What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-08-25 compared with 2022-08-29 · 136 added, 151 removed, 348 unchanged (45% of the section changed)

9 unchanged sentences

Since our founding, we have charged $0 in late fees for missed payments.

We never profit from consumers’ mistakes, and we are always transparent in our product offerings.

We do not profit from consumers’ mistakes, and we are transparent in our product offerings.

By adhering to these principles, we have built enduring, trust-based relationships with consumers and merchants.

1 unchanged sentence

Our proprietary technology’s ability to price and assess risk at a transaction level provides a unique advantage compared to legacy payment and credit systems.

Our approach to risk management is core to our business model and has been proven to lead to low fraud rates, higher approval rates compared to traditional credit underwriting models, and low credit losses.

Our models have been built on billions of data points, including data from over 71 million loans and over seven years of repayments.

Our approach to risk management is core to our business model and has been proven to lead to lower fraud rates, higher approval rates compared to traditional credit underwriting models, and lower credit losses.

Our models have been built on extensive data points, including data from almost 132 million loans.

Furthermore, our risk management models are designed to continuously improve over time, becoming more precise and efficient with each transaction powered by our platform.

What this means for consumers is increased purchasing power and more control and flexibility.

As of June 30, 2022, over 23 million consumers have trusted Affirm as their transaction partner.

As of June 30, 2023, almost 36 million consumers have trusted Affirm as their transaction partner.

By utilizing our unique risk model predicated on sophisticated machine learning algorithms, proprietary data, and product-level underwriting, we can serve consumers across the credit spectrum and price risk across transaction types.

5 unchanged sentences

Our merchants span a diverse range of industries, including sporting goods and outdoors, furniture and homewares, travel and ticketing, apparel, accessories, consumer electronics, and jewelry.

No single merchant accounted for more than 10% of total revenue for the fiscal year ended June 30, 2022.

We have two loan product offerings:

Pay-in-4 and Core loans.

Pay-in-4 is a short-term payment plan with four biweekly 0% APR installments, while Core loans include all monthly interest-bearing installment loans and 0% APR installment loans.

Our business model is designed to align with the interests of both consumers and merchants.

Table o f Contents

From merchants, we typically earn a fee when we help them convert a sale and power a payment .

1 unchanged sentence

we generally earn larger merchant fees on 0% annual percentage rate (“APR ”) financing products.

We have two loan product offerings:

Split Pay and Core loans.

Split Pay is a short-term payment plan with 0% APR, while Core loans include all interest bearing installment loans and 0% APR monthly installment loans with term lengths greater than three months.

For fiscal year ended June 30, 2022 , Split Pay and Core 0% loans represented 22% and 21%, respectively, of total Gross Merchandise Volume (“GMV ” ) facilitated through our platform.

For fiscal year ended June 30, 2021, Split Pay and Core 0% loans represented 11% and 32%, respectively, of total GMV.

For fiscal year ended June 30, 2023 , Pay-in-4 and Core 0% loans represented 19% and 13% , respectively, of total Gross Merchandise Volume (“GMV ” ) facilitated through our platform.

For fiscal year ended June 30, 2022, Pay-in-4 and Core 0% loans represented 22% and 21%, respectively, of total GMV.

This structure incentivizes us to help our merchants convert sales and increase AOV through the commerce and technology solutions offered by our platform.

From consumers, we earn interest income on the simple interest loans that we originate or purchase from our originating bank partners.

From consumers, we earn interest income on the interest bearing installment loans that we originate or purchase from our originating bank partners.

Interest rates charged to our consumers vary depending on the transaction risk, creditworthiness of the consumer, the repayment term selected by the consumer, the amount of the loan, and the individual arrangement with a merchant.

Because consumers are never charged deferred or compounding interest or late fees, we are not incentivized to profit from our consumers’ mistakes or misfortunes.

We also facilitate the issuance of virtual cards directly to consumers through our app, allowing them to shop with merchants that are not fully integrated with Affirm.

When these virtual cards are used over established card networks, we earn a portion of the interchange fee from the transaction.

We also facilitate the issuance of virtual cards directly to consumers through our App as well as the Affirm Card, formerly “Affirm Debit+”, which allows consumers to shop with merchants that are not integrated with Affirm.

Merchants may also elect to use the virtual card as a method to facilitate the offering of installment loans to allow their customers to pay over time.

Merchants are charged an interchange fee for each successful Affirm Card transaction, and a portion of this revenue is shared with us by our card-issuing partners.

We have already achieved significant scale, facilitating consumer purchases of $20.2 billion in GMV in fiscal year 2023.

Our business transforms the way consumers and merchants transact by creating a powerful platform built upon honest financial products.

We started our business with our foundational pay-over-time solution at checkout, and have since continued to innovate and expand our product suite by building and acquiring solutions that address the evolving needs of both consumers and merchants.

Our platform comprises three core elements:

point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.

We started our business with our core pay-over-time solution at checkout, and have since continued to innovate and expand our product suite by building and acquiring solutions that address the needs of both consumers and merchants.

We plan to further add to our solutions over time so that we may offer more benefits to our consumers and merchants.

The current suite of solutions we provide to our consumers and merchants is outlined below:

Consumer features

• Affirm at Checkout.

When purchasing from one of our partner merchants, consumers can choose Affirm as a payment method, giving them the option to pay over time with terms ranging from weeks to months.

7 unchanged sentences

Consumers never pay more than what they agreed to at checkout, even if they miss or are late on a payment.

• Virtual card.

Consumers can apply at affirm.com or via the Affirm app and, upon approval, receive a single-use virtual card to use digitally online or in-store at merchants that accept Visa cards.

Table o f Contents

our consumers to use our pay-over-time solutions at merchants that are not integrated with Affirm.

Merchants may also elect to use virtual cards as a method to facilitate the offering of the installment loans to allow their customer’s to pay over time.

