Affirm Holdings Inc (AFRM) 2026 Q2 法說會逐字稿

Good afternoon, welcome to the Affirm Holdings second-Quarter fiscal 2026 earnings call. (Operator Instructions) As a reminder, this conference call is being recorded, and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call.

I'd now like to turn the call over to Zane Keller, Head of Investor Relations. You may begin.

Thank you, operator. Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website.

Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call will include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.

For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our Investor Relations website. Hosting today's call with me are Max Levchin, Affirm's Founder and Chief Executive Officer; Michael Linford, Affirm's Chief Operating Officer; and Rob O'Hare, Affirm's Chief Financial Officer. In line with our practice in prior quarters, we will begin brief opening remarks from Max before proceeding immediately into Q&A.

On that note, I will turn the call over to Max to begin.

Thank you, Zane. Not a lot to add to the results, which were excellent once again. Obviously, it's my biased opinion. But I did want to take a moment to announce that we will convene our next investor forum on May 12 this year. So (technical difficulty) at the event you'll hear from the larger subset of our management team, where we'll talk about our commercial and product initiatives and update our medium-term financial framework and the plenty of (technical difficulty) references.

Please look for additional information, including registration details on our Investor Relations website as we get closer to the event. Back to you, Zane.

Thank you, Max. For those of you that are interested in attending the upcoming investor forum in person, please reach out to us, and we will do our best to accommodate your request. Now let's get to your questions. Operator, please begin the Q&A session.

(Operator Instructions) Andrew Jeffrey, William Blair.

Appreciate it. Great to see the solid results here. Max, could you talk a little bit about the dynamic of -- the dynamics of your growth, namely the top five merchants, growing 23% and blending down as a concentration. As I recall, they had been growing faster than overall GMV. Can you just talk a little bit about what you're seeing. The new merchant ads look great, the transaction per active look great. Is the business truly widening out? Is that the right way we should be interpreting those results?

I might offer Rob up as the interpreter of these results, just because to be completely transparent. I -- well, I mostly look at the growth of the business through the lens of things like transactions per user, active consumers, active merchant numbers are really important to us. Generally speaking, of course, we want to have less concentration, more diversity.

But we also are frequently driven or drafting behind the growth and promotional initiatives of our partners, big and small. So I think it's a little bit difficult to sort of piece it out, but I imagine Rob has a much more detailed answer.

And tactically, Andrew, I would just point you to the fact that the top five that we disclosed for Q2 of FY26 is actually a different subset of merchants that we're comparing to in fiscal '25 in the same period. So I think all the more reason not to read too much into that stat. Obviously, there's -- it's been well publicized that we have a large merchant partner that was transitioning off of the Affirm integration.

And so that weighed on that metric, we have a new top five as a result of that. So I think that really this crispiest answer we can give there. But otherwise, I mean we're -- the business is growing quite well, and we're quite happy with the diversification, as Max alluded to, that we see in the GMV.

Ramsey El-Assal, Cantor Fitzgerald.

I was wondering, Max, if you could give us an overview of what you're seeing out there in terms of consumer trends, credit trends, overall economic health at such a tumultuous moment. And maybe also comment on what you've seen sort of quarter-to-date?

So the one-line answer is the consumer we see to date is quite healthy. So they're (technical difficulty) and willing to pay us back. They're borrowing money. Obviously, the growth numbers are out there in this print. So we are not seeing -- again, our consumer is now reaching quite a large subset of North Americans and growing nicely in the UK, but we're not everyone. We don't always say yes to a loan.

So it's a little bit selective, but we feel pretty good about both the demand and the ability and willingness to repay. I don't have anything dramatic or alternative to offer on the state of affairs in the current quarter either. I think we're not seeing a big deviation from what I just said about the past one.

Great. I think no news is good news. I appreciate your comments.

Will Nance, Goldman Sachs.

Very nice results. This one might be for Rob, but I was just hoping we could unpack sort of puts and takes in the RLTC margin, just looking back over the last year or so, there have been a ton of tailwinds both kind of structural to the company as well as sort of outside of your control, very favorable funding market tailwinds. And just wondering if you could kind of talk to the trajectory of margins as you see them from here.

It seems like if we look at the guidance in the remainder of the year, it seems like you're kind of still expecting to be hovering around 4%. As we think about -- you had a very large beat on gain on sale this quarter, 0% loans have been increasing as a percentage of the mix. And so just maybe wondering in your perspective, like should we be anchoring more to kind of the 4% range that you're kind of talking about for the second half of the year versus being comfortably above 4% over the last couple of quarters? And just any kind of meaningful puts and takes as you see it from here.

Yes, sure. I mean, as we outlined in the guide, I mean, we do expect to see RLTC take rates that are slightly above 4%. I think that's true in both Q3 and Q4 in the guidance that we provided. So we're going to stick to that, obviously, and that's the plan that we'll execute against. I think to your point on the puts and takes, I mean, I would probably frame it very closely to what we saw in Q2, to be honest.

