‘Buy now, pay later’ group Affirm backs tougher rules for the ‘Wild West’ market

The “buy now, pay later” credit industry would benefit from more regulation to help standardize an increasingly crowded market, US consumer lender Affirm’s CEO told the Financial Times.

BNPL rose in popularity during the pandemic by offering customers the option to pay for online shopping in installments. This has helped fintechs such as Affirm report triple-digit percentage growth in balance sheet assets, while many traditional lenders have struggled to expand their loan books.

Affirm offers loans with interest rates from zero to 30 percent at no extra charge. Max Levchin, who founded the company in 2012, said he would support regulatory measures to improve disclosure and eliminate “hidden” fees such as late payment and transaction fees.

This would help make an industry that is a “wild west” on the outskirts more mainstream, he added.

“I do not think it’s great for consumers to use one of these products and say ‘oh, so I tried this BNPL thing, I thought it was zero percent, but it was not because I got this startup fee,'” Levchin, who was also a co-founder of PayPal, told FT.

Earlier this month, Affirm reported revenue in its most recent quarter increased 55 percent from last year to $ 269.4 million. It also expanded a partnership with Amazon.

At the same time, its loss for the quarter rose from $ 3.9 million a year earlier to $ 306.7 million, partly reflecting higher share-based compensation following its IPO earlier this year.

Levchin said the company considered itself a high-growth technology company, and “in that world, we are very comfortable being a loss-making company”.

He believed that the growth of BNPL would continue, partly because it was a new payment method online and was still used only in a small portion of the transactions.

“If in five years we are not a leader in our field and we no longer have the advantage, we will be displaced. Then shed a small tear for us and move on,” said Levchin. “But if we continue to get better, believe I do not, we have too much to worry about. “

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BNPL’s rise in popularity prompted Affirm to go public in the United States this year. Its market value is about $ 33 billion, more than 10 times its valuation in a private fundraising round in 2019.

The sector is very easily regulated compared to other consumer lending, but regulators are starting to worry about market security and the potential for consumer harm as it grows.

Affirm prides itself on being transparent to customers. It is one of the few major BNPL providers that does not charge late fees, and although lending information rules on the cost of credit do not apply to most short-term BNPL loans, Affirm said it provided the information anyway.

It is also one of the few BNPL providers that share data with credit rating agencies such as TransUnion and Experian. Levchin said relationships with consumer credit monitoring agencies could be mutually beneficial.

How the small transactions typically associated with BNPL should affect credit scores remained an open question for the industry, he said, adding that some rivals did not report information to credit bureaus.

“I think that’s not the right way to do it,” he said. “It’s something that should definitely be there both to protect all parties and to help people build credit.”

This article has been amended to correct Affirm’s revenue in its most recent quarter and to address the causes of its quarterly losses

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