• Affirm app and marketplace.

Our app provides tailored and exclusive offers from merchants based on consumers’ preferences.

Consumers can also use the app to set repayment dates that align with their monthly financial budgets.

• Affirm Marketplace.

Our Affirm app and website provides tailored and exclusive offers from merchants based on consumers’ preferences.

Consumers can apply at affirm.com or via the Affirm app and, upon approval, receive a single-use virtual card to use online or in-store.

During the fiscal year ended June 30, 2023, 20% of our transactions occurred on the Affirm marketplace.

• Affirm Card.

Affirm Card allows consumers to link a bank account to pay in full, or pay later by accessing credit through the Affirm App.

Users can take advantage of a unique in-app post-purchase feature that allows them to instantly convert any eligible debit transaction into an installment loan.

Consumers can also apply for a pre-purchase installment loan via the Affirm app and, upon approval, use the Affirm Card online or in-store to complete their purchase.

Consumers can transact either via a physical debit card or a virtual card.

• High-yield savings account.

Through the Affirm app and in partnership with Cross River Bank, we offer an FDIC-insured, interest-bearing savings account, with no minimum deposit requirements or fees.

• Affirm Debit+ card.

Through a physical card and/or the customer’s mobile wallet, and in partnership with Visa, Affirm Debit+ allows consumers to pay upfront, from their bank account, or pay later, by using a unique post-purchase feature to instantly convert any eligible transaction into installments in the app.

Merchant features

1 unchanged sentence

Through our direct application programming interface (“API”), designed for use by developers, merchants can easily incorporate Affirm into their payment and product pages, enabling merchants to achieve incremental sales, expand their target markets and increase customer conversion and loyalty by solving affordability for consumers.

Our dollar-based merchant retention rate has consistently exceeded 100% for each cohort of merchants that joined our platform since 2016.

We are also able to help merchants increase demand for higher net AOV items.

15 unchanged sentences

Our high-touch client success team partners with our merchants to analyze performance and provides custom recommendations to optimize AOVs and conversion rates.

• Affirm app.

Merchants also have access to Affirm’s app, which provides a marketplace that allows them to efficiently reach customers.

Table o f Contents

• Affirm app and marketplace.

Merchants also have access to Affirm’s app, which provides a marketplace that allows them to efficiently reach customers through featured placements and personalized advertisements.

• Affirm website and developer documentation.

3 unchanged sentences

We believe this results in fewer abandoned carts and higher conversion rates.

Prequalification also personalizes the shopping experience for consumers, since once prequalified they may receive customized offers based on their approval amount.

Prequalification also personalizes the shopping experience for consumers, once they are prequalified they may receive customized offers based on their approval amount.

• Simple and compliant solution.

2 unchanged sentences

Once a merchant has integrated our API, we handle the regulatory aspect of the loans facilitated through our platform, irrespective of state, province, or jurisdiction.

• Returns management.

Affirm completed its acquisition of Returnly in May 2021.

Returnly helps merchants make product returns and exchanges seamless.

With Returnly, eligible consumers receive an instant merchant credit upon initiating a product return, allowing them to order a new or replacement item immediately versus waiting until their return is fully processed.

Returnly assumes the product return risk from the merchant and settles orders in real time.

Returnly’s offerings are designed to help merchants drive higher repurchase rates, increased revenue from returns and higher customer satisfaction.

Our Competitive Advantages

7 unchanged sentences

For example, the additional data we have on repeat consumers enables us to make better underwriting decisions and therefore generally results in proportionately lower provision for credit losses expense on GMV from repeat customers than from first time customers.

For the fiscal years ended June 30, 2022 and 2021, 81% and 72% of the transactions facilitated through our platform were driven by repeat consumers.

For the fiscal years ended June 30, 2023 and 2022, 88% and 81%, respectively, of the transactions facilitated through our platform were driven by repeat consumers.

• Improved direct expense efficiency enables us to create even more compelling offers for consumers and merchants, in turn attracting more consumers and merchants to our network.

The net result is that we are building a consumer and merchant ecosystem on our platform that we expect to continue to grow and monetize over time.

Table o f Contents

Engineering and technology infrastructure

9 unchanged sentences

Our technology is built to handle the immense scale of our data-driven operations — we are capable of processing thousands of checkouts per minute.

Our machine learning-based risk models are currently calibrated and validated on billions of individual data points, based on a complex set of variables, and are custom built to effectively detect fraud, price risk, and provide customized recommendations.

Our machine learning-based risk models are currently calibrated and validated on an extensive amount of data points, based on a complex set of variables, and are custom built to effectively detect fraud, price risk, and provide customized recommendations.

We consider data beyond traditional credit scores, such as transaction history and credit usage, to predict repayment ability, and leverage this with real-time response data.

4 unchanged sentences

Our integration with our merchant partners allows us to consider the product that the consumer is purchasing when we assess a credit application.

We believe our proprietary risk model has translated this advantage into the ability to increase approval rates without deterring consumers with higher APRs or increasing our rate of expected credit losses, enabling us to facilitate a greater volume of transactions from a wider and more diverse segment of consumers.

We believe our proprietary risk model has translated this advantage into the ability to facilitate a greater volume of transactions from a wider and more diverse segment of consumers.

The greater accuracy of our risk model also generally benefits our provision for credit losses on loans we retain.

4 unchanged sentences

For more information on how our risk model automates the underwriting process for our originating bank partners, see “— Regulatory Environment — State and provincial licensing requirements and regulation.”

Table o f Contents

Deep capital markets expertise

We believe our capital management strategy is a key competitive differentiator, enabling us to effectively scale our network, support GMV growth across our ecosystem, and efficiently recycle equity capital.

Our durable funding model consists of three primary channels - warehouse facilities, programmatic issuance of term and revolving securitization transactions, and forward flow commitments.

