Odd Lots

Affirm's Max Levchin Breaks Down How Buy Now, Pay Later Really Works

December 5, 2025

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  • Affirm's core business model is fundamentally differentiated from traditional credit cards by its commitment to never charge late fees and never compound interest, aligning lender incentives with borrower success. 
  • Affirm's underwriting process relies heavily on analyzing current cash flow and transaction data, rather than solely traditional credit scores, and they are the only major BNPL provider furnishing both positive and negative repayment data to credit bureaus. 
  • The primary revenue streams for Affirm are derived from merchant fees (which can be higher than credit card interchange, especially when the merchant subsidizes consumer interest) and, in some cases, interest paid directly by the consumer on longer-term loans. 
  • Max Levchin's company, Affirm, is utilizing Artificial Intelligence for substantive applications beyond simple code generation, such as proactively scanning websites for misinformation and automating contract distribution. 
  • The hosts, Tracy Alloway and Jill Weisenthal, concluded their discussion with Max Levchin on the *Odd Lots* episode "Affirm's Max Levchin Breaks Down How Buy Now, Pay Later Really Works" and provided contact information for themselves, the guest, and the production team. 
  • The final segment of the podcast included advertisements for Mastercard's B2B card payment solutions, 4Imprint promotional products, and Verizon Business mobile plans. 

