BNPL is not a new understanding; it has taken off in recent years and has become much more mainstream.
Buy now, pay later lets people do exactly what the name suggests: buy something and pay for it later. The difference between BNPL and credit cards is that instead of paying the full amount of a purchase on a card, consumers can choose to pay for an item in installments.
However, some argue that BNPL is just another form of debt, which could lead to a debate about whether companies that enable it are doing so responsibly. In the case of Affirm, one of the space’s biggest players, co-founder Max Levchin (who also founded PayPal) has spoken out about what he describes as a “mission-based” approach.
Ukrainian-born Levchin started Affirm in January 2012. The fintech went public in 2021 and while it’s trading significantly below its 52-week high (which stock isn’t?), Affirm is valued at nearly $9 billion today, and its executives remain optimistic about the company’s future.
Marketingwithanoy sat down with Libor Michalek, president of technology at Affirm, to understand how the company stands out from its plethora of competitors, what is unique about its technology and strategy, and why he thinks using BNPL is much better than using BNPL. using a credit card to pay for purchases.
(Editor’s Note: This interview has been edited for length and clarity.)
TC: I grew up in the age of layaways, where you could pay for an item in installments but had to wait to take it home. So when I heard about BNPL I was intrigued. What distinguishes Affirm in your opinion?
We have the idea of a vertically integrated stack where we can handle the entire point of contact – that really gives us a lot of insight into the customer, into the transaction, and that allows us to insure accurately.
Libor Michalek: Our main focus is doing the right thing for the customer. And that really translates into the idea of aligning our interests with those of the customer. So if they get the unexpected or unwanted, then we share in the negative outcomes.
The second pillar for us is to build modern technology that enables us to do so. How do you deliver a financial product without late fees, without gimmicks and without deferred interest tricks? It’s really the ability to access real-time data, deliver it to the phone, and do it in real-time on e-commerce sites, bringing it all together to make real-time decisions and clearly communicate those decisions to the customer. deliver .
Another advantage we have is the scale of our trading network. We work with 170,000 merchants, increasing our ability to provide access to a la carte credit where customers want and need it.
I recently learned that Affirm (and other BNPL players) sometimes charge interest, but often at a lower rate than traditional credit card providers. Tell us more about how those decisions are made – how do you decide who is charged interest and who isn’t?
For us, the main and biggest difference is that unlike a credit card, the customer knows how much interest in dollars he is going to pay for that purchase. There’s no way they can pay for that purchase anymore, and they’ll know ahead of time before they click.
We communicate it to them, of course, as an interest rate as we are required by law, but also in dollars and cents. Often people are surprised when I tell them that a purchase of $1,000 for a year of 15% actually translates to $83 because of the depreciation schedules. With a calculator on our website you can play with all those numbers.
I think the transparency part is quite important because I feel like with credit cards you run that risk – depending on how long it takes to pay or what your minimum payments are – how much you pay in interest which can potentially vary wildly. With us, this is a fixed amount that is communicated to the customer in advance.
And even if they miss a payment, there are no late payment penalties and nothing is dealt with that would ever lead to a different outcome. If they pay early, the number may be even lower, but it will never exceed the amount we give them.
How many people can normally use BNPL through Affirm without being charged any interest?