Our durable funding model consists of three primary channels — warehouse credit facilities, programmatic issuance of term and revolving securitization transactions, and forward flow commitments.

Within each channel, we endeavor to maximize our financial flexibility by partnering with a broad spectrum of counterparty profiles including depository institutions, investment banks, strategic investment funds, pension funds, asset managers, and insurance companies.

3 unchanged sentences

legacy payment methods, such as credit and debit cards, including those provided by card issuing banks such as Synchrony, J.P.

Morgan Chase, Citibank, Bank of America, Capital One, Goldman Sachs, and American Express;

Morgan Chase, Citibank, Bank of America, Capital One, Bread Financial, and American Express;

technology solutions provided by payment companies such as Visa and MasterCard;

1 unchanged sentence

and other pay-over-time solutions offered by companies such as Block and Klarna as well as new pay-over-time offerings by legacy financial and payments companies, including those mentioned above.

Additionally, merchants are increasingly offering proprietary pay-over-time options to customers, and in some cases, these are presented parallel to our offerings at checkout.

Our technology-driven platform also faces competition from a variety of players, including those who enable transactions and commerce via digital payments.

9 unchanged sentences

We plan to continue to innovate and bring new honest financial products to market for consumers.

During fiscal 2022, for example, we launched the Affirm Super App and Browser Extension, and see further opportunities to offer shopping services and rewards.

We also launched beta releases for Affirm Debit+, a debit card that supports debit transactions and also enables consumers to split eligible purchases into installments via the app, and Crypto Savings, which enables consumers to have access to bitcoin via their Affirm Savings account.

During fiscal 2023, for example, we rebranded our former Affirm Debit+ to Affirm Card and made the product generally available to all eligible consumers.

• Increase merchant feature functionality.

As we continue to help merchants increase conversion rates, AOVs, and customer satisfaction, we plan to build new tools to help them optimize their customer acquisition strategies and achieve even greater results.

For example, during fiscal 2022, we launched Adaptive Checkout™, which dynamically provides optimized biweekly and monthly payment options for

Table o f Contents

each transaction side-by-side in a single integrated checkout solution.

In May 2021, Affirm acquired Returnly, which helps direct-to-consumer brands offer their shoppers an instant and seamless returns experience, which can help increase customer satisfaction and conversion rates.

Expand to more higher frequency purchases

We have successfully demonstrated how our solutions can enable and accelerate commerce for larger and considered purchases.

A key principle for our next phase of growth is expanding into higher frequency purchases, which we believe will position us to increase engagement with consumers and merchants.

We believe this will lead to increased transaction volume on our platform, as well as the expansion of our consumer and merchant network.

For example, during fiscal 2023, we continued to innovate on Adaptive Checkout TM , which dynamically provides optimized biweekly and monthly payment options side-by-side in a single integrated checkout solution and has driven a significant increase in conversion rates, optimized interest rates and have improved the overall user experience.

Additionally, we have offered merchants the ability to acquire new customers through improvements in our dynamic messaging capabilities designed to drive purchase intent, higher priced conversion packages that offer longer term 0% APR offers, and improved merchant support capabilities through self-service resources and capabilities in the merchant portal.

Increase Consumer Transaction Frequency

We have demonstrated how our solutions can successfully enable and accelerate commerce for larger and considered purchases.

We aim to continue driving repeat use of our platform as we serve consumers beyond their initial purchase via our consumer-centric tools and offerings, and the increased diversity of merchants on our network.

We believe expanding into consumers’ daily and in-store spending will be a key in driving repeat usage

and will position us to increase engagement with both consumers and merchants.

Affirm Card is an important component of this strategy because consumers using Affirm Card often have higher transactions per user and greater in-store usage.

If successful, we believe that this strategy will lead to increased transaction volume on our platform, as well as the expansion of our consumer and merchant network.

As of June 30, 2023, we had approximately 3.9 transactions per active consumer, an increase of approximately 30% compared to June 30, 2022 and an increase of 70% compared to June 30, 2021.

Expand consumer reach

• Add more consumers to our network.

We will continue marketing across new and existing channels to increase brand awareness with consumers and highlight the value of our platform.

We will continue marketing to increase brand awareness with consumers and highlight the value of our platform.

We believe this will attract new consumers to try Affirm as a payment option.

1 unchanged sentence

The more consumers that we serve, the better our systems understand how to identify responsible consumers, and the more consumers we can acquire and approve.

• Drive repeat use.

We aim to continue driving further repeat use of our platform as we serve consumers beyond their initial purchase via our consumer-centric tools, offerings and the increased diversity of merchants on our network.

Expand merchant reach

7 unchanged sentences

Expand to new markets

We make our platform available to merchants and eligible consumers in the United States and Canada and, on a more limited basis, in Australia.

Our platform is broadly available to merchants and eligible consumers in the United States and Canada.

We will continue to evaluate expanding our platform to new markets.

1 unchanged sentence

Our Technology

Table o f Contents

financial, shopping, and payment data across all facets of our platform, from fraud and pricing, to personalization and repayment.

Our products are built on a cloud-first platform engineered for temporally agnostic data aggregation, schematization, management, and decisioning, which enables our products to leverage years of deep behavioral, financial, shopping, and payment data across all facets of our platform, from fraud and pricing, to personalization and repayment.

Our vertically integrated technology powers a rich data landscape across products, which drives increased efficiency that unlocks greater scale.

11 unchanged sentences

In the vast majority of cases, we can complete these checks and calculations in a matter of seconds, automating the underwriting process pursuant to our originating bank partners’ underwriting policies.

We use application and transaction data to train our model, including data from more than 71.0 million loans and over seven years of repayments.

We use application and transaction data to train our model, including data from almost 132 million loans.

• Modeling improvements.

13 unchanged sentences

We maintain physical security measures designed to guard against unauthorized access to systems and use safeguards such as firewalls and data encryption.

