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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of The Odd Laws podcast.

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Speaker 3: I'm Joe, wasn't Thal.

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Speaker 4: And I'm Tracy all the way Tracy.

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Speaker 2: It feels like everybody, whether they want to come after

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Speaker 2: the banks, right, there is this effort so many of

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Speaker 2: our episodes, whether we're talking about crypto, whether we're talking

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Speaker 2: about private credit, whether we're talking about payments, it's this goal,

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Speaker 2: this dream of like, let's chip away at some of

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Speaker 2: these bank businesses or these businesses that were associated with

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Speaker 2: some sort of legacy institutions.

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Speaker 5: The banks.

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Speaker 2: They mostly seem to be doing pretty well still, but

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Speaker 2: there's this dream that they can all be sort of

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Speaker 2: like disintermediate away, or that each one of these functions

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Speaker 2: that they do can be better done somewhere else.

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Speaker 4: Yeah, So let's see. I have been in financial journalism

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Speaker 4: for all my most twenty years now, which is kind

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Speaker 4: of crazy and makes me feel very old. But for

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Speaker 4: as long as I can remember, someone has been trying

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Speaker 4: to either reinvent bank lending or reinvent the payment space.

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Speaker 4: And I guess I can see a few reasons. So like, genuinely,

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Speaker 4: some payment architecture is really old fashioned especially in the

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Speaker 4: US where you know, sometimes you still have to write

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Speaker 4: a check for something. Yeah, blows my mind. The US

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Speaker 4: didn't get chips for a really long time, chips and

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Speaker 4: credit cards and stuff like that. But also if you

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Speaker 4: think about the payment and lending and financial market just

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Speaker 4: in general, it's one of the biggest out there, right,

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Speaker 4: Like you're talking about all the economic activity basically, and

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Speaker 4: so if you can get a tiny slice of that

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Speaker 4: through interchange or fees, then you can see how people,

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Speaker 4: you know, people are really interested in that space.

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Speaker 2: No completely, and we know that there are a lot

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Speaker 2: of fintech companies for a long time, I mean some

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Speaker 2: of the most you know, the earliest Internet success stories

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Speaker 2: period where you know, this is deaf, nothing new, And

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Speaker 2: of course one of the first ever was PayPal, which

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Speaker 2: recognized that with the Internet was going to come all

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Speaker 2: kinds of new opportunities for payments and sort of quasi

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Speaker 2: peer to peer, literal peer to peer transactions.

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Speaker 3: Et cetera.

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Speaker 2: PayPal is still, of course extremely important part of the

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Speaker 2: payments infrastructure. But yeah, there's so much going on. But

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Speaker 2: to your point, lots of companies have gotten those little

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Speaker 2: slices and made incredible fortunes.

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Speaker 4: Yeah, we also did an episode on buy Now, Pay

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Speaker 4: Later a couple months ago, and there are clearly some

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Speaker 4: interesting questions brought up by the expansion of that space,

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Speaker 4: and you and I talked about how wherever you go

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Speaker 4: on the internet nowadays, you get like, you know, probably

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Speaker 4: at least two or three little buttons that offer you

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Speaker 4: installment loans on your purchases. And obviously the concern is

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Speaker 4: whether or not people are taking out credit that they

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Speaker 4: shouldn't necessarily be. There's a big discussion about that, and

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Speaker 4: also the transparency of the credit that they're taking.

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Speaker 2: Out right, and we'll get into this. There are pros

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Speaker 2: and cons. I guess relative to credit cards. Thing with

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Speaker 2: credit cards is that there is decades and decades of

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Speaker 2: data on them, and we know how they're used, and

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Speaker 2: there's really good risk profiling and scores and all this

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Speaker 2: credit scoring and all this stuff. BNPL is sort of

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Speaker 2: more novel. And so therefore, to what degree do we

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Speaker 2: know how as as an asset or as a function

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Speaker 2: it performs across different cycles. Do we know the cohort

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Speaker 2: of people who use BNPL as well as we know

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Speaker 2: the people the types of people who use credit cards

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Speaker 2: seems a little bit, at a minimum, a bit more ambiguous. Absolutely, Well,

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Speaker 2: we've hinted at what we're going to be talking about.

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Speaker 2: I mentioned PayPal, We talked about BNPL. We are going

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Speaker 2: to be speaking with one of the original members of

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Speaker 2: the PayPal mafia. We're going to be speaking with Max Levchin.

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Speaker 2: He is the founder and CEO of a firm one

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Speaker 2: of the biggest BNPL companies publicly traded to Max. Thank

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Speaker 2: you so much for coming on Odd Lots.

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Speaker 5: Thank you for having me. I'm a big fan of

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Speaker 5: the show. Thank you a bit of a privilege to

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Speaker 5: be here.

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Speaker 2: Thank you for saying that on the recording, and so

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Speaker 2: we always love hearing it, but we love when we

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Speaker 2: love when it's on the public record as part of

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Speaker 2: the episode, Thank you so much. Where did you get

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Speaker 2: the idea to start affirm but prompted it?

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Speaker 6: But a two sided coin, both sides bad of personal

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Speaker 6: experience actually tying neatly to the PayPal story. So I

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Speaker 6: came to the US at sixteen from Soviet Union, and

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Speaker 6: so you can imagine I understood very little about borrowing

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Speaker 6: and credit and things like that. And so I got

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Speaker 6: my first credit card on campus at college at eighteen,

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Speaker 6: didn't fully understand what I was signing up for, certainly

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Speaker 6: didn't read the fine print where it said zero percent asterisk,

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Speaker 6: don't worry about it.

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Speaker 5: Borrowed a bunch of money, financed my.

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Speaker 6: First startup from that very same credit card, promptly got

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Speaker 6: into more than I could afford to pay for. Startup failed,

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Speaker 6: eventually got some nasty calls from collectors, paid it off,

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Speaker 6: and four years later or five years later, took this

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Speaker 6: little company PayPal Public was basically an penalty wealthy overnight

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Speaker 6: went to buy a fancy car that you know, as I.

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Speaker 5: Originally deserved it the right page of twenty three I.

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Speaker 6: Wanted to show off to my then girlfriend now wife

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Speaker 6: and was declined for credit. And not only did I

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Speaker 6: feel completely screwed by the moment where I found out

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Speaker 6: that you're supposed to make the minimum payment and by

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Speaker 6: the way, interest a cruise into principle, and this seemingly

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Speaker 6: low APR is actually not what it seems to be

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Speaker 6: because I missed some date of the specific amount that

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Speaker 6: I was supposed to pay. It bit me again five

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Speaker 6: years later it was like, oh, by the way, wreck

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Speaker 6: your credit rating too, so you can't get alone for anything,

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Speaker 6: even as you're sort of proudly sticking a finger at

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Speaker 6: the article and newspaper saying, you know, the company public

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Speaker 6: youngests whatever. And so that was the thing that stayed

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Speaker 6: with me for years. My friends would prank me at restaurants.

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Speaker 6: They would ask the wait staff to tell me that

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Speaker 6: my credit card was declined, which by then was a

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Speaker 6: different credit card.

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Speaker 5: But when I would turn deep purple and basically be like,

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Speaker 5: oh my god, like it happened again, Like what? And

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Speaker 5: you know, eventually I knew the joke. But I was

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Speaker 5: in my mid.

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Speaker 6: Thirties when I realized that that's now more likely a

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Speaker 6: joke than that credit score.

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Speaker 5: Bite from eighteen.

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Speaker 6: So in my late thirties, I sat down with a

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Speaker 6: friend from high school, college and PayPal. You know, I

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Speaker 6: have many of these friends who's I met when I

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Speaker 6: was just getting my feet wet in America, and ultimately,

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Speaker 6: you know, we built this amazing company together. And asked

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Speaker 6: him the obvious question, twenty years too late, why didn't

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Speaker 6: we try to fix that yuck that comes with having

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Speaker 6: credit cards as a young person, And he said, you know,

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Speaker 6: I don't know, but we built so much great AI

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Speaker 6: at PayPal, fighting fraud and doing all these really interesting things.

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Speaker 6: Surely we could do a better job scoring credit for

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Speaker 6: young people like you were at eighteen and then twenty three.

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Speaker 6: Then what currently happens? And that was sort of the

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Speaker 6: seminal moment, and a couple of years later.

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Speaker 5: We started a firm.

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Speaker 4: So I have a bunch of questions already. Firstly, what

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Speaker 4: kind of car was it? Did you get it?

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Speaker 6: In the end, I had to pay cash for right,

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Speaker 6: I actually wired money, and it would begin like an

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Speaker 6: eight am visit to a dealership, ended up like it's

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Speaker 6: five pm. You're wired, hasn't cleared yet, you can't drive

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Speaker 6: off the slot and drama at the time.

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Speaker 5: Don't judge me.

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Speaker 6: It was a black hardtop Mercedes convertible.

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Speaker 3: No judgment at all.

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Speaker 4: I'm judging a little bit.

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Speaker 5: I was really young.

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Speaker 6: I was very much trying to impress the girl who

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Speaker 6: is now my wife and the mother.

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Speaker 5: It clearly works.

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Speaker 4: Okay, another question, So.

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Speaker 2: You know, I just I love those those Mercedes. I

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Speaker 2: think that's there's one of the if I have some

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Speaker 2: rough conception, no judgment, I think those are great design cars.

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Speaker 4: Anyway, Should we just talk about cars?

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Speaker 1: Yeah?

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Speaker 3: We could?

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Speaker 4: Okay, Well, you mentioned the underwriting process. And this, in

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Speaker 4: my mind, is supposed to be what makes the buy now,

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Speaker 4: pay later BNPL model different. Right, Like the underwriting process

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Speaker 4: is more technologically driven, perhaps more nuanced. Talk to us

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Speaker 4: about what you do differently versus you know, a credit

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Speaker 4: card company or a bank or someone like that.

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Speaker 6: Sure, and you're pulling in a thread that's gonna take

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Speaker 6: a long time to Onwinyl, try to be fiffy, but

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Speaker 6: this is where the rage kicks in. So one of

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Speaker 6: the things that happens with credit cards, at the very core,

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Speaker 6: they tell you a bunch of things they don't actually want.

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Speaker 5: You to do.

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Speaker 6: So credit card business model is a crull of interest

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Speaker 6: into principle. So this exponential function of your signing up

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Speaker 6: for apr X but you don't actually know what's gonna

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Speaker 6: cost you, is all the fact that as you make

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Speaker 6: the minimum payments or whatever the payments you're making, whatever

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Speaker 6: you're haven't paid off, the interest that you've recrued folds

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Speaker 6: right into the principle, and it compounds and compounds and compounds,

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Speaker 6: and so the longer you take to pay it back,

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Speaker 6: the more it will cost. Which seems obvious, but it's

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Speaker 6: impossible for most merimortals to predict, and they love it

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Speaker 6: when you're late because they are late fees which are fixed,

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Speaker 6: and so the less you spend, the higher the percentage

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Speaker 6: the late feed represents. So it's this sort of amazing

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Speaker 6: business model, which is why you know one of your

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Speaker 6: recent episodes puzzled over how are these rates so high?

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Speaker 5: The rates themselves are actually not the problem. The problem

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Speaker 5: is the structure.

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Speaker 6: As you fold interest into principle and pay and pay

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Speaker 6: and pay late.

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Speaker 5: Fees, it can be extraordinarily expensive.

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Speaker 6: And so from the very beginning of affirm we ask

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Speaker 6: the question, how can we make a product where you

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Speaker 6: don't have this weird misalignment of interests where the lender

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Speaker 6: tells you please pay your bills on time, but when

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Speaker 6: they're saying soda vocea is, but not too on time,

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Speaker 6: and ideally take as long as possible because that's when

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Speaker 6: we make the most money.

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Speaker 5: So the obvious answer is, of course obvious.

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Speaker 6: Make a plan that you commit as a lender that

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Speaker 6: you'll never change, and don't charge.

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Speaker 5: Late fees, and that's it.

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Speaker 6: If you agree to those design principles, you are not

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Speaker 6: going to make more money if someone is late and

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Speaker 6: you're not going to make more money. If they take

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Speaker 6: longer to pay you back, obviously you'll make less money.

