Earnings Call Transcript - AFRM Q4 2025

Operator, Operator

Good afternoon, and welcome to the Affirm Holdings, Inc. Fourth Quarter Fiscal 2025 Earnings Call. As a reminder, this conference call is being recorded, and a replay will be available on our Investor Relations website for some time after the call. I would now like to hand the call over to Zane Keller, Head of Investor Relations. Thank you. 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 financial 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, Affirm'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 your questions. On that note, I will turn it over to Max to begin.

Max Roth Levchin, CEO

Thank you, Zane. The results, which I do think are exceptionally strong, is all the explaining we need to do. So just one tidbit we left on the cutting room floor that we didn't just crush this quarter, we actually set a new record in most of our metrics, which is unusual. Fiscal Q2 is a normal peak but this is Q4 and yes, it is the record. So that's really cool. I should tell you that our growth is accelerating and we are firing on all cylinders. Also, we just celebrated Libor's decade at Affirm a few months ago, and so I want to congratulate Michael on his 7 years here as of yesterday and Rob's upcoming fifth anniversary this Sunday. I'm privileged to lead an extremely talented and dedicated team, and I don't take for granted that they and their families are willing to put up with my antics for so many years. Thank you, guys, and here's to many more years of building Affirm together. Back to you, Zane.

Zane Keller, Head of Investor Relations

Okay. Great. Thank you, Max. With that, we'll now take your questions. Operator, please open the line for our first question.

Operator, Operator

And our first question comes from Dan Dolev with Mizuho.

Dan Dolev, Analyst

Great results as always. So obviously really strong quarter, amazing guide for next year. It sounds like last quarter, you were talking a little bit about the potential stress and the impact on Affirm. It sounds like things have gotten a little better for you from when you were reported last time to now. And what is your best take on how things stand now and sort of the reason for that optimism and the nice uptick for you guys, and again, really strong stuff. Very good.

Max Roth Levchin, CEO

Thank you, Dan. As Michael loves to say, we take our guidance very seriously and err on the side of being thoughtful and aiming to get ourselves some A-pluses instead of just straight As. And we typically do deliver, not a forward-looking statement. But from the consumer point of view, which I gather was the question, we think that it continues to perform. It's really maybe a commentary on how strong the momentum is in the U.S., and to at least a similar degree, the Canadian consumer and soon, we'll find out what that looks like for the U.K. one. But we're feeling very good about the originations we're driving. We feel quite excellent about our ability to get paid back on time. So on the credit side of the equation, it continues to perform really well. On the demand for our service, you see the acceleration in GMV and the new record.

Operator, Operator

And our next question comes from the line of Dan Perlin with RBC Capital Markets.

Daniel Rock Perlin, Analyst

I want to go back to the 0% APRs with the first-time users coming in. I think you said that was like 50% which is, again, like a very, very strong number. So the question is, it's bringing in a lot of new users. I'm wondering when you look at kind of prior quarters, obviously, you can't look at it this quarter, but prior quarters, what kind of like repeat rates are you able to, I guess, glean from those initial users coming in? And the real crux of the question is, are they coming onto the platform because of the 0% APR but they're not using it again? Or are they behaving similar to maybe a more traditional Affirm user?

Max Roth Levchin, CEO

A great question. I appreciate the implied dig at how real are these growth users. But I have good news on that front. They do repeat, obviously, every credit strata behaves a little bit differently in the sense that folks choose us more or less depending on what alternatives they have, how they feel about the merchant coverage or the deal covers that they want. But generally speaking, there's not a tremendous difference in terms of repeat of users that have been acquired through 0s or not. But the more interesting thing, which you didn't ask but I'm going to answer anyway, is do 0% users flip over to interest-bearing? And they do. And that, I think, is a really, really important indicator. Obviously, 0% transactions are somewhat less profitable for us. They're still profitable. So this is not a loss leader. But the interest income that comes in, in interest-bearing loans is obviously more profitable. And those folks enjoy 0s when they are available to them. But the experience using Affirm is so positive, they do convert to interest-bearing users just fine and come back to us for many other things than just 0s.

Daniel Rock Perlin, Analyst

That's great. I figured out to sort of dig in early, so thanks.

Max Roth Levchin, CEO

When I was reading our numbers, what would I stick my finger on like how good is that? And this is a good one to ask. And the answer is positive.