Table o f Contents

also have deployed physical access controls to our buildings, and our policies authorize access to personal information only for those employees or agents who require it to fulfill the responsibilities of their jobs.

We also have deployed physical access controls to our buildings, and our policies authorize access to personal information only for those employees or agents who require it to fulfill the responsibilities of their jobs.

Sales and Marketing

We have a strong brand and continue to raise awareness by fostering further adoption of our platform through strategic partnerships and multi-channel marketing campaigns.

Our marketing strategy includes brand marketing, communications, and co-marketing campaigns that we collaborate on with merchants and partners.

Brand marketing increases awareness among consumers and merchants, helping them understand the benefits of our platform.

We have historically relied on the strength of our merchant relationships and positive user experience to develop our brand and grow our network.

We have achieved significant merchant and consumer adoption without investing heavily in sales and marketing relative to our competitors.

We are focused on the effectiveness of sales and marketing spending and will continue to be strategic in maintaining efficient consumer and merchant acquisition.

We are focused on the effectiveness of sales and marketing spending.

We also utilize dedicated sales teams to grow our merchant base in the United States and Canada, and leverage strategic partnerships with other platforms to expand our merchant and consumer base.

We experience seasonal fluctuations in our revenue as a result of consumer spending patterns.

Historically, our revenue has been strongest during the second quarter of our fiscal year due to increases in retail commerce during the holiday season.

Adverse events that occur during these months could have a disproportionate effect on our financial results for the fiscal year.

We experience seasonal fluctuations in our business as a result of consumer spending patterns.

Historically, our GMV has been the strongest during the second quarter of our fiscal year due to increases in retail commerce during the holiday season.

Despite these higher GMV levels, in fiscal 2023 and 2022, we generated less in period revenue as a percentage of GMV during our second fiscal quarter due to the comparatively higher proportion of interest bearing loans originated in the latter half of the period, which typically results in lower merchant network revenue, which is recognized in period, and higher levels of interest income, which is recognized over a longer time horizon.

We expect these seasonal patterns to continue in future periods, and any adverse events that occur during our second fiscal quarter could have a disproportionate effect on our financial results for the fiscal year.

Human Capital Resources

20 unchanged sentences

Affirmers own problems and solutions, and we hold each other accountable.

Table o f Contents

• Simpler is better.

10 unchanged sentences

Our strategy involves embedding DEI into our processes, programs, and structures at Affirm across the employee life cycle — how we hire, develop, advance, and retain Affirmers, and in how we do business.

Our Diversity and Inclusion Steering Committee (“DISC”), an internal committee made up of senior leaders from across Affirm, provides oversight, support, and guidance to departments and teams on initiatives that may impact the ability to support diverse populations of key constituencies:

Our Diversity and Inclusion Steering Committee (“DISC”), an internal committee made up of senior leaders from across Affirm, provides support and guidance to departments and teams on initiatives that may impact the ability to support diverse populations of key constituencies:

employees, consumers and merchants.

DISC is also responsible for reviewing that internal and external initiatives reflect our high bar for DEI, and the members help to amplify high-impact DEI efforts happening within their own departments.

DISC is also responsible for reviewing internal and external DEI initiatives, and DEI members help to amplify high-impact DEI efforts happening within their own departments.

Below are several highlights from our DEI work in calendar year 2022 (the latest year for which we have issued a DEI Report):

• Affirm launched the Upward Program, a six-month Software Engineering Apprenticeship Program that offers opportunities to individuals with non-traditional backgrounds (those who have developed technical proficiency through a coding school, online certification, etc.).

• We brought more Affirmers into our DEI work by expanding our DEI working groups, which are groups of Affirmers who create and work towards achieving specific DEI goals within their department.

In 2021, we started a new DEI working group in our commercial department and began work to stand up a DEI working group in our finance department, in addition to our engineering department working group (launched in 2020).

• Our Merchant & Partner Diversity team launched Affirm’s client-facing Merchant Diversity Survey.

Our goal is to establish our commitment to DEI within our merchant network, collect data on Affirm merchants owned by diverse communities, and share promotional opportunities with merchants that opt in.

We identified over 1,700 of Affirm’s merchant partners as certified as Women-, Veteran-, or Minority-Owned businesses and Promoted 50+ URG merchants through a quarterly series of internal and external-facing programs.

• Affirm added two new Community Groups (Neurodiversity and Southwest Asia & North Africa) in addition to the existing thirteen Employee Resource & Community Groups.

Affirm’s Employee Resource Groups (“ERGs”) support and advance Affirm’s values and business goals.

This includes the Company’s commitment to providing equal employment opportunities and facilitating a culture where all Affirmers feel like they belong.

ERGs include Affirmers from underrepresented groups (“URGs”) and their allies.

Affirm's Community Groups (“CGs”) help build belonging, community, and inclusion at Affirm.

Our CGs come together over common identities, shared characteristics, or shared life experiences.

• In 2022, we focused on supporting Affirmers around the world after hiring Affirmers in three countries (Spain, Poland, and Canada) in 2021.

This year, Poland-based Affirmers started chapters of our Women@ Affirm ERG and Mental Wellness Community Group.

More than 50% of Poland-based employees expressed an interest in joining Mental Wellness and Women@.

• In 2021, we promoted over 50 small or minority-owned businesses through various Affirm-sponsored promotional campaigns.

In 2022, we increased this by 130%, highlighting 115 small and minority-owned businesses across Affirm’s platforms, including the Shop Black-Owned Businesses page.

We annually publish our DEI Report, which discloses certain demographic information relating to our team and outlines our DEI goals, our progress toward them, our areas for improvement, and where we expect to focus our efforts.

5 unchanged sentences

We pride ourselves on a culture that respects co-workers and values concern for others.

Management regularly reports to our board of directors on human capital management topics, including corporate culture, safety,

Table o f Contents

diversity and inclusion, employee development, and compensation and benefits.

