If you were born and raised in the United States and you decide to move to another country, one of the first things you’ll notice is just how focused Americans are on accumulating “stuff”. In fact, a great deal of motivation to make money appears to be that we observe people with money have more stuff. Some people go to great lengths to appear wealthy by buying designer clothes and a flashy car when the truth is they don’t have a pot to piss in or a window to throw it out of. Unfortunately, this sort of mindset is often rampant where there is first world poverty. One thing that encourages this sort of behavior is the availability of dirt cheap credit which people avail as if it were going out of style:
Looking at these various categories of debt, we see that not too many people are taking our advice and buying used Toyotas. If you choose to buy a brand new car instead of a used one, and you don’t already have millions saved up in the bank, you are just throwing money away. Student loans are fine if you completed a STEM degree but if you dropped out because nobody was recognizing your inner genius, or you majored in underwater basket weaving, then the closest you’re getting to a career in STEM is writing about how few people there are like you in STEM. (Of course the irony will be completely lost on you.) Mortgages aside, from where we’re sitting, 22% of the debt seen in the above chart is uncalled for. So why does it exist?
Not surprisingly, there is a lot of easy money to be made in loans. If we look at the CB Insights list of unicorns, we see 211 of these mythical creatures grazing in a field of rainbow colored grass. If we break these unicorns into categories, here are the top-3:
- eCommerce/Marketplace – 16%
- Internet Software and Services – 13%
- Fintech – 12%
When we drill into the fintech category, we see that just over half of the companies are based in the USA (13 fintech companies). Of these 13 fintechs, almost half are enabling people to spend money they don’t have:
- Social Finance – $20 billion in loans funded (vs. just $1.45 billion in savings)
- Credit Karma – Helps you see how much money you can borrow
- Greensky – Instant credit decisions
- Avant – Personal loans using artificial intelligence (AI) for credit scores
- Prosper – Loan money to your neighbors so they can buy more isht
- Kabbage – Loan money to small businesses at ridiculous rates
Sure, there are people who have $50,000 in savings and take out a $10,000 loan to remodel their kitchen. There are exceptions to every rule, but in this case we would feel confident in saying that most of the people who use the above services are spending money they do not have. While all of the above companies have their own ways of getting people to take out loans, nobody does this better than Affirm.
Founded in 2012, San Francisco startup Affirm has taken in a whopping $420 million in funding so far from high profile investors like Andreessen Horowitz, Khosla Ventures, Morgan Stanley, and Peter Thiel’s Founders Fund. It’s no surprise that Mr. Thiel invested in Affirm because their CEO, Max Levchin, is someone with whom he founded Paypal. Originally in the States on political asylum, Mr. Levchin doesn’t quite have the brand name as other members of the Paypal Mafia like Elon Musk but a quick look at his CV should make you feel like a total underachiever. These guys have entrepreneurial talent seeping from their pores, and Affirm has all the makings of yet another success story.
Simplicity, transparency, and accountability are all words you see plastered all over the Affirm homepage with a mission statement that looks something like this:
We’re focusing on improving the lives of everyday consumers with less expensive, more transparent financial products.
Lots of things to unpack in that statement, but if this involves changing interest rates into monthly fees because “millennials don’t understand interest rates” then we’re less than impressed. We decided to give it a go and chose one of the +1,000 merchants that Affirm supports. In this example, we decided to buy a robot vacuum from iRobot so we can clean up all the avocado toast crumbs in our office. In the long run, it’s cheaper than a maid and we don’t even need to learn Spanish. When we arrived at checkout, here’s what popped up:
When you finally get to the payment page, there are three options:
- Credit Card
The ability for Affirm to be right there at the point of purchase is what puts them in front of everyone else who is trying to finance purchases. When you select Affirm, then you’re required to create an account after which your ability to pay is assessed. This is where the technology part comes into play. Regular readers will recall our article on “AI Fintech Startups Offer Loans on New Credit” where we briefly touched on Affirm’s ability to use artificial intelligence for assessing your ability to pay by using a “soft credit check” which oddly enough “may ask you to link your online checking account“.
This is not a revolving line of credit, but rather each transaction is evaluated on its own merits. The transactions are reported to Experian so that you can build up your credit to buy even more isht. For the privilege of instant credit at the point of purchase, you’ll pay between 10% and 30% APR simple interest. In today’s era of low interest rates, paying anything above 10% seems ridiculous. With that said, if you are going to finance something anyway then it certainly makes sense to check Affirm’s rates and compare them to your credit cards which probably charge a whole lot more than 10%. If you’re the merchant on the other side of the transaction, here are some of the perks you will realize by adopting Affirm as a point of sale finance solution:
Affirm is hardly alone in their quest to be the leading point of sale finance provider. Swedish startup Klarna is a $2.5 billion unicorn that has taken in a staggering $521 million to become Europe’s leading provider of payment solutions for e-commerce. Back in the States, another startup based out of New York called Bread has taken in just over $140 million to offer “pay-over-time solutions that make financing easier and more transparent“. There are likely to be other players in this space as well that will be emailing us shortly asking why we “missed them”.
People don’t like to hear this but all those billionaires you see made their wealth because they worked extremely hard and they were ruthless. Yes, we’re looking at you Mr. “They trust me – dumb fcuks” Zuckerberg who spends his time these days touring the country and visiting with all the… dumb fcuks. As long as people are willing to not exercise any sort of financial prudence whatsoever, a company will be waiting there to
take advantage of them help them finance their dreams. Nobody is closer to the point of purchase than Affirm is. So go ahead, take out some loans. Buy some stuff you don’t need. After all, the fact that you have the ability to buy all those things is what makes America such a great place to live.