The concept of BNPL is new and has taken off in recent years.
Buy now, pay later is a name that suggests buying something and paying for it later. Consumers can choose to pay for an item in installments rather than having to pay the full amount on a card.
There are some that argue that the debt is just another form of debt, which could lead to a discussion on whether companies that enable it are doing it right. Affirm is one of the space's largest players and co-founder Max Levchin has been vocal about what he describes as a mission-based approach.
Levchin started Affirm in January of 2012 Affirm is currently valued at nearly $9 billion, and its executives remain bullish on the company's future.
In order to understand how Affirm differentiates itself from its competitors, and why using a credit card is not the best way to pay for purchases, we sat down with the president of technology.
The interview has been edited for clarity and length.
The era of layaways where you could pay in installments for an item but had to wait to take it home was when I was a kid. I was interested when I heard about it. What makes Affirm stand out?
We have this notion of a vertically integrated stack where we are able to handle the full touchpoint — that really gives us a lot of visibility into the customer, in the transaction, and that lets us underwrite accurately.
The main focus is to do right by the customer. This idea of aligning our interests with that of the customer really came from that. We share in the negative outcomes if they get the unexpected.
Modern technology is the second pillar of our plan. How do you deliver a financial product with no late fees and no tricks? It's the ability to have access to real-time data, deliver it on the phone and do it at e-commerce sites in real time, and then bring all that together to make real-time decisions and deliver those decisions clearly to the customer.
The scale of our merchant network is an advantage. We work with 170,000 merchants, which makes it possible for us to give la carte credit wherever the customer wants it.
I learned recently that Affirm and other players of the BNPL charge interest at a lower rate than traditional credit card providers. How do you decide who is charged interest and who isn't?
Unlike a credit card, the customer knows how much interest they will pay for a purchase. They will know before they click that there is no way for them to pay more.
We will communicate it as an interest rate, but also in dollars and cents. People get surprised when I tell them that a $1,000 purchase at 15% for a year equates to $83 because of the amortization schedules. You can use a calculator on our website.
I think the transparency part is important, because I feel like with credit cards, you do run that risk, depending on how long it takes you to pay or what your minimum payments are, how much you pay in interest potentially ranging wildly. It is a fixed amount that is communicated to the customer upfront.
Even if they miss a payment, there are no late fees or tacked on fees that would ever change the outcome. If they pay early, the number can be lower, but it won't exceed the figure we give them.
How many people are able to use Affirm without being charged interest?
All Rights Reserved © 2024
