisted of net cash inflows of $0.5 billion from the new issuance and repayment of notes and residual trust certificates issued by securitization trusts, and by net cash inflows of $1.1 billion related to borrowing and repayment of funding debt.
The CFPB’s supervision of us will enable it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in investigations, enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.
In addition, we are supervised by the CFPB, which enables it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which in turn could result in matters requiring attention, enforcement investigations and actions, regulatory fines and mandated changes to our business products, policies and procedures.
In addition to the increase in servicing income related to the unpaid principal balance of loans outstanding, we recognized a gain of $8.3 million related to changes in fair value of servicing assets and liabilities during the year ended June 30, 2023, an increase of $2.0 million, compared to the same period in 2022. 67 Table of Contents 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.
The increase was partially offset by fair value adjustments related to servicing assets and liabilities, resulting in a $2.5 million lower gain during the year ended June 30, 2024, compared to the same period in 2023. 69 Table of Contents Loss on Loan Purchase Commitment We purchase certain loans from our originating bank partners that are processed through our platform and put back to us by our originating bank partners.
Provision for credit losses increased by $76.6 million, or 30%, for the year ended June 30, 2023 compared to the same period in 2022, driven by growth in the volume of loans held for investment and partially offset by improvements in the credit quality of loans outstanding.
Provision for credit losses increased by $128.8 million, or 39%, for the year ended June 30, 2024 compared to the same period in 2023, driven by growth in the volume of loans held for investment.
Technology and data analytics expense for the year ended June 30, 2023 increased by $197.2 million or 47%, compared to the same period in 2022.
Technology and data analytics expense for the year ended June 30, 2024 decreased by $114.0 million or 19%, compared to the same period in 2023.
We had $11.0 million and $27.0 million in debt outstanding under our sale and repurchase agreements disclosed within funding debt on the consolidated balance sheets as of June 30, 2023 and June 30, 2022, respectively. Refer to Note 9. Debt in the notes to the consolidated financial statements for further details on our sale and repurchase agreements.
We had $34.5 million and $11.0 million in debt outstanding under our sale and repurchase agreements disclosed within funding debt on the consolidated balance sheets as of June 30, 2024 and June 30, 2023, respectively.
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.
Liquidity and Capital Resources Sources and Uses of Funds We maintain a capital-efficient model through a diverse set of funding sources. 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.
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.
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. Net cash provided by operating activities was $450.1 million for the year ended June 30, 2024.
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.
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.
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.
Similarly, we may originate certain loans via our wholly-owned subsidiaries, with zero or below market interest rates. 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.
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.
While our estimate reflects assumptions we believe a market participant would use to calculate fair value, significant judgment is required. 77 Table of 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.
The increase is primarily attributed to an increase of $4.7 billion in GMV for the year ended June 30, 2023.
The increase is primarily attributed to an increase of $6.4 billion or 32% in GMV for the year ended June 30, 2024. GMV increased from $20.2 billion as of June 30, 2023 to $26.6 billion as of June 30, 2024.
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.
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 and requires us to make certain estimates and judgments that affect the amounts reported in our consolidated financial statements.
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.
Net loss of $985.3 million was adjusted for the add back of net non-cash items increasing operating cash flows by $967.4 million, and a net increase in operating cash flows from net changes in our operating assets and liabilities of $30.1 million.
Given the short duration and strong performance of our assets, funding can be recycled quickly, resulting in a high-velocity, capital efficient funding model.
Given the short duration and strong performance of our assets, funding can be recycled quickly, resulting in a high-velocity, capital efficient funding model. As of June 30, 2024 and June 30, 2023, our equity capital as a percentage of our total platform portfolio has remained relatively unchanged at 5%.
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.
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 such partner offers us and our obligation is secured by cash deposits.
Because certain of these accounting policies require significant judgment, our actual results may 75 Table of Contents differ materially from our estimates. To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows may be affected.
To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows may be affected. We evaluate our significant estimates on an ongoing basis.
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.
We define GMV as the total dollar amount of all transactions on the Affirm platform during the applicable period, net of refunds. 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.
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.