Operator, Operator

And our next question comes from the line of Adam Frisch with Evercore ISI.

Adam B. Frisch, Analyst

It seems you are doing very well. The only potential issue I see might be related to consumer behavior. If you anticipate factors like the resumption of college loans affecting consumer spending, the data could become a bit uncertain in the upcoming months as the year wraps up. Could you remind us about your user base in terms of FICO scores? Specifically, how many of your transactions involve consumers that are considered near prime, prime, or super prime? It would be helpful to know this so that when the data suggests a decline in consumer confidence, we have a solid understanding of the quality of users engaging with Affirm.

Max Roth Levchin, CEO

I’m not sure if it will be released any sooner than now. It's all in our supplement. Generally, the resumption of student loan payments is something we have anticipated for a long time, and we've taken steps to ensure we are not overextending borrowers while monitoring their situation. The reason we haven't focused heavily on credit performance in this letter isn't due to oversight; it's because it has been consistently good and continues to perform well. However, that doesn't mean we are ignoring it. We have consistently emphasized that credit is our top priority, and it remains so. The executive team receives a complete credit performance update every Monday. If any issues arise, we increase that frequency to three times a week and daily if necessary. We are very attentive to our performance and are fully aware of it. The figures you see are exactly as we want them to be. Credit performance is a result of our model settings. We underwrite every single transaction and reserve the right to decline those we believe are too risky for both the borrower and Affirm, and we do so. If there’s ever a deviation from our typically high net promoter scores—since not everyone appreciates being told they shouldn't borrow because they are overextended—we won’t change our stance on lending if they are overextended, either with Affirm or in their overall credit usage. So, I’m not worried about that. Macroeconomic changes affect everyone simultaneously, and that’s beyond our control. However, we can and have managed our results over the years, despite fluctuations in the macroeconomic environment, including sudden shifts. I feel very positive about our performance and, more importantly, our capability to manage it as long as we remain focused on credit numbers, which we absolutely do.

Robert W. O'Hare, CFO

And I would just add that I think given the short duration of the loans that we're originating, the most important thing for us is that we have a full picture of the borrower's wherewithal to repay the loan at the time of origination. And then the asset is so short-dated and we're increasingly working with consumers that we've seen before. 95% of our transactions came from repeat borrowers this quarter. So that setup really allows us to focus on underwriting the consumer here today where they are and making sure that we're instrumented to catch changes in the future. But we don't really stare at those problems in advance. I think we're really focused on making sure that the cohorts that we originate today pay us back. And if we need to adjust the underwriting to be more inclusive or less inclusive in the future, we'll do that in normal course.

Operator, Operator

And our next question comes from the line of Will Nance with Goldman Sachs.

William Alfred Nance, Analyst

Nice results today, as always. I wanted to ask a question just on the funding environment. Max, we've continued to see the capital markets be wide open for consumer lenders. I think your funding capacity was up roughly 55% year-over-year. Utilization is way down. We've also seen that in pretty much every other lender in the space, with the rise of kind of alternative credit coming into the space, how do you think about the incentives that this creates in the market and like the risk of credit issues that result from more of an oversupply of funding from some of the lower quality competitors in the space or people who are kind of flush with funding and have kind of incentives to make a lot of loans because of that?

Michael A. Linford, COO

I can start, and Max can add. Like I don't know what I can really speak to the people and the broader ecosystem. I know that we are really mindful of the health of the capital markets when we think about picking our partners. It's as important that we pick capital partners who we think are going to be our partners for the long term and not just worrying about who's the lowest bid today. And as a result, we partner with who we think is the blue chips of these asset managers. And that can come in the form of large strategic partnerships with world-class investors like Sixth Street or very good insurance asset managers up and down our stack. That's not an accident. We think really long and hard about picking the partners who we think are going to be committed and long term with us. And therefore, we don't move too quickly either. We don't pivot out of a strategy, we think, in the better part of decade increments. So we're not so concerned with what those partners do because they're obviously thinking about the problem in the right way. I will say the conditions are very favorable, as you pointed out, and that's to our benefit. We're really mindful of that. And I think that's part of the reason why the execution is so good right now.

Operator, Operator

And our next question comes from the line of Moshe Orenbuch with TD Cowen.