We did see benefits on the transaction cost side, particularly on funding costs as we've seen cost of funds come in, particularly within the ABS market. So we would expect that trend to continue. We typically don't guide to specific transaction cost line items or even revenue line items. But in total, I think the take rates and the dynamics will be pretty similar to what we saw from a trend perspective in Q2 where there is a little bit of softening on a year-over-year basis in terms of revenue take rates.

Again, it's important to remember that we've driven a lot of 0% mix, and we think that's really good for the network. And then we are seeing really nice benefits on the transaction cost with funding costs being the clearest example there.

Jason Kupferberg, Wells Fargo.

Great numbers here. And it feels like some others in the space are trying to play catch up and maybe getting a little bit more aggressive over the past couple of quarters, in terms of pursuing more prominent presentment, looking to win new merchants, in some cases, offering cash back incentives to consumers. So I'm just wondering what you're actually seeing in the field?

Is this having any discernible impact on Affirm's merchant pricing just in terms of like-for-like take rates, your go-to-market strategy, anything along those lines? Because I think there's a big debate in the investment community on that right now, but your numbers seem to speak for themselves.

We do. We like to speak with numbers. Short answer to the question is, no. I think -- this is like a social science theory, so discount appropriately. But we are probably one of the noisiest environments as far as information headed for consumers' heads maybe ever, certainly in my lifetime. Like there's news every day and some of it reads like science fiction and some of it is science fiction or at least slop.

And so the -- you can have a deal and here's five paragraphs of explanation when it's valid and it's 5%, but only if it's Tuesday and like the sort of promotional go-to-market that we're seeing from a lot of our competitors just doesn't seem to make a dent in what we sell, which is always like on the nose, brain that simple, you are getting no

interest. If you buy this thing, you can split it into 12 parts or 24 parts or 6 parts and you'll be paying no interest at all. I think 0% sells as well as they do, not just because it's free money or free loan, it's because it's so easy to understand. And the thing that we've built over the last decade plus is when Affirm says, no interest, we actually mean no interest and there's no asterisks, there's no explanation as to what might happen if you are a penny shorter or day late.

And so our calling card has kind of become our moat, has become associated with us, which is inherently defensible position. We don't get into conversations with merchants around what if it's 0%, but it's not really 0%, like there's a lot of sort of details to hash out if your offers are not super crisp and transparent, and that's exactly what we do. So no -- we saw no effect in the sort of some of the more ultra-aggressive, whatever was 50% cash back or I lost track of the exact offers, but we did not see any (technical difficulty).

And just a quick follow-up. I'm looking at the GMV categories and that other category, you're now up to 15% of total. I think it's basically your second largest vertical, (technical difficulty) for your second largest. It's growing triple digits. Can you unpack what's actually in there? What are some of the major pieces are any of them getting to the size where you'd maybe start breaking them out on their own?

Sure. It's actually a great question, although Rob is rolling his eyes. We anticipated it because it is a juicy number, and yet it is nondescript. So it's actually -- if you wanted to look for diversification in the business, I wouldn't look at top five, I would look at the other. So if we broke it out into categories, you would see all sorts of cats and dogs of really exciting categories like I have a fledgling sticker empire.

And you really can't classify that other than novelty or other. And that's the -- that's what you see there. It's a huge number of relatively small merchants that are realizing that there is advantage if they do not offer Affirm, and so as that sort of knowledge spreads across the merchant base, it becomes somewhat more difficult to invent new categories for them.

And if you decide, well, we're going to have to be very, very precise, then you either end up in a giant bucket called other, what we chose or you start doing things like stickers and either novelty items or something that. So it just really is the long tail, and we're excited to serve them all.

And as we've seen certain categories get to a critical mass within other, we have broken them out. So services is a good example. We started breaking that out, I believe, two-quarters ago now. And so if and when we get to critical mass within other, we'll continue to be very disclosive there.

If my sticker (technical difficulty) what really takes.

Nate Svensson, Deutsche Bank.

There's a lot of exciting press releases from Affirm intra-quarter. I guess I wanted to ask on the bank charter news. I think that was pretty interesting. Just hoping you could talk more about the decision to potentially go down that path. It seems like there's been some evolution in your thinking on that particular topic over time. So maybe just more color on what you see the benefits from that being, what new products and services can be unlocked? And then I guess, any sense on the time frame or hurdles to clear as you have to get that secured?

Sure. I would quibble with the evolution of thinking merely because we answered this question a bunch of times, obviously, before we disclosed that we have applied. We've always been pretty clear there kind of -- one, a reason to have a bank charter is regulatory certainty. You operate as a bank partner, you want to know that your bank partner is on excellent footing that there are no hidden rocks for that particular bank.

And if you own a subsidiary you would presumably understand a lot better and that's the primary motivation of why we apply it. Obviously, the climate at the regulatory bodies that issue such approvals has changed and that's something that we track very carefully. The timeline is certainly years. So I would step away from any model modifications. We don't know if we get approved.

