Earnings Call Transcript
Affirm Holdings, Inc. (AFRM)
Earnings Call Transcript - AFRM Q2 2026
Operator, Operator
Good afternoon. Welcome to the Affirm Holdings Second Quarter Fiscal 2026 Earnings Call. Following the speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. And a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I'd now like to turn the call over to Zane Keller, head of investor relations. You may begin.
Zane Keller, Head of Investor Relations
Thank you, operator. Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties including those set forth in our filings with the SEC, which are available on our Investor Relations website. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our Investor Relations website. Hosting today's call with me are Max Levchin, the firm's founder and chief executive officer, Michael Linford, Affirm's chief operating officer, and Rob O'Hare, Affirm's chief financial officer. In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into Q and A. On that note, I will turn the call over to Max to begin.
Max Levchin, CEO
Thank you, Zane. Not a lot to add to the results, which were excellent once again. It's a biased opinion. I did want to take a moment to announce that we will convene our next investor forum on May 12 this year. Once at the event, you'll hear from a larger subset of our management team where we'll talk about our commercial and product initiatives and update our medium-term financial framework. Please look for additional information and registration details on our investor relations website as we get closer to the event. Back to you, Zane.
Zane Keller, Head of Investor Relations
Thank you, Max. For those of you that are interested in attending the upcoming investor forum in person, please reach out to us and we will do our best to accommodate your request. Now let's get to your questions. Operator, please begin the Q and A session.
Operator, Operator
Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. And our first question comes from Andrew Jeffrey with William Blair. You may proceed with your question.
Andrew Jeffrey, Analyst
Thanks. Appreciate it. Great to see the solid results here. Max, could you talk a little bit about the dynamics of your growth, namely the tie to top five 23% and blending down as of concentration. As I recall, they had been growing faster than overall GMV. Can you just talk a little bit about what you're seeing? The new merchant adds look great. The transaction per active look great. Is the business truly widening out? Is that the right way we should interpret those results?
Max Levchin, CEO
You know, I might offer Rob up as the interpreter of these results just because, to be completely transparent, I mostly look at the growth of the business through the lens of things like transactions per user, active consumers, and active merchant numbers which are really important to us. Generally speaking, of course, we want to have less concentration and more diversity, but we also are frequently driven or drafting behind the growth and promotional initiatives of our big and small partners. So I think it’s a little bit difficult to sort of piece it out, but I imagine Rob has a much more detailed answer.
Rob O'Hare, CFO
And tactically, Andrew, I would just point you to the fact that the top five that we disclose for '26 is actually a different subset of five merchants that we're comparing to in fiscal twenty-five in the same period. So I think all the more reason not to read too much into that stat. Obviously, it's been well publicized that we have a large merchant partner that was transitioning off of the Affirm integration. And so that weighed on that metric. We have a new top five as a result of that. So I think that that's really the crispest answer we can give there. But otherwise, I mean, the business is growing quite well, and we're quite happy with the diversification, as Max alluded to, that we see in the GMV.
Andrew Jeffrey, Analyst
I appreciate it. Thank you.
Operator, Operator
The next question comes from the line of Ramsey El Assal with Cantor Fitzgerald. You may proceed with your question.
Ramsey El-Assal, Analyst
Hi, guys. Thank you so much for taking my question. I was wondering, Max, if you could give us an overview of what you're seeing out there in terms of consumer trends, credit trends, overall economic health. It's such a tumultuous moment. Maybe also comment on what you've seen sort of quarter to date.
Max Levchin, CEO
So the one-liner answer is the consumer we see today is quite healthy. So they are able and willing to pay us back. They are borrowing money. Obviously, the growth numbers are out there. In the sprint. So we are not seeing again, our consumer is now reaching quite a large subset of North Americans and growing nicely in the UK, but we don't always say yes to a loan. So it's a little bit selective, but we feel pretty good about both the demand and the ability and willingness to repay. I don't have anything dramatic or alternative to offer on the state of affairs in the current quarter either. I think we're not seeing a big deviation from what I just said about the past.
Ramsey El-Assal, Analyst
Great. I think no news is good news. Appreciate your comments. Thank you.
Operator, Operator
The next question comes from the line of Will Nance with Goldman Sachs. You may proceed with your question.
Will Nance, Analyst
Hey, guys. Appreciate you taking the question. Very nice results. This one might be for Rob, but I was just hoping we could unpack sort of puts and takes in the ROTC margin just looking at back over the last year or so. Know, there have been a ton of tailwinds, you know, both structural to the company as well as sort of outside of your control, very favorable funding market tailwinds. And wondering if you could kind of talk to the trajectory of margins as you see them from here. It seems like if we look at the guidance in the remainder of the year, it seems like you're kinda still expecting to be hovering around four. You know, as we think about, you know, you had a very large beat on gain on sale this quarter, 0% loans have been increasing with the percentage of the mix. And so maybe wondering in your perspective, like, should we be anchoring more to kinda the 4% range that that you're kinda talking about for the second half of the year versus being comfortably above four over the last couple of quarters and just any kind of meaningful puts and takes as you see it from here. Thank you.