Moshe Ari Orenbuch, Analyst

I was hoping we could talk a little bit about the Affirm Card. You gave some statistics, talking about it being $1.2 billion of volume, a 10% attach rate and also that the 0% volume on the card kind of tripled. Can you just talk a little bit about the current strategy with respect to the card, how you think it's going to impact Affirm's customers and volume going forward? And maybe is there any special significance to the 0% in that product?

Max Roth Levchin, CEO

I'm trying to highlight all the exciting developments here. The card is performing really well. To clarify, its progress has been impressive, and we're very proud of it, with much more to achieve before any changes occur. The 10% attach rate is merely a figure, and we will celebrate further when it increases. Regarding the card strategy, I've learned not to anticipate what's next for it, but it's an area where we're heavily investing. We have more initiatives underway, which we believe will significantly enhance its potential. I'm not ready to announce those yet, but I’m dedicating a lot of time to making the card even more appealing. You can see some growth in the offline category in the update, indicating that we're learning to present it effectively to consumers, encouraging them to use it in physical locations like gas stations, which can't be integrated online. As for the 0% financing on the card, it presents a fantastic opportunity and serves as a great surprise, delighting users and increasing frequency. Last call, we mentioned our ambitious goal of reaching 10 million active cardholders, with an expected transaction volume of over $7,500 annually per cardholder. Currently, the average transaction volume over the past 12 months is around $4,700. Previously, we reported around $3,500. This figure includes all Affirm services, but the card represents a significant portion of that spending. We're not quite at the $7,500 mark yet, but we're more than halfway there. Many elements are aligning to ensure the card showcases the best of Affirm. I’ve shared a lot, but there's still much to accomplish, along with some exciting, unexpected developments on the horizon.

Operator, Operator

And our next question comes from the line of Rob Wildhack with Autonomous Research.

Robert Henry Wildhack, Analyst

You've been extolling the virtues of the 0% APR product for several quarters now. I mean, as far as I can tell, we haven't really seen your peers lean into that product in the same way. I appreciate that you're not them. But even so, like why do you think that is? Why has no one else, be it fintech or legacy, gone into the 0% APRs with the same kind of vigor that you have?

Max Roth Levchin, CEO

Yes, underwriting is hard and we're good at it and others aren't. So a couple of things. First of all, I don't mean to come off as quite arrogant, but we do think that this is a difficult thing to do, and we spent a long time being good at it and plenty of internal consternation. Every time we look at a model and ask ourselves, is this a good idea or a bad idea? It's not just cool that we give people promotional rates. It's going to be amazing. If you remember, our 0s are real 0s. It's in the letter as well, but we don't do deferred interest. We don't charge fees, which means that if a 0 consumer really does pay nothing above sticker, that means that transaction has to be profitable strictly through merchant subsidies, which is a thing to negotiate in a custom contract and a lot of control surfaces that you have to offer to the merchant because they need the ability to turn it on and off if they don't have the margin to do it forever. And we have to have the support infrastructure internally to guide them through such campaigns. Do you want to do 0s during this holiday period but not and you have to do it in a way that's compliant with fair lending laws? Because if you start doing things that are a little too creative, you might end up discriminating advertently against the group that should not be discriminated against. And you're not just doing 0s. 0s are easier in a sense that at least you know it's a 0% loan. But for a large swath of consumers, actually 5.99% APR is extraordinarily compelling. It's way better than anything else they could get. And so when I say 0% in the letter, what we really mean here is consumers get the benefit of reduced APRs as merchants subsidize them. And doing that in real time price to perform on the credit side, on the capital market side because these loans are purchased downstream by people who expect yields that are strong, whatever the deal the consumer got and making sure that these are truly incredible for merchants, it's a massive multivariate problem. And we love math here more than just about anything else. I think most of our competitors just don't and that's our strength. Our advantage is we live better through mathematics.

Robert Henry Wildhack, Analyst

That's helpful. And just quick on the guidance and the comment that the enterprise merchant will transition off in the fiscal second quarter. It's kind of an important time with the holiday season, so a little in the weeds, but do you think that happens at the end or the beginning of that quarter? I guess I'm asking if you're going to get the holiday spend there or not.

Max Roth Levchin, CEO

The assumption in our outlook, Rob, is that, that enterprise partner is wound down sort of going into the quarter, so by the end of this quarter, fiscal Q1.

