BNPL is not a new concept; it has just taken off in recent years and become much more mainstream.
Buy Now, Pay Later allows people to do exactly what the name suggests: buy something and pay for it later. The difference between BNPL and credit cards is that instead of charging the full amount of a purchase to a card, consumers can choose to pay for an item in installments.
However, there are those who argue that BNPL is just another form of debt, which could lead to a discussion about whether the companies that allow it are doing so responsibly. In the case of Affirm, one of the biggest players in the space, co-founder Max Levchin (who also founded PayPal) has been vocal about what he describes as a “mission-driven” approach.
Ukrainian-born Levchin founded Affirm in January 2012. The fintech went public in 2021, and while trading considerably below its 52-week high (what stock isn’t?), Affirm is today valued at almost $9 billion, and its executives remain optimistic about the company’s future.
TechCrunch caught up with Libor Michalek, Affirm’s chief technology officer, to understand how the company differs from its host of competitors, what’s unique about its technology and strategy, and why he thinks using BNPL is so much better than using a card. of credit. to pay for purchases.
(Editor’s note: This interview has been edited for length and clarity.)
CT: 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 by him. In his opinion, what makes Affirm stand out?
We have this notion of a vertically integrated stack where we can handle the entire touchpoint, which really gives us a lot of visibility into the customer, into the transaction, and that allows us to accurately underwrite.
Libor Michaelek: Our main focus is to do what is right for the customer. And that really translates into this idea of aligning our interests with those of the client. So if they get the unexpected or unwanted, then we share the negative results.
The second pillar for us is to build modern technology that allows us to do this. How do you deliver a financial product with no late fees, no gimmicks and no tricks with deferred interest? It’s really the ability to access data in real time, deliver it over the phone and do it on e-commerce sites in real time, and then bring all of that together to make decisions in real time and deliver those decisions clearly to the customer. .
Another advantage we have is the scale of our commercial network. We work with 170,000 merchants, enhancing our ability to provide access to on-demand credit where customers want and need it.
I recently learned that Affirm (and other BNPL players) do charge interest sometimes, 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 gets charged interest and who doesn’t?
For us, the biggest and most important difference is that unlike a credit card, the customer knows how much interest in dollars they are going to pay for that purchase. There’s no way they’re going to pay more for that purchase, and they’ll know that up front before they click.
We will communicate it to you obviously, as an interest rate as we are legally required to do, but also in dollars and cents. Many times people are surprised when I tell them that a purchase of $1,000 at 15% for a year actually translates to $83 due to amortization schedules. A calculator on our website allows you to play around with all those numbers.
I think the transparency part is pretty key, because I feel like with credit cards, you run the risk of, depending on how long it takes you to pay or what your minimum payments are, how much you pay in interest can vary wildly. With us, it is a fixed amount that is communicated to the client in advance.
And even if they don’t make a payment, there are no late fees and nothing is added in any way that could result in a different result. In fact, if they pay earlier, the number may be lower, but it will never exceed the figure we give them.
How many people are typically able to use BNPL through Affirm without being charged interest?