Amazon Expands Financial Services With 'Buy Now, Pay Later' Option For Small Businesses

Amazon has teamed up with Affirm to introduce a 'Buy Now, Pay Later' checkout option for users of Amazon Business. This latest addition to Amazon's extensive suite of services is set to be a game-changer, offering small businesses the flexibility they need to manage their cash flow effectively, CNBC learned exclusively.

Amazon, one of the world's largest e-commerce giants, confirmed this partnership expansion on Thursday. With Affirm shares surging by an impressive 19%, the market responded positively to this exciting development.

The service will provide loans ranging from $100 to $20,000 and is expected to be available to all eligible customers by Black Friday, November 24. Designed specifically for sole proprietors and small businesses owned by a single person, this initiative caters to the most common form of business ownership in the United States.

In the wake of the pandemic, 'Buy Now, Pay Later' solutions gained immense popularity, along with the skyrocketing valuations of leading players such as Affirm and Klarna. However, 2021 saw a decline in industry valuations, as rising interest rates and borrower defaults raised concerns. Despite these challenges, users continue to favour this option due to its transparency, making it a practical alternative to traditional credit cards.

Unlike credit cards, where interest can be hidden or unclear, Amazon's 'Buy Now, Pay Later' feature ensures customers know the precise interest amount upfront. This transparency has made it an enduring choice for households and businesses navigating the financial strains following the reduction of excess cash from pandemic stimulus programs.

Todd Heimes, the director of Amazon Business Worldwide, highlighted the importance of this new offering for small businesses, saying, "We constantly hear from small businesses that say they need payment solutions to manage their cash flow. We offer the ability to use credit cards and to pay by invoice; this is another option available to small business customers to pay over time."

Amazon Business, introduced in 2015, witnessed remarkable growth as businesses turned to the platform for office supplies and bulk purchases. In 2023, this division has already achieved $35 billion in sales and boasts more than 6 million customers worldwide.

Once approved, users can pay for their Amazon purchases in equal installments over a period ranging from three to 48 months. The annualized interest rate, typically between 10% and 36%, is determined based on the perceived risk of the transaction, as explained by Affirm's Chief Revenue Officer Wayne Pommen. Importantly, there are no late or hidden fees associated with this payment option, providing peace of mind to users.

Pommen also emphasized the significance of this development for small businesses, stating, "The financial industry is not great at providing credit to really small businesses. They can't walk into a bank branch and get a loan until they reach a certain scale. So us being able to provide this for purchases helps businesses grow and manage their cash flows."

For Affirm, this collaboration with Amazon represents a significant boost, particularly after a decline in demand for Peloton bikes. Affirm initially introduced installment loans to Amazon's retail customers in 2021, expanded to Amazon in Canada in 2022, and was integrated into Amazon Pay earlier this year.

Affirm's decision to target sole proprietors first aligns with the fact that they constitute the majority of small businesses in the United States, with a staggering 28 million registered as sole proprietors. Wayne Pommen affirmed, "We'll see how the product performs and if it makes sense to expand it to a wider universe of businesses. Our assessment is that we can underwrite this very successfully and have the strong performance that we need."

Amazon's 'Buy Now, Pay Later' option for small businesses, in partnership with Affirm, has the potential to revolutionize the way businesses manage their finances. With transparency, flexibility, and ease of use, this new offering is set to empower small business owners and drive financial growth in an ever-evolving market.