The Clearing House - Corporate Changes in Payment Practices - September 2023

Affirm CEO Levchin Says BNPL Helps Consumers Make Sound Decisions

Affirm BNPL app

Affirm Holdings CEO Max Levchin says the buy now, pay later (BNPL) industry offers an alternative to high-interest credit cards.

This model allows customers to make purchases and pay for them in interest-free installments, providing transparency and control over their finances, Levchin told Bloomberg in an interview posted Thursday (Dec. 7).

However, the industry has faced scrutiny from regulators concerned about potential risks to consumers, according to the report.

The BNPL concept is simple: customers can opt for installment payments instead of using credit cards, the report said. Affirm does not charge late fees, but delinquent customers are removed from the platform. Additionally, Affirmoffers a card with a fixed term and predetermined payments for those who prefer longer repayment periods.

While this model has been praised for its potential to revolutionize household finance, it has also faced regulatory scrutiny, per the report. The Consumer Financial Protection Bureau (CFPB) launched an inquiry in 2021, expressing concerns about potential exploitation of shopping addicts.

In addition, the Federal Reserve Bank of New York said in September that BNPL customers were more likely to be financially fragile, according to the report.

Affirm sets itself apart from other companies by evaluating creditworthiness based on specific transaction data, considering factors like personal cash flow and bill payment history, the report said.

Levchin believes that understanding the circumstances of a purchase is crucial for effective underwriting, per the report.

Despite its success, the BNPL industry is facing challenges due to rising interest rates, according to the report. Affirm announced staff cuts in February as higher interest rates impact consumer spending and short-term financing costs. Affirm’s stock price has also declined since its peak in 2021.

Levchin’s personal experience with credit card debt inspired him to seek an alternative solution, the report said. He believes that BNPL offers a better way for consumers to manage their finances and make sound financial decisions. Levchin said he welcomes regulatory scrutiny in the industry to ensure fair competition and protect consumers.

While Affirm aims to challenge the dominance of credit cards, Levchin acknowledges that credit cards can still be advantageous for certain individuals, per the report. He said Affirm’s model provides simplicity, transparency and control over finances, making it an appealing alternative for consumers seeking such benefits.