By Tanaya Macheel
Affirm, the start-up that provides consumer loans at the point of sale, is ready to be more visible, according to its CEO and founder.
"We’ve spent such a long time playing in the shadows and ... building this incredibly loyal following, but only by people who have encountered us,” Max Levchin, also one of the PayPal cofounders, told Cheddar. "Now we’re trying to get out there and say, ‘hey, here we are, you should be aware of us.’"
Point-of-sale loans are a young class of financial product that allows companies — like Affirm and competitors Klarna, Bread and Vyze — to issue small loans with short-term repayment plans.
Customers can get approved as quickly as they would execute a payment transaction and the pricing of the loan is completely transparent. It’s a departure from how credit is underwritten today since the lender sees every transaction — who is buying, what they’re buying and where — and underwrites them separately. Banks issuing loans or credit lines traditionally don’t know how exactly borrowers are using the loan. That information informs the company’s customer retention strategy.
Historically, Affirm’s business model had focused on partnering with online retailers that would advertise the start-up as a payment option on their homepages, product pages, and checkout pages. About a year ago, it launched a direct-to-consumer mobile app that allows users to check how much of a loan they prequalify for, and issue a digital credit card to use through Apple ($APPL) Pay — online or in-store, whether or not the retailer is an Affirm merchant partner. It has been developing the app to include a merchant discovery shopping tool, show partner merchants, and reveal which of them offer zero percent interest purchasing options. It also provides consumers with personalized low- or no-interest offers.
"We realized after six-plus years of operation that we have built a great consumer and merchant network ... Consumers would come to us and say, ‘Who else takes Affirm?’” Levchin said. “It evolved into a product that says: if you want to find the best deal, the best products, the most interesting merchants, start here and we’ll guide you down the shopping process and still keep you honest with yourself about your budgets."
The new feature is in keeping with current fintech trends. Acorns, for example, has an offers page loaded with retail partners that will invest a certain percentage of a purchase back into the user’s Acorns account. NerdWallet lets users link their bank cards to receive cash back at certain food and dining spots. Even the Chase mobile app is showcasing which retailers consumers can choose to earn the most back in credit card rewards.
This means banks, which are already competing with retailers on brick-and-mortar as well as digital and mobile experiences, also now compete with them on financial products – loans and credit cards. Affirm has already displaced Motorola’s Comenity Bank-issued cards, for example. And with an easier and faster user experience as well as more transparent pricing terms, Affirm hopes consumers will become more open to breaking the habit of swiping a credit card and using its virtual card platform instead.
Levchin said several banks have approached them for partnerships. “We have to get really good at underwriting and risk management ー every loan we make is our risk to take, we don't sell our loans ... we stand behind every transaction."
Eventually, like many of its fintech peers, Affirm hopes to become a full-service bank, and the data it reads on users will presumably help them get there. Last year Affirm made a big push for fashion and apparel merchant partners. With its rebranding, its focusing on travel partners. The company is likely taking a page out of the Chase Sapphire book ー its Sapphire travel-rewards credit cards have become a cultural phenomenon among millennial consumers.
"We’re still a tiny gnat on the giant elephant that is Chase,” Levchin said. “
But one of the things we’ve been able to create is a network where we have a direct relationship between the consumer and the merchant. Connecting those dots, letting customers find the perfect deal, [is] something that's frankly difficult for large banks because they are playing averages... we’ve been fortunate to maintain these tight relationships."
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