Bank of America (BofA) analysts identified Affirm as a standout in a new note on buy now, pay later (BNPL) services.
The note, published on October 12, raised BofA's price target for Affirm from $119 to $160. (AFRM closed at $146.13 on Wednesday.)
"AFRM is the clear bright spot," the analysts stated. While "all the other BNPL vendors saw deceleration in September app downloads and [monthly active users] growth compared to August and 1H, AFRM was the only provider that saw growth accelerate in both metrics."
In other words, Affirm was the only company to increase its share of monthly active users relative to the first half of the year, according to BofA. And unlike all the other players, Affirm also saw app downloads accelerate in September.
More digital players entering the space
Affirm is growing into a crowded BNPL space.
BofA noted strength in Affirm due to its recent partnerships, its product roadmap, and its "super app" strategy. The bank expects Affirm to deliver 30% top-line growth "for at least the next several years driven by growing BNPL market and new product introductions."
Despite their bullishness on the American player, the BofA analysts still noted strength among the foreign players.
"Klarna and Afterpay continue to be the most popular U.S BNPL apps as of September 2021," analysts noted. The two apps were the most downloaded BNPL apps in September. Affirm was third but is slowly gaining market share.
The Swedish firm has been making efforts to push further in to the U.S. The recently partnered with mall operator Simon Properties to offer its BNPL service in stories through the Klarna app.
The move makes sense, as Klarna's users indicated in a December 2020 survey that physical stores have been key for last-minute shoppers.
"There's been a lot of digital players that have been trying to get into physical stores," Sebastian Siemiatkowski, Klarna's CEO told Yahoo Finance Live (video above). "PayPal has tried so many times, other players have as well, but we're actually seeing real success with it. We're already live in 60,000 stores in the U.S., with Macy's, FootLocker, Sephora. Some of them have reported up to 65% increase in average order value when providing our services in the stores, so we're seeing a lot of traction."
'A much better proposition than your typical credit card'
Traditional banks are also watching the sector closely: In an earnings call on October 13, JPMorgan Chase (JPM) CEO Jamie Dimon said the nation's largest bank "will spend whatever we have to spend to compete with all these folks in our space" given that Affirm announced its intention to offer debit cards and cash banking accounts.
Given this backdrop, Siemiatkowski stressed that the mission for Klarna is the broader shift towards debit and away from credit.
"We believe at Klarna that people should have debit cards, not credit cards, but occasionally, they need access to credit," Siemiatkowski said. "And when they do, buy now, pay later, because it's interest free. It's a much better proposition than your typical credit card."
According to Siemiatkowski, apps like Klarna are "not trying to encourage you to borrow more than you have to ... Our credit losses are 30%, 40% below industry standards for credit cards. And I think it's been proven now that this model is actually more responsible than the traditional models of the credit cards."
More people in the U.S. are starting to use BNPL, according to BofA's survey of 1,124 BNPL users, which found that 47% of respondents had used BNPL eight or more times in the last 12 months, while 54% of respondents plan to use it eight or more times in the next 12 months.
About 56% of respondents said the average BNPL transaction size was less than $200.
And interestingly, 24% of BofA's survey respondents said they turned to BNPL because they had maxed out their credit cards.
Aarthi is a reporter for Yahoo Finance. She can be reached at firstname.lastname@example.org. Follow her on Twitter @aarthiswami.