How Affirm plans to make buy now, pay later as common as credit cards

But the app also now allows customers shop at merchants that don’t have Affirm integrated into their website. If a customer gets approved by Affirm for a loan, they’ll receive a one-time unique credit card number that they can use to checkout at that retailer’s website.

Compared to traditional credit cards and other buy now pay later businesses like Klarna and Afterpay, Affirm’s selling point is that it does not charge late fees or compounding interest. Affirm offers repayment terms of 3,6, or 12 months, and interest rates ranging from 0% to 30%. If an Affirm customer is over 90 days late on a payment, they have to report the customer to credit bureaus.

CEO Max Levchin spoke with Modern Retail about how else Affirm envisions encouraging customer loyalty, and how it’s preparing for changes in the retail landscape — including the possibility of a recession. The interview has been edited for clarity and length.

The retail landscape’s changed quite a bit since you started Affirm — you have legacy retailers who are struggling, and the rise of these direct-to-consumer brands. Has Affirm grown any differently than maybe you anticipated because of these changes?
The retail world is changing, but I would say our relationship with the consumer has largely been centered around one topic. Young buyers are not feeling very comfortable using credit cards as they shop, and we provide a freeing alternative that is very easy to understand and is transparently priced. Those are the reasons people come to us. As we find new retailers and our own retailer base changes, we have to change with them. So we continuously launch new products, in part because retailers are telling us how about this, this would be great.

What are some of the features you’ve recently launched or are working on that were informed in part by feedback you’ve got from retailers?
On the merchant side — a lot of those companies are driving the majority of their revenue still offline, but are trying to drive their very aggressively trying to go online. A huge theme within larger older school retailers is leveraging the fluidity of omnichannel. Where you buy [the product] online and then ship it to your home, and then you might come in store and exchange it if it doesn’t fit. All the other variants of those choices is something that traditional retail has invested very in heavily, as they’ve tried to stand up to Amazon.  An important requirement we see at these large enterprises is that “we love Affirm, it’s really great, but it’s not enough to work online — you have to be just as seamless, and just as easy to use in-store.”

One thing that private label credit cards seem to offer retailers right now that Affirm doesn’t is the fact that with points or cash back they are encouraging customers to spend more in order to get rewards. Is Affirm thinking about adding features at all to reward customers loyalty and encourage them to shop more with a particular brand?
We are working with some of our retail partners on concepts in that space even as we speak, but it’s not quite ready for prime time.  But it is an important area — there are plenty of people that choose their retailers based on the sort of rewards they get. 

Today, though, one of the things that we really have found to be an extraordinarily effective instrument is this idea of an interest rate reduction or interest rate elimination. The retailer and Affirm partner to remove any incremental charges to the consumer. If you are buying a Peloton, for example, today you find you are paying the exact same total, either upfront or over 39 installments, which is sort of magical. 

The way it works is Affirm and Peloton are partners in the financial transaction, and we are basically eliminating the interest that the consumer would pay. That is a huge level of loyalty for merchants that sell a lot of different SKUs. They use this intelligently to either create — ‘this weekend, we have zero percent powered by Affirm for the following set of SKUs,’ or in cases like Peloton, it always only has zero percent. So you know you’re getting a really good deal.

There’s been a lot of talk in the past year about when the next recession will hit — are you nervous about a recession and how it might affect Affirm’s business?
It is certainly the case that the next recession is coming. If you are in a risk-management business you want to be fundamentally certain that your risk controls and your models and your stress testing has all been done. So in general I am fairly sanguine about it. Obviously, as the recession begins, whenever it does, we should see changes in consumer behavior. And we would have to adjust our underwriting basically, proportionally taking a little less risk.  But in general that’s something we have to decide every day — every time we look at a consumer we have to ask the question of, “does this person’s cash flow, allow for this purchase?” We think we’re prepared, but if there’s one thing I’ve learned over the last couple of decades is you get to find out how good someone’s risk management skills are not before, but after, a recession.