We don't know exactly when we do, if when we would, we would if we did, and there are all sorts of timelines that are prescribed by approver, to prepare, then to open, then to stay in a de novo period and then finally, to operate sort of with fewer restrictions. So it's definitely a long-term investment in regulatory certainty.

Down the road, you can start imagining products that are only possible with a bank charter in your available tools, that so far away, it's really not what we're talking about right now. But it is a great investment in our regulatory stability for the years to come, assuming actually end up in the approved category.

Dan Dolev, Mizuho.

Great results, as always. Just a quick question on the ABS deals, the execution there seems to be really, really strong. Maybe if you can make a few comments. And if I can squeeze just a very quick one on the AI, that was a big surprise. I just want to know how much of this AI Boost is actually contemplated in the guide and if it's fully rolled out great results.

I think Dan is asking about the guide. I'm not allowed to speak to the guide. In terms of the guide, we're not -- we have a pretty nice trajectory with those two product lines, but we haven't called out specifically how much is in the GMV guide there. It's definitely early days for the Boost AI. I was trying to sneak into the letter exactly how few merchants have adopted Boost AI.

Adapt AI has been around for a couple of years. It's generally speaking, batteries included part of the product. Boost AI is new and it's super cool because it does automated A/B testing, but it also has a channel -- it is a channel for incremental merchant dollars. Like the thing that I tried to describe and ultimately got edited down a little bit more.

Boost AI allows a merchant to say, you know what, I have $100,000 more dollars, I'd like to put into Affirm's specific promotions, 0% or just reduced APRs, you guys go an A/B test who would be the most likely to convert with that kind of offer in front of them, go deployed, I don't need to know exactly what happens. I just want to maximize my dollar-for-dollar investment into sales.

So it looks more and more like an advertising model versus a cost of acceptance model, which is exciting because it just gives our machine learning engineers a lot more freedom to really do some amazing things for our merchant customers. So super excited about the product. It is pretty early. We're not breaking out what it does for our numbers, so it tells a lot.

And then as for the ABS deal we just did and just generally, the market is still very constructive and the team is executing really well out there. The last deal we just priced was done with a spread of under 100 basis points. It's really remarkable. We haven't done that since 2021. And the weighted-average yield on the deal was below 4.6%.

Again, we haven't seen that kind of cost of financing since the (technical difficulty). And so we're operating and executing in the capital markets really the best we've seen post the rate movement part of the world. And it's a reflection of two things. One is just the continued confidence that the market has and our ability to control credit outcomes and deliver the kind of returns that we signed up to deliver. And of course, just really excellent (technical difficulty).

Moshe Orenbuch, TD Cowen.

The first question kind of asked about growth (technical difficulty) and growth your specific (technical difficulty).

You're really breaking up. You're really, really breaking up. We cannot understand what you're saying.

All right. Sorry. Can you hear me now?

We can. Much better, much better.

Okay. You talked about the growth in your merchants and both in the number of merchants and the growth at the merchants, but the both the Affirm Card and international expansion are kind of two areas in which you can get significant growth in addition to that. Could you just give us like some update how the attach rate and related stats on the Affirm Card.

But can you just flesh that out for us as to how those are going and what you -- how you see the development over the course of the next several quarters? And sorry for this background noise.

No worries at all. So the Card is just continuing to grow very quickly. GMV year-over-year for the quarter we're reporting was up just under 160%. Active cardholders went up 121%. 0% deals on the Card went up 190% year-over-year. So like the -- it's not the only growth engine, but it's a big growth engine for our metrics. And it's not material to the overall business.

It's no longer kind of a cool novelty product for our die hard users. It's helping us create more die hard users. So the Card is doing really well. We have a lot more planned for the Card. So we don't intend to slow down, if you will. Probably my personal focus on the product side of things is still predominantly on the Card and adjacent things in the Card. And then on the international, I'm happy to speak more.

And there's definitely some stuff in the letter, just talking to those numbers and more on the Card specifically. International, I don't know if you saw, we announced a couple of really nice deals in the UK specifically. A couple are US brands lighting us up or think that they will light us up soon in the UK. So we're -- and obviously, Shopify announcement was a little while ago, that scaling.

We're still actually not at sort of peak run rate there. So we expect to improve those numbers. Wayfair, we just announced literally a couple of days ago that we are live in the UK in the kind of a beta, pre-beta type of thing, but that's going to scale up, and they've been a partner in the US for a very long time. We have a bunch more.

VMO2 Is obviously, I think it's the largest or certainly one of the first or second largest voice company -- selling company in UK. So we announced that. We have a whole long pipeline of sales happening there, and we're excited about that. So -- and then there's more countries to come for sure. So both international and the card are still significant drivers. The card is much larger than international. International is now growing consistently at a pace that excites us.

Rob Wildhack, Autonomous Research.