Rob O'Hare, CFO
Yep. Sure. I mean, as we outlined in the guide, I mean, we do expect to see our LTC take rates that are slightly above four. I think that's true in both Q3 and Q4 in the guidance that we provided. So gonna stick to that, obviously, and that that's the plan that we'll execute against. I think to your point, on the puts and takes, I mean, I would probably frame it very closely to what we saw in Q2, to be honest. We we did see benefits on the transaction cost side, particularly on funding costs as we've seen cost of funds come in particularly within the ABS market. So we would expect that trend to continue. We typically don't guide to specific transaction cost line items or even revenue line items, but in total, you know, I think the take rates and the dynamics will be pretty similar to what we saw from a trend perspective in Q2 where there is a little bit of softening on a year-over-year basis in terms of revenue take rates. Again, it's important to remember that we've driven a lot of 0% mix, and we think that's really good for the network. And then we are seeing really nice benefits on the transaction cost with funding cost being the clearest example there.
Will Nance, Analyst
Appreciate the commentary.
Operator, Operator
Our next question comes from the line of Jason Kupferberg with Wells Fargo. You may proceed with your question.
Jason Kupferberg, Analyst
Yeah. Hi, guys. Great numbers. Here, and it feels like some others in the space are trying to play catch up and maybe get a little bit more aggressive over the past couple of quarters. In terms of pursuing more prominent presentment, you know, looking to win new merchants in some cases offering cash back incentives to consumers. So I'm just wondering what you're actually seeing in the field. Is this having any discernible impact on Affirm's merchant pricing, just in terms of like for like take rates? Your go-to-market strategy, anything along those lines? Because I think there's a big debate in the community on that right now, but your numbers seem to speak for themselves.
Max Levchin, CEO
We do. We like to speak with numbers. Your answer to the question is no. I think this is like a social science theory, so discount appropriately. But we're probably in one of the noisiest environments as far as information headed for consumers' heads maybe ever, certainly in my lifetime. There’s news every day, and some of it reads like science fiction and some of it is science fiction or at least slop. You can have a deal and here's five paragraphs of explanation when it's valid. And it's 5%, but only if it's Tuesday. All those are promotional go-to-market that we're seeing from a lot of our competitors just doesn't seem to make a dent in what we sell, which is always like on the nose, brain-dead simple. You are getting no interest. If you buy this thing, you can split it into 12 parts or 24 parts or six parts, and you'll pay no interest at all. 0% sells as well as they do not just because it's, you know, free money or free loan, It's because it's so easy to understand. Our calling card has kind of become our moat has become associated with us. We don’t get into conversations with merchants around what if it’s zero, but it’s not really zero. There are a lot of sort of details to hash out if your offers are not super crisp and transparent, and that’s exactly what we do. So no, we saw no effects. In the sort of the more ultra-aggressive, you know, whatever it was, 50% cashback or I lost track of the exact offers.
Jason Kupferberg, Analyst
And just a quick follow-up. I'm looking at the GMV categories, and that other category, you're now up to 15% of total. I think it's basically your second largest vertical, tied three. Your second largest. It's growing triple digits. Can you unpack what's actually in there? What some of the major pieces? Are any of them getting to the size where you'd maybe start breaking them out on their own?
Max Levchin, CEO
Sure. That's actually a great question, although Rob is rolling his eyes. Sorry about that. We anticipated it because it is a juicy number, and yet it is nondescript. So it's actually, if you wanted to look for diversification in the business, I wouldn’t look at the top five. I would look at the other. So if we broke it out into categories, you would see all sorts of cats and dogs of really exciting categories like I have a fledgling sticker empire, and you really can't classify that other than novelty or other. And that's where you see there. It's a huge number of relatively small merchants that are realizing that they're at a disadvantage if they do not offer Affirm. As that knowledge spreads across the merchant base, it becomes somewhat more difficult to invent new categories for them. If you decide, well, we're gonna have to be very, very precise, then either end up in a giant bucket called other, which is what we chose, or you start doing things like stickers and novelty items. It just really is the long tail, and we're excited to serve them all. We've seen certain categories get to a critical mass within other, and we've broken them out. Services is a good example. We started breaking that out, I believe, two quarters ago now. If and when we get to critical mass within other, we'll continue to be very disclosive there.
Jason Kupferberg, Analyst
Thank you, guys.
Operator, Operator
Our next question comes from the line of Nate Svensson with Deutsche Bank. You may proceed.
Nate Svensson, Analyst
Hey, thanks for the question. Know, of exciting press releases from Affirm, Infor quarter. I guess I wanted to ask on the bank charter news. I think that was pretty interesting. Just hoping you could talk more about the decision to potentially go down that path. It seems like there's been some evolution in your thinking on that particular topic over time. So maybe just more color on what you see the benefits from that being, what new product and services can be unlocked, and then, I guess, any sense on the time frame or hurdles to clear as you as you have to get that secure?
Max Levchin, CEO
Sure. I would quibble with the evolution of thinking merely because we've answered this question a bunch of times, obviously, before we disclosed that we have applied. We've always been pretty clear. There’s kind of one reason to have a bank charter and that is regulatory certainty. You operate as a bank partner. You want to know that your bank partner is on footing, that there are no hidden rocks for that particular bank. If you own a subsidiary, you would presumably understand a lot better, and that's the primary motivation of why we applied. Obviously, the climate at the regulatory bodies that issue such approvals has changed, and that's something that we track very carefully. The timeline is certainly years, so I would step away from any model modifications. We don't know if we’ll get approved. We don’t know exactly when we do if we would. There are all sorts of timelines that are prescribed by the approver, sort of with to prepare, then to open, then to stay in a de novo period, and then finally to operate with fewer restrictions. So it’s definitely a long-term investment in regulatory certainty. Down the road, you can start imagining products that are only possible with a bank charter in your available tools. That’s so far away it’s really not worth talking about right now. But it is a great investment in our regulatory stability for the years to come, assuming we end up in the approved category.
