Alternative Finances

PayPal Co-Founder Banks $275M To Grow Lending Startup’s Reach

PayPal co-founder Max Levchin announced yesterday (May 6) that his lending startup, Affirm, had raised $275 million in debt and equity financing as part of a funding round led by Spark Capital Growth.

The investment also included backers from Jefferies and Andreessen Horowitz and existing investors Khosla Ventures and Lightspeed Venture Partners. The new financing is set to be used to increase Affirm’s loan distribution capacity, help the company grow its merchant services and offer customers lower cost loans, as well as develop new products.

“Today’s financial services industry is not well-equipped to handle the needs of the largest consumer generation in history,” Levchin said in a company news release. “We’re building a financial technology company for the next generation, and for anyone who expects more from their financial service providers.”

In an interview with Bloomberg, Levchin spoke about his work with PayPal, calling with work “unfinished,” when it came to the credit offerings.

“It felt that we left a bunch of work unfinished after PayPal, most importantly, the actual credit underwriting,” Levchin told the publication. “Most merchants that we work with tend to realize very quickly that they really open up a whole new set of buyers.”

Affirm has banked its philosophy on the belief that traditional lenders don’t offer simple, transparent ways to obtain financing. The lending startup prides itself on an alternative lending option to achieve “affordable financing online at the point of sale,” noting that “Affirm lets shoppers pay for purchases across multiple months via transparent, simple interest loans, at fair rates.”

The release from Affirm highlights a recent study which highlights the overwhelmingly negative views millennials have toward banks. The study found that all four of the leading banks are among the 10 least loved brands in millennials’ eyes. The study adds that 33 percent of millennials believe that, one day, they won’t need a bank at all.

“Millennials are looking for alternatives outside the traditional banking giants, and that is precisely what Affirm is offering,” said Brian McGrath, of Jefferies, in the release.

Levchin also discussed the benefits of the lending services for both consumers and merchants, saying that its transparent solution provides its loan candidates the services they need without the extra hassle.

“We price every loan to the transaction, the consumer, and the merchant,” Levchin said. “There’s no compounding interest, hidden fees, or debt calculators here – this is a simple, fixed-term loan, and the approval is in real time – so you know how much you’re borrowing, and what your payments will be each month before you make your buying decision. We think of it as the future of honest finance.”

One of Affirm’s products, Buy with Affirm, enables online shoppers to finance those purchases in multiple monthly installments at a rate the company said is typically less than credit card interest rates. And from the merchant side, Affirm claims this strategy increases average order values and conversion rates by more than 20 percent. It also claims to increase purchase sizes by 79-84 percent since it provides close to instant-access to real-time credit options.

“We share Affirm’s vision to create better, more transparent financial services products, using large-scale data to improve credit decisions,” said Jeremy Philips, General Partner of Spark Capital Growth, who is joining Affirm’s board. “Max has the team, vision and experience to build the leading company in this important new category.”

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