Will Affirm's Smart Underwriting Shift Redefine BNPL Risk?

Affirm Holdings, Inc. AFRM recently upgraded how it evaluates credit risk by embedding richer real-time financial signals into its underwriting process, like up-to-the-minute bank account balances and cash flow trends. Instead of relying mostly on static credit reports or past behavior, Affirm now adds dynamic data that shows how a consumer’s finances look at the moment they want to make a purchase.

This upgrade is already live for Affirm Card users who link a third-party bank account or use an Affirm Money Account, and it will soon be offered more broadly to anyone who opts in to link their banking data.

Traditional systems, like many credit cards, often approve borrowers once and then rarely revisit that decision, even as income or expenses change. Affirm’s new method aligns its credit decisions with real life, where jobs, paychecks and spending patterns can shift quickly. That means more accurate risk assessment and potentially more responsible lending.

It also helps the buy now, pay later (BNPL) provider extend credit to people whose traditional credit history might look thin or outdated by capturing their current financial health instead. Early results show this richer view can significantly boost consumer purchasing power.

This move is expected to improve Affirm’s credit quality by lowering default risk and expanding its addressable consumer base. More approvals and higher purchasing power can further drive volume growth and revenue, while more precise risk models can cut losses, an edge over competitors that rely on older, less fluid credit data. Its Gross Merchandise Value jumped 42% year over year in the first quarter of fiscal 2026 to $10.8 billion.

How Are Rival BNPL Players Performing?

PayPal Holdings Inc. PYPL continues to scale its BNPL reach alongside its core payments engine. In the third quarter of fiscal 2025, total payment volume rose 8% to $458.1 billion, active accounts edged up 1% to 438 million, and transaction revenue grew 6% year over year. Block, Inc. XYZ is also gaining traction. Its BNPL gross merchandise volume climbed 17% to $9.7 billion, while BNPL gross profit jumped 23% to $299 million. Post-purchase BNPL tools should further support Block’s Cash App Card engagement. Overall momentum highlights intensifying competition across digital consumer lending platforms.

Affirm’s Price Performance, Valuation and Estimates

Shares of Affirm have gained 25.2% in the past year, outperforming the broader industry and the S&P 500 Index.

Affirm’s 1-Year Price Performance

From a valuation standpoint, Affirm trades at a forward price-to-earnings ratio of 55.42X, up from the industry average of 31.72X. AFRM carries a Value Score of F.

The Zacks Consensus Estimate for Affirm’s fiscal 2026 earnings implies a 560% surge year over year, followed by a 56.8% jump next year.

The stock 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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