Operator, Operator

And our next question comes from the line of Kyle Peterson with Needham & Co.

Kyle David Peterson, Analyst

Great. Nice results. I wanted to discuss the outlook and the take rate. It appears that it will remain fairly stable at the run-rated Q4 level. Does this suggest that the product mix we observed in the fourth quarter will stay consistent? Are there any other factors related to the take rate that we should be aware of, such as with the enterprise partner, that could affect these numbers?

Max Roth Levchin, CEO

Yes. We stopped short of guiding to mix specifically, but as you saw this quarter, monthly 0% loans were growing north of 90% year-on-year. So we would expect that, that loan product in particular, continues to take a bit of share within our mix. But otherwise, I think the most important thing for us is that the units we're creating are profitable and that we have a funding plan and a mix plan that allows us to sort of stay in that 3% to 4% RLTC range. And with the guide, we're expecting to be at the very, very high end of that range from a revenue less transaction cost take rate perspective.

Kyle David Peterson, Analyst

Okay, that's really helpful. And then I guess just a follow-up following up on Will's question around funding. I wanted to ask, are you guys seeing, just given that the funding environment is the best it's been in quite some time. Have you guys seen any uptick in competition or irrational players that might be kind of spoiling the water? And I guess if so, how are you guys kind of dealing with that and continuing to grow while maintaining really solid credit?

Michael A. Linford, COO

Yes. For us, the quality of the credit isn't really a decision. It's something we can strain the business with and then we operate from that point. And that's not lost on our capital partners. Again, I think the reason why what I consider to be the best credit investors in the world want to partner with Affirm and do is because of that commitment we've made to operate the business in a certain way. And we've done that not just when things are really good. We've done that back through all of the turmoil that you've seen over the past half-decade. Our best investors see that, they recognize that and they're attracted to it. Again, we think about these things as long-term partnerships. I think some of the behavior or concerns that you're alluding to would exist in people who are looking for just kind of more tradie type relationships, one-timey. And that's just not how we operate our business so it's kind of far away from us. And again, when you think about choosing your partners, and we have the luxury of choice, given our performance, thinking about the partners we choose to do business with, our team is really selective around partners who we know are going to be thoughtful and not get over their skis and chase anything away from them. I talk to partners and they share that they either were pursuing an opportunity and didn't get it because they weren't willing to pay up. Both of us are happy in those moments because I know that my partner is being disciplined and that discipline will benefit us in the long run. And I think there's just so much capital to go to work right now that it doesn't really give me any concern.

Operator, Operator

And our next question comes from the line of Andrew Jeffrey with William Blair.

Adib Hasan Choudhury, Analyst

This is Adib Choudhury on for Andrew. We wanted to ask on the international strategy in the U.K. but also in other geos you might be looking at and kind of the opportunity for Affirm to bring its underwriting product to the rest of the world. And then secondly, how the mix of GMV might look differently internationally kind of versus Affirm's core domestic business?

Max Roth Levchin, CEO

It's a great question. I'm happy to share that we are currently conducting friends-and-family testing in the U.K. with Shopify, which is very exciting and holds tremendous potential. We have already launched with some merchants there and are eager to bring on more. Shopify is an amazing partner for our growth, and we believe we have a strong collaboration ahead. Regarding the mix, it’s somewhat difficult to assess at the moment. The market shows a strong demand for Pay in 3 and Pay in 4, which are traditionally interest-free, as most competitors focus their business in this area. However, major merchants we've engaged with have expressed a need for longer terms, such as 6 months or 12 months, which will likely involve interest. Currently, the mix we have in the U.K. leans more towards interest-bearing options. As we expand with Shopify, this could change based on market availability. It's still early to make definitive statements. We are committed to being as careful and attentive to credit in the U.K. as we have been in the U.S. and Canada, and we intend to maintain strict oversight. We are confident in our ability to gather the data needed for underwriting and to scale effectively to ensure we retain control. Regarding other regions, we've been clear that while we won't provide a map, it would resemble Europe.

Adib Hasan Choudhury, Analyst

Got it. And if I could ask a quick follow-up. Can we just get a high-level update on the Apple Pay partnership and if there's anything kind of incremental to share there?

Max Roth Levchin, CEO

We, as is our custom, do not talk about, generally speaking, individual partners, but in particular, we do not talk about wallet partnerships in any detail.