One question on the updated outlook. As we see it now, you're kind of pointing to a slowdown in GMV growth to 30% in the third, 25% in the fourth quarter. I know a long time between now and the end of the fiscal year, but could you just talk us through the cadence there? And if there are any specific call-outs for the decel in the coming quarters?

No specific call-outs. I mean, we are obviously comping the transition with a large retail partner. Obviously, we had that headwind for comp perspective this quarter as well and grew at 36%. So really nothing specific to call out in terms of drivers for the decel. Yes, we'll leave it there.

And then one more on funding. We see -- you had the new forward flow deal, but we also see some of the headlines in concern around private credit, many of whom are Affirm loan buyers. So just what's the current temperature from the forward flow and loan buyer channel right now?

Yes. I think it's still extremely constructive. I think the conversations we're having with our partners is usually around having to disappoint them on how much allocation we can give them right now. And that's -- it's a qualitative read, but tends to be the conversation we're having today. The -- I think a lot of the conversation about the market more broadly really doesn't pick up the specifics of what Affirm's asset creates and the kind of people that we partner with.

We've been very selective about how and who we partner with. And that puts in a position, we think, to have a very durable set of partners who are really excited to continue to go deeper with us.

Rayna Kumar, Oppenheimer.

Could you just comment on what you're seeing out there in the regulatory environment? Like are you hearing anything about potential caps on BNPL rates? And if so, how would a firm react to that?

Certainly not hearing about potential caps on BNPL rates specifically. Obviously, a very dynamic set of conversations happening at the federal level about credit card rates. One good rule of thumb about realities, if you will, whenever Republicans are in the White House, you can expect more attentive and active attorneys general from all 50 states, both red and blue because they feel that you would expect a more relaxed posture by the federal regulators.

And whenever Democrats win, the White House, the executive branch starts -- puts more attention into various laws and regulations at the federal level. And then the state attention typically fades a little bit and it has as much to do with the employment of the people that work in these agencies, both at state and federal level and the overall posture of the various political elements we have.

And so right now, just from a practical perspective, obviously, we're tracking all the things, both federal and state level, and have an active conversation with all of our regulators, generally speaking, have positive and (technical difficulty) relationships with them. It doesn't hurt that we don't charge late fees, don't screw our customers, typically do the right thing as much as we can and then (technical difficulty).

So nothing sort of to exciting to report. Obviously, we felt compelled to apply for an industrial loan company and bank charter. So clearly, we believe that the sort of really grown-up regulators, FDIC in particular, we expect them to see us as a good actor that's prepared for the big weeks or the beginning of the big weeks. So generally speaking, we feel pretty good about it. But we are all regulated, always regulated by 51 distinct entities, federal and 50 states, and that's part of the job.

Dan Perlin, RBC Capital Markets.

I just want to jump in a little bit on the big nothing. And the question really is on the derivative benefits. You called out the Affirm Card sign-ups. So I kind of understand that. My bigger question is kind of the uplift in credit quality that comes with that consumer set. And then how do you apply those learnings to kind of everyday shopping for Affirm? Because the -- clearly, the GMV uplift across the board was pretty significant for those three-days.

Yes. And by the way, not to sort of -- I'll take the compliment, but I will point out, this is our first rodeo with that particular one, and we expect to get better and smarter (technical difficulty) nothing. And we're planning the next one and we're super excited about all the things we're going to do differently and just smarter. So there's more money that one understands, we're sure about that. In terms of -- I don't always refer to The Big Lebowski, sometimes I refer to the rest of the (technical difficulty).

So on the GMV boost, the conversion boost is really powerful. It's in the letter. You can see how well it did for us. It does skew higher credit quality because of the self-selection that always happens in reduced APR, 0% APR, it did have excellent second order effects. We saw outsized actually, the gains in card holder growth were outpaced the gains in GMV, which is kind of interesting.

I think that's right, if I remember correctly. I think the card growth was to handle and GMV went up 15%. No, I don't want to put myself without looking at the tear sheet, but the card grew even better than the GMV. So all of that was really solid. One thing that's worth knowing it's not in the question, but it should be. We have really good evidence, just lots and lots of months of data showing that folks that come in through a 0% APR loan are quite happy to use us for both interest-bearing and noninterest-bearing products.

There's a sort of an industry myth that you self-select into an APR and then you react violently when it changes upwards. That is not the case with the Affirm consumer. And you can sort of debate exactly why, but it is factually correct that people who sign up with a 0% deal, do not mind other offers that we give them. That's a -- because it's so effective, we're obviously very hard at work telling merchants about how this effective this is and inviting them into the next big nothing, et cetera. I said lots of things. I feel like I may have answered the question.

Matt Coad, Truist Securities.

One more maybe on like the other bucket in terms of new verticals that may enter that other bucket. There were some press releases over the quarter about entering B2B through the partnership with QuickBooks Payments and then maybe moving into the rent vertical as well. And I know it's kind of like early days for both. But I just was hoping that you guys could talk about the growth opportunity there.

And then kind of how you think about underwriting, especially in rents and how that may differ from your current book of payments and underwriting?

