Author | Chinasoft Net
Proofreading | China Software Network Chen Yang
As the epidemic worsens and spreads, contactless payment methods are being widely adopted around the world. Even the United States, known for its complete credit card system, can hardly resist the surging trend of mobile payments. In order to meet the surge in online consumer demand, online consumer lending represented by virtual credit cards is setting off a trend of change.
And the best of these is the upcoming financial technology unicorn Affirm, which combines consumer finance with mobile payments to provide "cheaper, transparent, and honest financial products to enhance loan trust."
The epidemic is bringing an economic crisis to American residents and also prompting them to become more self-disciplined about debt. Consumers are rejecting the minimum monthly spending in the credit card industry, trying to get out of the abyss of indefinite borrowing. Affirm's transparent and honest virtual credit card business model avoids the advantages of late fees, deferred interest and punitive interest rates, and is accepted by more and more consumers.
According to Affirm's prospectus, its service users have exceeded 6.2 million.
In 2020, Affirm achieved sustained growth in the first, second and third quarters. During this time, consumer fintech unicorns set records of US$138.2 million, US$153.3 million and US$174 million. But perhaps the most powerful thing is that as of September 30, Affirm's net loss fell from 30.8 million U.S. dollars in 2019 to 15.3 million U.S. dollars in 2020, and the loss quickly shrank by nearly 50%.
Who is Affirm
Affirm was established in 2013 with a mission of "providing transparent financial products to help improve people's lives" and is a financial services company dedicated to challenging traditional credit card payments. There are three major solutions: consumer-oriented point-of-sale payment solutions, merchant business solutions, and consumer-oriented applications.
Affirm has built a technology platform. Cross River Bank will issue loans by evaluating user loan applications. When users place an order, Affirm pays the merchant in full. Affirm itself does not have a payment license. Consumers can use Affirm to realize 3-36-month installment small consumer loans, with an APR (annual bank loan interest rate) of 0%; for merchants, cooperation with Affirm can not only avoid risks such as default transactions, but also rely on Quickly match transactions to expand consumer groups and improve sales performance.
Affirm bears the additional cost of credit reports through credit checks, and helps customers establish regular credit, and establishes new qualifications for users with credit qualifications to obtain regular credit card use rights. More than 80% of Affirm's users come from young people of the X generation and millennial generation. According to Bankrate data, about 63% of young people do not have a credit card. This is mainly because after the subprime mortgage crisis, the US "Credit Card Act" imposed strict card issuance conditions.
2013 is an interesting time node. This year, the number of Alipay real-name authentication users exceeded 300 million, and the peak number of transactions per day reached 188 million. At the same time, Paypal, which started as an online payment, did an interesting survey (83% of respondents in 5 countries said that they would not have to carry a wallet), and acquired Braintree to start the release of the mobile application solution One Touch.
Two years later, Paypal launched the installment payment service in the United States, Klarna entered the United States, and Ant Huabei also officially launched.
According to the 2020 Sensor Tower survey data for the US installment shopping (Buy now, Pay later, BNPL) application, the top four rankings are Klarna, Affirm, Afterpay and QuadPay. It can be seen that, similar to the environment where Paypal originated from the credit card payment monopoly, Affirm's position is also advanced in the industry.
Affirm founder Max Levchin is also one of the co-founders of Paypal, and after PayPal, he has also become one of the founders of LinkedIn, YouTube, Slide, Yelp, Yammer, and SpaceX. Max Levchin's entrepreneurial history is a history of rebuilding new methods while constantly destroying old methods.
Destroy and rebuild
Max Levchin hopes that Affirm's efforts can force credit card companies to change their business models. In his view, the problem with current bank lending lies in "taking loans as a means to an end, not the end of the loan itself."
Therefore, what Affirm should focus on is to solve the problem of debt mathematics for ordinary users. Affirm’s credit model and its association with customers are designed to help determine whether a user’s loan amount exceeds the actual affordability. The difference from traditional credit is that Affirm believes that leverage is good, but debt is bad. Affirm establishes a feedback loop by clarifying lending information, evaluating the constantly changing information of borrowers, and continuously optimizing users' lending models, encouraging users to have zero debt and savings.
