Affirm is a San Francisco-based consumer finance service founded in 2012 by PayPal co-founder Max Levchin (the current CEO), Palantir co-founder Nathan Gettings and Jeff Kaditz, former chief data officer of the gaming company ngmoco.
Levchin decided to start the company because he believes the current FICO credit system, which dates back to the 1950s, is broken and Millennials simply don’t trust it. Noting that an estimated 44 percent of the Millennial generation have said they wouldn’t use a credit card even if they had one.
Affirm uses a new analysis tool which utilizes data science to determine a person’s credit risk more accurately than the traditional credit scoring model, which largely reflects only a person’s credit history. Traditional credit scoring penalizes those with limited credit history and punishes those who miss a student loan payment or get behind on large medical bills.
Affirm allows its customers to pay for their purchases over three, six or twelve months. Interest rates are set by looking at the person’s credit history. The loans are for the amount of purchase only but there’s no fixed limit. The person knows just how much he or she is paying and there’s no compounding interest. Loans are underwritten by New Jersey-based Cross River Bank.
If two people, each with credit scores of 700 or more, borrow $2,000 for three months, the Affirm customer will save $73 versus a traditional revolving credit option. Those with credit scores under 700 could save as much as $238.
The company does expect its customers to repay their loans and will send payment reminders if necessary.
Someone buying their first mattress through Affirm merchant Casper is a typical example. Levchin hopes to expand to those buying used cars, starting a small business and buying a home.
Shoppers signing up at Affirm only need to provide their name, mobile phone number, email address, birth date and last four digits of their Social Security number. Once approved, there is no username or password to remember.
The company already has more than 100 online retailers on board and has made more than $100 million in loans.