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Speaker 6: Because getting money to lend isn't free either. We have

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Speaker 6: to pay for our source of capital as everybody else does,

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Speaker 6: which means that it immediately rotates you sort of one

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Speaker 6: hundred and eighty degrees where you say I only want

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Speaker 6: to lend money when I have a lot of conviction

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Speaker 6: the person is going to pay me back on time,

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Speaker 6: because if they don't, I am just going to lose money.

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Speaker 6: And so we put those two principles down in the ground,

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Speaker 6: very very early on. It's literally written down to the

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Speaker 6: foundation of the company. We will not misalign ourselves with

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Speaker 6: our borrowers. From that came a lot of things like, hey,

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Speaker 6: we need to understand your cash flow.

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Speaker 5: We don't really care what your credit rating is.

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Speaker 6: Maybe you gained it, maybe it's an accurate, maybe your

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Speaker 6: eighteen year old immigrants does not matter.

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Speaker 5: We need to understand what your actual capability is.

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Speaker 6: We have to have the right to tell you you

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Speaker 6: are over extending yourself, not just once every few years

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Speaker 6: when you renew your credit card agreement, but for every transaction.

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Speaker 6: You have to be able to underwrite and decide yes

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Speaker 6: or no for every single moment that you create these

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Speaker 6: payment plans, because that allows us to not lose money

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Speaker 6: because we are aligned with you. When you pay us

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Speaker 6: back on time, we'll make some money. If you do own,

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Speaker 6: we're just going to be a warse off. And so

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Speaker 6: that is the foundation of Affirm's take on bnpl Many

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Speaker 6: people have come along since and sort of change the

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Speaker 6: model a little bit. They introduce laid fees, all kinds

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Speaker 6: of other fees we never have and never will. But

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Speaker 6: even with those modifications, the model is still better than

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Speaker 6: credit cards because of this individual underwriting moment and in

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Speaker 6: our case, no fees of any kind.

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Speaker 2: Just to be clear, So let's say I wind up

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Speaker 2: at some website and maybe I want to buy like

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Speaker 2: some Nikes or something like that, and I see the

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Speaker 2: Affirm option. How do you know how good of a

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Speaker 2: credit I am in that moment?

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Speaker 6: So it's not an effort free thing for you to

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Speaker 6: use a firm. You'll have to click on a firm

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Speaker 6: and we will ask you, if we've never seen you before,

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Speaker 6: we'll ask you to provide some information for us. That

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Speaker 6: information will allow us to tap into the standard set

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Speaker 6: of records that the credit bureaus.

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Speaker 5: Aggregated about you.

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Speaker 6: If there's enough data there for us to use our

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Speaker 6: custom credit score, we'll render a decision based on that.

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Speaker 6: If there's not, we'll actually say, hey, we don't fully

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Speaker 6: understand your personal financial situation. We would like to have

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Speaker 6: a peek at your bank account cash flow and decide

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Speaker 6: how your cass and flows relative to your ability to

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Speaker 6: pay us back. All of this is made possible with

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Speaker 6: really good news technology, So this takes seconds, even though

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Speaker 6: it probably takes about as long to do as it takes.

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Speaker 5: To describe it.

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Speaker 6: But we'll look through your personal financial state of right

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Speaker 6: now and make a decision not just whether it's he

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Speaker 6: yes or no, but also how much of a risk

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Speaker 6: you have of that financial situation changing and that price

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Speaker 6: is the credit?

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Speaker 4: Do you use any creative data points you mentioned checking

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Speaker 4: against the type of item that people are buying, So

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Speaker 4: that's one thing I imagine could be interesting, like if

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Speaker 4: people are buying groceries on installment, does that mean they're

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Speaker 4: more of a credit risk than someone who's I don't know,

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Speaker 4: buying a computer or a big ticket item. And then

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Speaker 4: the other thing I'm very curious about, and I think

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Speaker 4: I've told this story before on add lots. But I

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Speaker 4: remember going to see a startup that eventually failed, and

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Speaker 4: they were in the peer to peer lending space, and

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Speaker 4: they describe some of the stuff they were doing with

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Speaker 4: underwriting where they were like trying to measure people's impulsiveness

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Speaker 4: by how quickly they moved a slideer for a loan

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Speaker 4: and stuff like that, which freaked me out a little

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Speaker 4: at the time.

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Speaker 5: It would freak me out too.

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Speaker 6: So, no, we do not do telemetry as a variable

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Speaker 6: into underwriting. So before I get into what we do use,

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Speaker 6: it bears mentioning that the variable to use in underwriting

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Speaker 6: is a very very highly regulated domain of lending and underwriting.

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Speaker 5: There's lots and lots of laws going back quite far.

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Speaker 6: Things like Fair Credit Act and any other sort of

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Speaker 6: subsequent additions to both federal and state level law that

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Speaker 6: prohibits you from using kind of the obvious things you

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Speaker 6: wouldn't want people to use, like your race or your gender,

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Speaker 6: or your age or your creed cannot be a factor.

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Speaker 6: It's actually a federal offense to do that. And so

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Speaker 6: we don't do any of those things. We go as

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Speaker 6: far as to say if it correlates to some of

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Speaker 6: those things, we also could use it, and that too

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Speaker 6: is a subsequent law as well.

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Speaker 5: So so first of all, we're very very.

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Speaker 6: Thoughtful about making sure we don't step into a prohibited territory.

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Speaker 6: It's called prohibited basis as the fancy term in the industry.

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Speaker 6: What we can use and what we do use. As

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Speaker 6: you mentioned, merchants share with us what's being purchased. Despite

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Speaker 6: the burrito gate that sometimes comes back in the press,

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Speaker 6: people don't actually use a firm to finance Mexican food

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Speaker 6: or other cuisines. They do sometimes use a firm for groceries,

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Speaker 6: but it mostly is, or almost entirely really is for

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Speaker 6: things like I'm throwing a giant party and I need

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Speaker 6: several hundred dollars worth of food stuffs, and that's a

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Speaker 6: lot to pay down with my debit cards, so I'm

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Speaker 6: going to use a firm instead. So the average sized

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Speaker 6: transactions for us is roughly three hundred dollars. So it

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Speaker 6: gives you a sentence for what people use a firm for.

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Speaker 6: So that's just you know, apper pos where it's being used.

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Speaker 6: What we gleaned from the information about what's being purchased.

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Speaker 6: One good mental model, which this is like an approximation,

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Speaker 6: but a decent one. If the useful life of the

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Speaker 6: item is meaningfully shorter than the time it takes you

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Speaker 6: to pay it back, you may find yourself questioning the

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Speaker 6: quality of the item long afterwards disappeared. And so a

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Speaker 6: natural question we should be asking is what do we

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Speaker 6: understand about this item, but also maybe the item's history

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Speaker 6: of quality before we say, oh yeah, sure by this

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Speaker 6: thing that's going to be out in six months and

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Speaker 6: pay for it over two years. So maybe the most

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Speaker 6: useful thing I can say about actually what variables, what

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Speaker 6: new variables w we've introduced into our underwriting, vast, fast,

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Speaker 6: vast majority of them, In fact, all of them actually

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Speaker 6: influence a decision we make by one or two percent

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Speaker 6: at most. Anytime someone tells you I found this magic

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Speaker 6: variable and if I just look at that, it's like

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Speaker 6: thirty percent better underwriting or five percent better in defaults,

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Speaker 6: they are lying, probably to themselves more than to you,

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Speaker 6: but they're definitely lying. Anything like that just immediately becomes

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Speaker 6: brittle as the macroeconomic reality changes, as people suddenly don't

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Speaker 6: care about the item or whatever it is that they

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Speaker 6: found that's this magic bullet of like suddenly I know

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Speaker 6: who's a good risk.

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Speaker 5: It just disappears. And so you actually.

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Speaker 6: Want lots and lots of subtle factors that are also

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Speaker 6: compliant with all the various regulations, helping you shape a

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Speaker 6: score that will tell you how likely this person is

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Speaker 6: to pay back.

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Speaker 5: That's what we use.

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Speaker 2: Let's go back to the just the core of the

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Speaker 2: business model. So let's imagine there is a shirt that

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Speaker 2: costs one hundred dollars and I have an opportunity to Okay,

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Speaker 2: I'm gonna buy it with a firm, so to be

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Speaker 2: four payments of twenty five dollars and there's no interest,

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Speaker 2: and so for me, that is almost a free lunch

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Speaker 2: because the time value of money, et cetera. All Right,

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Speaker 2: I'm spreading this out over four payments.

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Speaker 4: You're gonna work that hundred extra and.

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Speaker 2: I'm gonna that extra, that extra seventy five dollars after

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Speaker 2: the first payment, I'm gonna know.

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Speaker 5: As you should. Yeah, great way, okay.

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Speaker 2: So I'm gonna make that first payment and i'm gonna

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Speaker 2: then that seventy five dollars. I'm gonna put that into

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Speaker 2: an index fund. Okay, And so you make money because

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Speaker 2: the retailer is paying you a cut because that you've

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Speaker 2: brought someone into the door. So talk about how is

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Speaker 2: that cut determined, how much are they paying you for that,

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Speaker 2: and how competitive is it against other potential BNPL companies

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Speaker 2: or perhaps new entrants that haven't come into the market yet.

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Speaker 2: Talk to us about how that price is for him.

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Speaker 4: This is my question too, because when you go to

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Speaker 4: check out, you see buttons, and the buttons I presume

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Speaker 4: don't mean that much to people. You just click one

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Speaker 4: of them. So how do you differentiate yourself?

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Speaker 6: So we've been around for nearly fifteen years, and the

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Speaker 6: way differentiated ourselves by the way we basically don't advertise.

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Speaker 6: When you see us a checkout, that's when you learn

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Speaker 6: about AFFIRM at some point, and then you come back

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Speaker 6: to use again.

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Speaker 5: And we have incredible retention rates.

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Speaker 6: People who have used a firm a couple of times

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Speaker 6: basically with ninety percent probability we'll come back to use

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Speaker 6: a firm again, not necessarily the next week. In fact,

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Speaker 6: we average something like five plus transactions per year, but

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Speaker 6: when it matters to them, they will use AFFIRM. And

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Speaker 6: the way we differentiated ourselves is we were there for

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Speaker 6: them when they needed us and if they ever stumbled.

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Speaker 6: Our best customers are the ones that email us or

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Speaker 6: call us and say, hey, I was late to pay

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Speaker 6: my bill, something happened. What's the layed fee? And we

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Speaker 6: tell them there isn't one. That's the moment when they

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Speaker 6: grasp how we're different from the rest of the industry,

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Speaker 6: and that that's probably why they come back to us

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Speaker 6: as often as much as they do. Something like ninety

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Speaker 6: five percent of our transactions come from repeat customers. So

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Speaker 6: just to give you a sense for the loyalty that

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Speaker 6: we've engendered in our user base without ever making promises,

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Speaker 6: you know, on broadcast media.

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Speaker 5: If you will.

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Speaker 6: So that's why they come back to the business model points.

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Speaker 6: So first of all, probably worth expanding the aperture a

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Speaker 6: little bit. So we offer both interest free and not

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Speaker 6: interest free loans. The pain four that Joe described is

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Speaker 6: exactly as it sounds. So in our case, there are

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Speaker 6: no fees of any kinds. So if you see hundred

401
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Speaker 6: dollars shirt and you say it's going to be four

402
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Speaker 6: payments of twenty five.

403
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Speaker 5: Dollars, that is it.

404
00:19:22,680 --> 00:19:24,959
Speaker 6: You cannot You can take a decade and you wouldn't

405
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Speaker 6: be able to use a firm pretty soon after you

406
00:19:27,800 --> 00:19:31,000
Speaker 6: went well past the wind over payment. So the punishment

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00:19:31,080 --> 00:19:34,040
Speaker 6: for being late for too long is, hey, you need

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00:19:34,080 --> 00:19:36,280
Speaker 6: to pay us back actually before you can do this again,

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00:19:36,560 --> 00:19:38,879
Speaker 6: which I think stands to reason much more than actually,

410
00:19:38,920 --> 00:19:40,640
Speaker 6: let us hit you with a thirty eight dollars laid feet.

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00:19:40,640 --> 00:19:43,280
Speaker 6: But that's besides the point. So that's one form of transaction.

