Fresh off a $200 million funding round, Affirm’s CEO Max Levchin cautions PYMNTS’ Karen Webster against thinking the money is simply a validation for the company — and he says that even tougher, bigger challenges lie ahead. Here’s his take on how the stage is being set for growth in point of sale lending and beyond – with an eye on promoting better consumer knowledge (and responsibility) when it comes to their finances.
One might think that a $200 million funding round might inject some swagger into a CEO’s step, a bit of bounce to the tune of “wow, the investors must really love what I’m doing.”
But one CEO whose firm is newly flush with additional cash – to the tally of precisely that $200 million – is a bit more measured in his response.
The firm is Affirm, which offers instant loans at the point of purchase, and which snagged the cash through a Series E funding round announced Monday (Dec. 11).
The investment was led by GIC, a sovereign wealth fund from Singapore, as well as a host of other participants, ranging from Khosla Ventures to Ribbit Capital and others.
The CEO with the measured response is PayPal co-founder Max Levchin, who told Karen Webster that with any capital raise of size, the temptation is to believe that “it is a big victory and it is validation … but all it really is, is a temporary tally of how far you have gone.”
He noted that with big investments come big responsibility (and Affirm has raised roughly $450 million to date), as he remarked that there is the implicit end goal of taking the money and parlaying vision and strategy into strong returns on that cash.
Still, Levchin added, there’s a lot of growth potential ahead in the market for Affirm, which he said exists as a tiny player in its chosen arena of credit card alternatives.
The model for consumer financing may not be new, Levchin told Webster, and neither might the concept of buying in installments.
But the wealth of data that is available – and which can be conveyed to end users with speed – offers a rich opportunity to find out what truly drives us to buy, and why, when it comes to large ticket items paid for over time.
Affirm says that its retailers report that consumers who use Affirm leave with a basket size 75 percent greater than those who don’t use Affirm to pay for their purchases, and enjoy site-wide conversion rates as much as 20 percent higher, with revenue per visitor lifts of more than 10 percent.
With the newest capital raise, Levchin said, “one of the initiatives that we are going to undertake in 2018 is ‘where do we help our merchant partners more?’ Right now, we are a great marketing tool” where every CMO looks at Affirm and “says now that I have brought all of these people to my site or my app, I can tell them that financing is available and [not to] walk away if this is out of price, or settle for things that the consumer does not really want.”
Levchin said that knowing how Affirm customers are buying has inspired the next slate of initiatives to further its honest finance mission.
“Most of the purchases that we see happening [with Affirm] are contemplated purchases,” Levchin said. “They are not ‘need to have’ things. It is more ‘I am in the market for X and I am going to think about it,’ and then consumers will look at what will fit in their budget.”
Levchin said Affirm’s customers want to make the best purchases possible, without overextending themselves and finding themselves out of money.
One of the ways that Levchin said Affirm is helping both merchants and consumers address that reality is to pre-qualify an individual for credit, based on their current financial situation. With pre-qualification, he said, consumers shift the worry about whether they can afford to buy something to Affirm, who cannot and will not approve a credit limit for what that consumer cannot afford, as informed by the company’s credit decisioning tools.
Beyond credit, Levchin said that Affirm views honest finance as a means to help consumers reconnect with the financial realities of their lives – “to be the app on the home screen for consumer financing needs.” That means not just giving people access to credit, but also giving them the tools to protect themselves from getting into financial trouble, or to help fix errors made in the past.
Products that hit that mark are on Affirm’s 2018 roadmap and stem from its 2016 acquisition of Sweep, which he told Webster exists as one of the earliest entrants in the mobile personal financial management space. The app lets users see a snapshot depicting what their future cash flow might look like, with data spanning everything from credit card spending to recurring household expenses.
Keeping all of those things straight is a challenge for most consumers, particularly in a digital world where spending becomes very abstract. Embracing the ease of online purchases and same-day delivery, Levchin said, has in some ways led to greater consumer satisfaction – as does the lure of credit itself.
But speed and satisfaction in the act of consumption need to be balanced against responsible financial management, and the need for consumers to “navigate their internal financial lives.” After all, as Levchin pointed out, 10 out of 10 people on the street will acknowledge that living a smarter and more informed financial life will be a top priority, but nine out of 10 people do not actually make the effort needed.
As for that $200 million, Levchin told Webster, the announcement serves as a statement that “I know that ‘I am here’ and I am signing up for an even bigger, tougher challenge” ahead.
It’s a challenge that creates a holistic platform to deliver honest finance to Affirm’s retail partners and consumers, and inspires others to follow suit.
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