The Guest: Affirm

Edited by George Drake, Jr.

Music by Lucas Brahme

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The Loose Threads Podcast explores the intersection of consumer, retail and commerce. Hosted by Richie Siegel, the founder of Loose Threads, each episode features an in-depth conversation with one guest about their founding story and how it fits into the current state of the industry. Guests come from all different backgrounds, spanning the consumer goods, fashion, retail and technology industries. The unifying thread is always the rapid change facing the industry and how entrepreneurs are responding. You can listen to the podcast on any player of your choice, in addition to on LooseThreads.com.

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00:00:07welcome to the forty third episode of the loose threads podcast a show about the rapidly changing consumer economy this episode is brought to you by loose threads Intel a new company we just launched his membership and powers brands investors and real estate developers to capitalize on the rapidly
00:00:23changing consumer economy learn more at loose threads Intel dot com we also have a new newsletter called record which highlights one important development each week and helps you escape the noise learn more at loose threads dot com slash record joining me today is Max Lufkin a co founder
00:00:40of a firm accompany redefining consumer lending bringing much needed transparency to a space that is usually riddled with predatory lenders even if it takes an incremental amount of work for us or we can charge some fees that the industry enjoys charging we would rather forgo all of those
00:00:56benefits and fever off treating the customer better than everyone else affirm focuses on point of sale lending an option available to shoppers who want to finance a big purchase such as a table or a bike affirm make it simple and easy to take out a specific loan for
00:01:10these purchases and pay back over time my talk with backs logic and talk a bit about your background we can do the British version because yours is probably one of more impressive once of anyone I've ever talked to give us like a three minute background and we'll work
00:01:28our way up to a firm where I would love to spend most of the episodes today so I started a company in college none of which succeeded move to Silicon Valley in nineteen ninety eight which was just as the first dot com wave was starting to crash and
00:01:43burn meant distributed he'll co founded PayPal with him or the company became PayPal eventually the bell name came after the merger with extra comes on Peter you on and I were the progenitors of that after PayPal was refers to the public and we sold it to eBay or
00:01:58it was acquired by eBay but a year into the public eye left R. E. tried my hand at a bunch of other ideas ultimately ran another company called slide that I co founded while also investing and co founding other projects bath wounded okay he was acquired by Google
00:02:16I spent a year at Google trying to help a little bit was their social strategy but ultimately decided that I had to go back to building my own things and half truths that started a company called the firm which is what I spend all my time on now
00:02:31but in addition to that I also still invest in startups and have a fairly significant role in the women's health company called glow so for my understanding affirm came out of a tree off right and so talk a bit about what each VF is and then we can
00:02:46kind of work our way to its creation so if it's not the first incarnation of this concept I realized that if I. E. sort of sit around on the couch at home between companies I am not likely to create anything productive in fact I'm more likely to frustrate
00:03:05my wife and potentially cause real damage to my family and so first thing I do when I serve recover from the project successful or otherwise I immediately go out and rent an office and also figured out years ago that I really work much better on the create a
00:03:22lot more productive from surrounded by smart people that challenged me to bait me are there to get excited about something maybe build something really quickly to see what things look like and so between companies between projects I typically build to sing that I've taken to calling my lab
00:03:38or my labs and they always have weird obscure names the one before HBO for tomorrow but this one is the chief and the explicit purpose for H. B. F. has been to start the next company that I am going to work on little sister other cool companies and
00:03:54so a firm came out of each the F. in the process of brainstorming around why lending is broken how things could be done better there as well as did glow which came out of the competition around White House insurance so messed up there's another comical divvy which we
00:04:11just find out of a tree F. which was a result of a long project into understanding why a real estate is so unacceptable to young people that are so do you have a still going this incarnation of the labs really seems to hit its stride so it felt
00:04:28foolish to shut it down after I took off to Russia for full time and so I asked a friend of mine been John who have known for a long time since before PayPal to come in and run it because his full time gig and he's now off to
00:04:41the races building in another cool project but tomorrow denied jobs a firm where did a firm come from like what were some of the kinda earliest conversations you had about it and how did those progress over time so I've heard was co founded by a little E. a
00:04:55bunch of CEOs there is a three C. heroes that myself included %HESITATION city of paper obviously but the city of Palo interior CTO another data related company three of us were served debating the future of underwriting primarily from the point of view of data we really were interested
00:05:16in figuring out how will all turn of data which was I talked about thing secure seven years ago when we started this and now of course is very commonly used topic the question of how far will it go will result in meaningful changes will the world just operand
00:05:33ficus core like it always has can something be built that significantly better than Michael everybody who use like we've actually says well this is great but I can see a few more things about my customer so I can go farther lend money to more people enable more transactions
00:05:47the question was well could we do something a lot more a lot thicker a lot more exciting and then at some point a question became well who would want this you know this is great and all to talk about how people need to borrow money but the real
00:06:00question is we went to the actually need you know this point lending club was a thing and prosper the thing so there's plenty of fintech innovation going around Sir want to see it will be a good place to test the city's core that we have and another one
