Affirm's Max Levchin Breaks Down How Buy Now, Pay Later Really Works

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, it feels like everybody, whether they want to come after the banks, right? There is this effort. So many of our episodes, whether we're talking about crypto, whether we're talking about private credit, whether we're talking about payment, it's this goal, this dream of like, let's chip away at some of these bank businesses, or these businesses that were associated with some sort of legacy institutions. The banks, they mostly seem to be doing pretty well still, but there's this dream that they can all be sort of like, disintermediated away, or that each one of these functions that they do can be better done somewhere else.

Tracy Alloway (0:56)

Yeah. So let's see. I have been in financial journalism for almost 20 years now, which is kind of crazy.

Joe Weisenthal (1:02)

It is crazy.

Tracy Alloway (1:02)

It makes me feel very old, but for as long as I can remember, someone has been trying to either reinvent bank lending or reinvent the payment space. And I guess I can see a few reasons. So genuinely, some payment architecture is really old-fashioned, especially in the US, where sometimes you still have to write a check for something, which blows my mind. The US didn't get chips for a really long time, chips and credit cards and stuff like that. But also, if you think about the payment and lending and financial market just in general, it's one of the biggest out there. You're talking about all the economic activity basically.

So if you can get a tiny slice of that through interchange or fees, then you can see how people are really interested in that space.

Joe Weisenthal (1:50)

No, completely. We know that there are a lot of fintech companies for a long time. I mean, some of the earliest internet success stories, period. This is definitely nothing new. Of course, one of the first ever was PayPal, which recognized that with the internet was going to come all kinds of new opportunities for payments and quasi peer-to-peer, literal peer-to-peer transactions, etc. PayPal is still, of course, extremely important part of the payments infrastructure. But yeah, there's so much going on. But to your point, lots of companies have gotten those little slices and made incredible fortunes. Yeah.

Tracy Alloway (2:26)

We also did an episode on By Now Pay Later a couple months ago. There are clearly some interesting questions brought up by the expansion of that space. You and I talked about how wherever you go on the Internet nowadays, you get probably at least two or three little buttons that offer you installment loans on your purchases. Obviously, the concern is whether or not people are taking out credit that they shouldn't necessarily be. There's a big discussion about that and also the transparency of the credit that they're taking out.

Joe Weisenthal (2:55)

Right. We'll get into this. There are pros and cons, I guess, relative to credit cards. But one thing with credit cards is that there's decades and decades of data on them. We know how they're used and there's really good risk profiling and scores and all this credit scoring and all this stuff. BNPL is sort of more novel and so, therefore, to what degree do we know how as an asset or as a function it performs across different cycles? Do we know the cohort of people who use BNPL as well as we know the types of people who use credit cards? Seems a little bit, at a minimum, a bit more ambiguous.

Tracy Alloway (3:28)

Absolutely.

Joe Weisenthal (3:29)

Well, we've hinted at what we're going to be talking about. I mentioned PayPal. We talked about BNPL. We are going to be speaking with one of the original members of the PayPal mafia. We're going to be speaking with Max Levchin. He is the founder and CEO of a firm, one of the biggest BNPL companies publicly traded. Max, thank you so much for coming on Odd Lots.

Max Levchin (3:50)

Thank you for having me. I'm a big fan of the show.

Joe Weisenthal (3:53)

Thank you.

Max Levchin (3:53)

It's a bit of a privilege to be here.

Joe Weisenthal (3:55)

Thank you for saying that on the recording. We always love hearing it, but we love when it's on the public record as part of the episode. Thank you so much. Where did you get the idea to start a firm? What prompted it?

Max Levchin (4:08)

A two-sided coin, both sides bad, a personal experience, actually tying neatly to the PayPal story. So I came to the US at 16 from Soviet Union. And so you can imagine, I understood very little about borrowing and credit and things like that. And so I got my first credit card on campus at college at 18 Didn't fully understand what I was signing up for. Certainly didn't read the fine print where it said 0% asterisk. Don't worry about it. Borrowed a bunch of money, financed my first startup from that very same credit card, promptly got into more that I could afford to pay for. My first startup failed. Eventually got some nasty calls from collectors, paid it off, and four years later or five years later, took this little company, PayPal Public, was basically independently wealthy overnight, went to buy a fancy car that, as I originally deserved at the right age of 23, I wanted to show off to my then girlfriend, now wife, and was declined for credit. And not only did I feel completely screwed by the moment when I found out that you're supposed to make the minimum payment, and by the way, interest accrues into principal, and this seemingly low APR is actually not what it seems to be because I missed some date of the specific amount that I was supposed to pay. It's bit me again five years later, where it's like, oh, by the way, it wrecked your credit rating, too. So you can't get along for anything. Even as you're sort of proudly sticking a finger at the article and newspaper saying, you're the company public, youngest, whatever. So that was the thing that stayed with me. For years, my friends would prank me at restaurants. They would ask the wait staff to tell me that my credit card was declined, which by then was a different credit card, but then I would turn deep purple and basically be like, oh my God, it happened again, like what? Eventually, I knew it was a joke. But I was in my mid-30s when I realized that that's now more likely a joke than that credit score bite from 18