Yes. So I'll take it in the inverse order. But super important. The rent test is a very, very small test. It is definitely not our MO to take what is essentially a subscription product and turn it into a differently contour subscription product. So the product cannot be you want to pay your 12-month rent over 18 months, like that doesn't help our consumers. It's not the right product to build. That's not what this is.

The test we are running is, if we allowed you to time shift e.g., you get paid on the 16th, but your rent is due on the 15th, that's a strain on your personal finances, what if we allowed you to move that or split it into two parts. So that's the thing we're testing. Very small, the number of loans we are allowing through is countable on several people's hands sort of thing, at least in the very first portion of this and deliberately so.

This is not an area we think obviously going to happen. So we'll find out, we'll test, but put nothing in your model for now. On the Intuit side, that's actually super exciting, and it's not B2B. What it is, is there is a whole facet of the services world that gets built through QuickBooks. And until just now or whenever it launches, you would pay for these services with a credit card.

The service provider would tell you, it's going to cost you $5,000. And off you go, you decide if you want it as soon as we launch, which is on a fairly accelerated timeline, you'll -- the service provider will tell you, I can make this $5,000 over the course of six-months. So all you have to do is use Affirm, you already know the name. It will be in your invoice.

And so it is the usual Affirm, if you will, B2B2C, Intuit is a fantastic aggregator of small service providers businesses that bill consumers, we will be included in those invoices, and the consumer will be educated that they can pay overtime for these services. And we feel like we have unlocked another side of transactions that until recently were just not exposed to buy now, pay later, also super excited about that. And there's a lot more to do there, but that's the first step.

Yes. And then just the other point I would make on the other category to your first question, we do include our wallet partnerships in others. So as Max alluded to, there is sort of the long tail of merchants, but then wallets would be another part of other that is pretty high growth for us today.

Adam Frisch, Evercore ISI.

Given the value you generate for merchants with the 0% offers, what are your thoughts around the potential to continue to raise pricing there? It seems like there is an excess buffer between your fees to the merchant and the lower revenues they avoid by not having to initiate a 25% or 30% off sale. It seems like pricing did tick up to the long term, piece of this book flat for the short term, at least on page 16 of the deck. So maybe some color there on the mix between long term and short term and the potential to raise prices?

Great question. I would say, I think it does vary a bit by merchant size, and we have had nice traction with a couple of our go-to-market packages that we use for some of the platforms that help us aggregate distribution into smaller merchants. We actually have seen nice uptick of merchants starting with a base package and then moving into a higher converting package that includes more 0% offerings in their financing program.

So I think that is working for us in terms of the go-to-market motion. And then honestly, I think with some of the larger merchants, it's really on us to prove that 0% offerings drive conversion. And I think those conversations take time and are going to be a function of the success that we drive. And then it's on us to make sure that we're being compensated for what we're delivering to the merchant.

Yes. And really small add, I think flat pricing in a declining rate environment is actually the same thing as raising price.

Yes. What's the mix between short term and long term on the 0% book?

We haven't disclosed that.

Okay. If I could just squeeze in one more. The loss provisions ticked up a few basis points. Nothing crazy at all. I'm just trying to figure out why the stock might be down a couple of bucks here in the after hours. Did you see something in the quarter? Is it taking advantage of some strength this quarter and being proactive? Or just some color around that would be great.

I think I already said it, consumer is healthy. We are not seeing any disturbance in the force which give us freedom to optimize for RLTC. And so you can see the RLTC number is just shy of the upper side of the long-term goal. We manage credit to a NICO number. And if you look at the chart of the NICO curve, you'll see that these are like super tightly run lines that are just one on top of the other.

That's what I look at when I worry or don't worry about credit results. So that's -- the North Star is NICO doing, okay, and it certainly is right now. So I'm not sure I can help you interpret why the stock is down. So that's not -- I'm not the person. But yes, we're managing credit very, very attentively at all times.

I think you guys are doing a great job.

Thank you.

James Faucette, Morgan Stanley.

I actually want to follow up with one of the answers you gave just a moment ago in terms of the behavior of those that are coming in for 0% promotions versus maybe others. Can you give any more detail in terms of their frequency of engagement, what products they're tending to be attracted to. It seemed like you were suggesting they would use also interest-bearing and maybe gravitate towards the card.

But just help us understand like where you're seeing success, continuing to engage with those customers and what that behavior looks like, say, versus those that come in either through kind of interest-bearing or very short duration, 0%?

Everything you just said sort of answers your own question a little bit already. The very last thing you said is not what I said, and I don't want to imply that. In other words, I would not encourage you to think of short-term zeros as a great feeder into something else. What I was trying to say is zeros, writ large, short and long term. And obviously, longer-term zeros are a higher form of value.

