NATIONAL ECONOMICS UNIVERSITY
ADVANCED, HIGH QUALITY AND POHE TRAINING INSTITUTE
BUSINESS STRATEGY
GROUP REPORT ASSIGNMENT
Topic: Affirm or Paypal? Which one is a better buy?
Lecturer Deane Van Pham Ph.D.
Student Name
Class
Group Group 8
Hanoi, December 2023
TABLE OF CONTENTS
I, MARKET RESEARCH + OVERVIEW............................................................................................................................. 2
1. OVERVIEW............................................................................................................................................................................... 2
1.1. Profile.....................................................................................................................................................................................2
1.2. Market share:.....................................................................................................................................................................2
1.3. Companies’ 4Ps model................................................................................................................................................... 2
1.4. Strategic Map.....................................................................................................................................................................3
2. MARKET SEGMENTATION............................................................................................................................................ 3
2.1. Target Market:.................................................................................................................................................................. 3
2.2. Market Segmentation..................................................................................................................................................... 4
II, STRATEGIC ANALYSIS.........................................................................................................................................................4
1. EXTERNAL ENVIRONMENT:........................................................................................................................................4
1.1. Micheal Porter’s five forces......................................................................................................................................... 4
1.2. PESTEL Model:................................................................................................................................................................5
2. INTERNAL ENVIRONMENT.......................................................................................................................................... 5
2.1. Financial Analysis............................................................................................................................................................ 5
2.2. SWOT Analysis................................................................................................................................................................. 7
2.3. Value Chain.........................................................................................................................................................................8
III, CONCLUSION............................................................................................................................................................................9
REFERENCES................................................................................................................................................................................. 10
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I, MARKET RESEARCH + OVERVIEW
1. OVERVIEW
1.1. Profile
Paypal:
PayPal was founded in December 1998. The company
initially focused on developing security software for
handheld devices, but soon transformed into an online
payment platform to facilitate money transfers and
online transactions.
Affirm:
Affirm was founded in 2012 by Max Levchin - one of
the co-founders of PayPal. Affirm is a Buy Now, Pay
Later financial services tool that allows consumers to
purchase goods and services with full transparency and
with no hidden fees that are associated with traditional
loans.
1.2. Market share:
1.3. Companies’ 4Ps model
Paypal Affirm
Product - Enables global purchases and money - Make purchases without incurring credit card
transfers without disclosing sensitive debt.
financial information. - Controlled payment timing and ensures there
- Free online and in-store purchases, are no hidden fees or late fees.
ensuring fast and secure payments with
customer protection.
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Price - Transaction fee: 0-5% and additional 1.5% - Transaction fee: depends on many factors,
for international transaction but usually 6% + $0.30
- Additional fee: International transaction - Additional fee: Late payment and returned
and currency conversion fee payment fee
- Best for: One-time purchase, - Best for: Financing large purchases over time
micropayments
Place - Provide services globally - Provide services for US only
- Currently in partnership with: Shopify, - Currently in partnership with: Peloton,
eBay, Visa, Uber, JPMorgan Chase,... Amazon, Walmart, Shopify, BigCommerce,
Cross River Bank,...
Promotio PayPal Rewards to enhance user loyalty. Customer rewards program to incentivize and
n reward its users.
1.4. Strategic Map
(Affirm is only available in the US)
2. MARKET SEGMENTATION
2.1. Target Market:
- Paypal: Individuals who conduct business, do transactions online and transfer money globally while
prioritizing convenience, security, and flexibility (A few examples are online shoppers, freelancers,
e-commerce merchants and many more). Provides one of the biggest BNPL platforms globally.
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- Affirm: Similar to PayPal, targets customers who seek to spread out payments to avoid incurring
high-interest credit card debt and individuals who have limited access to traditional credit or those
rebuilding their credit score. Provides one of the biggest BNPL platforms in the U.S.
2.2. Market Segmentation
Paypal Affirm
Geographics Nations: Mainly residents from the U.S., the Nations: Only available for U.S
UK, Australia, Germany, Brazil, … residents
Demographics Ages, generation: Ages, generation:
All ages but mainly Millennials and Gen Z. All ages, but, Millennials and elders are
more aware of the application
Genders and wages: Genders and wages:
All genders with a certain income level All genders with a certain income level
Psychographic Lifestyle and personality:
s People desire convenience, transparency, accessibility, affordability, and high security;
people who travel frequently.
=> User-friendly and tailored to each customer's financial preferences and lifestyle.
Behavioral Usage rates:
Targeting frequent shoppers who find value in spreading payments over time.