Operator, Operator

And our next question comes from the line of John Hecht with Jefferies.

John Douglas Hecht, Analyst

Good quarter. And I'm looking at a globe, but I can't find anything that looks like Europe other than Europe, so thank you for that.

Max Roth Levchin, CEO

New Zealand kind of looks like Japan.

John Douglas Hecht, Analyst

The question on, I guess, customer engagement. Higher frequency of engagements. I guess as a customer seasons on the platform, do the dynamics or characteristics of their typical transaction change as they kind of mature?

Max Roth Levchin, CEO

That is a good question. I’m not sure I have a comprehensive answer at the moment. The idea behind the card and products like Affirm Anywhere was that we recognized them as tools to help with considered purchases. For example, if you’re buying something like a bicycle or a mattress, which are infrequent purchases, using Affirm makes sense because you can take advantage of brand-sponsored 0% or subsidized APR. As we introduced more products, the goal was to lower the average order value so that it could be applicable in more frequent situations. Generally, this has worked out well. If you look at our average ticket, you’ll notice a slight downward trend, even as the frequency of purchases has increased more significantly, indicating that we’re capturing more frequent purchases. That’s all I have for now. I’m sure we can provide additional information later to clarify what is actually happening. We’re very pleased with the increase in frequency and are not overly concerned about average order values. It’s not our role to encourage customers to buy more than they need; instead, we aim to meet the natural demand. The average spending per user over time should reflect that demand, and we still perform better than average when compared to products like debit and credit cards, which serve as our main competition. We’re getting closer to being a proper alternative to credit cards, and at that point, our average order value should align with theirs.

John Douglas Hecht, Analyst

Okay, that's very helpful. And then you guys provided the general framework to think about the impact of rising rates. I mean, the futures curve or the forward curve looks like there's a high probability of lower rates. So maybe can you guys give us a framework to think about the impact of lower rates on the business?

Max Roth Levchin, CEO

Yes, great question, John. The mechanics should be similar to what we discussed earlier regarding the rising rate environment, where a 1-point change in reference rates should result in approximately a 40-basis point adjustment in our funding cost. This principle applies whether rates are increasing or decreasing. It’s important to note that while some of our funding is variable, the majority is not and will adjust over time. Therefore, it may take one to two years or even longer for rate changes to be fully reflected in our funding costs and platform portfolio base. We don't have any agreements that suggest we wouldn't observe the same effects of declining rates as we would with rising rates, at least concerning funding costs. Internally, we need to consider why rates are declining. For example, if rates fall due to rising unemployment or consumer stress, this could lead to increased costs elsewhere in our business.

Operator, Operator

And our next question comes from the line of Matt Coad with Truist Securities.

Matthew Robert Coad, Analyst

Wanted to go back to the 0% topic, but I wanted to address it from the merchant side. So you talked about the number of merchants funding this offering doubling year-over-year. And I believe that's up to 7% of your total merchant base now that's funding the 0% APRs. Curious, like as we look forward, what you think that penetration rate can get to.

Max Roth Levchin, CEO

It should round up to almost 100. Merchants are generally categorized in a few ways, and one perspective is to consider the margin they allocate for marketing. I believe that marketing budgets are just as effectively used at the bottom of the funnel as at the top. When trying to draw consumers in, it's often through promotional sales, like going out of business sales or holiday discounts, which can be a somewhat unpredictable method of generating sales. At the very bottom of the funnel, or during the product exploration phase, we can be much more targeted. Our technologies, like AdaptAI, enable us to provide consumers with tailored financing options that encourage purchases, which ultimately costs merchants less. If they viewed their marketing budget in this light, they would spend a smaller percentage on marketing at the bottom of the funnel. The adoption of tools like the 0% APR contract depends on merchants recognizing that their marketing dollars are more effectively utilized on promotions at the lower end of the funnel compared to broad marketing at the top. Each year, we are improving our efforts to demonstrate this through results, collaboration to test these approaches, publishing research, and educating our sales teams, which in turn helps their internal accounting teams. I believe that eventually, every merchant will gain from these initiatives. Some merchants naturally have lower margins and spend minimal on marketing because they are already established or have alternative distribution models. They may be last to adopt. However, this strategy is generally a more effective way to generate sales, and enough general market participants are recognizing this that it will eventually extend to the rest. This is my firm belief, and every year we are seeing more positive results. This trend will continue until there is an improvement in overall sentiment.