Management regularly reports to our board of directors on human capital management topics, including corporate culture, safety, diversity and inclusion, employee development, and compensation and benefits.

Our board of directors provides input on important decisions, including with respect to safety, talent retention and development.

1 unchanged sentence

We provide equity incentives to our employees through the grant of stock options and restricted stock units (“RSUs”) under our equity incentive plan to align their interests with stockholders as “owners” of our company.

We also have adopted an Employee Stock Purchase Plan (“ESPP”) pursuant to which eligible employees can purchase shares of our Class A common stock at a discount from the fair market value .

We believe these incentive programs allows us to be competitive with comparable companies in our industry by giving us the resources to attract, motivate and retain talented individuals.

We also have adopted an Employee Stock Purchase Plan (“ESPP”) pursuant to which eligible employees can purchase shares o f our Class A common stock at a discount from the fair market value .

We believe these incentive programs allow us to be competitive with comparable companies in our industry by giving us the resources to attract, motivate and retain talented individuals.

We offer comprehensive benefits, including medical, dental, vision, life insurance, paid time off, various voluntary insurance programs, and a 401(k) retirement plan for U.S.

1 unchanged sentence

In addition, we offer perks, such as employer-sponsored digital spending wallets, mental health benefits, family & fertility benefits and generous leave and time-off policies, which we believe enhance employee productivity, satisfaction and loyalty.

Regulatory Environment

Regulatory Environmen t

We operate in a rapidly evolving regulatory environment and are subject to extensive regulation, both directly and indirectly, by way of our partnership with our originating bank partners, under U.S.

federal law, the laws of Canada, and Australia, and the laws of the states and provinces in which we operate, among others.

federal law, the laws of Canada, and the United Kingdom (“U.K.”), and the laws of the states and provinces in which we operate, among others.

These laws cover all aspects of our business and include privacy laws, consumer protection laws, and contractual obligations.

4 unchanged sentences

In addition, the regulatory framework for online lending platforms is evolving and uncertain as federal and state governments consider the application of existing laws and adoption of new laws to regulate these structures.

New laws and regulations, as well as continued uncertainty regarding potential new laws or regulations, may negatively affect our business.

Certain state and provincial laws may, if applicable, regulate interest rates and other charges and require certain disclosures, and may also require licensing for certain activities.

In addition, other laws, public policy, and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing, and collection of the consumer loans.

Certain banking laws and regulations also apply to our originating bank partners.

Certain banking laws and regulations may also apply to our originating bank partners.

State and provincial licensing requirements and regulation

Our operations must satisfy the laws and standards of each individual U.S.

state and territory, Canadian province, and Australian state in which we operate.

This means that when individual states differ in how they allow financing to be provided and used, we must operate consistently in accordance with the most comprehensive requirements.

state and territory and Canadian province in which we operate.

This means that when individual states, territories or provinces differ in how they allow financing to be provided and used, we must operate consistently in accordance with the most comprehensive requirements.

Our policies and practices approach these requirements with the goal of managing the long-term viability and flexibility of our business model.

As such, we have established a business model pursuant to which we may originate loans directly through our platform under our lending, servicing, and brokering licenses across various

Table o f Contents

jurisdictions in the United States, Canada, and Australia, and we may also purchase loans originated by our originating bank partners through our platform.

A substantial number of the loans facilitated through our platform in the U.S.

are originated through our originating bank partners:

Cross River Bank, an FDIC-insured New Jersey state-chartered bank, and Celtic Bank, an FDIC-insured Utah state-chartered industrial bank.

Certain states, provinces, and localities have adopted laws regulating and requiring licensing, registration, notice filing, or other approval by parties that engage in certain activity regarding consumer finance transactions, including facilitating and assisting such transactions in certain circumstances.

Furthermore, certain jurisdictions have also adopted laws requiring licensing, registration, notice filing, or other approval for consumer debt collection or servicing, and/or purchasing or selling consumer loans.

As such, we have established a business model pursuant to which we may originate loans directly through our platform under our lending, servicing, and brokering licenses across various jurisdictions in the U.S., Canada, and U.K., and we may also purchase loans originated by our originating bank partners through our platform.

Substantially all of the loans facilitated through our platform in the U.S.

are originated through Celtic Bank, an FDIC-insured Utah state-chartered industrial bank.

We have also received inquiries from regulatory agencies regarding requirements to obtain licenses from or register with those jurisdictions, including in states where we have determined that we are not required to obtain such a license or be registered with the state, and we expect to continue to receive such inquiries.

1 unchanged sentence

Licensing statutes vary from state to state and prescribe different requirements, including but not limited to:

restrictions on loan origination and servicing practices (including limits on the type, amount, and manner of fees), solicitation activities, interest rate limits, disclosure requirements, periodic examination requirements, surety bond and minimum specified net worth requirements, periodic financial reporting requirements, notification requirements for changes in principal officers, stock ownership or corporate control, restrictions on advertising, and requirements that loan forms be submitted for review.

restrictions on advertising, and requirements that loan forms be submitted for review.

The application of state and provincial licensing requirements to our business model is not always clear, and while we believe we are in compliance as of June 30, 2023 with applicable licensing requirements, regulators may request or require that we obtain additional licenses or other authorizations in the future, which may subject our business to additional restrictions or requirements.

State interest rate treatment

We and our originating bank partners may also be subject to state law interest rate limitations on personal consumer loans.

7 unchanged sentences

We rely on our originating bank partners’ authority under federal law to establish interest rates and charge interest on the loans our originating bank partners originate through our platform.

Cross River Bank and Celtic Bank generally allow a consumer loan borrower to agree to any annual rate of interest up to 30% or 36%, respectively calculated in accordance with the FDIC Federal Interest Rate Authority rule discussed above and other applicable law.