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00:19:43,359 --> 00:19:46,200
Speaker 6: We also have what we call longer term zeros, which

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00:19:46,240 --> 00:19:51,440
Speaker 6: is for a thousand dollars fancy suit, you could potentially

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Speaker 6: get a loan from a firm for twenty four months

415
00:19:53,720 --> 00:19:56,080
Speaker 6: or even thirty six months, which will also be zero.

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00:19:56,240 --> 00:19:58,800
Speaker 6: In both of those cases, it's the retailer that's effectively

417
00:19:58,800 --> 00:20:01,080
Speaker 6: paying your interest. I value of money becomes more expensive

418
00:20:01,080 --> 00:20:03,480
Speaker 6: than period six months, so you've nailed the business model there.

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00:20:03,880 --> 00:20:06,280
Speaker 6: In some situations, the retailer just doesn't have the margin

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Speaker 6: or isn't interested in paying your interest, and so they'll say, look,

421
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Speaker 6: you're going to use credit card, you'll pay some interest.

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00:20:12,240 --> 00:20:13,800
Speaker 6: If you're going to use a firm, it's okay for

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Speaker 6: us to have this transaction happen if you are willing

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Speaker 6: to pay interest to affirm. And in that scenario, you

425
00:20:19,400 --> 00:20:21,639
Speaker 6: will see both the principle and interest, will calculate it

426
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Speaker 6: for you, both the rate and the dollars, and we'll

427
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Speaker 6: show you the schedule, and before you commit to any

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00:20:25,480 --> 00:20:27,800
Speaker 6: of that, you will see and agree to the schedule.

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Speaker 5: That we agree on.

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Speaker 6: In the latter case, the consumers paying us something, the

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00:20:30,840 --> 00:20:33,439
Speaker 6: merchant is probably paying us something significantly less than what

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Speaker 6: they're paying us if they're absorbing the cost of interest,

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00:20:36,200 --> 00:20:40,080
Speaker 6: the cost of time, value of money. The business model

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Speaker 6: is really really simple in our case to understand the

435
00:20:42,320 --> 00:20:45,200
Speaker 6: value is fixed, so whoever is paying us almost doesn't matter.

436
00:20:45,280 --> 00:20:47,920
Speaker 6: That has to cover the fixed cost of underwriting, servicing,

437
00:20:47,960 --> 00:20:50,359
Speaker 6: all the usual bits. Leave a little bit for us

438
00:20:50,359 --> 00:20:52,960
Speaker 6: to actually be a profitable company, which we are, and

439
00:20:53,280 --> 00:20:56,400
Speaker 6: also absorb the probability of default, which, by the way,

440
00:20:56,720 --> 00:20:58,880
Speaker 6: all the way back to these alignment of incentives an

441
00:20:58,880 --> 00:21:02,040
Speaker 6: easy check so the work like this whole idea of like, oh,

442
00:21:02,080 --> 00:21:03,400
Speaker 6: you know, you're just not going to a profit when

443
00:21:03,400 --> 00:21:06,800
Speaker 6: people stumble. Our delinquency rates are about half the industry

444
00:21:06,840 --> 00:21:09,080
Speaker 6: of credit cards. That should give you a sense for

445
00:21:09,440 --> 00:21:13,399
Speaker 6: we don't make nearly as many mistakes, or perhaps we

446
00:21:13,480 --> 00:21:17,080
Speaker 6: are not willing to let people go late because we

447
00:21:17,080 --> 00:21:17,959
Speaker 6: don't benefit from it.

448
00:21:18,400 --> 00:21:20,719
Speaker 5: Back to this model. That's how it works.

449
00:21:20,960 --> 00:21:24,680
Speaker 6: The competitiveness of this industry is just like any other

450
00:21:24,680 --> 00:21:28,080
Speaker 6: competitiveness is of any payment industry. Payments are notoriously a

451
00:21:28,080 --> 00:21:31,760
Speaker 6: competitive world. There's actually never been a monopoly in payments,

452
00:21:31,840 --> 00:21:34,000
Speaker 6: full stop. There's a fun puzzle Wiser used to do

453
00:21:34,000 --> 00:21:36,119
Speaker 6: this cocktail parties, like name a monopoly and payments. It

454
00:21:36,119 --> 00:21:37,640
Speaker 6: turns out there has never been one.

455
00:21:37,560 --> 00:21:40,200
Speaker 4: Interesting toughs cocktail party.

456
00:21:40,240 --> 00:21:40,440
Speaker 3: Yah.

457
00:21:41,640 --> 00:21:43,199
Speaker 5: I you know there's a reason I'm a fan of

458
00:21:43,200 --> 00:21:43,680
Speaker 5: the show, right.

459
00:21:43,960 --> 00:21:46,280
Speaker 6: I listen to you a pine and all sorts of

460
00:21:46,359 --> 00:21:50,200
Speaker 6: esthetic things with great gusta, and so I think that's

461
00:21:50,800 --> 00:21:52,080
Speaker 6: We'll tell you everything you want to know about the

462
00:21:52,119 --> 00:21:56,000
Speaker 6: competitiveness of the space. But we have decided from the

463
00:21:56,119 --> 00:22:00,359
Speaker 6: very beginning that we want transparency and honesty with everyone

464
00:22:00,400 --> 00:22:03,120
Speaker 6: involved with our borrowers. That's why we say everything upfront.

465
00:22:03,160 --> 00:22:05,320
Speaker 6: That's why we tell them, here's your disclosure on exactly

466
00:22:05,320 --> 00:22:07,399
Speaker 6: the rates and the schedules with our merchants.

467
00:22:07,480 --> 00:22:09,320
Speaker 5: We tell them, here is the price.

468
00:22:09,160 --> 00:22:10,840
Speaker 6: You will have to pay us. If that's where you're paying.

469
00:22:12,160 --> 00:22:14,600
Speaker 6: If you can't don't want to, that's fine. We will

470
00:22:14,600 --> 00:22:16,720
Speaker 6: probably not be the right one for you. We won't

471
00:22:16,800 --> 00:22:18,520
Speaker 6: make it up elsewhere. We're not going to take it

472
00:22:18,520 --> 00:22:20,800
Speaker 6: out of the consumer's hide when they least expect it.

473
00:22:20,840 --> 00:22:23,840
Speaker 6: That's just not the brand. There are definitely cheaper providers

474
00:22:23,840 --> 00:22:25,680
Speaker 6: out there. There are plenty of brands that I'll say

475
00:22:25,680 --> 00:22:29,359
Speaker 6: we're just like a firm, but way less expensive for merchants.

476
00:22:30,040 --> 00:22:32,399
Speaker 6: What that really means is that's because we charge all

477
00:22:32,400 --> 00:22:34,120
Speaker 6: sorts of hidden feats, we have all sorts of other

478
00:22:34,160 --> 00:22:37,479
Speaker 6: ways of taking it out of consumer skin. What this

479
00:22:37,560 --> 00:22:40,800
Speaker 6: means practically, with fifteen years of experience is consumers as

480
00:22:40,840 --> 00:22:43,960
Speaker 6: they cast their eye over the list of buttons, they say, well,

481
00:22:44,080 --> 00:22:45,240
Speaker 6: the one I want to use is the one that's

482
00:22:45,240 --> 00:22:48,560
Speaker 6: not going to get me if I stumble. And that

483
00:22:48,640 --> 00:22:50,920
Speaker 6: makes for twenty four million active users in the last

484
00:22:50,920 --> 00:22:53,080
Speaker 6: twelve months, and we feel like we've we've.

485
00:22:53,000 --> 00:22:54,880
Speaker 5: Kept our promise and the consumers keep coming back.

486
00:22:55,440 --> 00:22:57,320
Speaker 4: Just reiterating Joe's question.

487
00:22:57,440 --> 00:22:57,640
Speaker 5: Though.

488
00:22:57,800 --> 00:23:01,880
Speaker 4: On the merchant side again, I imagine they're getting offers

489
00:23:01,920 --> 00:23:06,560
Speaker 4: from a bunch of different installment lenders BNPL companies, and

490
00:23:07,720 --> 00:23:10,520
Speaker 4: I don't think they do. They care much about the underwriting.

491
00:23:10,560 --> 00:23:13,480
Speaker 4: It's not really their problem, it's your problem, right, So

492
00:23:13,600 --> 00:23:16,800
Speaker 4: I assume the thing they care most about is the fee,

493
00:23:17,600 --> 00:23:18,840
Speaker 4: which seems.

494
00:23:18,560 --> 00:23:22,920
Speaker 6: Like they actually care about three things. Okay, so they

495
00:23:22,960 --> 00:23:24,680
Speaker 6: absolutely care about the fee like that.

496
00:23:24,680 --> 00:23:26,520
Speaker 5: That would say, which which.

497
00:23:26,320 --> 00:23:30,080
Speaker 6: Can range from as low as less than credit cards.

498
00:23:30,080 --> 00:23:32,800
Speaker 6: So typical credit card rate today is on the order

499
00:23:32,880 --> 00:23:35,800
Speaker 6: of between two and a half and three percent, depending

500
00:23:35,840 --> 00:23:36,719
Speaker 6: on the size of the merchant.

501
00:23:37,359 --> 00:23:39,400
Speaker 5: But that's kind of the average in the industry.

502
00:23:39,680 --> 00:23:44,960
Speaker 6: We will definitely meet you around those numbers at the

503
00:23:45,080 --> 00:23:49,640
Speaker 6: absolute lowest and goes up all the way to let's say,

504
00:23:49,840 --> 00:23:53,600
Speaker 6: low single digit percentage points when you are subsidizing consumer interest.

505
00:23:53,680 --> 00:23:56,760
Speaker 6: So we are not a cheaper than credit cards provider

506
00:23:56,840 --> 00:23:58,840
Speaker 6: like that. That's not you know, don't want anybody tell

507
00:23:58,920 --> 00:24:03,000
Speaker 6: that illusion. They care about the rate more than the rate.

508
00:24:03,119 --> 00:24:07,080
Speaker 6: They care about incremental sales. So if your next marginal

509
00:24:07,200 --> 00:24:10,639
Speaker 6: buyer is either a no thanks, or it will cost

510
00:24:10,640 --> 00:24:13,520
Speaker 6: you five percent. If you have the margin of better

511
00:24:13,560 --> 00:24:15,720
Speaker 6: than five percent, you don't want the items staying on

512
00:24:15,720 --> 00:24:17,639
Speaker 6: your shelves. You would like to pay this five percent

513
00:24:17,720 --> 00:24:18,960
Speaker 6: to get the marginal buyer.

514
00:24:18,760 --> 00:24:19,320
Speaker 5: To say yes.

515
00:24:19,760 --> 00:24:22,919
Speaker 6: And so because of that incentive, which I think is

516
00:24:22,960 --> 00:24:26,320
Speaker 6: easy to follow, you do have lots and lots of

517
00:24:26,320 --> 00:24:28,919
Speaker 6: merchants that say, all right, So what I really care

518
00:24:28,920 --> 00:24:31,200
Speaker 6: about then is the approval rates, which is the second

519
00:24:31,280 --> 00:24:33,639
Speaker 6: variable they care about. So as people come through and say, hey,

520
00:24:33,680 --> 00:24:35,520
Speaker 6: I'm not going to use a credit card, not interested

521
00:24:35,560 --> 00:24:38,439
Speaker 6: in buying unless I have an installment loan, let's say,

522
00:24:38,440 --> 00:24:40,639
Speaker 6: from a firm, they need to know that that rate

523
00:24:40,680 --> 00:24:42,879
Speaker 6: is going to be high enough. Otherwise why have a

524
00:24:42,920 --> 00:24:44,720
Speaker 6: button that just sits there and looks pretty. And so

525
00:24:44,840 --> 00:24:47,320
Speaker 6: our rates are typically higher than the rest of the

526
00:24:47,359 --> 00:24:50,119
Speaker 6: industry because we are so obsessed with underwriting, because we

527
00:24:50,240 --> 00:24:51,960
Speaker 6: have no crutches, eg Late.

528
00:24:51,920 --> 00:24:53,960
Speaker 5: Fees, and so this underwriting thing, we don't really.

