New venture from former PayPal CIO aims to disrupt financing industry with tech
If you are a deep diver into tech businesses, you might recognize the name Max Levchin. He was one of the core team founders of PayPal and Yelp, among other endeavors.
Anyway ... his latest project rings as a crazy, superlatively disruptive concept: taking financing out of the hands of banks. The new company is called Affirm and the mind reels with the potential.
Seems simple and intuitive now, but ...
The concept seems so remarkably simple now that they are doing it. You get an account at Affirm and then find something that you want to purchase over time. Affirm pays the vendor for it and the item is delivered to you as normal. Then, you pay them back over time based upon instantaneous terms that you and they have agreed upon before hand ... all online.
No application fees, no fuss, and no muss.
Add to this that the consumer is usually at the mercy of the finance options made available by the merchant.
Oftentimes those terms are onerous with escalated payment schemes and high interest rates. Sometimes that merchant gets "a piece of the action" on the back end, sometimes the merchant has to subsidize the financing with behind-the-scenes payments back to the finance company (especially in high-credit-risk situations), hiding some of the financing costs in a hazy transaction. But the key — in my opinion — is that the consumer is left out of the equation at this point. They cannot choose, and more choice usually means competition and betterment. The entire recorded history of economics supports this.
Mr. Levchin also contends that the banks' staid and traditional methods of underwriting credit terms are not only archaic, but wrong-headed and flawed. I could easily make a case to support this. But the important question is whether Affirm can crack the cliched "easy credit rip off" payment structure of the day and make these transactions fairer, faster, and better for the consumer? I certainly hope so.
Just imagine the possibilities ...
What I like best about the Affirm solution is that this is a play to use the internet and technology to create more disruption in the banking and financial sectors. And I'll wager that there is considerably more creative-disruption opportunity to be found there. It has the potential to change the way consumers finance their appliances, furniture, tablets, and smartphones for sure.
But I also see it as a way for small businesses to access short-term credit for equipment, marketing, and business improvements too. Think about that for a minute. It can be easier for a consumer to finance a beer fridge at the local electronics store for his TV room than it can be for a small sandwich shop to add a toaster oven to expand their menu. I have nothing against entertainment rooms and a weekend beer, but when inebriated suburban sloth is easier to finance than small business product improvement, there just might be something wrong with the system.
Affirm follows in the footsteps of PayPal, Square, and Crowd-source funding to remove more bankers (obstacles) from the equation while creating a more competitive and ultimately consumer-benefiting set of conditions to access credit. Both the Libertarian-leaning and economics-minded parts of me swoon with the possibilities.
God-speed Mr. Levchin.
What Levchin helped do at PayPal he is trying to do to the "easy-credit" / short-term finance industry. With his track record, I will not be betting against him. In fact, I will be cheering for his success.