The CEO of Affirm, a US consumer lender, told the Financial Times that the “buy first, pay later” credit industry will benefit from more regulation to help regulate an increasingly crowded market.
By providing customers with the option of online shopping in installments, BNPL became popular during the pandemic. This has helped financial technology companies such as Affirm report triple-digit balance sheet growth, while many traditional lenders have been struggling to expand their loan books.
Affirm offers loans with interest rates ranging from 0% to 30% at no extra charge. Max Levchin, who founded the company in 2012, said he will support regulatory actions to improve information disclosure and eliminate “hidden” fees such as late fees and transaction fees.
He added that this will help make the fringe “Wild West” industry more mainstream.
“I think consumers use one of these products and say: Oh, so I tried this BNPL thing, I think it’s 0%, but it’s not because I got this initial fee,” Levchin, who is also a joint venture of PayPal The founder, he told the Financial Times.
Earlier this month, Affirm reported that its most recent quarter revenue increased by 55% from last year, reaching $174 million. It also expanded its partnership with Amazon.
At the same time, after relaxing credit requirements, the quarter’s loss rose to 306.7 million U.S. dollars from 390 U.S. dollars in the same period last year.
Levchin said that the company sees itself as a high-growth technology company, “in that world, we are happy to be a loss-making company.”
He believes that BNPL will continue to grow, partly because it is a new online payment method and is still only used for a small percentage of transactions.
“If five years later, we are not the leader in our field, we no longer have the advantage, we will be replaced. Then we shed a small tear and move on,” Levchin said. “But if we continue to get better, I don’t think we need to worry too much.”
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The soaring popularity of BNPL prompted Affirm to go public this year in the United States. Its market value is approximately US$33 billion, which is more than 10 times the 2019 private equity financing valuation.
Compared with other consumer loans, the industry’s regulation is very loose, but regulators are beginning to worry about market safety and the possibility of harm to consumers as it grows.
Affirm prides itself on being transparent to its customers. It is one of the few large BNPL providers that does not charge late fees. Although the loan disclosure rules on credit costs do not apply to most short-term BNPL loans, Affirm said it provided the information anyway.
It is also one of the few BNPL providers that share data with credit scoring agencies such as TransUnion and Experian. Levchin said that the relationship with the Consumer Credit Monitoring Bureau may be mutually beneficial.
He said that how small transactions usually associated with BNPL affect credit scores is still an unresolved issue in the industry, adding that some competitors have not reported information to the credit bureaus.
“I don’t think this is the right approach,” he said. “This should definitely be to protect all parties and help people build credibility.”