Affirm stock jumps on Target deal ahead of holiday shopping

A shopper leaves a Target store in New York on August 15, 2021.

Scott Mlyn | CNBC

Shares of Affirm jumped 20% on Wednesday after retail chain Target began offering customers the online lender’s installment loan service for purchases over $100.

Target said in a blog post that it is teaming up with Affirm and smaller rival Sezzle as consumers gear up for the holiday shopping season.

“We know our customers want simple, affordable payment options that fit their family’s budget,” Gemma Kubat, president of financial and retail services at Target, said in the post.

Buy now, pay later, or BNPL services, which are installment loans often interest-free, have grown in popularity as retailers respond to consumer demands for easy ways to pay without incurring debt. BNPL providers typically add a payment button to a retailer’s website and then take a share from the merchant on each transaction.

RBC Capital Markets estimates that a BNPL option increases retail conversion rates by 20% to 30% and increases the average ticket amount by 30% to 50%.

Affirm went public in January at $49 a share, and its share price has since jumped more than 150% to $133.70 on Wednesday. The company’s market capitalization exceeded $35 billion.

A spokesperson for Affirm confirmed the Target deal and said in an email to CNBC that a recent survey conducted by the company showed that more than half of Americans “are interested in using a pay-over-time solution this holiday season.”

Affirm’s biggest announcement came in late August, when the company said Amazon was offering its service for purchases of $50 or more on the site. Affirm’s shares soared 47% as the company became Amazon’s top third-party installment loan provider.

Earlier in August, Affirm partnered with Apple to offer financing for iPhone, iPad and Mac.

The BNPL market is taking off well beyond Affirm. Square agreed in August to buy Australia’s Afterpay for $29 billion, the biggest tech deal of the year. And in June, Swedish fintech company Klarna raised funds at a valuation of $46 billion, following a partnership with Macy’s in late 2020.

Target said in its post that customers can apply to Affirm to get started. Then, after filling a shopping cart on Target’s website, a shopper can choose to pay with Affirm and decide on a monthly refund.

“You’ll never pay more than you agreed to at checkout because Affirm doesn’t charge any late or hidden fees,” Target said.

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