How AFRM (Affirm Holdings) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a fintech platform like AFRM makes money is essential for investors and anyone interested in the business of digital payments and consumer finance. In this post, we break down AFRM's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick AFRM Overview

AFRM operates a leading buy-now-pay-later (BNPL) and digital payments platform, enabling consumers to split purchases into installments at the point of sale. Revenue comes primarily from merchant fees, consumer interest income, and servicing fees on loans originated through its platform. The company’s business model is centered on facilitating consumer financing for e-commerce and retail partners, with a growing focus on data-driven underwriting and payment innovation.

Revenue Breakdown

• Total Revenue (Q3 2025): $251.1M (–64.0% YoY)
  • Other: $251.1M (100% of total)
  • Growth is challenged by a sharp contraction in core BNPL volumes and lower transaction activity, reflecting a highly competitive market and tighter consumer credit conditions.

Gross Profit and Margins

• Gross Profit: [Data not disclosed for Q3 2025]
  • Cost of Revenue: [Data not disclosed for Q3 2025]
  • AFRM’s gross margin is not reported for this quarter, but historically, margins have been pressured by rising funding costs and increased credit losses.
• Most costs come from operating expenses, with a significant portion allocated to technology development, risk management, and customer acquisition.

Operating Income and Expenses

• Operating Income: $63.7M (+0.0% YoY, 25.3% margin)
• Operating Expenses: $869.7M (+44.5% YoY)
  • R&D: [Not disclosed for Q3 2025]
  • SG&A: $223.4M (–21.2% YoY, 89.0% of revenue) — Includes sales, marketing, and administrative functions, reflecting cost controls amid revenue declines.
  • Other Operating Expenses: $434.8M — Encompasses technology infrastructure, risk management, and compliance.
  • AFRM continues to prioritize operational efficiency and cost discipline, focusing on core platform investments while scaling back discretionary spend.

Net Income

• Pre-Tax Income: $83.0M (+0.0% YoY, 33.1% margin)
• Income Tax: $2,326.0M (2.8% effective tax rate)
• Net Income: $80.7M (+0.0% YoY, 32.1% net margin)
• AFRM converts a moderate portion of sales into profit, benefiting from cost controls and a focus on higher-quality loan originations, despite revenue headwinds.

What Drives AFRM's Money Machine?

• Merchant and Consumer Fees: The main revenue driver, accounting for nearly all reported revenue, is transaction-based fees from merchants and interest income from consumers.
• Net Interest Income: $454.1M in net interest income, highlighting the importance of loan servicing and securitization activities.
• Strategic Investments: AFRM invests in underwriting technology, fraud prevention, and new payment products to maintain competitiveness.
• Future Growth Areas: Expansion into new merchant categories and international markets, though these segments are not yet profitable.

Visualizing AFRM's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially technology and compliance) taking the largest chunk.
• Even after significant costs, 32.1% of revenue drops to the bottom line.

Key Takeaways

• AFRM's money comes overwhelmingly from merchant and consumer transaction fees in the BNPL and digital payments space.
• High net margins illustrate the company’s ability to control costs despite revenue volatility.
• Heavy investment in technology and compliance, balanced by efficiency in SG&A and platform operations.
• Ongoing growth is driven by product innovation and expansion into new verticals, though revenue remains under pressure.

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FAQ About AFRM's Income Statement

1. What is the main source of AFRM's revenue in 2025?

AFRM generates over 99% of its revenue from merchant and consumer transaction fees related to its BNPL and digital payments platform. Other sources, such as servicing and interest income, are included in the “Other” segment.

2. How profitable is AFRM in Q3 2025?

AFRM reported net income of $80.7M in Q3 2025, with a net margin of approximately 32.1%, reflecting moderate profitability driven by cost controls and a focus on higher-quality loan originations.

3. What are the largest expense categories for AFRM?

The biggest expenses on AFRM's income statement are operating expenses, particularly Sales, General & Administrative (SG&A) costs, which reached $223.4M in Q3 2025 (89.0% of revenue), and Other Operating Expenses at $434.8M, reflecting investments in technology and compliance.

4. Why does the BNPL segment operate at a loss?

The BNPL segment, despite generating $251.1M in revenue, posted an operating loss due to aggressive investments in technology, risk management, and customer acquisition, as AFRM believes these will drive long-term growth—even if the division is unprofitable today.

5. How does AFRM's effective tax rate compare to previous years?

AFRM's effective tax rate in Q3 2025 was 2.8%, consistent with previous years. This low rate is primarily due to tax benefits from share-based compensation and international structuring.