II, STRATEGIC ANALYSIS
1. EXTERNAL ENVIRONMENT:
1.1. Micheal Porter’s five forces
Micheal Porter’s five forces
Paypal Affirm
Bargaining Power of Buyers Low Average
Bargaining Power of Suppliers Relatively Low High
Competitive Rivalry High High
Threat of Substitution High High
Threat of New Entrants Relatively High Average
a) Paypal:
Paypal has a large user base with global recognition and provides a diverse range of services to its
customers. They rely on readily available technology infrastructure from multiple suppliers, with low
switching costs, enabling easy transitions if necessary. Furthermore, Paypal has built strong relationships
with its suppliers, leveraging economies of scale to negotiate favorable prices and terms.
Paypal faces intense competition from traditional financial institutions and newer players like Square,
Stripe and Venmo. Similar services, lower fees, and enhanced features make it challenging for Paypal to
sustain a competitive advantage. In the dynamic online payment industry, the plethora of available
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payment options heightens the threat of substitution for Paypal. Credit cards; mobile payment platforms
like Apple Pay, Google Wallet; and cryptocurrencies such as Bitcoin present viable alternatives.
b) Affirm:
AFRM exists in a diverse marketplace offering similar products like installment loans, point-of-sale
financing, and personal loans. These customer-centric features make AFRM more appealing to
price-sensitive individuals, mitigating the risks posed by their bargaining power.
With fewer such partners compared to other companies, Affirm faces stronger supplier bargaining power.
They've implemented a rigorous vetting process to ensure their partners align with their brand values and
prioritize customer satisfaction. The surge in online shopping and the move towards cashless transactions
have laid fertile ground for expansion and opportunities for companies like AFRM.
1.2. PESTEL Model:
Political Regulations: PayPal operates in a highly regulated environment, like regarding
anti-money laundering and know-your-customer (KYC) laws, while increasing
regulations around buy-now-pay-later (BNPL) could limit Affirm's growth and
profitability.
Economic Interest Rates: PayPal and Affirm relies on interest income from its credit products.
Rising interest rates could benefit both, while falling rates could hurt its profitability.
Social Data privacy concerns: PayPal and Affirm needs to ensure that it protects customer data
and addresses these concerns effectively.
Technology Cybersecurity threats: Both are a target for cyberattacks, and it needs to invest in robust
security measures to protect customer data and financial information.
Environmenta Environmental regulations: Both data centers and operations consume energy and
l resources. Changes in environmental regulations could increase operating costs.
Legal Antitrust laws: Both could face antitrust scrutiny from regulators, scrutinize Affirm's
business practices, particularly if it gains a significant market share.
2. INTERNAL ENVIRONMENT
2.1. Financial Analysis
- Revenue (in millions of USD)
2019 2020 2021 2022 Sept.2023
Paypal Revenue 17.534 21.434 25.561 27.056 29.128
Growth 13.26% 22.24% 19.25% 5.85% 7.65%
Affirm Revenue 264 510 870 1.349 1.588
Growth - 92.74% 70.84% 55.01% 17.71%
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While Paypal had substantially higher revenue in comparison to Affirm, Affirm's sales growth is much
more significant, showing that the second company has greater potential in the future despite generating
lower revenue.
- Gross Profit Margin
2019 2020 2021 2022
Paypal 52.27% 55.07% 47.38% 47.30%
Affirm 85.61% 88.24% 91.61% 88.29%
Based on the table above, we can see that Affirm’s gross profit margin is almost 200% better than that of
Paypal during the recent years, proving that just in terms of profitability, Affirm is doing much better than
Paypal.
- SG&A Sales Ratio:
SG&A sales 2019 2020 2021 2022 Sept.2023
Paypal Ratio 0.377 0.397 0.338 0.341 0.173
Affirm Ratio 0.966 0.714 1.013 1.322 1.366
Ever since 2019, Affirm has been keeping an increasing trend of SG&A sales ratio. This explains why
the company’s net income can’t go up as while it generates more and more revenue, the expense also
increases alongside.
On the other hand, Paypal is able to keep its ratio in a low [Link] number slightly went down in the
year 2021 and then deeply decreased twice until reaching just barely 0.173 as of September 2023.
- Net Profit
2019 2020 2021 2022 Sept.2023
Paypal NI 2.459 4.202 4.169 2.419 2.844
Growth 19.54% 70.88% - 0.79% - 41.98% 17.56%
Affirm NI - 120 - 113 - 441 - 707 - 985
Growth - 6.52% - 291.68% - 60% - 39.29%
While the net income of Paypal always shows a positive net income, its net growth experienced a
downside during the 2021-2022 period. However, a significant comeback has already been seen during
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the following three quarters of 2023. As for Affirm, its net income is decreasing over time and although it
is now decreasing at a notably slower pace, more data is needed to evaluate Affirm Holdings' efficiency.
