Max Levchin, a co-founder of PayPal—now owned by eBay Inc.—started financing service Affirm in 2012 to make credit accessible to online shoppers who might not otherwise qualify. “We started Affirm on the belief that the current FICO-based credit rating system was not working for many consumers,” he says. “It’s now clear that online shoppers and merchants were ready for an affordable, transparent alternative to old-school credit cards.”
The service launched in July, and merchants using it have seen average order values jump by as much as 35%, the company says. Affirm declined to say how many merchants have signed on.
Consumers apply for financing during the checkout process on an e-retailer’s site. Affirm developed its own criteria for credit decisions. Affirm collects personal information from the consumer, such as mobile phone number, date of birth and name, and checks that information against several consumer-information databases to assess the consumer’s creditworthiness. Affirm does not disclose which databases it uses.
After consumers are accepted, they see the exact amount of each monthly payment and the date when the last payment is due. Levchin says the service adjusts the interest rate based on the consumer’s credit profile, offering shoppers with higher credit ratings lower rates. Affirm sends e-mail and text message payment reminders to consumers, and consumers can also set up automatic repayment by linking their Affirm accounts to bank accounts.
One early adopter has been mattress e-retailer Casper Mattresses. Its relatively high price tag—Casper’s average order value is $900—makes the retailer a good fit for Affirm, says Brad Selby, Affirm’s chief revenue officer and PayPal alum.
Traditional bricks-and-mortar mattress retailers use financing, but Philip Krim, co-founder and CEO of Casper, didn’t want to go the that route because he wanted to further distinguish the company from traditional mattress retailers. Casper has been working with Affirm for months, and officially launched the financing option on its site in July. The initial response has been good, Krim says, though he did not disclose any specifics.
Affirm says using credit cards to finance high-ticket items, like mattresses, can cost consumers 40% to 60% more. For example, on the purchase of a $2,000 couch, consumers with 700 or better FICO scores can save as much as $219 in fees compared to revolving credit, and consumers with FICO scores under 700 can save up to $464, the company says.
Most of the consumers using Affirm have fallen in the millennial age range, 18-35, which is what Affirm was expecting. However, Selby says, consumers of all ages have used the service.
Affirm this summer began a partnership with Cross River Bank in New Jersey, which allows Affirm to finance consumer purchases in all 50 states under the bank’s federal lending charter. Selby says that partnership allows Affirm to extend its leasing terms from six months to 12 months—and even further in the future. “That partnership is a pretty big part of us growing up as a company,” he says.
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