Affirm

Overview

Affirm is a fintech startup looking to modernize finance.  They correctly note the core of modern financial technology infrastructure was built in the 1970s and is horribly outdated - Affirm wants to change that.  Their initial set of products is a modern consumer lending facility that merchants integrate onto their eCommerce site.  Affirm has two sets of customers, businesses who install their product on their eCommerce site and consumers who need to understand and use the product.  Once they have created an account with Affirm, consumers just click the Affirm button at checkout with a partnered eCommerce site to take out an immediate fixed rate loan for the online purchase.  The loans are originated by Affirm's partner Cross River Bank.  

Merchants are big fans of the technology as they are paid by Affirm instantly for the purchase, seeing an average of a 10% increase in revenue per customer and more people buying due to the increase in spending power.  Unlike with credit cards Affirm does not take any sort of transaction fees, making their money purely on the loan interest.  The merchant is immediately paid the full amount of the purchase whereas credit cards take an average of 2% of the total transaction value from the merchant as a surcharge.

The company has strong traction to date having  issued 1 millions loans with 300% growth  year over year for the past four years. They are used by more than 1,000 businesses including the ones listed here.

Affirm is based in San Francisco with 250 employees and plans to grow to over 300 in the next year.

Why I like Them

The product offering is extremely innovative since the team has their own internal credit scoring models that heavily outperform FICO.  They are able to measure and control loan risk far more accurately than standard mainstream (and outdated) methods of credit scoring consumers.  This allows credit to be given to those the mainstream FICO system misses or is unable to score accurately.  The chart below does an excellent job of summarizing the huge difference modern credit scoring systems like Affirms can have.  Consumers love the product having given them the highest Net Promoter Score in the industry at 82.

I also like their broader mission and the opportunity set in front of them.  The core of modern financing (lending and payment transfers) has been extremely slow to modernize and it is very frustrating to users of the system (myself included).  This is an industry begging to be disrupted and Affirm is attacking the issue head on.  You just have to look at how slow it is to transfer money between banks using ACH or the horror stories and inaccuracies of the three credit bureaus to see it.

Disclosure:  I have spoken to members of the executive team.

 Affirm credit scoring methodology compared to FICO

Affirm credit scoring methodology compared to FICO