Amazon unveils buy now, pay later option from Affirm for small business owners

Amazon is unveiling its first buy now, pay later checkout option for the millions of small business owners who use its online store, CNBC learned exclusively.

The tech giant confirmed Thursday that its partnership with Affirm is expanding to include Amazon Business, the e-commerce platform that caters to companies.

Affirm shares jumped 19% on the news.

The service, with loans ranging from $100 to $20,000, will be available to all eligible customers by Black Friday, or Nov. 24. It is specifically for sole proprietors, or small businesses owned by a single person, the most common form of business ownership in the U.S.

It’s the latest sign of the widening adoption of a fintech feature that exploded in popularity early in the pandemic, along with the valuations of leading players Affirm and Klarna. When boom turned to bust in 2021, and valuations in the industry dropped steeply, skeptics pointed to rising interest rates and borrower defaults as hurdles for growth and profitability.

But for users, the option is touted as being more transparent than credit cards because customers know how much interest they will owe up front. That’s made its appeal durable for households and businesses coming under increasing strain as excess cash from pandemic stimulus programs has dwindled.

“We constantly hear from small businesses that say they need payment solutions to manage their cash flow,” Todd Heimes, director of Amazon Business Worldwide, said in an interview. “We offer the ability to use credit cards and to pay by invoice; this is another option available to small business customers to pay over time.”

Amazon Business was launched in 2015 after the company realized businesses were using its popular retail website for office supplies and bulk purchases. The division reached $35 billion in sales this year and has more than 6 million customers globally.

If approved, users can pay for Amazon purchases in equal installments over three to 48 months. They are charged an annualized interest rate between 10% and 36%, based on the perceived risk of the transaction, according to Affirm Chief Revenue Officer Wayne Pommen. There are no late or hidden fees, the companies said.

“The financial industry is not great at providing credit to really small businesses,” Pommen said. “They can’t walk into a bank branch and get a loan until they reach a certain scale. So us being able to provide this for purchases” helps business grow and manage their cash flows, he said.

The move is a boost in a crucial relationship for Affirm, which has had to search for revenue growth after demand for expensive Peloton bikes collapsed. Affirm first began offering installment loans to Amazon’s retail customers in 2021, launched on Amazon in Canada in 2022 and was then added to Amazon Pay earlier this year.

Affirm, which uses its own models to underwrite loans for each transaction it facilitates, decided to target sole proprietors first because they make up most small businesses in the country, with 28 million registered in the U.S., according to Pommen.

“We’ll see how the product performs and if it makes sense to expand it to a wider universe of businesses,” he said. “Our assessment is that we can underwrite this very successfully and have the strong performance that we need.”