529
00:24:53,880 --> 00:24:55,879
Speaker 6: Try to explain it to merchants at all. What we

530
00:24:55,920 --> 00:24:57,720
Speaker 6: do say is look at our approval rates. If you

531
00:24:57,720 --> 00:25:00,399
Speaker 6: see their approval rates are meaningfully higher than the industry,

532
00:25:00,480 --> 00:25:02,400
Speaker 6: you know you're gonna get value from this. That's why

533
00:25:02,440 --> 00:25:04,919
Speaker 6: it's worth paying more than credit cards. And so that

534
00:25:05,080 --> 00:25:07,359
Speaker 6: is true, and that's what they do. The third piece

535
00:25:07,400 --> 00:25:10,640
Speaker 6: they do care about. Every merchant knows that the second transaction,

536
00:25:10,680 --> 00:25:13,040
Speaker 6: as they want the first transaction, costs them probably more

537
00:25:13,280 --> 00:25:16,000
Speaker 6: than the margin in it. They're paying Google, they're paying Facebook,

538
00:25:16,000 --> 00:25:18,760
Speaker 6: They'll soon be paying an LM provider or a child

539
00:25:18,760 --> 00:25:22,800
Speaker 6: about provider to drive that first transaction in they want

540
00:25:22,840 --> 00:25:25,480
Speaker 6: to sell you another thing, So they very much care

541
00:25:25,520 --> 00:25:28,800
Speaker 6: about if they had sold that first transaction using a

542
00:25:28,800 --> 00:25:31,600
Speaker 6: buy out pay Lada provider, it better not harm their

543
00:25:31,640 --> 00:25:35,040
Speaker 6: brand because if they buy out Paylada provider is harassing

544
00:25:35,080 --> 00:25:37,520
Speaker 6: the consumer for paying them back or has late fees

545
00:25:37,640 --> 00:25:41,040
Speaker 6: or has unexpected fees, it's going to create.

546
00:25:40,840 --> 00:25:42,879
Speaker 5: Negatively to the merchant's brand.

547
00:25:43,200 --> 00:25:46,280
Speaker 6: And so they actually do care about late fees in

548
00:25:46,320 --> 00:25:48,840
Speaker 6: a way that has less to do with financial consequences

549
00:25:49,080 --> 00:25:50,720
Speaker 6: more with will people come back to us and use

550
00:25:50,760 --> 00:25:53,200
Speaker 6: a firm again, or will they be like, ah, I

551
00:25:53,240 --> 00:25:55,640
Speaker 6: hated that merchant. I got into some bad transactions. So

552
00:25:55,680 --> 00:25:58,320
Speaker 6: that they care about all these things through their own.

553
00:25:58,240 --> 00:26:00,960
Speaker 2: Lens, that makes a lot of sense. So let's say

554
00:26:00,960 --> 00:26:03,960
Speaker 2: I start accepting your premise. Okay, this is per se

555
00:26:04,080 --> 00:26:08,480
Speaker 2: better than credit cards. One reason that people can't just

556
00:26:08,600 --> 00:26:12,040
Speaker 2: quit credit cards generally is not every place takes by

557
00:26:12,080 --> 00:26:14,719
Speaker 2: now pay later. People want something in their wallet, right

558
00:26:14,800 --> 00:26:17,040
Speaker 2: that they want something at the restaurant and wherever it

559
00:26:17,080 --> 00:26:18,800
Speaker 2: is that they know it's going to be accepted now.

560
00:26:18,920 --> 00:26:21,720
Speaker 2: For you are launching a card or you have a card.

561
00:26:21,560 --> 00:26:22,800
Speaker 5: Right, we have a card.

562
00:26:23,200 --> 00:26:25,639
Speaker 2: Ye, so you have a card, but I'm curious. You know,

563
00:26:25,800 --> 00:26:29,199
Speaker 2: you mentioned, you referenced that recent episode that we did

564
00:26:29,280 --> 00:26:31,919
Speaker 2: with Omar Drexler, and one of the things that he

565
00:26:32,040 --> 00:26:35,399
Speaker 2: said about cards is they're very costly to advertise. The

566
00:26:35,440 --> 00:26:39,399
Speaker 2: marketing expenditure for the card companies is very high. You

567
00:26:39,480 --> 00:26:41,880
Speaker 2: mentioned that you don't do a lot of advertising. I'm

568
00:26:42,000 --> 00:26:46,040
Speaker 2: curious though, on the card component specifically, you know, if

569
00:26:46,040 --> 00:26:49,119
Speaker 2: you want to be quote top of wallet to consumers.

570
00:26:49,160 --> 00:26:54,280
Speaker 2: The first thing I think I've read that phrase, I thought,

571
00:26:54,400 --> 00:27:00,920
Speaker 2: I'm trying to quaint myself with the industry. So if

572
00:27:00,960 --> 00:27:04,000
Speaker 2: you want to be top of wallet for the consumer

573
00:27:04,280 --> 00:27:06,840
Speaker 2: in the card, can you do that with an advertising

574
00:27:06,960 --> 00:27:09,600
Speaker 2: light model or do you really need to spend to

575
00:27:10,200 --> 00:27:11,800
Speaker 2: get significant wallet share?

576
00:27:12,600 --> 00:27:12,880
Speaker 5: You can?

577
00:27:13,040 --> 00:27:16,159
Speaker 6: The card is available to our users. So this is

578
00:27:16,200 --> 00:27:19,960
Speaker 6: not a thing that you will see on Times Square displays.

579
00:27:20,080 --> 00:27:22,359
Speaker 6: This is a thing you find out from a firm.

580
00:27:22,720 --> 00:27:25,680
Speaker 6: Once you are a borrower, once you're actually in good standing,

581
00:27:25,960 --> 00:27:28,639
Speaker 6: you qualify for the affirm card as the Hey you

582
00:27:28,720 --> 00:27:30,159
Speaker 6: really liked us, didn't you?

583
00:27:30,240 --> 00:27:30,800
Speaker 5: This was great.

584
00:27:30,920 --> 00:27:33,359
Speaker 6: You're transacting five times a year. If you want to

585
00:27:33,400 --> 00:27:37,360
Speaker 6: take us with you to your retail shopping experiences, restaurant

586
00:27:37,440 --> 00:27:37,960
Speaker 6: or otherwise.

587
00:27:38,560 --> 00:27:39,120
Speaker 5: We have a way.

588
00:27:39,119 --> 00:27:42,119
Speaker 6: It's called the Affirm Card. It's actually pretty magical. The

589
00:27:42,160 --> 00:27:45,000
Speaker 6: card is a dual mode card. It switches from debit

590
00:27:45,280 --> 00:27:48,600
Speaker 6: to credit explicitly as you tell it to. So when

591
00:27:48,640 --> 00:27:50,920
Speaker 6: you're buying a burrito, we expect you to use the

592
00:27:50,960 --> 00:27:53,280
Speaker 6: debit mode, which just literally takes the money from your

593
00:27:53,280 --> 00:27:55,800
Speaker 6: account and that's it. There's no interest obviously, is just

594
00:27:55,800 --> 00:27:59,399
Speaker 6: a pay now transaction. If you're buying a TV, you

595
00:27:59,440 --> 00:28:01,960
Speaker 6: can buy it out with Affirm. In the app, you say, hey,

596
00:28:01,960 --> 00:28:04,480
Speaker 6: my next transaction, I want that to be a twelve

597
00:28:04,480 --> 00:28:07,600
Speaker 6: months maybe to zero percent loan because the retailer wants

598
00:28:07,640 --> 00:28:10,000
Speaker 6: you to have it interest free. Maybe you're paying some interest,

599
00:28:10,320 --> 00:28:12,320
Speaker 6: but you're setting up that transaction in the app, and

600
00:28:12,320 --> 00:28:14,840
Speaker 6: then your card is ready when you tap it next time,

601
00:28:14,920 --> 00:28:15,520
Speaker 6: it becomes.

602
00:28:15,320 --> 00:28:18,880
Speaker 5: A loan automatically. It's a pretty magical experience. It's super popular.

603
00:28:18,920 --> 00:28:21,480
Speaker 6: It's the thing that we haven't needed to advertise because

604
00:28:21,880 --> 00:28:25,080
Speaker 6: we went from we have this card idea to about

605
00:28:25,119 --> 00:28:27,679
Speaker 6: twelve percent of our users having one very very quickly,

606
00:28:27,760 --> 00:28:30,680
Speaker 6: because it's just a really really good product. Again, our

607
00:28:30,760 --> 00:28:35,480
Speaker 6: user their mindset has long been changed from revolving is okay,

608
00:28:35,520 --> 00:28:37,679
Speaker 6: I don't understand it, but I don't care to. I

609
00:28:37,680 --> 00:28:39,320
Speaker 6: don't like revolving. I don't want to pay LID fees.

610
00:28:39,320 --> 00:28:41,000
Speaker 6: I don't want to pay excess of interest. This affirm

611
00:28:41,040 --> 00:28:43,480
Speaker 6: thing is neat the card is a logical next step.

612
00:28:43,520 --> 00:28:45,600
Speaker 6: It's how much more can I have of this type

613
00:28:45,600 --> 00:29:00,960
Speaker 6: of financial life?

614
00:29:02,480 --> 00:29:06,320
Speaker 4: How much insight do you have into how much people

615
00:29:06,400 --> 00:29:09,880
Speaker 4: are borrowing from other BNPL lenders. So the sort of

616
00:29:10,000 --> 00:29:13,200
Speaker 4: stacking issue, which has been discussed multiple.

617
00:29:12,800 --> 00:29:14,840
Speaker 5: Times now it's a great question.

618
00:29:15,040 --> 00:29:18,520
Speaker 6: We have a decent insight in the sense that we

619
00:29:18,640 --> 00:29:23,800
Speaker 6: understand pretty well the overlap between user basis. So there

620
00:29:23,840 --> 00:29:25,960
Speaker 6: are two prongs to this answer. This one it's worth

621
00:29:26,000 --> 00:29:28,040
Speaker 6: delving into pretty deeply because this is where we differ

622
00:29:28,080 --> 00:29:31,480
Speaker 6: from the rest of the industry pretty significantly. So before

623
00:29:31,480 --> 00:29:36,560
Speaker 6: I get into the stacking part, I'll address the overlap.

624
00:29:36,640 --> 00:29:40,320
Speaker 5: So we do a lot of studying just externally through surveys.

625
00:29:40,800 --> 00:29:43,360
Speaker 6: Also, because when we log into your bank account, or

626
00:29:43,400 --> 00:29:45,440
Speaker 6: we ask a provider to log into your bank account

627
00:29:45,520 --> 00:29:47,680
Speaker 6: and pull in some of your transactional data, we get

628
00:29:47,840 --> 00:29:50,280
Speaker 6: a glimpse into what else you're spending money on. So

629
00:29:50,320 --> 00:29:53,720
Speaker 6: we to have a decent sense for where else you

630
00:29:53,880 --> 00:29:56,280
Speaker 6: might be using Buy now, Pay later, And to date,

631
00:29:56,840 --> 00:30:01,200
Speaker 6: the user base overlap with other providers quite minimal, so

632
00:30:01,240 --> 00:30:03,600
Speaker 6: there's not a whole lot of stacking possibility, simply because

633
00:30:03,600 --> 00:30:06,320
Speaker 6: people who use a firm tend to stay with affirm.

634
00:30:06,360 --> 00:30:09,840
Speaker 6: They sometimes stray and use other providers, but it's quite

635
00:30:09,920 --> 00:30:13,719
Speaker 6: minimal for a meaningfully lower transactional amounts. I think we

636
00:30:13,760 --> 00:30:17,280
Speaker 6: average a significantly higher average transaction relative.

637
00:30:16,960 --> 00:30:17,800
Speaker 5: To the rest of the industry.

638
00:30:18,760 --> 00:30:22,000
Speaker 6: So far, that's not been a problem in the long term. You,

639
00:30:22,040 --> 00:30:24,400
Speaker 6: of course, can make the argument like, sure, right now,

640
00:30:24,400 --> 00:30:25,560
Speaker 6: you guys are all still tiny.

641
00:30:25,600 --> 00:30:26,480
Speaker 5: You're going really quickly.

642
00:30:26,560 --> 00:30:28,720
Speaker 6: Everybody's taking a bite out of the credit card industry.