Table o f Contents

Cross River Bank generally allows a consumer loan borrower to agree to any annual rate of interest up to 30%, and our other originating bank partners, including Celtic Bank, generally allow a consumer loan borrower to agree to any annual rate of interest up to 36%, in each case calculated in accordance with the FDIC Federal Interest Rate Authority rule discussed above and other applicable law.

However, if the legal structure underlying our relationship with our originating bank partners was successfully challenged, we may be found to be in violation of state licensing requirements and state laws regulating interest rates and other aspects of consumer lending.

1 unchanged sentence

There are two examples of claims that have been raised that could each, separately or jointly, result in this outcome in some or all states.

First, the FDIC stated that its Federal Interest Rate Authority Rule was promulgated in part to codify the “valid when made” doctrine due to court decisions such as the one in Madden v.

The FDIC stated that its Federal Interest Rate Authority Rule was promulgated in part to codify the “valid when made” doctrine due to court decisions such as the one in Madden v.

Midland Funding, LLC, 786 F.3d 246 (2d Cir.

4 unchanged sentences

The Second Circuit’s holding in the Madden case is binding on federal courts in the states of New York, Connecticut, and Vermont.

Following the Madden decision, there have been a number of lawsuits in other parts of the country making similar allegations.

Following the Madden decision, there have been a number of lawsuits in other parts of the country making

similar allegations.

Under the Federal Interest Rate Authority Rule promulgated by the FDIC, which is the interest rate authority of state-chartered banks (such as our originating bank partners), the interest rate applicable to a loan originated by a state-chartered bank on the date of origination will carry with the loan irrespective of ownership (i.e., the interest rate is “valid when made”).

7 unchanged sentences

However, it is uncertain whether these or other state attorneys general will file similar suits with respect to any other rule regarding the permissibility of interest rates by the FDIC, OCC or other regulators.

Second, there have also been both private litigation and governmental enforcement actions seeking to recharacterize a lending transaction, claiming that the named lender was not the true lender, and that instead another entity was the true lender or the de facto lender.

Notably, the FDIC and OCC rules underscore that they do not address the question of whether a bank or insured branch of a foreign bank is a real party in interest with respect to a loan or has an economic interest in the loan under state law, e.g.

which entity is the “true lender.” Federal Interest Rate Authority, 85 Fed.

44146 (July 22, 2020).

Before and after the Federal Interest Rate Authority went into effect, there have also been both private litigation and governmental enforcement actions seeking to recharacterize a lending transaction, claiming that the named lender was not the true lender, and that instead another entity was the true lender or the de facto lender.

These claims are traditionally based upon state lending laws, other statutory provisions, or state common law through which a private litigant or governmental agency could seek to license, regulate, or prohibit the activities of the entity they consider the true lender or de facto lender.

3 unchanged sentences

Further, it is unclear whether these rules will be given effect by courts and regulators in a manner that actually mitigates risks relating to state interest rate limits and related risks to us, our originating bank partners, any other program participant, or the loans facilitated through our platform.

We could be subject to litigation, whether private or governmental, or administrative action regarding the above claims.

The potential consequences of an adverse determination could include the inability to collect loans at the interest rates contracted for, licensing violations, the loans being found to be unenforceable or void, or the reduction of interest or principal, or other

Table o f Contents

penalties or damages.

While most enforcement and litigation has historically targeted high-interest rate programs (i.e.

> 100% APR), which we consider to be inconsistent with our company mission and values, we nonetheless could be subject to litigation, whether private or governmental, or administrative action regarding the above claims.

The potential consequences of an adverse determination could include the inability to collect loans at the interest rates contracted for, licensing violations, the loans being found to be unenforceable or void, the reduction of interest or principal, or other penalties or damages.

Third-party purchasers of loans facilitated through our platform also may be subject to scrutiny or similar litigation, whether based upon the inability to rely upon the “valid when made” doctrine or because a party other than the originating bank is deemed the true lender.

Money transmission

Through our wholly-owned subsidiary, Affirm Payments, LLC (“Affirm Payments”), we hold licenses to operate as a money transmitter (or its equivalent) in certain states and jurisdictions of the U.S.

Affirm Payments is actively seeking additional licenses and certifications of this nature, but there can be no assurance we will be able to obtain them or the timeline with which this will happen.

As a licensed money transmitter, we have obligations and restrictions with respect to the investments of customer funds, recurrent reporting, and bonding.

If found to have violated the laws or regulations covered under our licenses, we could be subject to liability and/or additional restrictions.

These include, but are not limited to, being forced to cease doing business with residents of certain

states or territories, forced to change our business practices, or required to obtain additional licenses or regulatory approvals.

Any of the aforementioned scenarios could impose substantial costs and or harm our business.

United Kingdom regulatory oversight

In addition to the U.S.

and Canada, we intend to provide a similar service in the U.K.

through our U.K.

subsidiary, Skytech Capital Ltd (“Skytech”).

Skytech is authorized and regulated by the U.K.

Financial Conduct Authority (“FCA”) and carries out regulated activity in the U.K.

The FCA has statutory objectives that direct how it operates.

The FCA’s strategic objective is to ensure that the relevant markets function well.

The FCA’s operational objectives are (a) securing an appropriate degree of protection for consumers, (b) protecting and enhancing the integrity of the U.K.

financial system, and (c) promoting effective competition in the interests of consumers.

The FCA regulates and supervises some or all of Skytech’s consumer credit activities.

The FCA adopts a pre-emptive approach to supervision based on making forward-looking judgments about a firm’s business model, product strategy and how the business is run.

The FCA has a range of supervisory tools available to it, including (but not limited to) meetings with management, desk-based reviews, making recommendations and on-site inspections.