Nate Svensson, Analyst
Thanks, Max. And point taken on the evolution of thought. Appreciate it.
Operator, Operator
Our next question comes from the line of Dan Dolev with Mizuho. Please proceed.
Dan Dolev, Analyst
Hey, team. Great results as always. Just a quick question on the ABS deals. The execution there seems to be really, really strong. Maybe if you can make a few comments. And if I can squeeze just a very quick one on the AI, that was a big surprise. I just wanna know how much of this AI boost is actually contemplated in the guide and if fully rolled out. Thanks again, great results.
Max Levchin, CEO
I think Dan's asking about the guide.
Rob O'Hare, CFO
Not allowed to speak to the guide. Yeah. I think the guide. In terms of, like, guide, we're not, you know, we have a pretty nice trajectory with those two product lines, but we haven't called out specifically how much is in the GMV guide.
Max Levchin, CEO
It is definitely early days for the Boost AI. I was trying to sneak into the letter exactly how few merchants have adopted Boost AI. Adapt AI has been around for a couple of years. It’s generally speaking, batteries included. Part of the product. Boost AI is new and it’s super cool because it does automated AB testing. But it also has a channel that is a channel for incremental merchant dollars. The thing that's I try to describe in, ultimately got edited down a little bit more. Boost AI allows a merchant to say, you know what? I have 100,000 more dollars. I'd like to put into Affirm specific promotions, 0% or just reduced APRs, you guys go and AB test who would be the most likely to convert with that kind of offer in front of them? Go deploy. I don't need to know exactly what happens. I just wanna maximize my dollar-for-dollar investment into sales. It looks more and more like an advertising model versus a cost acceptance model, which is exciting because it just gives our machine learning engineers a lot more freedom to do some amazing things for our merchant customers. So super excited about the product. It is pretty early. We're not breaking out what it does for our numbers.
Rob O'Hare, CFO
And then as for the ABS deal we just did, and just generally, the market is still very constructive and the team is executing really well out there. The last deal we just priced was done with a spread of under 100 basis points. It's really remarkable. We haven't done that since 2021. The weighted average yield in the deal was below 4.6%. Again, we haven't seen that kind of cost of financing since since the rate movement in the market. We’re operating and executing in capital markets really the best we've seen post the rate movement world. A reflection of two things. One is just the continued vote of confidence that the market has in our ability to control credit outcomes and deliver the kind of returns that we sign up to deliver. And, of course, just really excellent execution.
Dan Dolev, Analyst
Thank you.
Operator, Operator
The next question comes from the line of Moshe Orenbuch with TD Cowen. You may proceed.
Moshe Orenbuch, Analyst
Thanks very much. You know, the first question kind of asked about, you know, growth, and you talked about the growth in your merchants and both in the number of merchants and the growth at the merchants, but both the Affirm card and international expansion are two areas in which you can get significant growth in addition to that. Could you just give us like some update? I saw the attach rate and related stats on the Affirm card, but can you just flesh that out for us as to how those are going and what you know how you see the development over the course of the next several quarters? Thanks. And sorry for this background noise.
Max Levchin, CEO
No worries at all. So the card is just continuing to grow very quickly. GMV year-over-year for the quarter reporting was up just under 160%. Active cardholders went up 121%. 0% deals on the card went up 190% year-over-year. It’s not the only growth engine, but it’s a big growth engine for our metrics. It's not a material to the overall business. It's no longer a kind of a cool novelty product for our diehard users, and it’s helping us create more diehard users. So the card is doing really well. We have a lot more planned for the card, so we don’t intend to slow it down, if you will. Probably my personal focus on the product side of things is still predominantly on the card and adjacent things. And then on the international I'm happy to speak more. There’s definitely some stuff in the letter just talking to those numbers, and more on the card specifically. International, I don't know if you saw we announced a couple of really nice deals in the UK specifically. A couple of our US brands lighting us up or think that they will light us up soon in the UK. We’re and, obviously, the Shopify announcement was a while ago. That's scaling. We’re still actually not at sort of peak run rate there. So we’d expect to improve those numbers. Wayfair, we just announced literally a couple days ago that we are live in the UK in a kind of a beta pre-beta type thing, but that's gonna scale up, and they've been a partner for a very long time. We have a bunch more. Vimeo too is, you know, obviously, think it's the largest or certainly one of the first or second largest vice company, the best-selling company in UK, so we will announce that. We have a whole long pipeline of sales happening there, and we're excited about that. So and then there's more countries to come for sure. So both international and the card are still significant drivers. The card is much larger than international. International is now growing consistently at a pace that excites us. Feel good about both.
Operator, Operator
The next question comes from the line of Rob Wildhack with Autonomous Research. You may proceed with your question.
Rob Wildhack, Analyst
Hey, guys. One question on the updated outlook. As we see it now, you're kind of pointing to a slowdown in GMV growth to 30% in the third, 25% in the fourth quarter. I know a long time between now and the end of the fiscal year, but could you just talk us through the cadence there and if there are any specific callouts for the deceleration in the coming quarters?
