PayPal founder’s Affirm tackles consumer lending

PayPal co-founder Max Levchin isn’t bucking for popularity among traditional bankers.

“Intense, highly competitive, incredibly brilliant,” was how CBS Morning News host Charlie Rose introduced Levchin in a Dec. 3 broadcast that was part interview, part gush-fest as Rose and his co-hosts threw softballs to the tech entrepreneur about his fledgling online lending company, “Affirm.” The new venture makes online, point of sale loans.

Levchin said his goal is to “build the first modern bank for the young demographic. It’s going to be mobile, connected, in real time, and it’s going to be honest and transparent.”

The entrepreneur said that in the wake of the financial crisis, “many young people have completely lost faith in the financial institutions of this country.”

“I think it’s time to bring it back,” he said, “and this is a huge opportunity.”

As successful as his PayPal was, Levchin said he regretted that his brainchild had put a nice “veneer over an ugly, yucky business.” In the context of the interview, he appeared to be referring specifically to credit cards.

His new service, Affirm, while called a bank, is not actually a bank. According to its website, Affirm works with a N.J. based institution, Cross River Bank, which actually provides the credit behind loans initiated by Affirm. [View the CBS News interview, “The Max Effect.”] 

Affirm enables online purchasers to choose the service as an alternative to using “plastic” online. A short list of stores accepting Affirm appears on its website, www.affirm.com.

Affirm provides an instant credit evaluation using a combination of traditional and online, behavioral methods. The prospective borrower provides a few personal details and hears Affirm’s preliminary decision virtually instantly. Loans can run from “a couple of hundred to a couple of thousand,” said Levchin.

The first part of the credit check is called a “soft” check, on Affirm’s website, and it does not affect the applicant’s credit record. After the purchase is made online, Affirm performs a “hard” credit check while the order is being processed. All purchases are confirmed by text message to the purchaser, and no account number is transmitted.

Affirm offers repayment plans of three, six, or twelve months, with a small finance charge. Payments are accepted via online transfer, debit card, or check.

“We never charge any compounding interest,” the website FAQ states, “and there are no hidden fees. We strive always to be more transparent and fair than any other form of financing.”

Levchin believes he is tapping into a strong vein of anti-bank sentiment.

“I kept hearing from people how much they hate their banks,” he said. “It seemed like an obvious thing to disrupt something that’s already hated.”