AFRM Lading in Buy Now, Pay Later: Will Consumer Headwinds Hinder Guidance?

**SPEAKER_1** (0:00)
Time now for our watchlist panel previewing AFRM. The earnings are due out after the bell, and they had a nice run on the last earnings season. Let's see what they'll have to say today. Ted Rossman, Principal Consumer Finance Analyst, Money Management International, and Bryce Deeney, Co-Founder and CEO of Equipify. And I'm so glad you're both with us. So Ted, I'll start with you.
Your thoughts, because the last round, the last quarter was actually a good one. Can they repeat this? Your thoughts?

**Ted Rossman** (0:29)
Yeah, AFRM's been doing well. Really, the whole buy now pay later sector is doing well. They're meeting the moment. Right now, consumers are very concerned about inflation, high prices, high interest rates. The buy now pay later industry has really successfully navigated this and really portraying themselves as the anti-credit card. So sometimes it's interest free, it's four payments over six weeks. A lot of these plans are actually stretching out longer. Many of them are charging interest rates akin to a credit card, but they've still convinced a lot of consumers that this may be a more responsible, kinder, gentler way to pay for things.
People need the financing. I mean, no doubt there's a lot of credit demand right now.
People are putting more essentials on these plans like gas and groceries. They're financing veterinary bills, medical, dental. Buy now pay later has expanded a lot in recent years.

**SPEAKER_1** (1:22)
Yeah, without a doubt. And you echo that sentiment, Bryce, we're talking about people using buy now pay later more than ever, right? Explain on your thoughts.

**Bryce Deeney** (1:30)
Yeah, absolutely. I think the recent estimates are there's like 65 to 70 million Americans that have used buy now pay later in the last 12 months. And to his point, you know, people are looking for affordable ways to budget and to flex their purchases over time. I think companies like AFRM have done a phenomenal job in building a consumer brand around that movement. As a millennial growing up, where unsecured credit card debt would kind of compound in nature, that's one of the benefits of buy now pay later, is you're given the consumer control to choose their own terms.
And they have a lot of confidence going into that, knowing exactly to the penny, whether it's interest free or interest bearing, they know exactly how much that cost of credit will cost them, versus I think the traditional payment methods in the US, where, you know, maybe there's some ambiguity and unfortunately, revolving credit compounds.

**SPEAKER_1** (2:26)
And so it'll be not only this quarter, but also the outlook. And so there are questions. I think there's a feeling here, Ted, that they will deliver a good quarter, a strong, you know, fiscal quarter, but the outlook may not be as clear. Why do you think that is? Is that, and do you agree with that summation?

**Ted Rossman** (2:45)
Well, there is still a lot of uncertainty about the economy, about the consumer. We've started to see some evidence that people may be pulling back a little bit. This is a very cyclical business. Now, people have been saying for a decade now, what about a recession? What's going to happen with delinquencies? The buy now, pay later industry so far has been much better than expected. We are seeing some trouble spots, though. In our nonprofit credit counseling operation, we are seeing more people come to us with buy now, pay later debts, sometimes troublingly high amounts. To be fair, that can absolutely happen with a credit card as well, but buy now, pay later is not immune from that. I do feel like we are starting to reach more of a tipping point when you think about credit card balances are up 60 percent from five years ago. Interest rates are stubbornly high. Delinquencies have been rising. They are about as high as they have been in 15 years on credit cards. Buy now, pay later may end up going down a similar path.
I know these companies say their algorithms are better, and it's short-term lending, and it's underwritten purchase by purchase, and they feel like they've built a better mousetrap than the credit cards, but I also know credit card lending is huge. It's very well established.
I do have my eyes on any potential pullback in the future in terms of if consumer spending were to go down, if delinquencies would rise. These are not necessarily new worries for buy now, pay later, but I do feel like it's starting to become more top of mind just as these macro pressures persist. Prices are still very high. That's not going away.

**SPEAKER_1** (4:16)
Right. We've had some sticky inflation. Prices are generally high. I mean, there may be some consumer fatigue with inflation, and that's one way to bring inflation down is when someone just says, listen, I'm not paying for that. That's ridiculous or something like that. Right. Do you feel people are overspending? I mean, when these kinds of things, that was always the question when you started with buy now, pay later, does it encourage someone to go beyond their means? At the same time, people are trying to make ends meet here, Bryce, and so you talked also not only about the fact that they are struggling, but also how can buy now, pay later, get the customers to use their platform versus Klarna or the banks or the credit cards, etc.