Rob O'Hare, CFO
No specific callouts. I mean, we are obviously comping the transition with a large retail partner. Obviously, we had that headwind from a comp perspective this quarter as well and grew at 36%. So really nothing specific to call out in terms of drivers for the deceleration. Yeah. We’ll leave it there.
Rob Wildhack, Analyst
Okay. And then, one more on funding. You know, we see, you had the new forward flow deal, but we also see some of the headlines in concern around private credit, many of whom are Affirm loan buyers. So just what's the current temperature from the forward flow and loan buyer channel right now?
Rob O'Hare, CFO
Yeah. I think it's still extremely constructive. The conversations we're having with our partners usually revolve around having to disappoint them on how much allocation we can give them right now. That’s into it’s a qualitative read. But tends to be the conversation we're having today. I think a lot of the conversation about the market more broadly really doesn't pick up the specifics of what Affirm's assets create and the kind of people that we partner with. We've been very selective about how and who we partner with, and that puts us in a position, we think, to have a very durable set of partners who are really excited to continue to go deeper with us.
Rob Wildhack, Analyst
Okay. Thanks a lot.
Operator, Operator
The next question comes from the line of Rayna Kumar with Oppenheimer. You may proceed with your question.
Rayna Kumar, Analyst
Good evening. Thanks for taking my question. Could you just comment on what you're seeing out there in the regulatory environment? Like, are you hearing anything about potential caps on BNPL rates? And, if so, how would Affirm react to that?
Max Levchin, CEO
Not hearing about potential caps on BNPL rates specifically. Obviously, a very dynamic set of conversations happening at the federal level about credit card rates. One good rule of thumb about regulatory realities, if you will, whenever Republicans are in the White House, you can expect more attentive and active attorneys general from all 50 states, both red and blue, because they feel that you would expect a more relaxed posture by the federal regulators. Whenever Democrats win the White House, the executive branch starts, you know, puts more attention into various laws and regulations at the federal level, and then the state attention typically fades a little bit. It has as much to do with the employment of the people that work in these agencies both at the state and federal level and the overall posture of the various political elements we have. Right now, just from a practical perspective, obviously, we’re tracking all the things, both federal and state level, having an active conversation with all of our regulators. Generally speaking, we have positive relationships with them. It doesn’t hurt that we don’t charge late fees, don’t screw our customers. We typically do the right thing. As much as we can and then some. So nothing sort of too exciting to report. We felt compelled to apply for an industrial company bank charter. So, clearly, we believe that the sort of really grown-up regulators, FDIC in particular, would expect us to see us as a good actuary that's prepared for the big leagues or the beginning of the big leagues. Generally speaking, feel pretty good about it. But we are always regulated. So we're always regulated by 51 distinct entities, federal and 50 states in that’s part of the job.
Rayna Kumar, Analyst
Very helpful. Thank you.
Operator, Operator
The next question comes from Dan Perlin with RBC Capital Markets. You may proceed.
Dan Perlin, Analyst
Thanks. Good evening, everyone. I just wanted to jump in a little bit on the big nothing. And the question really is on the derivative benefits you called out the Affirm card sign up, so I kind of understand that. My bigger question is the uplift in credit quality that comes with that consumer set. And then how do you apply those learnings to kind of everyday shopping for a firm? Because the clearly, the GMV uplift across the board was pretty significant for those three days.
Max Levchin, CEO
Yeah. And by the way, not to sort of I'll take the compliment, but I will point out this is our first rodeo that particular one, and we expect to get better and smarter, and we're planning the next one. We’re super excited about all the things we’re gonna do differently and just smarter. There’s more money in the banana stands— we’re sure about that. In terms of I don't always refer to the big blue; sometimes I refer to the rest of the whole. So on the JV boost, the conversion boost is really powerful. It’s in a letter. You can see how well it did for us. It does skew higher credit quality because of the self-selection that always happens in reduced APR, 0% APR. It did have excellent second order effects. We saw outsized— actually the gains in cardholder growth were outpaced the gains in GMV; that’s kind of interesting. I think that's right, if I remember correctly. The card growth was to handle, GMV went up 15%. I don’t wanna perjure myself without looking at the cheat sheet, but the card grew even better than the GMV. All of that was really solid. One thing that's worth knowing, it's not in the question, but it should be. We have a lot of evidence, lots of months of data showing that folks that come in through a 0% APR loan are quite happy to use us for both interest-bearing and non-interest-bearing products. There’s a sort of an industry myth that you self-select into an APR and then you react violently when it changes upwards. That is not the case with the Affirm consumer. And can sort of debate why, but it is factually correct that people who sign up with a 0% deal do not mind other offers that we give them. Because it's so effective, we're definitely very hard at work telling merchants about how effective this is and inviting them into the next big nothing, etc.
Dan Perlin, Analyst
Yep. Nope. That's great. Thank you so much.
Operator, Operator
Our next question comes from the line of Matt Code with Truist Securities. You may proceed.
Matt Code, Analyst
One more maybe on the other bucket in terms of, you know, new verticals that may enter that other bucket. There were some press releases over the quarter about entering B2B through the partnership with QuickBooks payments and then maybe moving into the rent vertical as well. I know it's kind of early days for both. But I just was hoping that you guys could talk about, you know, the growth opportunity there. And then kind of how you think about underwriting, especially in the rents and how that may differ from your current book of payments and underwriting. Thanks.