Affirm’s competitors come from many sources: payment methods provided by credit card banks (such as Synchrony, JP Morgan Chase, Citibank, Bank of America, Capital One and American Express) provided by wired payment; there are also technical solutions provided by payment companies such as Visa and MasterCard ; There are also mobile wallets, such as PayPal; other on-time payment solutions provided by companies such as Afterpay and Klarna, and new on-time payment products provided by old financial and payment companies (including the aforementioned companies).
However, despite the crowded competition track, Affirm still has two good cards:
data.
The establishment of Affirm is inseparable from the data. Max Levchin has always focused on using data. After leaving Google in 2011, he continued to invest in analytics and data-driven companies (for example, according to full disclosure, his early shares in MixPanel), and served on the boards of major Silicon Valley companies such as Yahoo and Evernote. .
At the same time, Max Levchin rebuilt a semi-laboratory and semi-incubator organization and renamed it HVF Lab, which stands for "difficult and valuable". According to the website, HVF promises to "relentlessly look for opportunities to create value through the use of data." Max and HVF established Affirm to become the next catalyst to advance the status quo and rebuild the medical, information sharing, and financial industries from scratch.
According to the prospectus, Affirm's expertise in platform data acquisition, aggregation, protection and analysis is a core competitive advantage. Use data to provide information for analysis and decision-making (including risk assessment) in order to enhance the capabilities of consumers and create value for business customers and funding sources.
At the same time, Affirm is assessing traditional credit scoring data (such as transaction history and credit usage) to predict repayment ability and using it in conjunction with real-time response data. With proprietary data advantages in accessing and utilizing SKU-level data.
Establish a risk prevention and control system to compete with FICO.
Affirm is trying to break the monopoly of FICO (American Personal Consumer Credit Evaluation Corporation) credit scoring by building a complex credit insurance algorithm.
Unlike traditional payment and credit systems, Affirm can assess risks in transactions. In other words, in the integration with merchant partners, Affirm can consider the products consumers are buying when evaluating credit applications, relying on a proprietary risk model to increase the transaction approval rate, and the fast transaction Affirm brings merchants More profit.
According to a research data from Informa Business Intelligence, Affirm has an average approval transaction rate of 20% higher than other similar competitor products.
Supported by a steady stream of new data, Affirm's risk model is expanding and the efficiency of credit evaluation is improving. Affirm has completed the pre-defined risk level of credit risk with a highly credible reliability assessment capability, which makes Affrim's weighted average quarterly delinquency rate for 36 months to be approximately 1.1% as of September 30.
Is it a fancy dress or a challenger?
Although Affirm looks great now, the risks are still worrying. In addition to its partnership risks (for example, Cross River Bank is its main loan originator, and income from fitness equipment retailer Peloton accounts for nearly 30%), in many respects, Affirm is in its infancy.
According to Worldpay's 2020 Global Payment Report, "Buy now, pay later" is the fastest growing e-commerce payment method in the world. In North America, by 2023, the "buy now and pay later" market share is expected to triple to 3%. The e-commerce payment market is expected to grow by nearly 10% by 2023. Affirm's transaction sales in 2019 only accounted for 1% of the total US e-commerce.
The huge market undoubtedly provides Affirm with opportunities to grow. The Wall Street Journal reported in July that Affirm’s IPO stubbornness could be as high as $10 billion. According to Pitchbook data, Affrim has raised $1.6 billion in equity.
Affirm hopes to create a seamless payment ecosystem based on itself and create value by creating economies of scale, increasing profit margins, and connecting more consumers with merchants. So far, Affirm has raised more than US$1.5 billion in financing, which has injected a strong momentum into its development.
The charisma of the founder will also push Affirm to go further. And slightly different from previous entrepreneurial habits, Affirm was given high hopes by Max Levchin. To this end, it also clarified the business model, not to make a profit by providing loans to people who can’t really repay the loan, but to become a mortgage or investment tool that shoppers will ultimately trust. His vision for the next decade is to expand to more other financial products.
Affirm’s recent commercial agreement with Shopify and Adyen can be regarded as a turning point: The company is not simply trying to become an installment plan lender, or the next generation to replace debit and credit cards, but expects to increase short-term, low-cost The combination of average order volume products provides more flexibility and convenience for payment, and connects SMEs to expand business diversification. The new cooperation will become a new fulcrum for their development.
With the approach of listing, Affirm will still be in a stage of rapid growth. So in the near future, will Affirm be a successful challenger in the credit market? Or does it end up being acquired?