Buy Now, Pay Later Disrupts Traditional Payments: Affirm's Momentum vs. Visa's Stability

The Shifting Landscape of Consumer Payments

The global payments industry is undergoing a significant transformation, characterized by the rise of innovative financial technology solutions challenging established paradigms. At the forefront of this evolution is the "Buy Now, Pay Later" (BNPL) model, which offers consumers flexible, installment-based financing for purchases, increasingly diverging from traditional credit card mechanisms. This dynamic shift pits fintech disruptors like Affirm Holdings, Inc. (AFRM) against incumbent giants such as Visa Inc. (V), prompting an examination of their respective market positions, growth trajectories, and strategic responses.

Affirm's Rapid Expansion in the Buy Now, Pay Later Market

Affirm has demonstrated a notable ascent within the rapidly expanding BNPL sector. Over the past year, Affirm (AFRM) stock delivered a remarkable 55.1% return, substantially outperforming the S&P 500's 16.2% gain during the same period. This robust performance is underpinned by strong operational metrics and optimistic future projections.

For fiscal year 2026, Affirm anticipates a 466.7% year-over-year surge in earnings per share, with revenues projected to jump 23.8%. The company has consistently exceeded earnings estimates, reporting an average surprise of 105.5% over the past four quarters. In the fourth quarter of fiscal 2025, Affirm's Gross Merchandise Volume (GMV) soared 43% year over year, reaching $10.4 billion, driven by increased transaction frequency and broader category adoption. Active consumers expanded 24% to 23 million, and the repeat transaction rate reached an impressive 95%, indicating strong customer retention and engagement. The company also achieved GAAP profitability in Q4 fiscal 2025, with earnings per diluted share of $0.20.

Affirm's success is largely attributed to its data-driven underwriting model, which leverages advanced AI algorithms to assess real-time credit risk. This approach has allowed the company to expand its reach while managing delinquency rates, fostering a symbiotic relationship with a vast network of merchants seeking to boost sales and conversion rates.

Visa's Resilient Performance Amidst Evolving Competition

Despite the emergence of BNPL and other fintech innovations, Visa maintains a formidable presence as a global payments titan. Operating in over 200 countries, Visa is projected to process more than 257 billion transactions in fiscal 2025, underscoring its unparalleled scale and network effects.

In its last reported quarter, Visa's net revenues climbed 14.3% year over year to $10.2 billion, fueled by robust cross-border volumes and resilient consumer spending. Payments volume increased 8%, while cross-border transactions rose 12%. The company's adjusted operating income advanced 14.9% to $6.9 billion, sustaining its strong operating margins near 68%. Visa's balance sheet remains robust, characterized by a long-term debt-to-capital ratio of just 33.6%, significantly lower than Affirm's 71.8%.

While Visa's growth outlook is mature compared to Affirm's, it remains steady. The Zacks Consensus Estimate for Visa's fiscal 2025 earnings is pegged at $11.43 per share, reflecting a 13.7% year-over-year growth, with revenues expected to reach $39.8 billion, a 10.9% increase. To adapt to the evolving payments landscape, Visa is actively investing in tokenization, real-time payments, BNPL partnerships, and exploring blockchain and stablecoin-powered cross-border settlements, aiming to reduce friction and optimize capital flows within banking intermediaries.

Heightened Regulatory Scrutiny and Competitive Intensity

The payments sector, both traditional and novel, is facing increasing regulatory scrutiny and intensified competition. Visa, alongside Mastercard Incorporated (MA), is under examination by U.S. and U.K. Regulatory Authorities concerning their market duopoly. This scrutiny could potentially constrain their pricing power or lead to legal challenges, impacting their long-term revenue models.

Concurrently, the BNPL market is becoming increasingly crowded, with major players like PayPal, Block/Afterpay, Klarna Group plc, and Apple Pay Later vying for market share. This escalating competition pressures merchant fees and profitability for companies like Affirm. Moreover, concerns are mounting regarding credit quality risk, as U.S. consumers accrue record levels of debt. Studies indicate that BNPL providers have approved a significant percentage of applicants with subprime or deep subprime credit scores, raising questions about financial stability and consumer protection. The anticipated inclusion of BNPL loans by FICO could also alter repayment behavior and industry standards. States such as New York are also moving to license and oversee BNPL providers, which could lead to tighter margins and increased compliance costs as the industry matures.

Market Valuation and Future Outlook

The contrasting growth profiles and market dynamics are reflected in analyst ratings and valuations. Affirm currently holds a Zacks Rank #2 (Buy), indicating a favorable outlook, while Visa has a Zacks Rank #3 (Hold), suggesting steady but less explosive potential. Affirm trades below its average analyst price target of $95.50, implying a 30.7% upside. Its price-to-sales (P/S) multiple stands at 5.29x, suggesting considerable room for growth as its business expands.

Conversely, Visa trades below its average analyst price target of $398.16, implying a 15.2% upside. Its P/S multiple is 13.86x forward revenues, reflecting its mature yet highly profitable business model. For investors assessing the future of payments, Affirm, with its rapid growth and expanding addressable market, may offer higher return potential, appealing to those betting on the next wave of financial innovation. Visa, meanwhile, continues to represent a reliable and dominant player, capable of generating consistent returns through its extensive network and strategic adaptations.

The broader implications highlight an evolving payments ecosystem where consumer preferences for financial flexibility are driving significant shifts. The ongoing regulatory developments, consumer debt trends, and the continuous innovation in payment solutions will be critical factors to monitor in the coming quarters, shaping the competitive landscape of the Payments Sector and the Fintech Sector at large.