The All Turtles Podcast Episode 46: Max Levchin, cofounder of PayPal and Affirm
|David Senra||Feb 21, 2019|
An interesting programmatic lesson I learned at PayPal. Computers are really good at doing repetitive calculations. Humans are really good at recognizing patterns. This human-computer loop is something I’ve been using for 20 years.
Affirm is a better way to borrow money. We built the company around the idea that if you borrow money [to buy things] you should focus on credit and not debt.
If you study how consumer credit evolved it will strike you as a bizarre set of injustices. For example, if you have poor credit half the profits banks will make off of you will come from late fees. Late fees are supposed to disincentivize you from paying late. Banks realized this is pure margin and now use it as a revenue source instead.
We set out to build a credit replacement product that would be honest and transparent. We charge no fees [late or otherwise]. We tell you what the principle is, the total cost of the loan, and how long it will last for. You can’t be in debt past the time that the loan is due. [Affirm is credit, not debt.] We are now a payment option for thousands of merchants. We have millions of customers. People are using Affirm primarily because of the clarity and sense of control.
When the government shut down, some of Affirm’s customers stopped getting paid. Affirm told them not to worry. They had as long as they needed to pay. No other credit card companies did so.
We get calls that say I have a problem. I’m going to pay late. What is the late fee? Our customer service tells them there is no late fee. Just get current as soon as you can. A light bulb goes off in the customer’s mind. That customer tells their friends to use Affirm. Our growth is driven by customers that expect a financial institution to screw them, and are delighted when we don’t.
We built a nice business on assumptions learned when building fraud technology at PayPal. Most people are actually pretty good. They are not trying to steal money. They want to borrow money because they need it. They want to pay it back on time if they can.