RE/CODE: Having dabbled in online slideshows and fertility tracking, PayPal co-founder Max Levchin has swung fully back to his online money roots. Affirm, the online lender where Levchin is co-founder and CEO, has now raised $275 million. The “vast majority” of the round is debt that the company expects to lend out to its customers, an average of $400 at a time.
San Francisco-based Affirm helps people pay in installments for purchases, with a sliding scale 10 percent to 30 percent annual markup, based on its estimation of the buyer’s creditworthiness.
Affirm’s customers are “near-prime to sub-prime” — that is, financially responsible, but with a limited budget or credit history and, often, a wariness of credit cards.
They can currently use Affirm as a payment option at certain online boutiques, such as Casper for mattresses and Joybird for furniture, or when buying courses through schools like General Assembly.
Because of incumbent banks’ endless surcharges, late fees and other abuses, “there’s room for a product by young people for young people,” Levchin, 39, said in a phone interview this week. “That’s what Silicon Valley’s good for, and that’s what we’re doing.”
Affirm’s big selling point is a lack of gimmicks. Here’s Levchin’s pitch: “We are building a new bank, hopefully the largest bank in the world, by using technology from the ground up.” (Though he noted that Affirm is not a bank today because it does not take deposits. But PayPal is not a bank either, at least in the United States.) “Today, we help them buy mattresses and sets of dishes; tomorrow, a used car, maybe a new car, then a house.”
Affirm’s investors — Spark Capital Growth, Jefferies, Andreessen Horowitz, Khosla Ventures and Lightspeed Venture Partners — are mostly putting up money for Affirm to lend to its customers, rather than buying equity in Affirm. That way the startup doesn’t have to resell its loans.
So this is not your usual Silicon Valley funding round, but it’s not unheard of — SoFi, a tech lender that focuses on big-ticket items like student loans and mortgages, has raised close to $1 billion in debt and equity.
Previously, Affirm had raised about $50 million, also a combination of debt and equity.
Affirm makes an assessment of creditworthiness based on a person’s name, email, mobile number, birthday and the last four digits of his or her social security number, as well as behavioral factors like how long he or she takes to remember all that information. If that combination doesn’t quite add up to a loan, Affirm may also ask borrowers to share information from other online sources, like a GitHub coding profile or a savings account that shows cash flow history.
“I don’t think you should be creeped out,” Levchin replied to the obvious question about his company reviewing all that personal data. “There’s an unbelievable amount of information available on American consumers — so it’s not exactly Affirm that you should be freaked out about. Having said that, we’re probably some of the most ethical users of such information.”