This year, your holiday shopping mall excursion will feature an unprecedented array of payment options (it is, after all, nearly 2016). In addition to cash and credit, we have things like wireless mobile payments and even the ability to pay using our watches. Now we can add another.
PayPal cofounder Max Levchin has a new option to add to the mix: on-the-fly credit loans with fewer fees and more customer transparency than traditional credit cards. Affirm, Levchin’s latest startup, is bringing its installment payments from e-commerce to physical retail stores.
That’s just one of the announcements Levchin is making today at the Money 20/20 conference in Las Vegas. In addition to making its instant loans available IRL at cash registers at select, as-yet-unnamed merchants–powered by a new partnership with payment-tech giant First Data–Affirm is also bringing its installment payment plan option to over-the-phone purchases made with partners like Modloft and Coleman Furniture.
It works like this: works like this: When the customer makes a purchase at a retailer that accepts Affirm payments, they give the cashier their phone number, which is entered into the store’s POS system. The customer is them prompted to enter basic information such as name, birthday, and last four of social security number on their smartphone. From there, Affirm’s algorithm checks against a wide array of data sources to determine if they are likely to repay the loan (this goes well beyond the typical FICO score, but the company wouldn’t comment on which data sources are used). Within a matter of seconds, Affirm will approve or deny the loan and, in the former case, give them the option to repay it within three, six, or 12 months.
So why bother with Affirm when credit cards exist? For one thing, Affirm’s director of marketing Ed Lin tells Fast Company, the company aims to be more transparent than their traditional counterparts. Upon making an Affirm-backed purchase, the customer is explicitly shown how much interest they will be required to pay and what the monthly payments will look like.
The Affirm process, Lin says, will be less expensive than traditional credit cards thanks to lower APRs and a lack of late fees (not to mention a lot fewer of those sneaky fees credit card companies sometimes slip into customers’ bills).
Affirm is hoping to court people with thin credit profiles, such as immigrants and millennials who have chosen not to use credit cards. By pulling in what Lin calls “thousands of data points” beyond one’s FICO score, Affirm is able to get a broader, more accurate idea of how likely each applicant is to repay their loans. Hopefully the machines are right, because each defaulted loan is another loss on Affirm’s books.
There’s evidence to suggest that Affirm may also be advantageous for vendors: Early research suggests that the availability of cheap, short-term instant loans increases the odds of somebody actually purchasing something. That means more money for retailers and, if all goes according to Levchin’s plan, fat profits for the fin-tech startup.