Affirm to acquire Returnly, a software startup that allows retailers to offer store credit before an item is returned, for $300M in a cash and equity deal (Anna Hensel/Modern Retail)

Affirm, the technology company founded by Stanford drop-out Max Levchin, is on the hunt for new opportunities to offer its customers a more seamless payment experience. Affirm has announced that it will be acquiring Returnly, a startup that allows customers to return items without having to go through the hassle of returning them to a physical store.

The acquisition of Returnly is another step by Affirm in its aim to provide a more comprehensive payment solution for its customers. The company has been expanding beyond its core business of buy now pay later loans, and has been working on developing new features such as instant approval for purchases and an Affirm Pay app that will allow customers to make purchases without having to enter their payment information.

returnly 300m hensel modern retail
returnly 300m hensel modern retail

Upon acquiring Returnly, Affirm is looking to go beyond the concept of a buy now pay later plan

Upon acquiring Returnly, Affirm is looking to go beyond the concept of a buy now pay later plan

For its business to gain an edge over its competitors, Affirm, a startup that offers a buy now, pay later option, is seeking acquisitions.

In an announcement made on Wednesday, Affirm announced that it intends to purchase Returnly, a startup that develops software to help retailers manage returns, for $300 million in cash and equity. As a result of the acquisition, we have a better understanding of how Affirm – along with its competitors – is planning the next steps and what other products they can offer retailers, beyond digital layaway, that will differentiate them from their competitors.

In recent months, many buy-now, pay-later providers have been pitching their services to retailers, trying to convince them that their services can help increase conversion rates – especially for those customers who might be hesitant to pay $1,000-plus upfront for an item such as a Peloton, for example. Therefore, these companies are increasingly looking at how they can provide their customers with other services so that they can either increase their revenue or improve their customer retention rates. In fact, Returnly is a service that allows retailers to offer their customers store credit before they decide to return an item, so that if the customer so chooses, they can then use their refund to make a purchase at the same retailer

According to Jason Goldberg, chief commerce officer at Publicis, the buy now pay later sector is among the hottest in the industry right now. There is no doubt that some of these startups have raised a great deal of debt and equity funding at high valuations, which means that a lot of them are looking to improve their scale through acquisitions. According to him, Klarna and Afterpay are two examples of these startups.

Modern Retail has spoken with Affirm’s chief financial officer Michael Linford about the company’s interest in the returns space. As a matter of fact, Affirm already invested in Returnly a few years ago. The sales associate explained to me that when the customer buys an item from an e-commerce merchant and then has to return it to them in the store, the sales associate will have a chance to sell them something else besides a refund. This is especially true for e-commerce sellers as it can sometimes be problematic to convince customers over the internet to exchange instead of a refund. It has also been reported that e-commerce transactions generally carry a higher return rate than sales that are made in brick-and-mortar stores over the past couple of decades.

The merchant has been talking to us for a long time now about what they can do to assist them in recovering their transaction, and what is the best way to do so??? “, he replied to the question.

In January, Affirm went public for the first time. Recently, it was disclosed that the company brought in $510 million in revenues during the fiscal year that ended June 30 of last year. It should be noted, however, that during the same time frame, the firm also reported a net loss of $113 million. With more services to offer retailers, Affirm can bring in more revenue from the existing customers it already has, simply by offering them more services.

As stated in its S-1, Affirm has managed to remain equity capital efficient because of its low consumer acquisition costs and strategic partnerships with banks and other funding partners, but the company is also focused on growing its platform, and future investments will be driven by this trend.

In its S-1, Affirm stated that about 20% of the Affirm consumers from our January 2019 cohort made repeat purchases at the same merchant within 12 months after making their first purchase, which is the same as other buy now pay later startups pitch startups on the fact that they can boost conversions and repeat purchase rates through their services.

In a report released by Gartner, Sarah Marzano, chief principal analyst at the company, said that luxury fashion brands have adopted the buy now, pay later payment service 2.5x more than in the previous two years, in part due to the introduction of new payment methods.

Her clients have told her that she has the impression that buy now, pay later services are popular, not only because they allow them to save money, but because they allow the clients to avoid the sticker shock that can be associated with paying the full price all at once.

In addition, the company’s promotions and discounting are not used, as these can either eat into margins in the short term or potentially erode brand equity over a long period of time.

As a result of a flurry of acquisitions and new services,

A great deal of attention has been paid to the acquisition of competitors in other geographical regions in the buy now, pay later space. A Spanish buy now, pay later firm called Pagantis has been acquired by Australian-based Afterpay for $50 million in August, 2018. Affirm then announced in December that it was acquiring Canadian fintech company Paybright, as part of its acquisition strategy.

Nevertheless, the buy now pay later companies are also moving into other sectors of the economy and looking for ways to expand. Earlier this year, Klarna, a major player in the online shopping arena, hosted a live streaming shopping event using the livestreaming platform ShopShops as part of its exploration of livestreaming. The company’s CMO David Sandstrom, however, revealed in a Forbes piece from February that the company is looking to acquire or develop its own livestreaming feature during the year. As part of the acquisition, Klarna also acquired Woil√†, a company that develops technology for post-purchases.

Affirm’s acquisition of Returnly could have a significant impact on Affirm’s own return process, as it could help it reduce friction in its own processes. Currently, Affirm customers who wish to initiate a refund must contact the retailer first (refunds are subject to the retailer’s own return policy, which is applicable to Affirm customers as well) before they can expect the refund amount to appear in their Affirm accounts within three to five business days.

It was unclear how exactly Returnly would be integrated into Affirm, and Linford refused to share any details about it. Likewise, he said that Affirm would be looking to launch more services to cater to both merchants and customers in the near future. The CEO stated that the company is particularly interested in customer service solutions that will help consumers “live a better financial life,” having launched a high-yield savings account last year as part of its commitment to “help consumers live a better financial life”.

Specifically, he said that on the merchant side, whatever is useful to help its merchants increase their conversions or average order values are among the most important areas of interest for Affirm.

The company’s primary focus is on assisting merchants in driving and acquiring users in the most efficient manner possible, he said.

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