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Illustration: Sarah Grillo/Axios

Buy-now-pay-later lender Affirm, which also filed to go public this week, seeks out the kind of customers that most lenders tend to shun, treats them very well, and builds loyalty that way.

Affirm also has a roaring business financing the purchase of Peloton exercise equipment, which is generally bought by a more well-heeled clientele, most of whom have abundant access to credit.

How it works: Affirm finances purchases on an item-by-item basis, often on a 0% interest basis.

  • In most cases Affirm gets paid by the merchant, out of the gross profit margin.
  • Consumers also sometimes pay simple interest, with no unpleasant surprises like late fees.

The big picture: Many younger millennials are sensibly wary of taking on debt. They prefer debit cards to credit cards, and like to feel in control of what little money they have.

  • For large purchases, Affirm offers what is effectively an old-fashioned installment plan, where you pay for the item over time.
  • CEO Max Levchin has said he likes to finance the purchase of items that last at least as long as the installment plan — things like mattresses or furniture or kitchen equipment. When consumers feel that they're paying off something they're still getting benefit from, he says, they're less likely to default on their payments.

Between the lines: Affirm has a longstanding deal with Peloton, which has been growing so fast during the pandemic that it now accounts for 30% of Affirm's revenues.

  • Peloton buyers are often older and richer than the core Affirm customer base, and more likely to be happy to use credit cards. But given the option to get 0% financing on their exercise bike, they'll take it.
  • By the numbers: Peloton paid Affirm more than $50 million just in the third quarter of this year. That more than makes up for the credit risk that Affirm is taking by lending to Peloton's customers.

The bottom line: The Peloton relationship has done a great job of boosting Affirm's revenues. But it's largely separate from the company's core business of providing simple credit products to the underbanked.

Go deeper

Affirm files for IPO

Illustration: Annelise Capossela/Axios

Affirm, a fintech company that lets online retailers provide pay-later options for customers, has filed to go public.

Why it matters: The company, founded by PayPal co-founder Max Levchin, is the latest Silicon Valley "unicorn" to file for an IPO as the year draws to a close. A number of tech companies are rushing to go public before the end of the year, including Airbnb and DoorDash, with Roblox and others also rumored to be in the pipeline.

House passes $768 billion defense spending bill

Photo: Andrew Harrer/Bloomberg via Getty Images

The House approved a $768 billion National Defense Authorization Act (NDAA) for the 2022 fiscal year in a bipartisan 316-113 vote on Thursday.

Why it matters: The annual bill, which authorizes Pentagon spending levels and guides policy for the department, would require women to register for the military draft, among other provisions.

2 hours ago - Politics & Policy

Republicans’ secret lobbying

Illustration: Shoshana Gordon/Axios

The five Senate Republicans who helped negotiate and draft the $1.2 trillion bipartisan infrastructure bill have been privately courting their Republican colleagues to pass the measure in the House.

Why it matters: House GOP leaders are actively urging their members to oppose the bill. The senators are working to undercut that effort as Monday shapes up as a do-or-die moment for the bipartisan bill.