Matthew Robert Coad, Analyst

If I could just sneak in a follow-up. Max, you addressed this in the shareholder letter. You touched a lot on AI. I was hoping you could just talk about it on the call here, too. Just kind of like how you're thinking about the future for agentic commerce and Affirm's role in it.

Max Roth Levchin, CEO

It's in the letter. I try to keep it concise, but the letter addresses it well. We believe that agentic commerce will be very successful for certain types of transactions, although it may not excel in all cases. Many transactions need final human approval because they are based on personal taste, which is a limitation of current AI. AI doesn't understand beauty or personal preferences, and many purchases revolve around these aspects. However, the necessity to finance desirable items isn’t going away, which means we will still be involved in those transactions as we have been in others. What is exciting about agentic commerce is that it essentially reinvents e-commerce as it existed prior to AI. The idea of universal cards has been around for a long time, yet none have been successfully built at scale. This universal shopping cart concept is likely to be realized within chatbots that facilitate transactions across multiple brands and stores in one session. This idea of transforming e-commerce is what I envision successful agentic commerce to resemble. We are designed to integrate into various environments, appearing in places like shopping installments with deep integration, and as a feature in someone else's wallet. We also exist in Chrome Autofill, which, while a different integration, operates similarly from our perspective, providing a comparable consumer experience. As agentic commerce evolves, you will see versions of this as well, which we find exciting. I typically have a positive outlook on technology, so be cautious with my upbeat perspective. However, I don’t believe it will fundamentally disrupt commerce; rather, I think it will enhance sales for many merchants. While some purchases will still be made traditionally, others will become more apparent in an assisted transaction format, and we’ll be present for all of that.

Operator, Operator

And our next question comes from the line of James Faucette with Morgan Stanley Investment Management.

James Eugene Faucette, Analyst

I wanted to ask about the PSP integration and the recent announcement of BNPL with Stripe Terminal. There seems to be potential for similar announcements with other payment service providers. I'm interested in your perspective on how significant the PSP channel will be for your business, especially when considering overall performance without Amazon and Shopify, as well as how you plan to engage with that channel.

Max Roth Levchin, CEO

Good question. Generally speaking, the offline market remains largely untapped for buy now pay later solutions. The ratio of online to offline is still around 10 to 1 or 8 to 1, suggesting there is significant potential outside of e-commerce. However, buy now pay later currently captures only a small fraction of that market because the integrations are challenging. Discovery is difficult, and it is hard to communicate the concept of affordable financing at the product level. This is crucial because when we approach a merchant with a strong offline presence, we can focus on collaborating to promote something and integrating our solutions more easily. We can assure them that the necessary technology is already in place within their point-of-sale system, allowing us to concentrate on the marketing aspects instead of being bogged down by lengthy IT roadmaps. This simplifies our conversations significantly, as we engage with a single part of the retailer about the marketing budget rather than dealing with separate IT departments. While this doesn't eliminate the work involved, it does significantly reduce it.

James Eugene Faucette, Analyst

Got it. That's really helpful. And then just a quick clarification on 0%. I certainly understand and think that it's the push there and the benefits you get are pretty clear. But I'm wondering in terms of the shorter duration of 0% that you called out and how that evolved during the course of the June quarter. Is that a seasonal thing? Is that just an expansion of availability, a change in the type of customers that are eligible and opting for 0%? Just trying to get a little bit of color on how to think about that component on a go-forward basis.

Max Roth Levchin, CEO

Yes. Thanks for the question, James. I think the answer really was in the question. It was really a mix of both. We do have seasonality in our business generally, but certainly seasonality within our 0% programs and that showed up a bit as well, especially when you're comparing maybe across Q3 and Q4. And then also, when we introduced zeros to a new merchant, one of the ways that we can do that is by making the shortest term that's presented in the financing program a 0% offer. And so that has the natural output of shortening term lengths for that merchant's program as well. So it really is a range of things that were at play in this quarter. And I think it speaks to the flexibility and just our ability to customize across multiple surfaces, term length and APR to make sure that we're putting the best program together for our merchants and for consumers.