643
00:30:28,800 --> 00:30:32,360
Speaker 6: What happens five years from now when everyone is signed

644
00:30:32,400 --> 00:30:34,280
Speaker 6: up for their favorite DNPL and they're now signing up

645
00:30:34,320 --> 00:30:37,400
Speaker 6: for a second one. The right way to address this problem,

646
00:30:37,440 --> 00:30:39,800
Speaker 6: and this is the right way, and it's traditionalist of me,

647
00:30:40,160 --> 00:30:42,400
Speaker 6: but I really do believe is the right way is

648
00:30:42,440 --> 00:30:45,680
Speaker 6: for everyone to report to the credit bureaus. Today, when

649
00:30:45,800 --> 00:30:48,800
Speaker 6: we tap into one of the three major credit bureaus,

650
00:30:48,960 --> 00:30:52,200
Speaker 6: we see what you're borrowing and relatively current state of

651
00:30:52,200 --> 00:30:55,120
Speaker 6: you're borrowing from other traditional source of credit, and it

652
00:30:55,200 --> 00:30:57,560
Speaker 6: is a variable that we use inside of our own

653
00:30:57,680 --> 00:31:02,200
Speaker 6: underwriting affirm today is the only one that furnishes. That's

654
00:31:02,200 --> 00:31:05,560
Speaker 6: another fancy industry term. Delivers the data of both positive

655
00:31:05,560 --> 00:31:07,920
Speaker 6: and negative as you're on time, you're not on time

656
00:31:08,320 --> 00:31:11,680
Speaker 6: to the credit bureaus. The rest of our competitive set,

657
00:31:12,160 --> 00:31:15,760
Speaker 6: generally speaking does not, although everyone has experimented a little bit.

658
00:31:16,320 --> 00:31:19,720
Speaker 6: From the very beginning, we saw the idea of building

659
00:31:19,800 --> 00:31:23,160
Speaker 6: credit history and improving credit scores for people who are

660
00:31:23,320 --> 00:31:27,320
Speaker 6: on time as a key value proposition for our borrower.

661
00:31:27,760 --> 00:31:30,320
Speaker 6: We are not going to be the only lender for

662
00:31:30,360 --> 00:31:32,320
Speaker 6: our consumers. They need to borrow for a car, they

663
00:31:32,320 --> 00:31:34,520
Speaker 6: need to borrow for a house one day. That means

664
00:31:34,600 --> 00:31:37,160
Speaker 6: whatever they're doing with us, especially if they're doing well,

665
00:31:37,280 --> 00:31:40,280
Speaker 6: which ninety seven percent of our consumers are doing really,

666
00:31:40,320 --> 00:31:42,640
Speaker 6: really well. They're on time all the time, it has

667
00:31:42,720 --> 00:31:45,200
Speaker 6: to reflect in their permanent record somehow. So we've been

668
00:31:45,200 --> 00:31:48,840
Speaker 6: furnishing basically from the very beginning. It took a long

669
00:31:48,920 --> 00:31:51,640
Speaker 6: time to persuade not just the credit bureaus but also

670
00:31:51,640 --> 00:31:55,840
Speaker 6: the companies that provide traditional credit scores to understand the

671
00:31:55,960 --> 00:31:58,440
Speaker 6: data we furnish and treat it in the right way

672
00:31:58,480 --> 00:32:00,280
Speaker 6: so that when you are in time, the score go up,

673
00:32:00,320 --> 00:32:02,040
Speaker 6: when you're not on time, the scores go down, et cetera.

674
00:32:02,120 --> 00:32:04,480
Speaker 6: And so we did all that work basically on a

675
00:32:04,560 --> 00:32:08,280
Speaker 6: volunteer basis over the last decade and today right now,

676
00:32:08,400 --> 00:32:10,360
Speaker 6: the state of the industry is if you are a

677
00:32:10,400 --> 00:32:14,240
Speaker 6: b input for the NPL provider and you're not furnishing data,

678
00:32:15,000 --> 00:32:17,600
Speaker 6: you kind of have no excuse. We pioneered this, We

679
00:32:17,720 --> 00:32:20,040
Speaker 6: did all the work, We worked with the score builders

680
00:32:20,080 --> 00:32:22,600
Speaker 6: and the credit bureaus, and we're now sending all of

681
00:32:22,600 --> 00:32:23,160
Speaker 6: our data.

682
00:32:23,520 --> 00:32:25,280
Speaker 5: And so we want everyone to join us.

683
00:32:25,320 --> 00:32:28,520
Speaker 6: Because most people do pay on time, their credit histories

684
00:32:28,520 --> 00:32:31,640
Speaker 6: should reflect their good repayment, but also people who should

685
00:32:31,640 --> 00:32:33,680
Speaker 6: not be borrowing should be reflected. And I think that

686
00:32:33,840 --> 00:32:36,520
Speaker 6: that's just really really important. If I can do one

687
00:32:36,680 --> 00:32:39,520
Speaker 6: bit of advertising on your show, its wont before affirm

688
00:32:39,720 --> 00:32:41,680
Speaker 6: it will be all of you out there. If you

689
00:32:41,840 --> 00:32:45,960
Speaker 6: are in a buyout pay lator industry, furnish your damn data.

690
00:32:46,200 --> 00:32:49,200
Speaker 6: It will help consumers and it will eventually accreate to

691
00:32:49,240 --> 00:32:51,560
Speaker 6: your brand too. But for now we are the only

692
00:32:51,600 --> 00:32:52,040
Speaker 6: major one.

693
00:32:52,120 --> 00:32:55,440
Speaker 4: Wait, what's the resistance then, because it seems kind of obvious.

694
00:32:55,520 --> 00:32:57,680
Speaker 4: If everyone cares about the underwriting, you would want more

695
00:32:57,760 --> 00:32:59,680
Speaker 4: data out there, so why not provide it?

696
00:33:00,840 --> 00:33:04,239
Speaker 6: So I don't want to pretend that I understand all

697
00:33:04,280 --> 00:33:09,800
Speaker 6: the motivations, but I think a basic inferential thought might

698
00:33:09,840 --> 00:33:12,120
Speaker 6: occur that if you're making a lot of money from

699
00:33:12,200 --> 00:33:15,440
Speaker 6: late fees, it's a cool thing to tell your consumers.

700
00:33:15,440 --> 00:33:16,040
Speaker 5: Don't worry.

701
00:33:16,160 --> 00:33:18,320
Speaker 6: You can just pay me off anyone go on your

702
00:33:18,320 --> 00:33:20,840
Speaker 6: permanent record. And if you don't make any money from

703
00:33:20,920 --> 00:33:23,720
Speaker 6: late fees, you have no incentive to tell your consumers,

704
00:33:23,840 --> 00:33:27,000
Speaker 6: Oh it's okay, just pay me something and we won't

705
00:33:27,240 --> 00:33:33,600
Speaker 6: tell on you. The interesting connection between late fees and lack.

706
00:33:33,400 --> 00:33:35,840
Speaker 5: Of reporting is unfortunately the underlying fact.

707
00:33:35,880 --> 00:33:37,320
Speaker 6: And because we don't make any money from late fees,

708
00:33:37,320 --> 00:33:40,240
Speaker 6: because we don't charge any we're very pro reporting.

709
00:33:40,440 --> 00:33:42,760
Speaker 2: Just out of curiosity, since you're talking about late fees

710
00:33:42,880 --> 00:33:45,440
Speaker 2: and credit and all that stuff. Here we are recording

711
00:33:45,440 --> 00:33:48,800
Speaker 2: this on December second, twenty twenty five. You take the

712
00:33:48,800 --> 00:33:50,880
Speaker 2: temperature of the consumer for us. I don't think you're

713
00:33:50,920 --> 00:33:54,880
Speaker 2: doing seeing any signs of growing mispayments or anything.

714
00:33:54,680 --> 00:34:02,479
Speaker 6: Like that, not as of December second. The important thing

715
00:34:02,480 --> 00:34:04,920
Speaker 6: to understand, I'm asked this question fairly often. I am

716
00:34:04,960 --> 00:34:08,400
Speaker 6: a great I am the firm is a great lens

717
00:34:08,440 --> 00:34:12,760
Speaker 6: into the financial hearts and minds of North American consumer.

718
00:34:12,880 --> 00:34:15,520
Speaker 6: We're outperated in the US, Canada and now UK. It

719
00:34:15,680 --> 00:34:18,200
Speaker 6: is a specific set of people. These people are more

720
00:34:18,239 --> 00:34:21,480
Speaker 6: financially responsible. They made a conscious choice. They picked us

721
00:34:21,840 --> 00:34:24,640
Speaker 6: not just because it's installment pay and DA it's convenient.

722
00:34:25,239 --> 00:34:27,760
Speaker 6: It's also because we told them we don't charge lazies.

723
00:34:27,800 --> 00:34:30,160
Speaker 6: It's also because we told them you hate the asterisk

724
00:34:30,239 --> 00:34:32,480
Speaker 6: next to zero percent. We don't have any asterisks. One

725
00:34:32,480 --> 00:34:34,160
Speaker 6: of our core values is no fine print, and we

726
00:34:34,239 --> 00:34:36,279
Speaker 6: mean it on and on and on and so it

727
00:34:36,320 --> 00:34:40,200
Speaker 6: stands to reason that firm consumers will be probably much

728
00:34:40,400 --> 00:34:44,279
Speaker 6: later into any kind of a macroeconomic earthquake territory, if

729
00:34:44,280 --> 00:34:46,840
Speaker 6: there was one to come. But as of right now,

730
00:34:47,280 --> 00:34:50,600
Speaker 6: we feel quite good about our book and also about

731
00:34:50,640 --> 00:34:51,440
Speaker 6: the US consumer.

732
00:34:52,360 --> 00:34:55,080
Speaker 2: I'm going to ask you a question, and I'm gonna

733
00:34:55,320 --> 00:34:57,840
Speaker 2: mention a competitor. I won't make you name the competitor,

734
00:34:57,840 --> 00:34:59,439
Speaker 2: but I'll just say it my question and then ask

735
00:34:59,480 --> 00:35:02,560
Speaker 2: you about so. One of your competitors, Klarna, recently announced

736
00:35:02,600 --> 00:35:05,320
Speaker 2: a new dollar peg stable coin and I'm very cynical,

737
00:35:05,719 --> 00:35:08,000
Speaker 2: and so when I see like random companies announcing some

738
00:35:08,080 --> 00:35:11,439
Speaker 2: crypto thing like, sometimes it makes sense, but often it's like, well,

739
00:35:11,440 --> 00:35:13,640
Speaker 2: maybe is this just a good press release or something

740
00:35:13,680 --> 00:35:15,560
Speaker 2: like that. And I haven't really looked at the Klarna one,

741
00:35:15,760 --> 00:35:18,759
Speaker 2: et cetera. But for you affirm right now when you

742
00:35:18,840 --> 00:35:21,520
Speaker 2: look at as someone who has been in the internet

743
00:35:21,560 --> 00:35:26,680
Speaker 2: payment trenches for literally decades right now, do stable coins

744
00:35:26,800 --> 00:35:30,239
Speaker 2: or anything crypto unlock anything for you right now when

745
00:35:30,280 --> 00:35:33,080
Speaker 2: you think about the future and you think about opportunities

746
00:35:33,120 --> 00:35:35,200
Speaker 2: that you can't do with traditional rails.

747
00:35:36,680 --> 00:35:39,320
Speaker 5: The short answer is, I don't think so. Now.

748
00:35:39,440 --> 00:35:42,560
Speaker 6: I'm also very cynical, so I think you're unfortunately tapping

749
00:35:42,600 --> 00:35:45,520
Speaker 6: into the exact same mind flow.

750
00:35:45,360 --> 00:35:47,440
Speaker 5: That you have. This is our way of loading.

751
00:35:47,239 --> 00:35:49,440
Speaker 2: Them to want to come on the podcast and have

752
00:35:50,000 --> 00:35:50,480
Speaker 2: you against it.

753
00:35:50,520 --> 00:35:51,439
Speaker 3: But keep going, keep going.

754
00:35:52,160 --> 00:35:54,120
Speaker 5: I you know, I am confident that.

755
00:35:56,320 --> 00:35:58,200
Speaker 6: There is some thought that went to the press release,

756
00:35:58,239 --> 00:35:59,799
Speaker 6: so I don't think it's a pure press release.

757
00:36:00,400 --> 00:36:02,880
Speaker 5: So I will.

