Max Levchin is no stranger when it comes to revolutionising the financial industry. He’s one of the cofounders of PayPal, the online payment service, where he served as CTO for 4 years before getting acquired by eBay for $US1.5 billion.
Now he wants to overhaul the financial industry again. This time, he’s making consumer finance as easy as swiping a credit card.
His latest startup, called Affirm, allows users to borrow money within seconds at the point of purchase — it’s currently only offered online and on mobile devices — and pay off the loan in fixed monthly payments.
The way it works is simple: if you buy something on a site that offers Affirm’s Split Pay, you can sign up for it with your name, phone number, email and date of birth. Within seconds, Affirm’s software goes through a bunch of data associated with your personal information and determines your creditworthiness.
Then it gives the terms of the loan with clear instructions on the amount owed, the payment due date, and interest rates. You can choose to pay off in 3, 6, or 12 month installments, and will receive payment reminders by email and text messages.
Affirm was founded in 2013, and Split Pay was made official just last year, but we don’t know how popular it is. The company hasn’t disclosed any user growth numbers, except that it has over 100 merchants using its service, including fairly small names like Casper, Makerbot, and The RealReal.
But if the size of the VC investment is any indication, investors think it’s about to blow up. On Wednesday, Affirm raised $US275 million from Spark Capital Growth, Jefferies, and Andreessen Horowitz, with existing investors Khosla Ventures and Lightspeed Venture Partners re-upping their shares. Affirm declined to mention its latest valuation.
“Our growth is sufficient now that our investors are believers, and they’re trying to give us more access to capital to put to work,” Levchin told Business Insider. “This funding means that we can put to work a quarter billion dollars by lending it to deserving people and helping them finance things and invest in their future.”
Affirm said most of the new capital will be spent on making loans to its users. On average, each user borrows about $US400, as its main target audience is the millennials with low credit scores or those who don’t bother going to banks for credit lending.
Levchin points to a recent study that shows millennials’ general disdain for credit cards: 60% of Millennials prefer debit to credit cards, while 44% said they have no interest in using a credit card.
“It’s no secret that the young, millennial demo lives entirely out of their debit cards. The reason for this is after having seen the 2008 financial collapse and what debt can do to you, they try to stay away from borrowing money,” Levchin tells us.
So far, Affirm is turning out to be pretty sticky with first time users: 36% of its buyers have come back and made a second purchase using Affirm, and those second purchases are on average 82% larger than the first ones.