Affirm's Tech Moat: Is Real-Time Underwriting the Differentiator?

Affirm Holdings, Inc. AFRM has established a distinct position in the Buy Now, Pay Later (BNPL) space by placing underwriting at the core of its business strategies. The company has developed a system that assesses risk in real time, transaction by transaction, in contrast to many competitors who depend on strict score-based approvals or extensive credit checks. With this strategy, AFRM aims to reduce defaults while maintaining consumer flexibility and approving credit.

The strength of AFRM’s underwriting comes from its proprietary data models. Instead of just relying on traditional credit scores, each transaction is evaluated using a variety of factors, including the type of purchase, the merchant’s profile and the consumer’s repayment history within seconds. This detailed approach allows the company’s machine learning models to continuously evolve, learning from previous decisions and becoming more efficient and effective with each new piece of data.

With over 13 years of experience in underwriting for more than 50 million individuals and managing over $100 billion in loans, AFRM has not only gained significant scale but also a wealth of history, which gives it a distinct advantage in predicting repayment behaviors across the entire credit spectrum.

If Affirm can continue to enhance its real-time underwriting models, it might establish itself as the gold standard for responsible BNPL lending. As more merchants and consumers lean toward credit options that are both seamless and secure, AFRM’s data-driven advantage could turn into a long-term competitive edge, positioning the company as a potential leader in the consumer finance space.

How Are Competitors Faring?

Some of AFRM’s competitors in the BNPL space are PayPal Holdings, Inc. PYPL and Sezzle Inc. SEZL.

PayPal actively manages credit risk by monitoring consumer receivables from loan origination to repayment. It blends initial underwriting with continuous assessment, utilizing internal models that leverage data from external sources and the repayment history of its customers. This comprehensive strategy ensures PayPal maintains high credit quality and effective risk management.

Sezzle reviews every order during checkout through its underwriting process. It might include a soft credit check, along with repayment history. Sezzle’s GMV surged 74.2% year over year in the second quarter of 2025.

Affirm’s Price Performance, Valuation & Estimates

In the year-to-date period, AFRM’s shares gained 47.2% compared with the industry’s rise of 18.4%.

From a valuation standpoint, AFRM trades at a forward price-to-sales ratio of 7.10, above the industry average of 5.62. AFRM carries a Value Score of F.

The Zacks Consensus Estimate for Affirm’s fiscal 2026 earnings implies 433.3% growth from the year-ago period. The consensus mark for fiscal 2026 revenues indicates 23.1% year-over-year growth.

Affirm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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