If you're getting a 10-months 0% loan or 12-months 0% loan for a large ticket purchase. That's an extraordinary deal like that's exactly sort of the conversation with merchants around don't run at 25% off sale, pay us 11% and offer 12-months, plus or minus 0% loans on your large items. So -- and you're right, though, I did suggest that a zero as the first loan does not preclude, in fact, does not seem to bear any relevant as to your propensity to take out an interest-bearing loan, which is mostly just a freedom for us to correctly price the transactions whenever merchant do or do not subsidize the interest rate.

Because maybe the shorter form of the summary here is consumers we sign do not fold by and large, into only transact with X type of transaction, only transaction with Y type of transaction, they cross-pollinate nicely. To the sort of, who is more engaged, that's a great question. We're not -- I'm not sure I want to talk too much about it.

But a lot of our product strategy is shaped by the observations that consumers that come in through a particular type of a transaction, find us in more and more services. And a lot of how Boost AI and Adapt AI actually work, it's the fact that we are seeing consumers across multiple differentiated services. So you start typically the point of sale, you end up taking out the card, you might use Affirm from anywhere before that, which is sort of the cardless version of the card that was developed a couple of years prior.

As you start compounding, if you will, these different kinds of Affirm use, your engagement goes up, your transactions per user goes up, your overall annual spend on Affirm goes up, and that's exactly what we want. So we are absolutely very attentive to what else might we offer you as you're increasing your transactions per user and your total Affirm spend? And the 0% deals of various kinds are super valuable because they have such an outsized impact on propensity to convert.

Reginald Smith, JPMorgan.

Congrats on the quarter. Most of my questions have been answered. I did have one. A question I get a lot from investors is whether your expansion into some of these newer categories, home improvement, medical, auto repair signals anything about, I guess, your base for your core retail BNPL business, whether it's competition or anything like that or maybe even a shrinking opportunity.

I guess, what would be your reaction or response to those questions. And then how did you decide or what was the signal that confirmed that now is the time to kind of make that move into those new verticals? And then lastly, is there any link or relationship between moves to those verticals, maybe getting a bank charter. I'm just curious whether the lower funding and the longer duration of deposits played any thinking or any role in that decision, if that?

I'll go backwards, Reggie. So short answer to the last one is no. We are not figuring any sort of a short-term reduction in cost of funds. We need to get approved. We need to go through de novo, we need to gather deposits from which we could lend and 10-years into the future, we can talk about, hey, now that we have a lot of deposits, can we leverage some of that to fund our own book.

So that's very, very far away. That's not even a little bit related to these new categories. The way we choose new categories is entirely based on consumer pull. And because we have a card that works everywhere, Visa is accepted, we get a really high-fidelity daily print of, oh, check it out. People are using this for this thing.

Well, that's interesting. We should maybe talk to some of the people that sell whatever that thing is. And we knew that auto parts and adjacent things has been a huge component of our growth for a very, very long time. It made a ton of sense to go talk to people that sell a lot of parts and ask them, okay, so if we integrate it directly instead of having our consumers come through the card door, what would that product look like?

Would there be a reason for us to do something a little bit deeper? Would you be interested in sponsoring zeroes et cetera. So that's roughly how we pick new categories. And then the reason we went to new categories, the very short answer is we're building a network like Visa is accepted everywhere. Amex is accepted everywhere, et cetera.

We are -- we see ourselves as a 21st century version of American Express sometimes and the goal is to be on every convenience store door and all the doors, all the online doors, all the off-line doors, Affirm wants to be the universal acceptance mark. And so it's not a matter of which one do we choose? It's which one do we choose next. And some number of years from now, we hope to just be a thing that consumers expect to see at any retailer big and small, online and offline.

Mihir Bhatia, Bank of America.

So just wondering if you could talk about the announcement with Fiserv earlier this quarter. Maybe just describe what you're trying to do there, the interest you're seeing in the product from banks, regional banks. Anything you can share on how the product would work in practice, unit economics?

Definitely a little bit early to talk to the unit economics given we've just announced a partnership there. But it follows our partnership with FIS, and we're certainly not stopping there. We are seeing excellent interest, hence, the opportunity to partner more and broader in the community of folks providing services to such financial institutions.

We think that we should not be the only people issuing debit cards with buy now, pay later capacity on them and there's already on the order of 0.5 billion debit cards in America and many, many, many banks where people bank locally have a debit card, have a banking brand they love and don't feel like switching out of, and would love to see buy now, pay later capabilities from their bank.

Their bank on the other hand, does not have a software engineering team or an underwriting team or capital markets team. We do. We are excited to offer our platform to anyone who wants to be on it. The best way of reaching some of these folks, given their technical limitations is through their core banking software providers and their integration teams. That's what we're trying to do here.

And at some point, we'll hopefully start talking a little bit more about specifically who will go first, who will go second in the actual underlying financial institution customer, but we're just not quite there yet.

Got it. I understand. And can I ask you just a follow-up on Affirm Card just generally. I was wondering, Max, if you're thinking on the card has evolved as you've seen customer usage of the card. I think early on, you've certainly talked about it as wanting it to be like the customer's top of wallet everyday card. Is that how customers, consumers are using it today? Any evolution on that thinking?