758
00:36:03,760 --> 00:36:04,360
Speaker 1: Tell us about it.

759
00:36:04,360 --> 00:36:06,160
Speaker 2: I won't make you, We're not gonna make you speculate

760
00:36:06,200 --> 00:36:07,440
Speaker 2: on your competitor, but just tell.

761
00:36:09,320 --> 00:36:09,600
Speaker 5: Sure.

762
00:36:09,920 --> 00:36:14,480
Speaker 6: I will straw man the reasons why Yes, so why not?

763
00:36:14,520 --> 00:36:16,560
Speaker 6: As obvious, I think you probably can do it much

764
00:36:16,560 --> 00:36:17,399
Speaker 6: better job than I can.

765
00:36:18,280 --> 00:36:19,880
Speaker 5: The why yes, So there are a couple of reasons.

766
00:36:19,920 --> 00:36:24,200
Speaker 6: One, in general, if you have a lot of cross

767
00:36:24,239 --> 00:36:29,640
Speaker 6: border commerce for an exchange, the complexity of just diligence

768
00:36:29,719 --> 00:36:34,840
Speaker 6: around you, everything from sanctions to reserve accounts, et cetera.

769
00:36:35,280 --> 00:36:36,960
Speaker 6: You can squint a little and say, you know what,

770
00:36:37,040 --> 00:36:40,480
Speaker 6: if we just lived in dollar pegged stable coins everywhere,

771
00:36:40,480 --> 00:36:42,879
Speaker 6: all at once, it would be a little bit easier.

772
00:36:42,920 --> 00:36:43,920
Speaker 5: And I think that's true.

773
00:36:45,000 --> 00:36:49,560
Speaker 6: E commerce is not a very significantly cross border discipline.

774
00:36:49,600 --> 00:36:52,080
Speaker 5: And so before you sort of say, oh, it.

775
00:36:52,040 --> 00:36:54,200
Speaker 6: Wouldn't it be amazing if I bought lots of things

776
00:36:54,280 --> 00:36:58,440
Speaker 6: from Zanzibar and just paid them with affirm but they

777
00:36:58,440 --> 00:37:01,000
Speaker 6: got stable coin as a settlement currency, they'll be very

778
00:37:01,040 --> 00:37:03,160
Speaker 6: happy because they want dollars in this thing is essentially

779
00:37:03,160 --> 00:37:03,800
Speaker 6: dollar equivalent.

780
00:37:03,880 --> 00:37:04,600
Speaker 5: It's a good story.

781
00:37:04,719 --> 00:37:06,120
Speaker 6: Just most people in the US don't buy a lot

782
00:37:06,120 --> 00:37:07,920
Speaker 6: of things from Zanzibar like they buy some things in

783
00:37:07,960 --> 00:37:10,520
Speaker 6: other countries. But most of the time, because we all

784
00:37:10,560 --> 00:37:12,480
Speaker 6: want things shipped to us very very quickly, we're probably

785
00:37:12,520 --> 00:37:15,280
Speaker 6: buying it from a US subsidiary. That's ware houses somewhere

786
00:37:15,280 --> 00:37:16,640
Speaker 6: pretty close to the US, and.

787
00:37:16,600 --> 00:37:18,560
Speaker 5: So it's not that big of a market just yet.

788
00:37:18,600 --> 00:37:20,720
Speaker 6: But in like five years, if you see me putting

789
00:37:20,719 --> 00:37:22,800
Speaker 6: out a press release, it's not because I finally realized

790
00:37:22,800 --> 00:37:25,560
Speaker 6: that I'm missing out, is because there's enough cross border

791
00:37:25,600 --> 00:37:29,320
Speaker 6: commerce in our scale where it starts to make a difference.

792
00:37:29,640 --> 00:37:31,479
Speaker 6: That's the best I got in terms of why would

793
00:37:31,480 --> 00:37:34,280
Speaker 6: you want to do this? The obvious of why nots?

794
00:37:34,320 --> 00:37:36,680
Speaker 6: It's like, well, maybe you want to move money around

795
00:37:36,800 --> 00:37:40,640
Speaker 6: person to person, but that's not our business. Maybe you

796
00:37:40,840 --> 00:37:44,560
Speaker 6: want to believe that one day Joe will have a

797
00:37:44,960 --> 00:37:47,879
Speaker 6: wallet full of stable coins. I really have a hard

798
00:37:47,880 --> 00:37:51,240
Speaker 6: time imagining you sporting a whole bunch of different kinds

799
00:37:51,239 --> 00:37:55,280
Speaker 6: of branded dollar pegged effectively equivalent stable coins, like a

800
00:37:55,320 --> 00:37:57,839
Speaker 6: coupon book of I got my firm stable coin and

801
00:37:57,880 --> 00:38:00,799
Speaker 6: my brand XYZ stable coin, and I'm going to choose

802
00:38:00,800 --> 00:38:02,440
Speaker 6: between the two, Like none of that maybe.

803
00:38:02,320 --> 00:38:05,120
Speaker 2: Solve the rule? What about for like rewards, that's one

804
00:38:05,200 --> 00:38:08,120
Speaker 2: thing that credit cards currently have that like, oh, I

805
00:38:08,120 --> 00:38:10,400
Speaker 2: get miles, Like could there be something with if I

806
00:38:10,520 --> 00:38:12,400
Speaker 2: use this stable coin, I get remitted?

807
00:38:12,400 --> 00:38:14,440
Speaker 3: But I don't know. I'm I'm just throwing stuff.

808
00:38:14,160 --> 00:38:17,640
Speaker 6: Out there, so for what it's worth, I spend a

809
00:38:17,680 --> 00:38:21,480
Speaker 6: lot of my time contemplating the word ecosystem and mostly

810
00:38:21,600 --> 00:38:24,479
Speaker 6: raging against it because it is one of the less

811
00:38:24,480 --> 00:38:27,200
Speaker 6: documented wealth transfers. And by the way, the credit card

812
00:38:27,200 --> 00:38:30,640
Speaker 6: industry in general is a regressive wealth transfer where people

813
00:38:30,640 --> 00:38:34,759
Speaker 6: who never revolve transactors like probably both of you and me.

814
00:38:34,800 --> 00:38:37,240
Speaker 6: When I use credit cards, which is really rare these days,

815
00:38:37,680 --> 00:38:38,920
Speaker 6: we're paying our bills at the end of the month.

816
00:38:38,960 --> 00:38:40,839
Speaker 6: We're not paying a penny of interest. I think Joe

817
00:38:40,920 --> 00:38:42,880
Speaker 6: on the record saying you've never paid any interest, and

818
00:38:43,000 --> 00:38:44,840
Speaker 6: so I think that's that's a nice place to be

819
00:38:44,840 --> 00:38:47,640
Speaker 6: if you can afford it. Telling people that they should

820
00:38:47,719 --> 00:38:49,239
Speaker 6: just not bar and paid off at the end of

821
00:38:49,239 --> 00:38:51,520
Speaker 6: the month is an incredibly lead the meat cake equillent

822
00:38:51,520 --> 00:38:54,200
Speaker 6: for the twenty first century. Payments lots of people in

823
00:38:54,239 --> 00:38:56,360
Speaker 6: America revolve half the country revolves at a ten thousand

824
00:38:56,400 --> 00:39:01,160
Speaker 6: dollars and so the idea of those people caring about

825
00:39:01,160 --> 00:39:02,440
Speaker 6: rewards is sort of preposterous.

826
00:39:02,480 --> 00:39:02,799
Speaker 5: They do not.

827
00:39:02,840 --> 00:39:05,239
Speaker 6: They care about making their minimum payment. People who are

828
00:39:05,760 --> 00:39:07,800
Speaker 6: figuring out which reward scheme they want to be a

829
00:39:07,880 --> 00:39:12,879
Speaker 6: part of. I'm just not so convinced that they're going

830
00:39:12,960 --> 00:39:16,319
Speaker 6: to be calculated expanding their horizons to have more stable coins,

831
00:39:16,320 --> 00:39:18,040
Speaker 6: because ultimately they're just getting dollars.

832
00:39:18,480 --> 00:39:19,439
Speaker 5: In the world of a firm.

833
00:39:19,480 --> 00:39:21,640
Speaker 6: People that we serve every single day, twenty four million

834
00:39:21,680 --> 00:39:23,880
Speaker 6: of them in the last twelve months, they really really

835
00:39:23,920 --> 00:39:26,520
Speaker 6: care about the interest rates they pay because a lot

836
00:39:26,560 --> 00:39:29,319
Speaker 6: of them understand that the alternative is revolving and so

837
00:39:29,440 --> 00:39:31,919
Speaker 6: for them being told, hey, your reward is a zero

838
00:39:31,920 --> 00:39:36,359
Speaker 6: percent loan is incredibly powerful. And so before we get

839
00:39:36,360 --> 00:39:40,400
Speaker 6: into using our hard earned revenue into stable coins, we

840
00:39:40,440 --> 00:39:42,000
Speaker 6: will just give it back to the consumers in a

841
00:39:42,040 --> 00:39:43,240
Speaker 6: form of no interest.

842
00:39:44,080 --> 00:39:46,680
Speaker 4: So we talked about how you make money, but we

843
00:39:46,680 --> 00:39:50,279
Speaker 4: should talk a little bit about your cost side as well.

844
00:39:50,320 --> 00:39:53,000
Speaker 4: I think you mentioned funding earlier. So you have to

845
00:39:53,000 --> 00:39:56,200
Speaker 4: get money from somewhere, and you're paying for that money.

846
00:39:56,680 --> 00:39:59,680
Speaker 4: What levers do you have to pull if the cost

847
00:39:59,680 --> 00:40:02,759
Speaker 4: of money goes up? And again, I'm aware that we're

848
00:40:02,760 --> 00:40:05,680
Speaker 4: recording this in early December and everyone expects an imminent

849
00:40:05,800 --> 00:40:09,080
Speaker 4: rate cut, But in theory, if interest rates were to

850
00:40:09,160 --> 00:40:12,760
Speaker 4: go up, what could you do to offset that additional cost.

851
00:40:13,239 --> 00:40:16,560
Speaker 6: So the most important thing to understand about our business

852
00:40:16,880 --> 00:40:22,480
Speaker 6: from the capital sourcing part of the game. Everyone understands

853
00:40:22,560 --> 00:40:26,440
Speaker 6: that rates are are super volatile, but you know, if

854
00:40:26,480 --> 00:40:28,600
Speaker 6: you look back a couple of years, they were very volatile,

855
00:40:28,719 --> 00:40:32,160
Speaker 6: if for a brief not so shining moment, and so

856
00:40:32,360 --> 00:40:35,400
Speaker 6: we all knew if possible. So all of our contracts

857
00:40:36,440 --> 00:40:40,120
Speaker 6: with various lenders of money to us but also people

858
00:40:40,200 --> 00:40:45,400
Speaker 6: who will buy our loans, they all adjust fairly gently

859
00:40:45,480 --> 00:40:47,520
Speaker 6: over a course of a fairly long period of time.

860
00:40:47,600 --> 00:40:52,719
Speaker 6: So it's not about can we deal with rising costs

861
00:40:52,719 --> 00:40:55,239
Speaker 6: of credit for us? It's how quickly do they change

862
00:40:55,280 --> 00:40:57,160
Speaker 6: for us? And of course we understand that they might

863
00:40:57,200 --> 00:41:00,640
Speaker 6: change quickly. Therefore a lot of our contracts stipa that, hey,

864
00:41:00,760 --> 00:41:04,040
Speaker 6: if they do move up, the adjustments to our cost

865
00:41:04,200 --> 00:41:07,000
Speaker 6: will go fairly slowly over a period of time. So

866
00:41:07,200 --> 00:41:10,200
Speaker 6: the more likely outcome in December is probably a downward

867
00:41:10,239 --> 00:41:12,800
Speaker 6: motion of the credit rates, or perhaps they stay steady.

868
00:41:13,320 --> 00:41:16,399
Speaker 6: But just the same as I described, we're not going

869
00:41:16,440 --> 00:41:19,040
Speaker 6: to wake up to twenty five free basis points of

870
00:41:19,120 --> 00:41:21,600
Speaker 6: incronal revenue. It will eventually come to us in a

871
00:41:21,640 --> 00:41:24,400
Speaker 6: form of in chronal margin, but it will take its

872
00:41:24,440 --> 00:41:26,919
Speaker 6: time because these contracts are just both up and down

873
00:41:27,040 --> 00:41:29,160
Speaker 6: quite slowly, and we're in no way unique.