Operator, Operator

And our next question comes from the line of Reggie Smith with JPMorgan.

Reginald Lawrence Smith, Analyst

I wanted to follow up on the question James just asked but in a slightly different direction. I'm thinking about PSPs primarily in the e-commerce space, excluding Shopify. How do you assess your penetration in that channel and its maturity? If we look at the volumes in that segment, are they growing faster or slower than the average? Could you help clarify that channel for us? Also, do you often encounter defaults, and how does that work? Lastly, regarding the merchant leaving at the end of the first fiscal quarter, will your logo still be displayed on their website, or has that changed?

Max Roth Levchin, CEO

I'll start and let Rob finish just because I think you're asking about assumptions in the guide. On the PSP side of things, we're pretty early there. Obviously, default on is a really important, really powerful thing. We have multiple partnerships of this manner with PSPs not named Shopify, and we're working pretty hard on expanding the list and being defaulted on. I don't have the growth rates off the top of my head so I don't want to perjure myself here. But I think they are accretive to the growth rate of the business, not detracting, but I will let Zane or Rob look this up. And if I'm wrong, I'm sure they'll correct me soon enough, but I'm pretty sure I'm right on this one. So it's a really important channel, it's pretty early. If you just follow our announcements, you'll see that these are significantly more recent than, for example, the Shopify announcement. So just from the pure scale and time to penetrate, these are later comers and there's more to be had there. So all of that, we think, accretes to the future growth. The merchant sets are a little bit different sometimes. Obviously, Shopify has an extremely broad appeal, but even they have some degree of, this is the canonical Shopify merchant, the same is true for every other platform or aggregator or payment processor, et cetera, et cetera. So each one gives us access to something that we probably haven't seen before to at least some degree. I think that's all I want to say.

Robert W. O'Hare, CFO

Yes. And in terms of the question around the merchant, I think the easiest way to talk about the relationship is just to outline what's in our outlook. And what we've assumed in the outlook is that the integration goes away at the end of this quarter. And so it's unclear exactly what the mechanics will be of how the relationship plays out. But that's what we've assumed. And we think we've taken a pretty conservative stance in terms of volume in fiscal '26 coming from this merchant.

Reginald Lawrence Smith, Analyst

Got it. And not to belabor, when you say go away, does that mean 0 volume from that merchant? Or that will go away? What does that mean exactly?

Max Roth Levchin, CEO

What we've assumed in the outlook is that through the integration, there would be 0 volume after the transition.

Operator, Operator

And our next question comes from the line of Harry Bartlett with Rothschild & Co Redburn.

Harry Bartlett, Analyst

I just wanted to touch on international again. So I mean, I'm just thinking about Shop Pay, so you talked about going to the U.K., but in terms of how quickly you can roll out into other geographies. Is it now a case of you have a playbook and then you'll be able to kind of move a bit faster if you're looking to move in other areas of Europe? And also, I guess just outside of Shop, do you have any, I guess, difference in your approach to how you're going to expand internationally? I guess, I'm just coming from this from the point of brand awareness maybe isn't quite as strong as it is in the U.S. and there are some incumbent players at checkout. So I just wonder if you have a different approach here on maybe the sales and marketing or consumer awareness.

Max Roth Levchin, CEO

I'll try to address all these points quickly, as there’s a lot to cover. To answer your first question, it's both a yes and a no. Regarding the platform and technology, it is definitely designed for reuse. We won’t launch in the U.K. and then build a completely different system for another European country. The platform is reusable by design. We're not overly concerned about establishing a technological or data center presence in AWS, as it’s available in every market. Each market has different factors like access to data, local regulations, and licensing, which are crucial. Some aspects can be inferred on how to avoid repetitive work on licensing and adhering to regulatory requirements. We are approaching these intelligently, but it still requires effort, even with smart planning. Overall, I believe we are in a strong position. We won’t be off the radar for too long, and we’ll provide more updates in the upcoming quarters. Capital markets are not a concern, just to clarify. As for sales and marketing, I’ve mentioned this before, but we have a solid list of multinational partners in the U.S., Canada, and the U.K. who are generally satisfied with our performance. We believe we can leverage these relationships for multiple markets, as we’ve successfully done between the U.S. and Canada. With the right attention and diligence, we can achieve this again. Our expansion plans focus on these key brands, and we do not foresee a significant investment in our branding in the U.S., U.K., or elsewhere since we effectively market through our partners. The majority of our marketing expenditure reflects collaborative go-to-market efforts with our merchant partners, and we have exciting plans for promotions in our newest market. I don’t want to reveal too much just yet, but this will be cost-effective and is already included in our forecasts.