Max Levchin, CEO
Yeah. So I’ll take it in the inverse order but super important. The rent test is a very, very small test. It is definitely not our MO to take what is essentially a subscription product and turn it into a differently contoured subscription product. Like, the product cannot be you wanna pay your twelve-month rent over eighteen months. Like, that doesn’t help our consumers. It’s not the right product to build. That's not what this is. The test we're running is about allowing you to time-shift e.g., you get paid on the sixteenth, but your rent is due on the fifteenth. That's a strain on your personal finances. What if we allowed you to move that or split it into two parts? That's the thing we're testing. Very small. The number of loans we are allowing through is countable on, you know, several people's hands sort of thing at least in the first portion of this, and deliberately so. This is not an area we think obviously gonna happen. So, you know, if we’ll find out, we'll test. But put nothing in your model for now. On the Intuit side, that's actually super exciting, and it’s not B2B. What it is is there’s a whole facet of the services world that gets billed through QuickBooks. Until just now, or whenever it launches, you would pay for the services with a credit card. The service provider would tell you it’s gonna cost you $5,000, and, you know, off you go. You decide if you want it. As soon as we launch, which is in a fairly accelerated timeline, the service provider will tell you, I can make this $5,000 over the course of six months. All you have to do is use Affirm. You already know the name. It will be in your invoice. And so it is the usual Affirm, if you will, B2B to C. Intuit is a fantastic aggregator of small service providers that bill consumers. We will be included in those invoices and the consumer will be educated that they can pay over time for these services. We feel like we’ve unlocked another side of transactions that, you know, until recently, weren't exposed to buy now pay later at all. So super excited about that. There’s a lot more to do there, but that’s the first step. And then just the other point I would make on the other category to the first question, we do include our wallet partnerships in other. There is a sort of the long tail of merchants, but then wallets would be another part of other that is pretty high growth for us today.
Matt Code, Analyst
Really helpful. Thanks, guys.
Operator, Operator
Our next question comes from the line of Adam Frisch with Evercore ISI. You may proceed.
Adam Frisch, Analyst
Thanks, guys. Given the value you generate for merchants with the 0% offers, are your thoughts around the potential to continue to raise pricing there? It seems like there is an excess buffer between your fees to the and the lower revenues they avoid by not having to initiate a 25 or 30% off sale. It seems like pricing did tick up for the long-term piece of this book, flat for the short term on at least on page 16 of the deck. So maybe some color there. On the mix between long-term and short-term and the potential to raise prices.
Max Levchin, CEO
Great question. I would say, know, I think it does vary a bit by merchant size, and we have had nice traction with a couple of our go-to-market packages that we use for some of the platforms that help us aggregate distribution into smaller merchants. We actually have seen an uptick of merchants starting with a base package and then moving into a higher converting package that includes more 0% offerings in their financing program. I think that is working for us in terms of the go-to-market motion.
Rob O'Hare, CFO
And then, honestly, I think with some of the larger merchants, it's really on us to prove that 0% offerings drive conversion. I think those conversations take time, and are gonna be functions of the success that we drive, and then it's on us to make sure that we're being compensated for what we're delivering to the merchant.
Max Levchin, CEO
Yeah. And flat pricing in a declining rate environment is actually the same thing as taking price.
Adam Frisch, Analyst
Yeah. What's the mix between short-term and long-term on the 0% book?
Max Levchin, CEO
We haven't disclosed that.
Adam Frisch, Analyst
Okay. If I could just squeeze in one more. The last provisions ticked up a few basis points. Nothing crazy at all. I'm just trying to figure out why this stock might be down a couple bucks here in the after hours. Do you see—did you see something in the quarter? Is it taking advantage of some strength this quarter and being proactive? Or just some color around that would be great.
Max Levchin, CEO
I think I already said it. The consumer's healthy. We are not seeing any disturbances in the force, which gives us freedom to optimize for our LTC. You can see the ROTC number is just shy of the upper side of the long-term goal. We manage credit to a number. If you look at the chart of the NACO curves, you'll see that these are super tightly run lines that are just one on top of the other. That’s what I look at when I worry or don’t worry about credit results. So that's sort of the north star. Is NACo doing okay? And it certainly is right now. I'm not sure I can help you interpret why the stock is down though. So that’s not the—I'm not interested. We’re managing credit very, very attentively at all times.
Adam Frisch, Analyst
I think you guys are doing a great job. Thank you.
Max Levchin, CEO
Thank you.
Operator, Operator
The next question comes from the line of James Faucette with Morgan Stanley. You may proceed.
James Faucette, Analyst
Actually, I have a follow-up with one of the answers you gave just a moment ago in terms of the behavior of those that are coming in for 0% promotions versus maybe others. Can you give any more detail in terms of their frequency of engagement? What products they’re tending to be attracted to? It seemed like you were suggesting that they would use also interest-bearing and maybe gravitate towards the card. But just help us understand, like, where you’re seeing success continuing to engage with those customers and what that behavior looks like say versus those that come in either through kind of an interest-bearing or or very short duration 0%.