Actually, Michael said something a little while ago, which sort of seemed obvious after I heard him say it. We have 25 million active users, and we still keep on talking externally but also kind of internally as if we have exactly one product that fits them all, like no one at that sort of scale has, oh, yes, we got this one thing and everybody should just use that.

And it is -- the card is used fairly differently by different consumer categories. We have a category of consumers who is absolutely using the card as a top of wallet, every transaction. They're both power users, but they're also -- like they've completely been, I don't know the color of our logo is, I guess, kind of purple. So maybe they've been purple pilled, is that the word?

But I'm making this up as I go along obviously, but the -- so that group exists, it's not small anymore, but it is a minority. Majority of our consumers still use the card as a considered purchase when the transaction really matters to them, they pull out their Affirm card. They also see Affirm logo. They might just go through the integrated path.

If they're active Apple Pay, Google Pay, Chrome autofill, Shop Pay users, half a dozen huge wallet partnerships that we power. And all of those are available to them. And so they don't always reach for their card even if they have it in their wallet. And that group certainly thinks of us as a considered purchases. But again, within that group, there are people for whom $50 is a highly considered purchase.

And they actually -- if you turn to the first page of my section of the letter, we broke out just for the big nothing the GMV lift merchants saw by size of basket, which is kind of a really -- we don't really talk about it that much, but you can see there's like a nearly perfect linear curve as the size of the transaction increases the GMV uplift by offering 0% goes up as well.

And that explains a lot about the sort of the customer differentiation. And so we will, at some point, start talking a little bit more about the customer segmentation that we have, a consumer segmentation that we have internally, definitely not prepared to give a lecture on this topic right now. But it's starting to bifurcate, trifurcate fairly rapidly into groups that we need to serve a little bit differently.

And we're actually very, very excited about that. Like nothing is better than as a product person to know you have market pull and the market is teaching you, we need a card that does this. And then we have another group and they want something else entirely and building that is cheaper and cheaper thanks to all these programming techniques that we now have. So we're excited to build more software.

Darrin Peller, Wolfe Research.

Last quarter, I know you mentioned you were in discussions with some key PSP partners really to become a default payment method. And I think you were already live with one. So maybe just touch a little more on the benefits you're seeing from that PSP default method and how these conversations have evolved, maybe just when you're in these conversations with PSPs, what's the pitch like to really convince them?

It just goes right back to the thing I said earlier, 10-years ago, if you said Affirm should be right next to Visa, Mastercard, American Express Discover, your average payment processor would say, what firm, sorry, if you're on the phone or Zoom. That's not the question anymore today. Fortunately, our name has now a certain degree of weight. And becomes a conversation of, does this help my overall conversion?

Does this -- how does this change my economics for -- as I pitch downstream merchant for my overall services. And so I'm not sure I'm prepared to break it out into a ton of detail, but the default on just means the consumer sees our logo as they select a way they're going to pay for a thing or a service. And for a large percentage of the merchants, both within these partnerships and outside, our logo is visible not just on the payment sheet but up funnel where the consumer finds out that Affirm is available and they can split their payments and expect no fees.

Okay. All right. I mean -- but I think that could be a key driver for you guys, assuming it's sticky and it actually resonates. I'm just curious if there's been progress. But anything more you could share on that. But then my other question is just around agentic. Yes, go ahead.

Sorry. I mean I think we think about platforms really when we talk about PSPs as well. And so obviously, the Intuit announcement is one that we're incredibly excited about. I think the size of that platform is immense and it taught us to make sure that we maximize the opportunity and build the biggest program there that we can. So that's one that's been in the pipeline that we're excited to have out in the public today.

Right. That makes sense. I guess just a quick follow-up would be on any quick comments you can give us on your latest view around agentic commerce. I know it's not a quick topic, but just given that it's going to be -- it could become such an important part of the ecosystem. Maybe curious to hear what steps the company is taking just to make sure you're ready to capture this kind of spend.

I'm laughing because it's Michael's turn to roll his eyes. We got the meaning of life question and short answer is there's no short answer. Let's see, still bullish, still think that it is hugely accretive for our financial product flavor to have agents that judge whether a financial service is a good one or a bad one. I think as the bots learn more and more about how things like deferred interest, late fees and compounding interest work, it's easier and easier to stand out because we don't do any of those things.

So I think all of that sort of structurally, we benefit from that. In terms of just being there and making sure that we are in the mix, we certainly are very, very active. I think we're -- I can't always keep track of exactly what announcements we made. So I'll punt on saying exactly where we'll pop up next or first or second, but we are certainly very engaged with the industry trying to understand what's the best way of delivering our products.

But you should absolutely expect us to be in all those stories. I think I continue to maintain from the sort of pure consumer product perspective that there are purchases that are more like entertainment and they will continue being largely human-driven and purchases that are more sort of human computer partnership where AI will help you research the product you're going to buy and maybe even serve up the final decision for you and then you'll pull the trigger, but the person will still be human supervised.

