Affirm is recognized as an industry leader in the U.S. with an innovative approach to making credit approval decisions using both a soft check of the borrower’s credit score and factors such as machine learning and the borrower’s social media activity to return approval within seconds. For that reason, it is able to offer a higher approval rate than industry averages, i.e, 67% versus ~50%. Affirm only affects the borrower’s credit if payments are late, in which case it charges late fees of 1.5% and reports the delinquency to credit bureaus. It charges interest rates between 10% and 30% depending on its agreement with merchants.
Klarna is a leading and globally recognized player in the consumer financing space. It has achieved wide name recognition through ongoing marketing efforts since it was founded in 2005. Unlike most alternative financing providers, it is a regulated banking company headquartered in Sweden with an international headquarters in Columbus, Ohio (USA) and lends directly to consumers. It operates in 14 countries, with different product options because of local regulations. Its offerings typically target order values under $1,000, with approval rates of approximately 50%. While options over $1,000 are available in some markets, approval rates decline to 37%. Interest rates are 18.9% in EMEA and the U.K., and 19.99% in the U.S.
Affirm’s offer in the U.S is more consumer-friendly, with quicker and higher approval rates, and options for merchants to extend lower APR options to their shoppers. However, it remains limited to the U.S. Both providers focus on offering shoppers additional lines of credit above their existing credit. Some consumer advocates and watchdogs have flagged the potential risk that consumers could overextend themselves with these options.