PayPal co-founder Levchin, Affirm want to disrupt credit biz 

If you’ve got your eye on a purchase that your credit score says you can’t quite afford, Max Levchin may be able to help.

After a brief stint as a Google executive, the PayPal co-founder is back in the online financial-services business as CEO of his latest start-up, Affirm.

Just as PayPal gave people a new way to pay for things online, the San Francisco-based company aims to give consumers another option for accessing credit over the Internet.

“FICO (credit score) is coarse and backward-looking by design,” Levchin says of the formula long used by lenders and retailers to determine who qualifies for everything from mortgages to credit cards to car loans.

That’s why Affirm has developed its own method for evaluating credit-worthiness, of which a FICO score is only a part.

“If someone has a 625 (FICO score) but just got a six-figure job, maybe they’re more like a 700,” Levchin recently told me in a conference room at Affirm’s offices, located on the edge of San Francisco’s Financial District.

Levchin is betting the formula developed by his 35-person company, founded early last year, will prove to be a more-accurate predictor of a consumer’s likelihood of repayment than the one used for decades.

“We’re competing against technology invented in the 1970s,” says Levchin, who’s also the chairman of online review site Yelp.

Although Affirm sells its service to online merchants – not directly to consumers – it hopes to take advantage of the widespread mistrust and confusion Americans feel toward the financial services industry.

“Being transparent, doing what you say you will and educating the consumer in plain language – not lawyer-speak – is a differentiator for us,” says Levchin.

Another Affirm selling point is the product’s ease of use because its software is designed especially for mobile shoppers.

Online consumers buying something from a merchant using Affirm’s software to offer credit won’t need to fill out a lengthy application, says Levchin. “Your phone number is our identifier,” he says.

Levchin is quick to point out Affirm, which has raised $45 million, is a finance company, not a bank. It therefore has to borrow the money it makes available for consumers to complete online purchases.

While the company “is talking to all the appropriate regulatory agencies,” it also doesn’t plan to build a business “based on getting laws changed,” says Levchin, a native of Ukraine who’s also on the board of Yahoo.

That sets Affirm apart for now from a raft of other online financial-service start-ups that are lobbying lawmakers in Washington, D.C., to make it easier to lend money directly to consumers over the Internet.

Levchin’s previous start-up, the social-game developer Slide, was acquired by Google in June 2010 for a reported $185 million.

After spending only a year at the Internet search giant, however, he left to launch a start-up incubator called HVF.

Affirm was co-founded from HVF by Levchin; Nathan Gettings, another ex-PayPal executive; and Jeff Kaditz, a former executive with mobile-game developer ngmoco.

The company’s investors include top-tier venture capital firms Khosla Ventures and Lightspeed Venture Partners.

 

Source: Usatoday

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