Affirm: Making Purchasing Power Accessible
Affirm was founded in 2012 by Max Levchin, Nathan Gettings and Jeffrey Kaditz.
Affirm was founded by Max Levchin (also a co-founder of PayPal) in an effort to fix the credit card business 👏 🙌. In Lecvchin's opinion:
"High interest rates and late fees make credit cards abusive to many low-income borrowers." - Max Levchin via fortune.com
Affirm partners with stores to offer credit 💳 at the point of purchase 💵. The process is quite streamlined and invokes a PayPal-esque user interface. At checkout, much like PayPal, consumers have the option to select Affirm as a payment option and then sign into their account (or create an account for first-time users).
Affirm uses its own credit scoring system 📈 in addition to the FICO scoring system allowing consumers with less than perfect scores to obtain credit based on unique scoring factors. Additionally, Affirm does not employ late fees, deferred interest or punitive rates 💆.
Many credit cards “are no different than payday loans,” - Max Levchin via fortune.com
By giving up on abusive practices, Levchin admits Affirm is
“actively leaving money on the table… But we live at a unique time where that is the right practice. If you want to run a company for the long term, you have to look after the borrower." - Max Levchin via fortune.com
As of today Affirm has achieved $1 Billion dollars in total funding through 7 rounds of Venture Capital funding 🤑. Affirm has acquired two companies in their domain since inception, LendLayer was acquired in 2015 and Sweep was acquired in 2016.
Affirm aims to solve the problem of lack of regulation in consumer credit lending policies ⚖️. Affirm is targeting the high-interest rates and late fees that keep consumers in a perpetual cycle of debt repayment ⛓️.
"Our goal is to revolutionize the banking industry to be more accountable and accessible to consumers. Today, Affirm provides shoppers an alternative to traditional credit cards at the point of sale, giving them the flexibility to buy now and make simple monthly payments for their purchases." - Affirm via affirm.com
Affirm's target market is consumers who are looking to finance purchases and avoid the lack of transparency in the current credit lending market without using traditional credit options.
"Unlike payment options that have compounding interest and unexpected costs, Affirm shows customers upfront exactly what they’ll pay each month — with no hidden fees and no surprises. Affirm partners with over 1,200 merchants, including travel retailers like Expedia, Orbitz, CheapAir and Suiteness, giving shoppers the option to pay with Affirm at checkout." - Affirm via affirm.com
Affirm offers instant purchasing power to consumers 💰 💳. This is something that traditional lending institutions do not offer. Once the consumer signs in to their account (or completes an application and is approved) the order is fulfilled.
Affirm creates accountability in spending by offering purchase based financing, meaning that there isn't an open-ended credit limit, cred limits are assigned based on the purchase amount. This aids in responsible spending on the side of the consumer and also allows Affirm to create trust-based transactional relationships with both retailers and consumers.
Affirm uses proprietary technology that employs deep web searches to parse through a wide range of sources to help decide if applicants should receive loans 💻 🌐.
"Its technology scans a person’s profiles on social networks to check for clues about how they live their lives with hope that what seems irrelevant may be useful in underwriting a loan. For example, Affirm wants to know whether a potential customer has contributed software code to digital code libraries like GitHub. What does that tell it? That the customer is who he or she says they are. Other metrics can help assess his or her ability to repay a loan. (Like other companies in the market, Affirm is tight-lipped about how those data points specifically factor into a credit decision, to safeguard its algorithms against snooping competitors.)" - Don Reisinger via fortune.com
Affirm is in the FinTech consumer payment solutions domain of the financial industry. Affirm's ability to extend credit instantly on a purchase based basis makes them unique and one of the only companies in this space 🔑.
Max Levchin, the founder of Affirm, is also the co-founder of PayPal. PayPal one of the first innovators in the payment processing, money transfer and online banking industry, and has paved the way for several companies to innovate in this space 🔐.