874
00:41:28,880 --> 00:41:30,200
Speaker 5: In the industry. Everybody does that.

875
00:41:30,520 --> 00:41:33,400
Speaker 6: The levers we have to deal with such cost changes

876
00:41:33,719 --> 00:41:36,840
Speaker 6: are exactly what you would expect, so we will either

877
00:41:37,080 --> 00:41:39,400
Speaker 6: pass it through to the consumers and moving up in

878
00:41:39,440 --> 00:41:41,600
Speaker 6: the increments or down of twenty five basis points is

879
00:41:41,640 --> 00:41:44,520
Speaker 6: not that significant then most people, I think generally don't

880
00:41:44,560 --> 00:41:48,600
Speaker 6: care that much. In some cases we actually choose to

881
00:41:48,640 --> 00:41:53,200
Speaker 6: tell hey, merchant X, you are providing these rates for nothing.

882
00:41:54,040 --> 00:41:56,120
Speaker 6: You should continue doing so, but the cost to you

883
00:41:56,160 --> 00:41:59,759
Speaker 6: will go up a tiny bit because the rates have

884
00:41:59,800 --> 00:42:02,480
Speaker 6: change now because of time value of money the merchants

885
00:42:02,520 --> 00:42:04,880
Speaker 6: pay us in real time, essentially as the transaction is consummated,

886
00:42:04,920 --> 00:42:07,200
Speaker 6: the true cost to them is truly deminimus. And so

887
00:42:07,640 --> 00:42:09,600
Speaker 6: in either of these two cases, so long as the

888
00:42:09,600 --> 00:42:13,040
Speaker 6: movements are not very violent, it's not that major a

889
00:42:13,080 --> 00:42:14,560
Speaker 6: component of our business.

890
00:42:14,760 --> 00:42:17,760
Speaker 2: I just have one last question, AI, So setting aside

891
00:42:17,840 --> 00:42:21,000
Speaker 2: the technology for the underwriting, which I'm sure is a

892
00:42:21,080 --> 00:42:25,799
Speaker 2: very high tech, data intensive application, and setting aside that

893
00:42:25,840 --> 00:42:29,640
Speaker 2: probably many of your engineers on staff are using code

894
00:42:29,640 --> 00:42:33,239
Speaker 2: generating for that, just putting your tech, your tech had on.

895
00:42:33,440 --> 00:42:36,800
Speaker 2: As someone who oversees a large organization people looking for

896
00:42:37,040 --> 00:42:40,880
Speaker 2: how large language models in particular are being deployed in

897
00:42:40,960 --> 00:42:44,239
Speaker 2: productive capacity at a firm today. Is any of this

898
00:42:44,400 --> 00:42:48,799
Speaker 2: technology in use in production and saving human hours in

899
00:42:48,880 --> 00:42:50,239
Speaker 2: some respect or another.

900
00:42:50,680 --> 00:42:53,280
Speaker 5: Yes, emphatically. So.

901
00:42:53,280 --> 00:42:58,960
Speaker 6: So we just wrapped up the cyber weekend Turkey, five

902
00:42:59,560 --> 00:43:02,840
Speaker 6: Black Friends, Deciber Monday, whatever whatever you want to call yesterday,

903
00:43:03,040 --> 00:43:05,840
Speaker 6: which was wonderful. And I don't actually have the stat

904
00:43:05,920 --> 00:43:08,560
Speaker 6: yet because I will get the report immediately after this

905
00:43:08,600 --> 00:43:14,880
Speaker 6: podcast is recorded. Well, I probably can't pre announce our results.

906
00:43:15,040 --> 00:43:18,360
Speaker 6: We report early next year, but we will have handled

907
00:43:18,600 --> 00:43:22,799
Speaker 6: tens of thousands of consumer contacts, people saying everything from hey,

908
00:43:22,880 --> 00:43:26,880
Speaker 6: I just borrowed money from you, and I don't understand

909
00:43:26,920 --> 00:43:29,479
Speaker 6: when my first payment is due, and you know, maybe

910
00:43:29,520 --> 00:43:31,560
Speaker 6: it's because they hadn't read the email as clearly or

911
00:43:31,680 --> 00:43:33,800
Speaker 6: were everything all the way down to I just borrowed

912
00:43:33,800 --> 00:43:35,600
Speaker 6: money and I realized that I need a refund because

913
00:43:35,600 --> 00:43:37,319
Speaker 6: I actually have no intention of buying this thing and

914
00:43:37,440 --> 00:43:38,759
Speaker 6: all that stuff and a lot of it. We try

915
00:43:38,800 --> 00:43:41,120
Speaker 6: to serve them in real time as they're kinds of acting,

916
00:43:41,120 --> 00:43:43,760
Speaker 6: but plenty of people contact us right after or maybe sometime,

917
00:43:43,880 --> 00:43:47,000
Speaker 6: you know, after the purchase. A huge percentage of that

918
00:43:47,120 --> 00:43:49,040
Speaker 6: is handled entirely by AI.

919
00:43:49,320 --> 00:43:51,080
Speaker 5: Now. Now that has not.

920
00:43:51,239 --> 00:43:55,440
Speaker 6: Caused us to lay off our wonderful customer service staff

921
00:43:55,560 --> 00:43:56,000
Speaker 6: at all.

922
00:43:56,320 --> 00:43:57,840
Speaker 5: What it has allowed us to do.

923
00:43:57,960 --> 00:44:01,279
Speaker 6: Is to go really deep into specialization. AI is very

924
00:44:01,360 --> 00:44:04,719
Speaker 6: very good today at handling basic questions. It can do

925
00:44:04,960 --> 00:44:06,799
Speaker 6: cool things like look up for your account and say, no,

926
00:44:06,880 --> 00:44:09,360
Speaker 6: you're not late, you are a mistaken, don't worry about it,

927
00:44:09,480 --> 00:44:11,560
Speaker 6: or yes you're related, but we don't charge late the

928
00:44:11,680 --> 00:44:14,680
Speaker 6: so just please make yourself current and we'll move on.

929
00:44:15,000 --> 00:44:17,560
Speaker 6: All of that can be handled by AI. One flee

930
00:44:17,840 --> 00:44:21,640
Speaker 6: if it's something like I changed my name or I

931
00:44:21,719 --> 00:44:24,600
Speaker 6: changed where I live right as I was consummating this transaction.

932
00:44:24,760 --> 00:44:26,319
Speaker 6: There are all sorts of crazy things that come up

933
00:44:27,000 --> 00:44:28,840
Speaker 6: that is something that a human can handle. AI models

934
00:44:28,880 --> 00:44:31,560
Speaker 6: are not smart enough yet to handle some of these things,

935
00:44:31,600 --> 00:44:34,520
Speaker 6: and also frequently enough. We wouldn't want the possibility of

936
00:44:34,600 --> 00:44:38,080
Speaker 6: hallucination to derail what is a good customer relationship. So

937
00:44:38,360 --> 00:44:41,319
Speaker 6: we've been able to move our human helpers into a

938
00:44:41,440 --> 00:44:46,080
Speaker 6: much more sophisticated, much more specific role. So the theme

939
00:44:46,120 --> 00:44:48,920
Speaker 6: in our customer service for last year has been specialization.

940
00:44:48,960 --> 00:44:50,560
Speaker 5: Specialization, specialization, where.

941
00:44:50,320 --> 00:44:53,680
Speaker 6: We train people now to serve very very specific subset

942
00:44:53,719 --> 00:44:56,200
Speaker 6: of problems because they can be effective and move faster,

943
00:44:56,320 --> 00:44:58,440
Speaker 6: and so these tools are actually making them more efficient

944
00:44:58,800 --> 00:45:00,799
Speaker 6: by letting them focus on just a very specific thing

945
00:45:00,840 --> 00:45:01,319
Speaker 6: that they're good at.

946
00:45:01,400 --> 00:45:02,360
Speaker 5: So that's one example.

947
00:45:02,680 --> 00:45:06,000
Speaker 6: We track all sorts of interesting metrics about AI tool

948
00:45:06,080 --> 00:45:10,680
Speaker 6: usage internally. The interesting or sort of random factoid, our

949
00:45:10,719 --> 00:45:14,240
Speaker 6: engineering group is not the single largest consumer of AI tools.

950
00:45:14,560 --> 00:45:17,279
Speaker 5: I will not reveal exactly who it is. And by

951
00:45:17,320 --> 00:45:18,879
Speaker 5: the way, like vast majority of or.

952
00:45:18,840 --> 00:45:22,760
Speaker 2: Engineering US a hunt or something.

953
00:45:22,880 --> 00:45:28,120
Speaker 6: It's actually finance. Our finance group uses these tools obsessively.

954
00:45:29,000 --> 00:45:30,600
Speaker 6: I'm cheating a little bit here, So for a very

955
00:45:30,600 --> 00:45:31,960
Speaker 6: long time. It's not the case anymore, but for a

956
00:45:32,040 --> 00:45:34,040
Speaker 6: very long time because we are so AI and mL

957
00:45:34,120 --> 00:45:38,360
Speaker 6: heavy company. One of the core requirements for any employee,

958
00:45:38,400 --> 00:45:40,239
Speaker 6: but certainly in finance, was you have to know how

959
00:45:40,239 --> 00:45:42,480
Speaker 6: to read code and probably write code, and so huge

960
00:45:42,520 --> 00:45:44,280
Speaker 6: percentage of what we do in our finance group actually

961
00:45:44,320 --> 00:45:46,359
Speaker 6: looks a lot like coding and a lot of tough

962
00:45:46,400 --> 00:45:49,200
Speaker 6: for engineering and so but they're somehow maybe because it's

963
00:45:49,200 --> 00:45:51,800
Speaker 6: a smaller group on average, but they're great adopters of

964
00:45:51,840 --> 00:45:54,800
Speaker 6: these tools. Our legal team use it all the time.

965
00:45:55,200 --> 00:45:58,000
Speaker 6: We have literally hundreds of thousands of very custom contracts.

966
00:45:58,040 --> 00:46:00,239
Speaker 6: Every time a merchant pays your interest for you, they

967
00:46:00,280 --> 00:46:03,480
Speaker 6: signed up for it contractually. That's a custom contract. Imagine

968
00:46:03,520 --> 00:46:04,520
Speaker 6: managing half a.

969
00:46:04,440 --> 00:46:05,480
Speaker 5: Million of these things.

970
00:46:05,719 --> 00:46:08,640
Speaker 6: They're all carefully written and bespoken, so AI can read

971
00:46:08,680 --> 00:46:12,040
Speaker 6: and find errors and corrections, et cetera, et cetera. So

972
00:46:12,080 --> 00:46:13,400
Speaker 6: one of the things that we're responsible for as a

973
00:46:13,400 --> 00:46:17,440
Speaker 6: regulated business is we cannot allow merchants to advertise our

974
00:46:17,480 --> 00:46:20,080
Speaker 6: service incorrectly. We're actually on the hook when a merchant

975
00:46:20,120 --> 00:46:23,400
Speaker 6: says something like hooray a firm interest free for everyone.

976
00:46:23,480 --> 00:46:25,560
Speaker 6: It's not true. Some people will actually pay some interest.

977
00:46:25,600 --> 00:46:26,000
Speaker 5: Sometimes.

978
00:46:26,280 --> 00:46:28,439
Speaker 6: We are responsible for finding that and telling the merchant

979
00:46:28,520 --> 00:46:31,239
Speaker 6: please stop saying things that aren't strictly speaking true. AI

980
00:46:31,280 --> 00:46:34,320
Speaker 6: tools are amazing at reading both loads of advertising copy

981
00:46:34,320 --> 00:46:36,000
Speaker 6: and saying, hey, wait a second, that is inaccurate.

982
00:46:36,040 --> 00:46:37,719
Speaker 5: We got to fire off an email and tell this

983
00:46:37,719 --> 00:46:38,520
Speaker 5: merchant to fix it.

