Affirm CEO Levchin Says 'Underwrite or Lose Money'

In a blog post on Friday, Affirm (NASDAQ: AFRM) CEO Max Levchin said that "whether the proverbial landing is hard or soft, it is reasonable to expect at least something of an economic downturn in the relatively near future as interest rates inexorably rise."

The post was centered on Levchin's thoughts on the buy now, pay later company's expected credit performance in a downturn.

The Affirm CEO stated: "We’ve heard Affirm pattern-matched to credit card issuers, but that’s intellectually lazy, as there really are more differences than similarities."

"One of the foundational ideas behind our company is that revolving lines of credit – while unbelievably convenient – aren’t really good for most people," he added.

Levchin explained that every time a consumer wants to use Affirm to purchase a product, they have to apply to be approved for that specific transaction and while they "make it easy and convenient to ask," the company still assesses the purchaser's credit situation.

"If we believe you won’t be able to pay off your loan, we will, in fact, decline your application – with compassion and transparency – without fail," he wrote.

"We underwrite every single loan application using proprietary technology that we’ve been developing for a decade, using proprietary data we’ve been building up for nearly as long. Given the sheer scale of transactions we process - north of 10 million last quarter - the dials we turn to control risk are very fine-grained."

The Affirm CEO again stressed that the company underwrites every transaction, adding that a few other buy now pay later companies have stated they do not underwrite their transactions.

"They approve more or less everyone, and maybe some people won’t pay them back, but they can write those losses off and treat them as a cost of borrower acquisition," said Levchin. "The trouble is, in a less healthy economy, this “cost of borrower acquisition” could go up quite a bit."

Levchin concluded the post by saying they are confident in their ability to deliver strong growth, and they believe that the "secular trend for paying over time without fees and gotchas will continue to strengthen across cycles."

By Sam Boughedda

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