Max Levchin, CEO
Everything you just said sort of answers your own question a little bit already. The very last thing you said is not what I said, and I don't want to imply that. In other words, I would not encourage you to think of short term zeros as a great feeder into something else. What I was trying to say is zeros, writ large, short and long term. Obviously, longer term zeros are a higher form of value. If you’re getting it at a 10% loan or 12% loan for a large ticket purchase, that's an extraordinary deal. That’s exactly sort of the conversation with merchants around. Don't run at a 25% off sale; pay us 11% and offer twelve months plus or minus, 0% loans on your large items. So, and you're right though. I did suggest that a zero as the first loan does not preclude, in fact, does not seem to bear any relevance as to your propensity to take out an interest-bearing loan. This is mostly just a freedom for us to correctly price the transactions; whenever merchant does or does not subsidize the interest rate. The shortest form of the summary here is consumers we sign do not fall by large into only transact with x type of transaction, or only transact with y type of transaction. They cross-pollinate nicely. To the sort of who’s more engaged that’s a great question. We're not—I'm not sure I want to talk too much about it, but a lot of our product strategy is shaped by the observations that consumers that come in through particular types of a transaction find us in more and more surfaces. A lot of how boost.ai and adapt.ai actually work is that we are seeing consumers across multiple differentiated services. You start typically at the point of sale. You end up taking out the card. You might use from anywhere before that, which is sort of the cardless version of the card that know, was developed a couple of years prior. As you start compounding, if you will, these different kinds of Affirm use, your engagement goes up, your transactions per user goes up, and your overall annual spend on Affirm goes up, and that’s exactly what we want. We are absolutely very attentive to what else we might offer you as you’re increasing your transactions per user and your total Affirm spend. The 0% deals of various kinds are super valuable because they have such an outsized impact on propensity to convert.
James Faucette, Analyst
That's really good color. Thanks, Max.
Operator, Operator
Our next question comes from the line of Reginald Smith with JPMorgan. Please proceed.
Reginald Smith, Analyst
Hey, guys. Congrats on the quarter. Most of my questions have been answered. Did have one question I get a lot from investors is whether your expansion into some of these newer categories—home improvement, medical, auto repair—signals anything about, I guess, your base, your core retail BNPL business, whether it’s competition or anything like that. Or maybe even a shrinking opportunity. I guess what would be your reaction or response to those questions? And then, you know, how did you decide, or what was the signal that confirmed that now is the time to kinda make that move into those new verticals? And then lastly, is there any link or relationship between moves to those verticals and maybe getting a bank charter? I'm just curious whether the lower funding and the longer duration deposits played any role in that decision.
Max Levchin, CEO
I'll go backwards, Reggie. So short answer to the last one is no. We are not figuring any sort of a short-term reduction in cost of funds. We need to get approved. We need to go through de novo. We need to gather deposits from which we could lend and, you know, any years into the future, we can talk about, hey. Now that we have a lot of deposits, can we leverage some of that to fund our own book? So that’s very, very far away. That's not even a little bit to these new categories. The way we choose new categories is entirely based on consumer pull. Because we have a card that works everywhere Visa is accepted, we get a really high-fidelity daily print of, oh, check it out. People are using this for this thing. Well, that’s interesting. We should maybe talk to some of the people that sell whatever that thing is, and we knew that auto parts and adjacent things have been a huge component of our growth for a very long time. It made a ton of sense to go talk to people that sell a lot of parts and ask them. If we integrate it directly instead of having our consumers come through the card door what would that product look like? Would there be a reason for us to do something a little bit deeper? That’s roughly how we pick new categories. The reason we went to new categories—the very short answer is we’re building a network. Like, Visa is accepted everywhere. Amex is accepted everywhere, etc. We see ourselves as a twenty-first century version of American Express sometimes, and the goal is to be on every convenience store door and all the doors, all the online doors, all the offline doors. Affirm wants to be the universal acceptance mark. It’s not a matter of which one do we choose. It’s which one do we choose next. Some number of years from now, we hope to just be a thing that consumers expect to see at any retailer, big and small, online and offline.
Reginald Smith, Analyst
Makes a lot of sense. Great answer. Thank you.
Operator, Operator
Our next question comes from the line of Mihir Bhatia with Bank of America. You may proceed.
Mihir Bhatia, Analyst
Hi. Good afternoon. Thank you for taking my question. Just wondering if you could talk about the announcement with Fiserv earlier this quarter. Maybe just describe what you're trying to do there, the interest you're seeing in the product from banks, regional banks. Anything you can share on how the product would work in practice, unit economics? Thank you.
Max Levchin, CEO
Definitely a little bit early to talk about the unit economics given we've just announced a partnership there. It follows our partnership with FIS, and we're certainly not stopping there. We are seeing excellent interest, hence, the opportunity to partner more and broader in the community of folks providing services to such financial institutions. We think that we should not be the only people issuing debit cards with now, pay later capacity on them. There are already a half a billion debit cards in America, and many, many, many banks where people bank locally have a debit card, have a banking brand they love and don't feel like switching out of, and would love to see BNPL capabilities from their bank. Their bank, on the other hand, does not have a software engineering team, an underwriting team, or capital markets team— we do. We are excited to offer our platform to anyone who wants to be on it. The best way of reaching some of these folks, given their technical limitations, is through their core banking software providers and their integration teams. That’s what we’re trying to do here. At some point, we'll start talking a little bit more about specifically who’ll go first, who’ll go second in the actual underlying financial institution customers, but we’re just not quite there yet.