Processing and servicing expense for the year ended June 30, 2024 increased by $85.9 million, or 33%, compared to the same period in 2023. This increase was primarily driven by an increase in payment processing fees of $55.4 million, or 41%, related to increased payment volume for the year ended June 30, 2024.
Loans held for investment as of June 30, 2023 was $4.4 billion, an increase of $1.9 billion, or 76% as compared to the same period in 2022.
Loans held for investment as of June 30, 2024 was $5.7 billion, an increase of $1.3 billion, or 29% as compared to the same period in 2023. The allowance for credit losses as a percentage of loans held for investment increased from 4.6% as of June 30, 2023 to 5.5% as of June 30, 2024.
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.
Other Income, net Other 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, impairment or other adjustments to the cost basis of non-marketable equity securities held as cost, gains and losses on derivative agreements not designated within a hedging relationship, amortization of convertible debt issuance cost as well as gains (losses) on extinguishment, revolving credit facility issuance costs, fair value adjustments related to contingent liabilities, and other income or expense arising from activities that are unrelated to our primary business.
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.
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 62 Table of Contents originate a loan or not.
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.
For the years ended June 30, 2024, 2023, and 2022, Pay-in-4 represented 15%, 19%, and 22%, respectively, of total GMV facilitated through our platform while 0% APR installment loans represented 11%, 13%, and 21%, respectively. From consumers, we earn interest income on the simple interest loans that we originate or purchase from our originating bank partners.
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.
The Interpretive Rule may result in operational and compliance challenges and new litigation risks and scrutiny by federal and state regulators. 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.
As of June 30, 2023, we were in compliance with all applicable covenants in the agreements. Refer to Note 9. Debt in the notes to the consolidated financial statements for further details on our warehouse credit facilities. International We use various credit facilities to finance the origination of loan receivables in Canada.
As of June 30, 2024, we were in compliance with all applicable covenants in the agreements. 73 Table of Contents International We use various credit facilities to finance the origination of loan receivables in Canada.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+4 added−1 removed14 unchanged
Biggest changeBecause 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.
Biggest changeBecause 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. 78 Table of Contents Continued volatility in interest rates and inflation, which may persist longer than previously expected, may adversely impact our consumers’ spending levels, and ability and willingness to pay outstanding amounts owed to us.
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.
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 consumer segment, typically split by ITACs model score, financial product originated, age of loan, and delinquency status.
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
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. 80 Table of Contents
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.
Some of these contracts are designated as cash flow hedges for accounting purposes. For those contracts designated as cash 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.
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.
Factoring in the interest rate risk management program and the repricing of investment securities, as of June 30, 2024, we estimate that a hypothetical instantaneous 100 basis point upward parallel shock to interest rates would have a less than $50.0 million adverse impact on our cash flows associated with our market risk sensitive instruments over the next 12 months.
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.
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, 2024 and June 30, 2023, we were exposed to credit risk on $5.7 billion and $4.4 billion, respectively, of loans held on our consolidated balance sheet.
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.
Interest Rate Risk Our securities available for sale at fair value as of June 30, 2024 included $1.1 billion of marketable debt securities with maturities greater than three months.
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%.
Loan receivables are diversified geographically. As of both June 30, 2024 and June 30, 2023, approximately 11% of loan receivables related to consumers residing in the state of California. No other states or provinces exceeded 10%.
Removed
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.
Added
In addition, we have credit risk exposure in relation to certain off balance sheet loans sold to third parties where we have entered into risk sharing arrangements and through our retained interests in unconsolidated securitization trusts.
Added
As of June 30, 2024 and June 30, 2023, we have sold $4.2 billion and $0.4 billion, respectively, unpaid principal balance of loans which are subject to risk 79 Table of Contents sharing arrangements, of which our maximum exposure to losses was $81.2 million and $8.2 million, respectively.
Added
This amount includes our maximum potential loss with respect to risk sharing liabilities of $47.3 million and the fair value of risk sharing assets of $33.9 million, as of June 30, 2024.
Added
The fair value of notes receivable and residual trust certificate retained interests in unconsolidated securitization trusts was $51.7 million and $18.9 million as of June 30, 2024 and June 30, 2023, respectively.

Other AFRM 10-K year-over-year comparisons