Max Levchin is on a mission to turn consumer finance on its head. That’s why he co-founded Affirm, the company where he currently serves as CEO. This March, attend Levchin’s presentation Revolutionizing Consumer Finance to learn how the serial entrepreneur, and former Paypal executive, is leading the FinTech revolution in Silicon Valley by leveraging data science & machine learning.
Max spoke with us recently about himself and his presentation. Read on for a preview of what to expect at SXSW 2016.
Tell us a little bit about Affirm, how the system works, and what makes you different.
Affirm began with the thesis that by leveraging data science and machine learning, we could underwrite quicker, cheaper, and better than traditional banks and the FICO credit scoring system. We were right, we can. And so we began underwriting loans in real time at the point of sale at merchants with the ability to repay the loans in 3, 6, or 12-month installments.
We also decided very early on that we were going to be a different kind of company that only acts in the best interest of the user and that we were going to be as transparent as possible whenever possible. It was here that honest finance was born. We do not have fees of any kind, we do not participate in predatory marketing offers or gimmicks, and we do not have compounding interest. When you use Affirm, you know before you make a purchase how much it will cost you in interest and the total dollar amount at the end of the loan. You cannot say the same for a credit card whereas you have no idea how much something will cost you in 3 or 6 months.
By calculating loan terms using simple interest, we are able to save users significant money when compared to traditional credit cards. By using Affirm, it costs less than an average credit card. Take a $400 pair of shoes for example. At 15% APR, a user would pay 2.50% in simple interest or $10 over 3 months OR 8.5% simple interest or $34 over 12 months. And we disclose all of this to the user up front so they know how much they can afford and what they will pay at the end of the loan. The same cannot be said for revolving credit cards whereas you have no idea how much that $400 pair of shoes will cost you in 3, 6, or 12 months.
What are the goals of Affirm? What do you hope your team will have achieved in five years time?
We are on a mission to innovate every part of financial services and to create products that help people leverage capital smarter and more efficiently in order to better the quality of their lives . Our goal is for Affirm to be the top app on your home screen and homepage in which you use for every part of your financial life.
How has your background, including your time at Paypal, helped you in the creation and management of Affirm?
The lessons we learned came at a large price in financial losses because we were the first to solve the problems associated with transacting online between buyers and sellers. However, the technology we pioneered and the knowledge I left with has made it easier and cheaper for my subsequent companies to grow quicker and at less of a cost. Finance is hard, it is highly regulated, and you are dealing with real money and so the stakes are higher than say a photo-sharing app but my team has decided to tackle the hard, valuable, and fun problems because we know they can actually change the world in a meaningful and impactful way.
What are the direct benefits to retailers by offering Affirm to customers?
Affirm turns window shoppers into buyers. Merchants that utilize Affirm as a marketing tool and promote the installment product on their product landing pages see the highest in percentage increase in conversion, AOV, repeat purchases, and lift.
For example, let’s look at Affirm by the Numbers:
- Affirm has a Net Promoter Score of 70 (Apple 66, Discover 52, Amex 45, Amazon 64)
- For buyers who have used Affirm and first order was <$250, 36% have come back and made a second purchase using Affirm. Second Affirm purchases for this group have been over 82% higher than the first.
- Streamlined checkout with Affirm increases conversion on average 20% - 25% for both mobile and desktop.
- 36% of Affirm users repeat purchase at the same merchant. Affirm purchases for this group have been over 82% higher than the first.
- Merchants implementing Affirm financing and messaging report a 7.4% lift in checkout page views.
- In merchants with similar transaction ranges/demographics, Buy with Affirm increased purchase sizes by 79-84%.
What percentage of ‘applied for’ loans is Affirm able to guarantee?
Our underwriting and credit models allow us to extend credit to far more creditworthy users than FICO which means new customers for merchants and improved access to credit for more buyers.
Why are you passionate about this work?
The financial industry has managed to avoid significant disruptive innovation since the mid-90s, and we are working hard to change that. Our first goal is to bring simplicity, transparency, and fair pricing to consumer credit. We are just getting started and have much work to do.
What is the last book you’ve read?
I read 2-3 at a time using Kindle + Audible.
I read when I can, and when I cannot, I listen to it and they are synced automatically so it's a very convenient transition and you can guarantee 1-2 chapters per day.
I just finished House of Morgan, History of The World in Six Glasses, and Leaving Berlin.
What other speaker are you most looking forward to seeing at SXSW Interactive this year?
Dr. Regina Dugan from Google Making Epic Sh*t.
What advice can you offer other entrepreneurs in the FinTech space?
Come watch my Featured Session at SXSW, I will be discussing a few of the top industries ripe for disruption and one of those is finance. I am going to walk through the entire full-stack banking system and expose the areas and points of entry for entrepreneurs to disrupt and innovate.
If you weren’t doing this, what would you be doing?
I would be in my innovation and investment lab, HVF, full-time building other companies.
Don't miss Max Levchin's remarks at the 2016 SXSW Interactive Festival, register now to attend this and many other great sessions.
Get to know other 2016 Featured Speakers, check out our series of interviews.