2 AI-Powered Platforms Disrupting the Finance Industry

Key Points

• Affirm is entering its busiest time of the year as more consumer use the buy now, pay later platform for their holiday shopping.
• Affirm issued in-line revenue guidance for its fiscal Q1 2025 but may be lowballing estimates.
• Upstart Holdings continues to grow its loan transactions, up 64% YoY in Q3, as the average size grew to $8,400 per loan.

Every day, consumers open fintech apps to conduct financial transactions and manage finances more conveniently and effectively. Artificial intelligence (AI) has disrupted and transformed the finance sector to benefit consumers and financial institutions. AI has helped to accelerate digital transformation and usher in the next generation of smart applications. Here are two AI-powered platforms that continue to disrupt the finance industry that investors should pay attention to.

Affirm: Buy Now and Pay Later Is a Win-Win For Merchants and Consumers Alike

It's that time of year again. The holiday shopping season is the busiest time of year for merchants and the most stressful time for consumers as they try to navigate tightening spending budgets, high interest rates, and credit card debt. Affirm Holdings Inc. NASDAQ: AFRM is a buy-now-pay-later (BNPL) pioneer offering a simple win-win solution for merchants and consumers.

Affirm’s BNPL platform lets consumers buy merchandise upfront and pay off the purchase in four bi-weekly payments with no interest charge. Affirm uses AI algorithms to analyze data points beyond traditional credit scores to assess a customer's creditworthiness. Its AI models make instant lending decisions at the point of sale to inform customers if they will receive the financing. AI maintains dynamic risk profiling, updating models, detecting fraud, and personalizing payment plans.

Higher Conversion Rates Keep Merchants Happy

This bolsters conversion rates for merchants, enabling them to make a sale on products that consumers may have walked away from because they couldn't afford it or didn't want to add more debt onto their credit cards. Consumers get to buy the product and pay it off in smaller bites without having to pay interest rates that a credit card would charge. Affirm collects a fee from merchants' purchases made through the platform. Consumers don't pay a fee under the normally pay-in-four bi-weekly payments plan. However, if they opt to spread the payments out over longer periods or make more payments, then they would also incur interest rate charges. Affirm has stated that the holiday shopping season is their busiest time of year.

Another Record Holiday Shopping Season Expected for Affirm

While Affirm hasn't reached profitability yet, they are closing the gap. It's just a matter of volume. The company continues to grow at double-digit rates. In its fiscal first quarter of 2025 for the calendar year ending September 2024, Affirm reported an EPS loss of 31 cents, still beating analyst estimates by a penny. Revenues surged 40.7% YoY to $698.4 million, crushing consensus estimates for $664.04 million. Gross merchandise volume (GMV) jumped 35% YoY to $7.6 billion.

Affirm Keeps Expectations Close to the Vest

Affirm provided conservative in-line guidance for its fiscal second quarter of 2025, with revenue expected between $770 million to $810 million versus $784.61 million consensus estimates. GMV is expected to surge to $9.35 million to $9.75 million. The fiscal full year 2025 revenues are expected to rise 20 bps higher than the fiscal full year 2024 as a percentage of GMV, with GMV expectations of more than $34 billion.

Upstart Holdings: AI-Powered Personal Loan Platform

Thanks to sophisticated AI algorithms, consumers can receive personal loan decisions in minutes on the Upstart Holdings Inc. NASDAQ: UPST platform. Upstart goes beyond basic credit scores and analyzes more than 1,600 variables in determining creditworthiness for borrowers. This enables them to process loans that traditional banks may opt to stay away from. Whether to finance or refinance a car purchase or consolidate personal debt, Affirm offers personalized automated loans even to consumers with a limited credit history. Borrowers can receive a $1,000 to $50,000 loan offer in under five minutes.

Unlike credit cards checking your credit history, Affirm's methods don't ding your credit score. The Federal Reserve interest rate cut cycle is also a boon to the company, as lower interest rates tend to drive more demand for personal loans. Upstart could see a bump in loan originations with every interest rate cut.

Growth Improving With the Interest Rate Cut Cycle

The average loan size grew to $8,400 in the third quarter of 2024, up from $7,700 in the prior quarter. Upstart processed 64% more loans in the quarter at 188,000 than a year ago. Upstart has raised its Q4 revenue guidance to $180 million, firmly above consensus analyst estimates of $162.26 million. Net income is expected to fall to $35 million.

Upstart CEO Sanjay Datta commented in the Q3 2024 conference call, “Liquidity in the banking and credit union sectors continues to improve, and increasing numbers of lenders are dropping their required rates of return on our platform. On the institutional side, the large amounts of money that have been raised under the banner of private credit, initially earmarked mainly for corporate lending, are now increasingly finding their way over to consumer assets.”