Mihir Bhatia, Analyst
Got it. I understand. And if can I ask you just to follow up on Affirm card? Just generally, I was wondering, Max, if you’re thinking on the card as evolved as you’ve seen customer usage of the card. I think early on, you certainly talked about it as wanting it to be like the customer’s top of wallet everyday card. How customers consume are using it today? Any evolution on that thinking? Thank you.
Max Levchin, CEO
Actually, Michael said something a while ago, which sort of seemed obvious after I heard him say it. We have 25,000,000 active users, and we still keep on talking externally, but also kind of internally, as if we have exactly one product that fits them all. No one at that sort of scale has, oh, yeah. We got this one thing, and everybody should just use that. It is true. The card is used fairly differently by different consumer categories. We have a category of consumers who’re absolutely using the card as a top-of-wallet, every transaction, they're both power users, but they’ve completely been—don't know, the color of our logo is, I guess, kind of purple so maybe they’ve been purple pilled. Is that the word? I’m making this up as I go along, obviously. But that group exists. It's not small anymore, but it is a minority. The majority of our consumers still use the card as a considered purchase when the transaction really matters to them. They pull out their firm card. They also see a firm logo. They might just go through the integrated path. If they're active, Apple Pay, Google Pay, Chrome, Autofill, Shop Pay users, they have a dozen huge wallets partnerships that we power. All those are available to them. And so they don't always reach for their card even if they have it in their wallet. That group certainly thinks of us as a considered purchase. Again, within that group, there are people for whom $50 is a highly considered purchase. If you turn to the first page of my section of the letter, we broke out just for the big nothing the GMV lift merchants saw by size of basket, which is kind of a really—we don’t really talk about it that much, but you can see there’s like a nearly perfect linear curve as the size of the transaction increases; the GMV uplift by off 0% goes up as well. That explains a lot about the sort of customer differentiation. We will start talking a little bit more about the customer segmentation that we have or consumer segmentation that we have internally. Definitely not prepared to give a lecture on this topic right now, but it's starting to bifurcate, trifurcate fairly rapidly into groups that we need to serve differently. We're excited about that. Like, nothing is better than as a product person to know you have market pull, and the market is teaching you we need a card that does this. Then we have another group, and they want something else entirely, and building that is cheaper and cheaper thanks to all these programming techniques that we now have. So we're excited to build more software.
Mihir Bhatia, Analyst
Thank you.
Operator, Operator
Our next question comes from the line of Darrin Peller with Wolfe Research. You may proceed.
Darrin Peller, Analyst
Hey, guys. Thanks. Last quarter, I know you mentioned you were in discussions with some key PSP partners to become a default payment method. And I think you’re already live with one. So maybe just touch a little more on the benefits you’re seeing from that PSP default method and how these conversations have evolved. Maybe just when you're in these conversations with PSPs, what's the pitch like to really convince them? Thanks, guys.
Max Levchin, CEO
It just goes right back to the thing I said earlier. Ten years ago, if you said Affirm should be right next to Visa, Mastercard, American Express, Discover, your average payment processor would say, what firm? Sorry. That’s if you’re on the phone or Zoom. That’s not the question anymore today. Fortunately, our name has now a certain degree of weight. That becomes a conversation of does this help my overall conversion? Does this change my economics? For yeah. As I pitch downstream merchants for my overall services. So yeah, I’m not sure I’m prepared to lay out into a ton of detail, but the default on just means the consumer sees our logo as they select a way they're going to pay for a thing or a service. For a large percentage of the merchants both within these partnerships and outside, our logo is visible not just on the payment sheet, but up funnel where the consumer finds out that Affirm is available and they can split their payments and expect no fees.
Darrin Peller, Analyst
Okay. Alright. I mean, but I think that could be a key driver for you guys, assuming it's sticky and it actually resonates. I'm just curious if there's been progress. But anything more you could share on that. But then my other question is just about Agentic.
Max Levchin, CEO
Sorry. I mean, I think we think about platforms, really when we talk about PSPs as well. I obviously, the Intuit announcement is one that we're incredibly excited about. I think the size of that platform is immense, and, you know, it's on us to make sure that we maximize opportunity and build the biggest program there that we can.
Darrin Peller, Analyst
Right. That makes sense. Thanks. I guess just quick follow-up would be on it. Any quick comments you can give us on your latest view around Agentic commerce? I know it's not a quick topic, but just given that it could become such an important part of the ecosystem, I’d be curious to hear steps the company is taking just to make sure you’re ready to capture this kind of spend.
Max Levchin, CEO
Alright. I’m laughing because it’s Michael’s turn to roll his eyes. So we got the meaning of life question, and the short answer is still bullish, still think that it is usually accretive for our financial product flavor to have agents that judge whether financial service is a good one or a bad one. I think as the bots learn more and more about how things like different interest rates, late fees, and compounding interest work, it’s easier and easier to stand out because we don’t do any of those things. I think all of that structurally, we benefit from that. In terms of just being there and making sure that we are in the mix, we certainly are very, very active. I mean, I can’t always keep track of exactly what announcements we made, so I’ll punt on saying exactly where we’ll pop up next or first or second. But we are certainly active, very engaged with the industry trying to understand what's the best way of delivering our product. But yeah, you should absolutely expect us to be in all those stories. Think I continue to maintain from the sort of pure consumer product perspective that there are purchases that are more like entertainment and they will continue being largely human-driven and purchases that are more human-computer partnerships where AI will help you research the product you’re gonna buy and maybe even serve up the final decision for you, and then you’ll pull the trigger. But the person will still be human supervised.
