The news: Affirm will lay off 19% of staff, shut down its cryptocurrency business, and embark on a restructure that could cost $39 million after a disappointing Q2 (ended December 2022).

Q2 earnings at a glance:

• Affirm’s gross merchandise volume (GMV) missed guidance but hit a record $5.7 billion, rising 27% year over year (YoY) and 65% compounded annually over two years.
• Revenues rose 11% YoY, but Affirm said an “operational misstep”—hiking prices too late in 2022—stunted growth.
• The San Franciscan firm’s operating loss widened from $196 million a year ago to $360 million.

Words come back to bite: Affirm CEO Max Levchin asserted confidently that a recession would prove the company’s strength. But mounting losses, mass layoffs, and canning its crypto unit highlight that economic uncertainty has hurt performance.

• Weakening retail sales and intensifying BNPL competition have not been kind to Affirm. Fintechs like Klarna and Afterpay and incumbents entering the market have made it harder for BNPL providers to stand out.
• But Affirm is still increasing its volume and can benefit from market growth: By 2026, 38.9% of US internet users will use a BNPL solution, up from 30.7% in 2022, per Insider Intelligence forecasts.

What next? Levchin said that a major restructure would create a “nimbler team” as the company targets profitability by the end of fiscal 2023.

Pivoting to a more cautious approach should cut costs and minimize losses as firms contend with challenges ahead:

• BNPL firms are under greater scrutiny from regulators, and providers may have to adjust to legislation potentially arriving later this year.
• Big Tech’s entry into BNPL should also shake up the industry: Apple Pay Later stands to capitalize on Apple’s huge user base. To prepare for these, Affirm and other BNPL firms need to keep a lid on costs and prioritize products likely to yield the highest return on investment.

Related content: Check out our US Buy Now, Pay Later Forecast 2022 to learn about the factors that will affect growth in the space through 2026.

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a daily recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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