And then there will be a large transition to transactions that just don't need humans anymore, and those will be wonderful, and you want to make sure that you're included in those too and some form of a default selection is available and some of those conversations are certainly very active, not just between us but the industry.

Bryan Keane, Citi.

Jumped on a little bit late. But with the spike in the active merchant growth up to 42%, I know that was running in the low 20s for a while for a few quarters and then moved up last quarter and then again a significant move. Is that one relationship? Or is that multiple relationships? Just trying to get a better understanding of the growth there?

Yes. I would say the inflection in growth is being driven by some wallet partnerships that we have. We're including merchants from those wallet partnerships in that merchant count. So that has been an accelerant from a growth perspective.

Got it. And how long does it take to get the corresponding volumes from those merchants from those wallets?

Well, I mean, obviously or maybe not obviously. I mean we're only counting the merchant, if they're active with us. We're not counting doors if the merchant isn't taking transactions from Affirm. So we're only counting active merchants, whether it comes through a wallet or it comes through a more direct integration with Affirm.

Yes. And --

That is just a function of scaling with the merchant, right?

Right, right. Yes, that's what I was thinking about is how fast it takes to scale with those particular merchants, maybe that they're not directly integrated. Okay. And then the other question just on -- that I had was on adjusted operating margins. Just thinking about the first half versus second half, obviously, strong margins in the first half.

And then looks like a slight deceleration in margin growth that you're just probably being a bit conservative there. But anything to think about in terms of the adjusted operating margins first half versus second half?

No. I mean I think we did have a really nice trajectory over the course of last year. So to your point, the margin expansion is a bit lower in Q4, for example, in the guide than it was in Q2. But we are approaching -- we're quite happy with the margin profile, and we're signing up for more FY26 margin expansion in this version of the guide than we had days ago.

So yes, I think it's just continued operating leverage and continuing to scale nicely, and most of that is driven by the strong growth that we're seeing in revenue less transaction costs.

John Hecht, Jefferies.

Thanks for all the color and details. Most of my questions have been asked. I guess one thing I'm just curious about is, you're now -- forward flow agreements with private credit counterparties are an increasing part of the funding sources. I know you've been selling assets to off-balance sheet partners over time. But I'm wondering, is the characteristic of what the private credit partners want in such a way that it changes the mix of what you end up holding on balance sheet? Or is it all the same?

No, definitely not. We still have an approach that says we allocate loans to partners on a vertical slice. And so our partners generally want broad exposure to everything that we originate and we're committed to not selecting particular assets for on and off. The only exception to that or asterisk is there's certain concentration limits or certain even test products that maybe don't get into our normal funding flows.

But for the vast majority of the stuff that we originate, it's randomly allocated to partners and we just decide how much we're going to push to each partner. And I think the reason for that approach from a lot of our partners is when they think about partnering with us, they're not thinking about specific assets, our assets turn over way too fast for that.

They're really thinking about partnering with us as a source of origination flow. And they spend a lot of time making sure that they have confidence in how the company will operate, not thinking about like a pool of assets like you might see with a longer-dated, longer duration personal loans.

Timothy Chiodo, UBS.

Great. So in agentic commerce, I want to circle back on the topic Darrin brought up. So broadly speaking, we can think about three-types. There's using ChatGPT to search and then clicking off. There's using ChatGPT to search and then staying within the interface and using an instant checkout button, if you will. And then, of course, there's the full agentic which, Max, I think you were alluding to.

If we just can find this kind of conversation to the instant checkout portion, when we go into ChatGPT today, we can see the Apple Pay button, we can see the Stripe link button, and we can see pay with card. Is it possible that over time, we will see the Affirm button within that ChatGPT and other agentic platforms within that user interface for the, let's called it, the instant checkout type of transaction?

It's possible, but we're making no such announcements right now. I think it's really important to note that this is very, very early. The entire agentic commerce thing is still super early. But yes, I think there are -- there's absolutely room, let's go down that road, there's definitely room for Affirm button in all possible forms of commerce, including agentic commerce.

If there's human supervision involved, you should hold us to the account -- to account of, hey, did you place your button there? And if you have not, why haven't you and when will you? I think that's a reasonable expectation from our shareholders or our analysts.

And also fully acknowledging that you can use virtual card, Affirm Card in that channel as well, but I was specific to the button, and I appreciate your answer there.

You can definitely -- I mean, last I checked, I actually haven't tried it in a little bit, but you can find Affirm on the Apple Pay, through the Apple Pay, if you go there. I think we're -- and we were -- who is not here with us, but I would be remiss without mentioning his mantra, and we love channel conflict. If you believe that you are a network, you better be included in every wallet.

This now concludes our question-and-answer session. I would like to turn the floor back over to Zane for closing comments.

Thank you for joining the call, everyone. We appreciate the wonderful list of questions you all submitted. I look forward to seeing many of you on the conference circuit and talk to you again soon.

Thank you. Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines and have a wonderful day.