Former PayPal founder Max Levchin launched his credit alternative in 2013 but little has been heard from him since then. Here’s a look at what Affirm is doing and how it’s able to extend credit successfully to people who’d never pass anyone else’s filter.
Max Levchin, the PayPal Founder who has gone on to create, launch or invest in a whole host of internet ventures, pulled no punches when opening up to Time magazine about what he thinks about the credit card: "You have to have a credit card. You have to use it. You are going to get screwed and you know it."
It’s the inspiration for his alternative consumer credit product, Affirm, that launched in 2013 but has stayed pretty much out of the limelight since then. Affirm, the article states, is a solution to a big and growing problem that isn’t just limited to those with less than stellar credit. The story argues that "Millennials are ditching the plastic in droves. More than 6 in 10 of them say they have never signed up for a credit card, a group that has doubled in size since the financial collapse of 2007."
Affirm's customer-facing approach is to split payments over time. On the back-end, though, are databases that are not just the typical credit-scoring mechanisms.
Those systems "can scan for social information across social media or dip into proprietary marketing databases or combine that with credit histories. In total, the Affirm team has identified more than 70,000 personal qualities that it thinks could predict a user’s likelihood of paying back a loan. If old fashioned credit scores provide a fixed, black and white portrait of the borrower, Affirm claims to capture that borrower in full, moving Technicolor," the story said.
"The company is so confident in its claims that it puts its own money on the line, extending loans to people who are normally considered a risky gamble. Active duty soldiers, for instance, return home with scant credit histories. A raft of regulations require lenders to extend credit to the soldiers, even if the decision goes against their better judgment. As a result, lenders have historically eyed returning soldiers with suspicion."
Levchin said that's nonsense. "I couldn’t care less about the narrative of why that might be true, except that I know it’s actually not. From all the loans that we’ve issued, I think we’ve had literally 100 percent repayment rate from active duty servicemen," he said.
The company currently has $45 million of venture capital to try out its theories. Not to mention an executive team led by the guy who helped create PayPal.