The laws and regulations applicable to the industry are subject to interpretation and change and we continue to monitor this on an ongoing basis.

federal consumer protection requirements

12 unchanged sentences

• the Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide disclosure requirements, guidelines, and restrictions on the electronic transfer of funds from consumers’ bank accounts;

Table o f Contents

• the Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures;

1 unchanged sentence

• the Servicemembers Civil Relief Act and similar state laws, which allows active duty military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties;

• new requirements pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in response to the COVID-19 pandemic, including requirements relating to debt collection and credit reporting.

• requirements pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in response to the COVID-19 pandemic, including requirements relating to debt collection and credit reporting.

In addition, many states and local jurisdictions have consumer protection laws analogous to, or in addition to, the federal laws listed above, such as usury laws, state debt collection practices laws, and requirements regarding loan disclosures and terms, credit discrimination, credit reporting, money transmission, recordkeeping, the arranging of loans made by third-parties, and unfair or deceptive business practices.

We are also subject to data protection laws and regulations, such as the EU General Data Protection Regulation, Canada’s Personal Information Protection and Electronic Documents Act, Australia’s Privacy Act, and similar state laws such as the California Consumer Privacy Act (the “CCPA”), which includes limitations and requirements surrounding the use, disclosure, and other processing of certain personal information about California residents.

We are also subject to data protection laws and regulations, such as the EU General Data Protection Regulation (“GDPR”), Canada’s Personal Information Protection and Electronic Documents Act, the U.K.’s Data Protection Act of 2018 and similar state laws such as the California Consumer Privacy Act (the “CCPA”), which includes limitations and requirements surrounding the use, disclosure, and other processing of certain personal information about California residents.

We are also subject to regulation by the Consumer Financial Protection Bureau ("CFPB") under the Dodd-Frank Act and other acts described herein, and we are subject to the CFPB’s enforcement authority with respect to our compliance with these requirements as a facilitator, servicer, acquirer, or originator of consumer credit.

The Dodd-Frank Act gives the CFPB supervisory authority over entities that are designated as “larger participants” in certain financial services markets.

The CFPB previously announced that it intends to expand its supervisory authority through the use of “larger participant rules” to cover the markets for consumer installment loans and auto title loans.

While the CFPB has not yet issued a “larger participant” rule applicable to us, the CFPB indicated in its January 2021 Taskforce on Federal Consumer Financial Law Report that it “believes it is time to articulate some clear standards for this important decision,” and that it recommends the “Bureau should revisit its larger participant rules to assess the cost and benefits of the rules in conducting effective supervision and promoting consumer protection.” In December 2021, the CFPB issued a Request for Information to five of the largest buy-now-pay-later providers, including Affirm.

This suggests that the CFPB may issue a proposed rule defining larger participants to include installment lending industry participants.

The CFPB may also issue proposed rulemaking or increase its enforcement authority over the Buy Now Pay Later industry, which could subject Affirm to more regulation, examination, and oversight.

Moreover, the CFPB recently announced its intention to conduct supervisory examinations over a greater number of nonbank financial technology companies that have engaged in “conduct that poses risks to consumers,” pursuant to its authority under the Dodd-Frank Act.

While there is no bright-line standard as to what conduct would constitute posing “risks to consumers” under this authority, the CFPB would be required to issue a Notice of Reasonable Cause that details its bases for concluding that a particular nonbank entity poses risks to consumers, which may include complaints collected by the CFPB or information from other sources.

Were the CFPB to promulgate a rule for the direct supervision of non-bank installment lenders, or conclude that Affirm engaged in conduct that poses risks to consumers, it is possible that the CFPB could be permitted to conduct periodic examination of our business, which may increase our risk of regulatory or enforcement actions.

The CFPB has also instructed that with respect to federal anti-discrimination laws, creditors are not permitted to use technology that prevents them from providing specific and accurate reasons for adverse actions, and that creditors’ use of complex algorithms should not limit enforcement of ECOA or other federal consumer financial protection laws.

Table o f Contents

CFPB Consumer Financial Protection Circular 2022-03, published May 26, 2022, clarified that creditors who use complex algorithms—including artificial intelligence or machine learning technologies—to engage in credit decisions must still provide a notice that discloses the specific, principal reasons for taking adverse action, and that there is no exception for violating the law because a creditor is using technology that has not been adequately designed, tested, or understood.

The CFPB has also made it clear that it expects non-bank entities to maintain an effective process for managing risks associated with vendor relationships, including compliance-related risks.

In connection with this vendor risk management process, we are expected to perform due diligence reviews of potential vendors, review their policies and procedures and internal training materials to confirm compliance-related focus, include enforceable consequences in contracts with vendors regarding failure to comply with consumer protection requirements, and take prompt action, including terminating the relationship, in the event that vendors fail to meet our expectations.

The CFPB may request reports concerning our organization, business conduct, markets, and activities, and also conduct on-site examinations of our business on a periodic basis.

The CFPB is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities.

As such, the CFPB has in the past requested reports concerning our organization, business conduct, markets, and activities, and we expect that the CFPB will continue to do so from time to time in the future.

In addition, we expect the CFPB to begin to supervise us in the immediate future.

The CFPB’s supervision of us will enable it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in investigations, enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.

The CFPB, through its enforcement authority, could increase our compliance costs, potentially hinder our ability to respond to marketplace changes, impose requirements to alter products and services that would make them less attractive to consumers and impair our ability to offer products and services profitably.

3 unchanged sentences

Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties).

In May 2022, the CFPB issued an Interpretive Rule to clarify the authority of states to enforce federal consumer financial protections laws under the Consumer Financial Protection Act of 2010 (“CFPA”).

In May 2022, the CFPB issued an Interpretive Rule

to clarify the authority of states to enforce federal consumer financial protections laws under the Consumer Financial Protection Act of 2010 (“CFPA”).