Operator, Operator

And our next question comes from the line of Jamie Friedman with SIG.

James Eric Friedman, Analyst

Back to the AI conversation, I know Max, you want to keep it pithy, but I want to ask specifically about what you call out here in Adaptive Checkout and specifically the AdaptAI deployments that show an average 5% increase in GMV. What is that about? Can you like unpack the business process of how that works?

Max Roth Levchin, CEO

Certainly. We acknowledge that naming our products isn't our strong suit, and we appreciate your understanding of the repetitive names. Adaptive Checkout serves as the overarching term for the various ways checkout operates at Affirm. Whether you encounter an Affirm-powered checkout in a wallet or directly on a website, they all function under this single Adaptive Checkout system. In the past, we had multiple versions of the Affirm Checkout flow, but over time, we've streamlined our offerings into a cohesive solution with extensive configurability. Prior to AdaptAI, much of this configurability required manual input as we established agreements with merchants based on their desired terms and control over the programs. This configurability is a significant competitive advantage, making it challenging for others to replicate. AdaptAI emerged as a solution to the manual effort involved in optimizing checkout. Instead of creating a manual guide on best practices for merchants, we decided to develop a model that automatically determines the most effective way to convert consumers at an Affirm-powered checkout. We also aim to manage our merchant relationships more effectively, optimizing for each consumer and enhancing their buying experience. Not all consumers prioritize a 0% deal; some are more concerned about their monthly cash flow and are less responsive to APR. The ability to tune manually has been successful, but automating this process offers substantial improvements. The initial 5% increase is promising, and we expect even better results in the future. We discussed rolling out AdaptAI last quarter and have begun implementing it with select partners. We're encouraging merchants to allow us to customize experiences for individual consumers, which should result in cost savings and higher conversion rates. While it may take time for all merchants to adopt this approach, those who have already begun to reap the early rewards, and we continue to refine our models.

Operator, Operator

And our next question comes from the line of Giuliano Bologna with Compass Point.

Giuliano Jude Anderes Bologna, Analyst

Congratulations on another incredible quarter. As a question, and this is somewhat of a high-level concept, but I'm curious when you look at a lot of the wallet partnerships if there's kind of a new frontier where some of the wallet partnerships could enable offline transactions in the future, and how you plan for that and how material that could be in terms of driving incremental GMV growth. And then maybe how you think about the underwriting because you have an interesting opportunity to continue to differentiate and increase your lead ahead of your competitors with a product like that.

Max Roth Levchin, CEO

I'm very enthusiastic about offline commerce. I've mentioned this every quarter. If you look at recent announcements from some of the major wallets, you'll see they share our excitement about the offline potential of Affirm's offerings. While some developments are on the horizon, we prefer to be conservative with our claims and expectations until they're live. The opportunity here is substantial. I briefly touched on this earlier, but there are two key challenges. First, how do we inform customers that Affirm is accepted at their favorite stores? We have promising ideas to address this, and you will see some of them soon. The second challenge is integration, which involves connecting to point-of-sale systems and various digital payment methods. This is crucial for us, and we are actively working on it. The potential market size in offline commerce is roughly ten times larger than what we currently target in e-commerce. If we can solve the integration challenges, the focus shifts to effective communication to consumers. Five years ago, brands might have hesitated to take the lead, but now it has changed to actively promoting it because of its proven effectiveness in driving conversions. Interestingly, we notice a spike in demand for Affirm whenever the industry runs significant promotional campaigns. The recognition of buy now pay later being available naturally translates to increased interest in Affirm, even when we aren't featured in the advertisement. So, in the offline world, it's more about raising awareness than anything else.

Operator, Operator

Thank you. And with that, there are no further questions at this time. I would like to turn the floor back to Zane Keller for closing remarks.

Zane Keller, Head of Investor Relations

Thank you for the questions today, everybody. We'll see many of you on the conference circuit soon, I'm sure. Have a good Labor Day weekend, and talk to you soon. Bye.

Operator, Operator

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.