Business Models and Unit Economics

In November 2020 Affirm, the buy-now-pay-later lender founded by the PayPal co-founder Max Levchin, filed to go public. Its prospectus showed that a single merchant, the exercise-bike maker Peloton, had accounted for about 28% of its revenue in the fiscal year to June 2020 (reported). Affirm listed on Nasdaq on 13 January 2021 at $49 a share, and in the pandemic boom it looked like the future of consumer credit: a lender that showed the total cost of a purchase at checkout in dollars, charged simple interest and no late fees, and was paid by merchants as well as shoppers. Then rates rose. Affirm's cost of funds increased, the prices investors paid for its loans fell, Peloton's sales collapsed, and its shares fell about 90% from their peak (reported). In February 2023 Levchin cut 19% of the staff, writing that "we hired a larger team than we can sustainably support."

Three years later Affirm was a different company. In the fiscal year to June 2026 it reported about $50.2 billion of gross merchandise volume, about $4.3 billion of revenue and about $417 million of GAAP operating income, against an operating loss of about $87 million a year earlier (10-K). Its loans had not become safer in any dramatic way. What changed was the unit economics: which merchants it served, how it funded its loans, and how much of each dollar of volume it kept after losses and funding. This chapter explains how to read those economics, starting with the take rates of the payment companies Affirm sits beside at checkout.