Affirm utilizes some of PayPal's innovations, however, Affirm's strict focus on transparent and affordable credit lending by using both traditional and bespoke metrics allows them to dominate the industry and have a platform that is partnered with the most widely used retail institutions.
There are other companies competing in the consumer payment solutions domain, however, there is only one other notable competitor that offers a similar product, that company is Bread. The other competitors such as AfterPay, Klarna, QuadPay and EasyPay split the purchase price of an item into a fixed number of payments (usually 4 or 6 weekly payments). This solution works well for smaller purchases, however, it does not make purchasing accessible to consumers looking to make large purchases. Additionally, the weekly payments that the other companies in the space offer are less attractive to consumers who are looking for lower installment amounts and longer repayment periods 💤.
Affirm has disrupted traditional payment methods in the retail space 💪. Utilizing a completely web-based interface and extending instant purchasing power to consumers has eliminated the need for consumers to use payment cards during checkout or have a credit account with a traditional lending institution in order to make a purchase.
Compared to competitors in the space Affirm has a larger market presence based on the metrics of partnerships both in quantity and diversity. Affirm has partnered with large retailers such a WalMart that offer a wide range of products, as well as niche retailers such as automotive parts stores (ECS Tuning), clothing retailers (Combatant Gentlemen) and companies across various other spaces including technology (computers, parts, and accessories), lifestyle companies, jewelry merchants and even service providers 😎 💥.
If I were to advise Affirm, I would suggest that they offer dedicated virtual cards to consumers. This wouldn't change their purchase based lending method, it would create an account-based credit tracking system 🤓.
The way it would work is that once you have created an account with Affirm and entered your verifying information you would be assigned an account number and a card number. The card would not be assigned a value or a credit limit, and would only receive a credit limit once a purchase is made.
That card number would be linked to a purchase verification system that allows you to use the card at any retailer or institution that accepts card payments. Once purchase is made Affirm would receive the purchase information and approve or deny the purchase based on the verifying data of the cardholder.
This would create the ability for Affirm to create and Affirm Score based on the users repayment history 🗄️. This information can be used and shared with other lending institutions as a form of verification for other credit products or as a general accountability metric.
This solution can employ various technologies such as Python, C++, Java, SQL, and JavaScript 📝 for analytics of repayment history, assessing a borrower’s creditworthiness and assigning scores.
“Affirm.” Crunchbase, Crunchbase Inc., www.crunchbase.com/organization/affirm#section-overview
Affirm. “Fintech Company Affirm Unveils Updated Brand, New Logo and Shopping Features in Time for the Holidays.” Affirm, Affirm, Inc., www.affirm.com/press/releases/affirm-unveils-updated-brand-new-logo-and-shopping-features-in-time-for-the-holidays
“Affirm (Company).” Wikipedia, Wikimedia Foundation, 7 Mar. 2020, en.wikipedia.org/wiki/Affirm_(company)
Murray, Alan, and David Meyer. “Fixing the Credit Card Business.” Fortune, Fortune, 5 Feb. 2020, fortune.com/2020/02/05/credit-cards-levchin-affirm-ceo-daily/
Nusca, Andrew. “Why Max Levchin Hates Credit Cards.” Fortune, Fortune, 27 Mar. 2015, fortune.com/2015/03/27/max-levchin-hates-credit-cards/
Pymnts. “Affirm Looks To Raise $1.5B On $3B Valuation.” PYMNTS.com, PYMNTS.com, 13 Sept. 2019, www.pymnts.com/innovation/2019/affirm-looks-to-raise-1-5b-on-3b-valuation/
Pymnts. “New Affirm App Lets Users Pay Anywhere.” PYMNTS.com, PYMNTS.com, 8 Oct. 2019, www.pymnts.com/news/pos-innovation/2019/max-levchin-why-affirm-expanding-customers-pay-anywhere/
Reisinger, Don. “Tech Companies Are Changing How Consumers Get Loans.” Fortune, Fortune, 31 Dec. 2015, fortune.com/2015/12/01/tech-loans-credit-affirm-zest/