Affirm’s CTO Talks Transparency and the Tech That Makes BNPL Possible

Affirm’s CTO Talks Transparency and the Tech That Makes BNPL Possible

NPL isn’t a new concept; it’s just recently gained traction and grown more widespread. Purchase now and pay later allows users to do precisely what the name implies: purchase something and pay for it later. BNPL differs from credit cards in that instead of charging the whole amount of a purchase on the card, users can opt to pay for an item in installments.

Some believe that BNPL is just another type of debt, which might lead to a debate over whether corporations that facilitate it are acting properly. Co-founder Max Levchin (who also created PayPal) of Affirm, one of the space’s top participants, has been vocal about what he calls a “mission-based” strategy. Levchin, who was born in Ukraine, founded Affirm in January 2012. Affirm went public in 2021, and while it’s trading at a discount to its 52-week high (whose stock isn’t?), the fintech is now worth about $9 billion, and its management are optimistic about the company’s future.

TechCrunch spoke with Libor Michalek, Affirm’s VP of technology, to learn how the business distinguishes itself from its many rivals, what makes its technology and strategy unique, and why he believes using BNPL is far superior to using a credit card to pay for products. TC: I grew up during the layaway era, when you could pay for anything in installments but had to wait to take it home. So I was fascinated when I heard about BNPL. What distinguishes Affirm in your opinion?

We have this idea of a vertically integrated stack where we can manage the entire touchpoint – this provides us a lot of information into the consumer, the transaction, and allows us to appropriately underwrite. Libor Michalek: Doing the right thing for the consumer is our major priority. And this translates into the concept of aligning our interests with the customer’s. As a result, if they receive the unexpected or unwelcome, we share in the bad consequences.

For us, the second pillar is to develop current technology that allows us to do so. How can you deliver a financial product that has no late fees, gimmicks, or delayed interest? It’s basically about having real-time data, being able to transmit it over the phone and on e-commerce sites in real time, and then combining all of that to make real-time judgments and properly communicate those conclusions to customers. Our merchant network’s size is another benefit we have. We collaborate with 170,000 merchants, enhancing our capacity to give à la carte credit to customers wherever they want and need it.

I recently discovered that Affirm (and other BNPL businesses) do charge interest on occasion, albeit at a lower rate than traditional credit card companies. Tell us more about how you make those judgments – how do you choose who gets interest and who doesn’t? The most significant distinction, in our opinion, is that, unlike with a credit card, the customer knows how much interest in dollars they will pay for that transaction. They won’t be able to pay any more for that purchase, and they’ll know that before they click.

We’ll tell them about it, obviously, as an interest rate, as required by law, but also in dollars and cents. People are sometimes astonished when I tell them that a $1,000 purchase at 15% interest for a year equates to $83 due to amortization schedules. You may play with all of those figures using the calculator on our website. I believe the transparency aspect is critical, because I believe that with credit cards, you run the danger of paying drastically different amounts in interest depending on how long it takes you to pay or what your minimum payments are. 

It’s a set sum that’s stated to the buyer up front with us. Even if they miss a payment, there are no late fees or anything else thrown on that would change the results. In reality, if they pay early, the amount may be lower, but it will never be more than the amount we estimate. How many individuals are able to utilize BNPL without incurring interest when using Affirm?