Publicly traded fintech Affirm struck a strategic partnership with returns startup Loop Returns and will shutter Returnly, a company it acquired for $300 million just two years ago, Pro Fintech Deals' Ryan Lawler writes.

Why it matters: As it focuses on its core business and profitability, the partnership lets Affirm exit the returns business while maintaining a stake in the sector.

💭 Kim's thought bubble: Returns accounted for around $816 billion in lost sales for U.S. retailers last year, per an NRF and Appriss Retail report, spurring a wave of investment.

• About $179.5 million rushed into the post-purchase space, which includes returns, fulfillment and delivery, and loyalty and incentives, according to PitchBook.

What’s happening: Affirm plans to sunset Returnly by October and will work to transition merchants using its platform to Loop Returns.

• In return, it will take an equity stake in Loop, which has raised more than $100 million in funding to date.

How it works: Loop Returns founder Jonathan Poma says his team has been working with Affirm to make it as seamless as possible for merchants to switch.

• "A merchant, if they opt-in, can essentially send all of their Returnly software settings... to Loop," Poma says.
• To ease the process, Loop's R&D team built a tool to map those settings to the returns language it uses.

Flashback: Affirm acquired Returnly in early 2021 for $300 million in a mix of cash and equity.

• Not long after, PayPal bought competitor Happy Returns.

The other side: Loop Returns decided to stay private instead, raising a $65 million Series B round led by CRV, with participation from strategic investor Shopify.

• In describing that decision, Poma said, "I think leaving a business with our product-market fit, our customer base, and the partners we [had]... would have been selling the company short."
• "There's a whole lot of TAM that someone's going to go capture and I believed that we could be the winner," he added.

The big picture: Affirm, on the other hand, decided that a returns business was a nice-to-have and not a must-have for its business, particularly in a rough environment for publicly traded fintech companies.