Darrin Peller, Analyst
Okay. Thanks, Max. Appreciate it.
Operator, Operator
Our next question comes from the line of Brian Keane with Citi. You may proceed.
Brian Keane, Analyst
Yeah. Hi, guys. Jumped on a little bit late, but the spike in the active merchant growth up to 42%, I know that was running in the low twenties for a while a few quarters and then moved up last quarter and then again a significant move. Is that one relationship, or is that multiple relationships? Just trying to get a better understanding of the growth there.
Max Levchin, CEO
Yeah. I would say, the inflection in growth is being driven by some wallet partnerships that we have. We're including merchants from those wallet partnerships in that merchant count. That has been an accelerant from a growth perspective.
Brian Keane, Analyst
Got it. And how long does it take to get to corresponding volumes, you know, from those merchants, from those wallets?
Max Levchin, CEO
Well, I mean, obviously or maybe not, obviously, I mean, we're only counting the merchant if they're active with us. We're not counting doors. If the merchant isn't taking transactions from Affirm. So we're only counting active merchants, whether it comes through a wallet or it comes through a more direct integration with Affirm.
Brian Keane, Analyst
Yeah. That's what I was thinking about is how fast it takes to scale with those particular merchants, maybe they're not directly integrated. Okay. And then the other question just on adjusted operating margins. Just thinking about the first half versus second half, obviously, strong margins in the first half. And then it looks like a slight deceleration in margin growth that you're just probably being a bit to think about in terms of the adjusted operating margins first half or second half?
Max Levchin, CEO
No. I mean, I think we did have a really nice trajectory over the course of last year. So to your point, you know, the margin expansion is a bit lower in Q4, for example, in the guide than it was in Q2. But we are approaching we're quite happy with the margin profile, and we're signing up for more FY '26 margin expansion in this version of the guide than we had ninety days ago. So, yeah. I think it's just continued operating leverage and continuing to scale nicely, and most of that is driven by the strong growth that we’re seeing in revenue less transaction costs.
Brian Keane, Analyst
Okay. Great. Thanks, guys.
Operator, Operator
The next question comes from the line of John Hecht with Jefferies. You may proceed with your question.
John Hecht, Analyst
Afternoon. Thanks for all the color and details. Most of my questions have been asked. I guess, one thing I'm just curious about is you're now your forward flow agreements with private credit counterparties are an increasing part of the funding source. I know you've been selling assets to off-balance sheet partners over time. But I'm wondering, is the characteristic of what the private credit partners want in such a way that it changes the of what you end up holding on balance sheet, or is it all the same?
Rob O'Hare, CFO
No. Definitely not. But still have an approach that says we allocate loans to partners you know, on a vertical slice. Our partners generally want broad exposure to everything that we originate, and we're committed to not selecting particular assets for on and off. The only exception to that or asterisk is there are certain concentration limits or certain even test products that may not get into our normal funding flows. For the vast majority of the stuff that we originate, it's randomly allocated to partners, and we just decide how much we're gonna push to each partner. The reason for that approach for a lot of our partners is when they think about partnering with us, they're not thinking about specific assets or assets turnover way too fast for that. They're really thinking about partnering with us as a source of origination flow. They spent a lot of time making sure that they have confidence in how the company will operate, not thinking about a pool of assets like you might see with the longer dated, longer duration personal loan company?
John Hecht, Analyst
Okay. That makes sense. Thanks very much.
Operator, Operator
Due to time constraints, our final question will come from Timothy Chiodo with UBS. You may proceed.
Timothy Chiodo, Analyst
Great. Thanks a lot, everybody. So in Agentic commerce, I want to circle back on the topic Darren brought up. So broadly speaking, we can think about three types: there’s using ChatGPT to search and then clicking off; there’s using ChatGPT to search and then staying within the interface and using an instant checkout button, if you will; and then, of course, there's the full Agentic with which Max, I think you were alluding to. If we just can find this kind of conversation to the instant checkout portion, when we go into ChatGPT today, we can see the Apple Pay button. We can see the Stripe link button, and we can see pay with card. Is it possible that over time, we will see the Affirm button within that chat and other Agentic platforms within that user interface for the, let's call it, the instant checkout type of transaction?
Max Levchin, CEO
It's possible, but we're making no such announcements right now. I think I just think it's really important to note that this is very, very early. The entire Agentic commerce thing is still super early. But, yes, I think there are—there’s absolutely room. Let's go down that road. There's definitely room for a firm button in all possible forms of commerce, including Agentic commerce. If there's human supervision involved, you should hold us to the account to account of, hey. Did you place your button there? If you have not, why haven’t you, and when will you? Think that that’s a reasonable expectation from our shareholders. Or our analysts. You can definitely—I mean, last I checked, I actually haven't tried it in a little bit, but I think you can find a firm on the Apple Pay in through the Apple Pay door if you go there. So it’s— but yeah. And Leroy, who’s not here with us, but I would be remiss without mentioning his mantra. We love channel conflict. If you believe that you are a network, you better be included in every wallet.
Zane Keller, Head of Investor Relations
Thank you for joining the call, everyone. We appreciate the wonderful list of questions you all submitted. Look forward to seeing many of you on the conference circuit, and talk to you again soon. Thank you.
Operator, Operator
Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines and have a wonderful day.