2.2. SWOT Analysis
a) PAYPAL SWOT:
Strengths: Weaknesses:
- Strong Reputation - Transaction Fees
- Large User Base - Dependency on Internet
- Global Presence - Security Concerns
- Anti - phishing policy
- Viral marketing
Opportunities: Threats:
- Growth in E-commerce - Competition
- Mobile Payments - Alternative Payment Methods
- Partnerships - Political Instability
- International Expansion - Cyber attacks
b) AFFIRM SWOT
Strength: Weaknesses:
- Strong Brand Image - Reliance on Large Retailers
- Partnering - Limited Geographic Reach
- Financial performance - Creditworthiness Assessment
- Mobile-First Approach
- Data-driven approach
Opportunities: Threats:
- Expanding into new markets - Competitions
- Subscription Model Exploration - Regulatory Risks
- Technological Innovation - Cyberattacks
- Global Expansion - Credit Risks
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2.3. Value Chain
a) Paypal:
Primary Activities
PayPal's primary activities revolve around facilitating online payments between individuals and
businesses. They act as a digital middleman, securely transferring money without the need for the payer
to share their financial information with the recipient
● Online Payment Platform: The operational focus for PayPal centers on developing and
maintaining a seamless online payment platform. This involves continuous investment in
technological advancements, such as fraud detection algorithms and user-friendly interfaces. The
company's commitment to innovation ensures that its operations remain at the forefront of digital
financial services.
● Payment Processing for Businesses: PayPal forms strategic partnerships with financial
institutions, ensuring a reliable flow of funds.
● Inbound Logistics: PayPal establishes secure transaction processes. PayPal receives and stores
information from users and partners while ensuring protected and encrypted data storage
Support Activities
● Human Resource Management: Hiring and training employees to maintain service quality,
ensuring employee satisfaction and retention. Providing regular training to keep up with industry
changes.
● Technology Development: Continuous investment in technology development is a cornerstone
of PayPal's competitiveness. These efforts ensure that PayPal remains at the forefront of digital
payment innovation.
● Procurement: Procuring necessary hardware and software for operations. Securing partnerships
with financial institutions, card networks, and other entities to expand its payment network
In essence, PayPal's competitiveness is intricately tied to its ability to optimize each element of the value
chain. By focusing on secure and efficient transactions, innovative technologies, and a
customer-centric approach, PayPal maintains a strong position in the dynamic and highly competitive
online payment industry.
b) Affirm:
Primary Activities
Affirm's primary activities revolve around offering a point-of-sale financing solution for consumers and
merchants. They act as a financial intermediary, allowing shoppers to split their purchases into affordable
monthly payments without incurring traditional credit card interest.
● Merchant partnerships: Affirm partners with a wide range of merchants across various
industries, including fashion, electronics, home improvement, and healthcare
● Credit underwriting: Assessing the creditworthiness of customers applying for financing.
Processing and managing financial transactions related to point-of-sale financing.
● Outbound Logistics: Integration with merchant partners to facilitate the delivery of financing
options at the point of sale.
Support Activities
● Human Resource Management: Hiring and retaining skilled professionals in areas such as data
analysis, risk management, and customer support.
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● Technology Development: Continuous improvement of the mobile app and online platform.
Investment in data analytics and technology to enhance the user experience and streamline
operations.
● Firm Infrastructure: Ensuring that operations comply with financial regulations and industry
standards.
By organizing Affirm's value chain into these five adapted factors, we can highlight the key activities
involved in each stage of the point-of-sale financing process. Keep in mind that the adaptation is
necessary to align with the nature of Affirm's business in the financial technology sector.
III, CONCLUSION
Overall, by giving a comparison of Paypal and Affirm, it is best to conclude that Affirm is the more
valuable side due to many reasons.
When comparing by financial status in the last five years, despite that the profit of Affirm is going into
negative zone, however the growth rate and revenue of it is impressive, with no less than 50% except
2022 for a company that is relatively new is impressive, therefore creating new space for growth in the
future.
Market share of Affirm in terms of the Buy Now, Pay Later segment is not as large and popular as Paypal
but it has a much higher value than Paypal, thus creating a huge opportunity for them.
Paypal had a customer loyalty and a much more respective brand but their growth rate has been on the
decline and not creating a competitive advantage, opposite to what Affirm is having.
Therefore, AFFIRM IS THE BETTER CHOICE to choose right now.
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