Segments

Motivation for Starting Affirm
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(00:05:54)
  • Key Takeaway: Max Levchin founded Affirm based on personal negative experiences with credit card debt, compounding interest, and subsequent credit denial after achieving financial success with PayPal.
  • Summary: Levchin’s initial credit card use at 18 led to unmanageable debt and a failed startup, resulting in collection calls and a ruined credit rating. Five years later, despite becoming wealthy from PayPal, he was declined for credit when trying to buy a car. This dual experience of being financially penalized by opaque credit card terms motivated him to fix the ‘yuck’ associated with consumer credit.
Affirm’s Underwriting Philosophy
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(00:09:28)
  • Key Takeaway: Affirm’s product design mandates a commitment to never change the repayment plan and to never charge late fees, forcing the company to focus intensely on accurate, real-time underwriting.
  • Summary: Credit cards profit from the exponential accrual of interest into principal and late fees, creating a misalignment of interests; Affirm rejects this by fixing the loan terms upfront and eliminating late fees. This structure mandates that Affirm only lends when highly convinced the borrower will pay on time, as late payments result in direct loss. Underwriting focuses on actual cash flow capability, potentially looking at bank account data, rather than relying solely on traditional credit scores.
Data Use in Credit Decisions
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(00:14:17)
  • Key Takeaway: Affirm’s underwriting variables are highly regulated, focusing on financial capability while strictly avoiding prohibited bases like race or gender, with new variables influencing the score by only 1-2% at most.
  • Summary: The company avoids telemetry data like how fast a user moves a slider, adhering strictly to lending laws regarding prohibited bases. The most useful factors are numerous subtle variables that comply with regulations, rather than a single ‘magic variable’ that proves brittle during macroeconomic changes. The type of item purchased is considered, specifically questioning loans where the repayment term exceeds the item’s useful life.
Affirm’s Business Model & Merchant Fees
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(00:20:52)
  • Key Takeaway: Affirm’s revenue comes from merchants paying a fee (often higher than credit card interchange) or consumers paying interest, but the company prioritizes transparency and avoids hidden fees.
  • Summary: For interest-free loans (like four $25 payments on a $100 item), the retailer effectively pays Affirm’s cost of capital and profit margin. For longer-term loans where the consumer pays interest, the merchant fee is significantly lower. The core value proposition to merchants is high approval rates and incremental sales, justifying a potentially higher fee than standard credit cards.
Affirm Card and Consumer Loyalty
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(00:30:27)
  • Key Takeaway: The Affirm Card is a dual-mode product (debit or credit) offered exclusively to existing, high-retention users, reinforcing loyalty through its alignment with their preference for non-revolving credit.
  • Summary: The card allows users to switch between pay-now debit mode (for small purchases like burritos) and pre-set installment loan credit mode via the app. This product is highly popular, with 12% of users quickly adopting it, because it serves customers already averse to revolving credit and late fees. Affirm achieves high retention (95% of transactions from repeat customers) by delivering on its promise of transparency and no fees.
BNPL Stacking and Credit Reporting
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(00:35:23)
  • Key Takeaway: Affirm users show minimal overlap with other BNPL providers, and Affirm advocates for all BNPL lenders to report data to credit bureaus to accurately reflect consumer repayment behavior.
  • Summary: Affirm has a decent insight into user overlap via bank account data, finding that Affirm users generally stick with Affirm for their installment needs. Levchin argues that furnishing positive and negative data to credit bureaus is crucial for building consumer credit history, a service Affirm has provided for a decade. Competitors who avoid reporting likely do so because they rely on late fees as a revenue source, which Affirm does not.
AI Deployment at Affirm
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(00:48:36)
  • Key Takeaway: Affirm extensively uses AI, particularly in customer service and compliance, allowing human staff to specialize in complex, non-standard issues rather than replacing them.
  • Summary: AI handles a huge percentage of post-purchase consumer contacts, such as clarifying payment dates or confirming the absence of late fees, which are basic, high-volume inquiries. The finance group is noted as a surprisingly large consumer of AI tools, often for tasks resembling software engineering. Furthermore, AI is used by the legal team to scan thousands of custom contracts and proactively monitor merchant advertising for compliance inaccuracies.
AI Applications at Affirm
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(00:57:58)
  • Key Takeaway: Affirm employs AI for proactive reputation monitoring and large-scale contract automation, moving beyond basic code generation.
  • Summary: Affirm utilizes AI for substantive tasks beyond simple code generation, including proactively scanning websites to identify false claims made about the company. The technology is also applied to efficiently send out millions of contracts automatically. These applications demonstrate productive uses of advanced technology within the finance department.
Podcast Conclusion and Credits
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(00:58:15)
  • Key Takeaway: The hosts provided specific handles for following Max Levchin (MLevchen) and the production team, alongside directing listeners to the Odd Lots newsletter and Discord.
  • Summary: Tracy Alloway and Jill Weisenthal concluded the episode of Odd Lots, directing listeners to follow guest Max Levchin at MLevchen. Listeners are encouraged to subscribe to the daily newsletter and join the conversation on Discord for ongoing discussions about BNPL business models. Ad-free listening is available for Bloomberg subscribers via the Bloomberg channel on Apple Podcasts.
Mastercard B2B Acceptance Ad
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(00:59:38)
  • Key Takeaway: Mastercard offers an adaptive, modular toolkit for merchant-acquiring businesses to enhance infrastructure for high-value B2B virtual card payments.
  • Summary: The B2B card payment landscape is pressuring corporations to accept virtual card payments for invoices, creating a growth opportunity for acquirers. Mastercard provides solutions to support the entire supplier lifecycle, enabling businesses to deepen merchant relationships strategically. Businesses can flexibly deploy this modular toolkit to scale acceptance capabilities.
4Imprint Gifting Solutions Ad
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(01:00:20)
  • Key Takeaway: 4Imprint provides high-quality, customizable promotional products backed by a 360-degree guarantee ensuring on-time, on-brand delivery.
  • Summary: Gifts serve as a critical message reflecting a brand’s values and attention to detail in business relationships. 4Imprint offers thousands of customizable products, including drinkware, apparel, and smart tech, supported by expert assistance. The 360-degree guarantee ensures that all gifts arrive exactly as expected and on schedule.
Verizon Business Mobile Plan Ad
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(01:00:50)
  • Key Takeaway: Verizon Business My Biz Plan allows contractors and small businesses to customize mobile plans, paying as low as $25 per line for exactly what they need.
  • Summary: Verizon Business promotes its My Biz Plan as a solution for businesses, like contractors, who only want to pay for necessary mobile services. New lines can achieve a price as low as $25 per line when five or more lines are active, including autopay and paper-free billing discounts. This offer is valid for new lines only and is subject to specific terms and end dates.