Specifically, the CFPB confirmed that (1) states can enforce the CFPA, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law;

7 unchanged sentences

The federal regulatory framework applicable to online marketplaces such as our platform is evolving and uncertain, and additional requirements may apply to our business in the future.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance is given that our

Table o f Contents

compliance policies and procedures will be effective or will be adequate as laws change or are applied in a new manner.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance is given that our compliance policies and procedures will be effective or will be adequate as laws change or are applied in a new manner.

Other requirements

9 unchanged sentences

Our AML and sanctions compliance programs include policies, procedures, reporting protocols, and internal controls designed to identify, monitor, manage, and mitigate the risk of money laundering and terrorist financing, including the designation of an AML compliance officer to oversee the programs.

These controls include procedures and processes to detect and report potentially suspicious transactions, perform consumer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments.

Our programs are designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.

We are also required to maintain this program under our agreements with our originating bank partners, and certain state regulatory agencies have intimated they expect the program to be in place and followed.

Foreign Corrupt Practices Act (“FCPA”) prohibits offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate to obtain or retain business abroad.

Affirm is subject to the FCPA as well as similar laws in other jurisdictions in which we operate.

We maintain anti-corruption policies and procedures and have a compliance program in place to ensure compliance with these laws and regulations.

We collect, store, use, disclose, transfer, and otherwise process a wide variety of information, including personal information, for various purposes in our business, including to help provide for the integrity of our services and to provide features and functionality to our consumers and merchants.

This aspect of our business, including the collection, storage, use, disclosure, transfer, processing, and protection of the information, including personal information, we acquire in connection with our consumers’ and merchants’ use of our services, is subject to numerous privacy, cybersecurity, and other laws and regulations in the United States and foreign jurisdictions.

We are subject to a variety of such laws, rules, directives, and regulations, as well as contractual obligations, relating to the processing of personal information.

and foreign jurisdictions, including the GLBA and its implementing regulations.

We are subject to a variety of such laws, rules, directives, and regulations, as well as contractual obligations, both at the state and federal level, relating to the processing of personal information.

Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the collection, storage, use, disclosure, transmission, processing, and protection of information.

3 unchanged sentences

and our current or planned business activities.

We are subject to the GLBA and implementing regulations and guidance.

Among other things, the GLBA (i) imposes certain limitations on the ability to share consumers’ nonpublic personal information with non-affiliated third-parties and (ii) requires certain disclosures to consumers about information collection, sharing, and security practices and their right to “opt out” of the institution’s disclosure of their personal financial information to non-affiliated third-parties (with certain exceptions).

Privacy requirements, including notice and opt out requirements, under the GLBA and the FCRA are enforced by the FTC and by the CFPB through UDAAP laws and regulations,

Table o f Contents

and are a standard component of CFPB examinations.

State entities also may initiate actions for alleged violations of privacy or security requirements under state law.

Furthermore, an increasing number of state, federal, and international jurisdictions have enacted, or are considering enacting, privacy laws, such as the CCPA, which became effective on January 1, 2020, and the EU General Data Protection Regulation (“GDPR”), which regulates the collection, control, sharing, disclosure and use and other processing of personal information of data subjects in the EU and the European Economic Area.

Furthermore, an increasing number of state, federal, and international jurisdictions have enacted, or are considering enacting, privacy laws, such as the CCPA, which became effective on January 1, 2020, and the EU GDPR, which regulates the collection, control, sharing, disclosure and use and other processing of personal information of data subjects in the EU and the European Economic Area.

The CCPA gives residents of California expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used, and also provides for civil penalties for violations and a private right of action for data breaches.

Meanwhile, the GDPR provides data subjects with greater control over the collection and use of their personal information (such as the “right to be forgotten”) and has specific requirements relating to cross-border transfers of personal information to certain jurisdictions, including to the United States, with fines for noncompliance of up to the greater of 20 million euros or up to 4% of the annual global revenue of the noncompliant company.

Meanwhile, the GDPR provides data subjects with greater control over the collection and use of their personal information (such as the “right to be forgotten”) and has specific requirements relating to cross-border transfers of personal information to certain jurisdictions, including to the U.S., with fines for noncompliance of up to the greater of 20 million euros or up to 4% of the annual global revenue of the noncompliant company.

In addition, on November 3, 2020, California voters approved a new privacy law, the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.

Many of the CPRA’s provisions will become effective on January 1, 2023.

Many of the CPRA’s provisions became effective on January 1, 2023.

The CCPA, CPRA, GDPR, and any other applicable state, federal, and international privacy laws, may increase our compliance costs and potential liability.

Various regulatory agencies in the United States and in foreign jurisdictions continue to examine a wide variety of issues that are applicable to us and may impact our business.

Various regulatory agencies in the U.S.

and in foreign jurisdictions continue to examine a wide variety of issues that are applicable to us and may impact our business.

These issues include account management guidelines, anti-discrimination, consumer protection, identity theft, privacy, disclosure rules, electronic transfers, cybersecurity, and marketing.

7 unchanged sentences

However, these laws, agreements, and procedures provide only limited protection.

As of June 30, 2022, we owned 9 registered trademarks and 20 trademark applications in the United States, 24 registered trademarks and 36 trademark applications in various foreign jurisdictions, and 7 issued patent, 36 pending patent applications in the United States, and 4 pending patent applications in various foreign jurisdictions.

Table o f Contents

As of June 30, 2023, we owned 14 registered trademarks and 18 trademark applications in the United States, 79 registered trademarks and 38 trademark applications in various foreign jurisdictions, and 12 issued patents, 51 pending patent applications in the United States, and 26 pending patent applications in various foreign jurisdictions.

Although we take steps to protect our intellectual property and proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other proprietary information, including by third-parties who may use our technology or other proprietary information to develop services that compete with ours.

3 unchanged sentences

Information found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.

Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website as soon as reasonably practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission (the “SEC”).

The SEC also maintains a website that contains our SEC filings.

The address of the site is www.sec.gov.

Table o f Contents

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business