984
00:46:38,840 --> 00:46:41,200
Speaker 6: So you can sort of imagine a flood of ideas

985
00:46:41,200 --> 00:46:44,160
Speaker 6: that we had when the CHGBT moment happened and put

986
00:46:44,160 --> 00:46:45,320
Speaker 6: it to work for the last few years.

987
00:46:46,160 --> 00:46:49,120
Speaker 4: I'm going to end with a sort of theoretical question,

988
00:46:49,360 --> 00:46:53,080
Speaker 4: big picture theoretical question. But if you could design the

989
00:46:53,120 --> 00:46:59,160
Speaker 4: ideal payment system from scratch, complete scratch, you know, using

990
00:46:59,200 --> 00:47:03,279
Speaker 4: today's technolog there's no legacy card networks, maybe not even

991
00:47:03,400 --> 00:47:07,000
Speaker 4: legacy banks. What would it look like and how much

992
00:47:07,160 --> 00:47:12,440
Speaker 4: of a firm's current business model would survive in that environment?

993
00:47:14,600 --> 00:47:16,279
Speaker 6: Oh, I think it would look an awful lot like

994
00:47:16,320 --> 00:47:21,279
Speaker 6: a firm. Affirm is my personal attempt to build a

995
00:47:21,440 --> 00:47:22,920
Speaker 6: system that I can.

996
00:47:22,760 --> 00:47:23,719
Speaker 5: Be proud about.

997
00:47:24,080 --> 00:47:27,080
Speaker 6: One of the core things we tell people who join us.

998
00:47:27,239 --> 00:47:31,359
Speaker 6: One of the reasons we had such a black and

999
00:47:31,400 --> 00:47:34,960
Speaker 6: white no laid fees, no compounding, no deferred interest, none

1000
00:47:34,960 --> 00:47:37,920
Speaker 6: of the yuck is because I wanted the smartest people

1001
00:47:37,960 --> 00:47:40,680
Speaker 6: that would have otherwise gone to Wall Street and trade

1002
00:47:40,719 --> 00:47:43,640
Speaker 6: it in quant fonds to join us and build the

1003
00:47:43,680 --> 00:47:47,319
Speaker 6: system that they could be proud about. It's very hard

1004
00:47:47,360 --> 00:47:48,920
Speaker 6: to be proud about a thing that makes half its

1005
00:47:48,920 --> 00:47:51,719
Speaker 6: money on lead fees, and that's why we don't do it.

1006
00:47:51,719 --> 00:47:55,960
Speaker 6: And so what we've built is biased, as I am,

1007
00:47:56,160 --> 00:47:59,160
Speaker 6: is pretty darn great. It really is something that I'm

1008
00:47:59,200 --> 00:48:01,200
Speaker 6: very proud about. I think the totality of the team

1009
00:48:01,239 --> 00:48:02,920
Speaker 6: here takes an enormous amount of pride and how we

1010
00:48:02,960 --> 00:48:06,480
Speaker 6: went about building this. It is dependent and intertwined with

1011
00:48:06,560 --> 00:48:09,960
Speaker 6: the legacy systems. But even as we go through card

1012
00:48:10,040 --> 00:48:14,600
Speaker 6: rails to use another industry jargon, or many other systems

1013
00:48:14,600 --> 00:48:16,880
Speaker 6: that have existed, when we tap into capital and markets,

1014
00:48:16,880 --> 00:48:19,160
Speaker 6: which has certainly been here long before we came about,

1015
00:48:19,520 --> 00:48:23,759
Speaker 6: and everything else in between, we maintain the moral integrity

1016
00:48:23,840 --> 00:48:28,680
Speaker 6: of the product, and it's DNA all the way through.

1017
00:48:29,440 --> 00:48:31,920
Speaker 6: We might pay late fees if we borrow money to

1018
00:48:31,960 --> 00:48:34,080
Speaker 6: a lend, we haven't because obviously we're on a pretty

1019
00:48:34,120 --> 00:48:36,800
Speaker 6: tight chip here it will not be passed through.

1020
00:48:37,040 --> 00:48:38,840
Speaker 5: We take an incredible.

1021
00:48:38,360 --> 00:48:43,320
Speaker 6: Amount of pride in the diligence we exercise within the system,

1022
00:48:43,640 --> 00:48:45,520
Speaker 6: all the way down to leaving a penny on the

1023
00:48:45,560 --> 00:48:48,319
Speaker 6: table for our partners to keep because we refuse to

1024
00:48:48,360 --> 00:48:50,479
Speaker 6: make more money than we said we would. I would

1025
00:48:50,520 --> 00:48:54,480
Speaker 6: love to have a blank sheet design, exercise and payments,

1026
00:48:54,680 --> 00:48:56,480
Speaker 6: but I think what would emerge is a system that

1027
00:48:56,560 --> 00:48:58,799
Speaker 6: looks a lot like a firm, just doesn't have some

1028
00:48:58,920 --> 00:49:00,520
Speaker 6: of the nineteen eighties it.

1029
00:49:01,760 --> 00:49:04,719
Speaker 2: Max Levchin, founder and CEO of a firm, So great

1030
00:49:04,760 --> 00:49:08,480
Speaker 2: chatting with you, very illuminating, helpful conversation, and I appreciate

1031
00:49:08,520 --> 00:49:09,440
Speaker 2: you coming on odlots.

1032
00:49:10,120 --> 00:49:11,799
Speaker 5: Thank you so much, and again I am a fan

1033
00:49:11,840 --> 00:49:12,560
Speaker 5: of the show and.

1034
00:49:14,440 --> 00:49:17,040
Speaker 6: I love being able to see myself inside of a

1035
00:49:17,040 --> 00:49:18,120
Speaker 6: thing that I actually listened with.

1036
00:49:18,400 --> 00:49:19,759
Speaker 3: Very kind of you to say thank you so much.

1037
00:49:19,800 --> 00:49:33,600
Speaker 3: That was great, Trucy. I thought that was great.

1038
00:49:33,640 --> 00:49:36,799
Speaker 2: I thought that was really interesting and just sort of

1039
00:49:37,200 --> 00:49:39,600
Speaker 2: understanding the real nuts and bolts about how the money

1040
00:49:39,600 --> 00:49:43,160
Speaker 2: has made and what's different about BNPL companies from the

1041
00:49:43,160 --> 00:49:46,040
Speaker 2: credit card companies, to my mind, very helpful conversation.

1042
00:49:46,200 --> 00:49:46,439
Speaker 1: Yeah.

1043
00:49:46,480 --> 00:49:49,600
Speaker 4: Absolutely, I thought it was really interesting, the discussion about

1044
00:49:49,640 --> 00:49:53,680
Speaker 4: why other BNPL companies don't want to report to the

1045
00:49:53,719 --> 00:49:56,759
Speaker 4: credit bureaus and things like that. I wonder if that'll

1046
00:49:56,840 --> 00:50:01,040
Speaker 4: change anytime soon. Maybe politicians will start getting interested in it,

1047
00:50:01,080 --> 00:50:03,000
Speaker 4: regulators as the space expands.

1048
00:50:03,160 --> 00:50:05,840
Speaker 2: The thought that I had listening to Max was he

1049
00:50:06,000 --> 00:50:09,440
Speaker 2: mentioned the sort of the regressiveness of the points system. Right,

1050
00:50:09,560 --> 00:50:12,960
Speaker 2: So there's people like us who rarely roll their credit

1051
00:50:12,960 --> 00:50:15,760
Speaker 2: card debt but get frequent fire miles or other rewards,

1052
00:50:15,760 --> 00:50:18,760
Speaker 2: et cetera. But that's paid for by the people that roll. Now,

1053
00:50:18,880 --> 00:50:22,800
Speaker 2: if a firm is targeting, they're not they're clearly targeting

1054
00:50:22,840 --> 00:50:25,480
Speaker 2: people who are not thinking about points, right, they're thinking

1055
00:50:25,480 --> 00:50:27,880
Speaker 2: about people who really do need to extend their payments

1056
00:50:27,920 --> 00:50:30,520
Speaker 2: or implicitly roll and say we have a better option.

1057
00:50:30,680 --> 00:50:33,560
Speaker 3: So it's sort of cleaving off, if you know, if this.

1058
00:50:33,680 --> 00:50:35,560
Speaker 2: Grows, the firm is still just a twenty two billion

1059
00:50:35,600 --> 00:50:39,759
Speaker 2: dollar company by market cap, but this grows, You've got

1060
00:50:39,760 --> 00:50:43,200
Speaker 2: to wonder, like, if the maximum version where you've cleaved

1061
00:50:43,280 --> 00:50:47,040
Speaker 2: off a significant number of people who roll, what happens

1062
00:50:47,040 --> 00:50:50,319
Speaker 2: to the points ecosystem for the people like us?

1063
00:50:50,400 --> 00:50:50,600
Speaker 5: Now?

1064
00:50:50,640 --> 00:50:52,759
Speaker 2: Granted I don't think like, oh what about the poor

1065
00:50:52,800 --> 00:50:55,280
Speaker 2: frequent flyer and all the great rewards are getting?

1066
00:50:55,440 --> 00:50:57,960
Speaker 4: But is just someone think about the point?

1067
00:50:58,080 --> 00:51:01,440
Speaker 2: Well, someone please think about the points accumulators who never

1068
00:51:01,480 --> 00:51:03,879
Speaker 2: go into debt or who never like roll their debt.

1069
00:51:04,000 --> 00:51:05,839
Speaker 2: But it is interesting to think about if you could

1070
00:51:05,880 --> 00:51:08,319
Speaker 2: like cleave off that, then a big part of the

1071
00:51:08,360 --> 00:51:11,680
Speaker 2: business model of credit card the legacy card companies could

1072
00:51:11,680 --> 00:51:15,040
Speaker 2: potentially be unstable, and part of the appeal of going

1073
00:51:15,080 --> 00:51:17,520
Speaker 2: to any credit card that offers a lot of rewards

1074
00:51:17,800 --> 00:51:21,640
Speaker 2: could decline if revolvers moved to this alternate payments model.

1075
00:51:21,760 --> 00:51:23,560
Speaker 4: Yeah, it's a really good point on points.

1076
00:51:24,160 --> 00:51:24,560
Speaker 5: Thank you.

1077
00:51:24,600 --> 00:51:26,239
Speaker 4: That one was a little obvious I'm sorry, No.

1078
00:51:26,280 --> 00:51:27,840
Speaker 3: It's good. I like that one. It was straightforward. I

1079
00:51:27,880 --> 00:51:28,680
Speaker 3: actually got this one.

1080
00:51:28,719 --> 00:51:32,000
Speaker 2: Okay, Actually, you know what, I really also appreciated that

1081
00:51:32,160 --> 00:51:35,200
Speaker 2: Max had substantive answers for things that they're doing with

1082
00:51:35,280 --> 00:51:38,200
Speaker 2: AI that aren't just code generation, even if it sounds

1083
00:51:38,200 --> 00:51:40,319
Speaker 2: like the Finance Department is probably still using it for

1084
00:51:40,400 --> 00:51:42,640
Speaker 2: code generation, Like that makes a lot of sense, like

1085
00:51:42,680 --> 00:51:45,560
Speaker 2: being able to proactively scan websites to say who is

1086
00:51:45,920 --> 00:51:48,600
Speaker 2: claiming something that's not true about affirm et cetera.

1087
00:51:48,760 --> 00:51:51,520
Speaker 3: So maybe there are productive uses of all this technology.

1088
00:51:51,200 --> 00:51:54,879
Speaker 4: Or sending out millions and millions contracts automatically totally all right,

1089
00:51:54,920 --> 00:51:55,600
Speaker 4: shall we leave it there.

1090
00:51:55,719 --> 00:51:56,399
Speaker 3: Let's leave it there.

1091
00:51:56,440 --> 00:51:58,760
Speaker 4: This has been another episode of the All Thoughts podcast.

1092
00:51:58,840 --> 00:52:01,960
Speaker 4: I'm Tracy Alloway. You can find me at Tracy Alloway.

1093
00:52:02,120 --> 00:52:04,960
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.

1094
00:52:05,239 --> 00:52:08,160
Speaker 2: Follow our guest Max Levchin, He's at m Levchin. Follow

1095
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Speaker 2: Laws content. Go to Bloomberg dot com slash odd Lots.

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Speaker 4: And if you enjoyed this conversation, if you like it

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