PayPal co-found Max Levichin is back in the payments game, this time with the modest goal of recreating a consumer finance.
Affirm Inc., his newest venture, has raised $45 million to help make that small dream a reality, reports Bloomberg
Levchin explained at Bloomberg’s Next Big Thing summit that Affirm’s system is targeting consumers, particularly younger consumers, who are looking credit alternative when shopping online.
“It’s an attempt to completely reinvent consumer finance,” he said.
SplitPay Gives Consumers More Options
The company first launched in 2012 with the goal of making credit more accessible to online shoppers. Realizing that goal took a big step forward yesterday with the announced launch of SplitPay – a service that gives consumers the option of buying now an object now, but dividing up the payment over some number of installments.
The risk of offering credit falls to Affirm as the merchant receives full payment as soon as possible. Affirm’s income stream is the interest they charge on the payments they finance as well as on the processing fees paid by consumers. The fee rate the company reports are comparable to credit card fees, according to Internet Retailer. On average, credit card company fees come out to around 2-3 percent of the purchase price.
To apply to use the product, consumers must enter information such as mobile number, date of birth and name, which Affirm enters into its system for determining credit worthiness, which essentially check the consumer against the public records Affirm favors. The company declined to explain their process in a much more in depth way than that—though they do disclose that consumer have a decision within seconds as to whether or not they can finance with Affirm.
If accepted consumers are shown what exactly their monthly payment will be and what day the loan is set to end. As per usual, interest rate are based on the consumer’s credit profile, with better rating yielding lower rates. Loans can be repaid automatically by linking them to a bank account set to auto-pay.
Reaching An Underserved Market
Affirm’s investors include Khosla Ventures and Lightspeed Venture Partners and their valuation is undisclosed.
Levchin believes he can bring new opportunity to the market, particularly among those who underserved by traditional channels such as immigrants, the young and those who can not get credit cards. Apart from strong investor interest, the company is also starting to see merchant interest as well– such as Faraday Bicycles Inc. and online secondhand-clothing seller
“Millennials love it,” Levchin said, “Sixty percent of Millennials say they don’t trust their credit card. We think we’ve come up with a product to address that market.”
They are not the only one’s with this solution however, and now Levchin will be directly competing with the company he founded as Affirm’s Split Pay bears some resemblance to eBay-owned PayPal’s Bill Me Later Service.