00:06:13of our fourth musketeer who had a lot of experience in payment processing just like I did essentially said well you know what if you offer someone alone at the point of sale there could be a meaningful impact on merchants ability to close transactions to bring incremental new volume
00:06:31that they wouldn't otherwise have there's lots of people out there windows big research report that just came out of the time showing how millennials were not interested in credit cards in it as much as their parents were how they were opting out of the credit card system how
00:06:43they're choosing debit cards primarily because those are easier to understand not necessarily because they didn't see the benefits of pro courts but because they saw the opposite of benefits lack of transparency inability to estimate trip cost lack of conviction that the bank has the best interest in mind
00:06:59understanding that if you make a small mistake it might cost you a lot more than he originally expected closing combined you basically had a server thesis around maybe we could find merchants that would benefit from the ability to land instantly to a buyer who would otherwise be a
00:07:15window shopper and that's really origin of Fuhrman which are fairly casually waded into that five years later seems to bring out pretty well that's great so there is a clear kind of not consumption your scene especially with kind of younger customers that started kind of factor in there
00:07:30so I'm curious to know what that first year was like like who was the first merchant who said yes to this how many people so now what were the early days like to for a yield a sweet barely understood anything about retail so I had to learn and
00:07:43is that militarily Truman two of the four people work at PayPal together one more that is on point of sale start up so when you little bit more about retail than that I just claim but we certainly didn't know that much about point of sale retail we certainly
00:07:58didn't really understand the finer points of point of sale credit promotional finance it's it was I I had to learn a lot about a lot there sued the original merchant whom we owe a great debt of gratitude and I still think to McEnery time I see him was
00:08:14when her flowers and they give us a shot basically on Jim's enthusiasm he heard the concept which I pitch that haven't had met him a couple years earlier and said Hey I have this idea and he was incredibly enthusiastic like the sounds awesome let's try to give it
00:08:29a shot you know we were fairly careful with it a little bit of all you did a little bit of promotion on their site and definitely had a whole bunch of flaws in it for example we didn't really understand where the projector borrower should really encounter this information
00:08:46and so to avoid adverse selection to also avoid basically showing people that finances available too late down the line so we we made a lot of user fees mistakes we made a lot of pretty silly sections about human behavior but what we saw this for the early signal
00:09:03was that people were really excited or a lot of people that said I have no idea who you are and we can energize the fact that you know some the founding team had a big hand at PayPal we just sort of looking at we are firm were brand
00:09:15new gives a try the only thing will promises that the price we put on the screen is gonna be the only price to pay naga charge late fees not gonna try to trick you into an interest the changes we tell you if you're pressed for his interest twelve
00:09:29months later you will %HESITATION zero if you treat us like responsible adults we will never do anything less than that to you and that sort of user interaction had a very powerful effect on us we were much more doubtful concerned was this question will people react positively to
00:09:49this notion of this is honest finance or will they just be sort of a yeah you know trust me I've I've heard all those stories from other banks before in the United bank we don't know anything about you guys so yeah forget you and either because people have
00:10:05been wrong enough times and in the age of Twitter every wrong is very public or because we do a good job explaining what our true costs will be because there anything to hide we actually got a really good up take very early and so we alternately able to
00:10:23say to other merchants Hey look here's what it looks like when it's implemented super intrusive it sits in your check out flow as an option and when we need to make an underwriting decision we ask for a couple of pieces of information we don't ask for even the
00:10:39full social security number we just need the last four digits to confirm we'll make an underwriting decision instantly and we absorb all the risk when the consumer we approve cannot pay chooses not to pay a does something that ultimately disables ability to pay it we will stand behind
00:10:56the transaction will settle with you instantaneously and then the rest of us and that sort of kick this off in their first year of a lending operations and it's been growing since was a result that the lack of transparency and dislike the trust that in a way was
00:11:12so bad in the space that even as a totally unknown party you could come in and offer something better and people took to it pretty quickly it's hard to tell exactly what is the negative space that we filled but I think there's definitely part of that I think
00:11:26one of the sort of very early realizations we had was people are very used to evaluating things based on a P. ours and there's plenty of law and breaks that say you need to disclosure a garden of course we didn't we do but right after we launched flying
00:11:42to New York to talk to some potential backers for our warehouse facilities in retail world it means something else entirely but in that feel warehouse facility that's a way to borrow money against the loans that you've generated and so we're flying to a financial partner to talk about
00:11:59our barring ability with them I told our CFO Hey we're six hours from Texas between York to winter face kind of late I don't really know how to calculate true cost of a loan if I know the PR pretty simple right of a thousand dollar loan it's a
00:12:14sixty percent a PR and it's %HESITATION nine months so it's not a year I know it's not really how to sixty dollars what is it into the wifi enabled fight without a calculator online we serve figured out what that number was remember anymore by Sir substituting these numbers
00:12:31and getting okay here's a number they want now that we who have these the remaining five and a half hours can work it out on a piece of paper or an excel or or anything like it they can we get the same number but how do I know
00:12:43that's the right number I just use some online tool to tell me what it is I don't know how to calculate this thing exactly I kind of know what it means but I don't know precisely what it is and we proceeded to do for the next five hours
00:12:53until in him would never cut it right it was I guess some point we sort of Kevin researching and reading up and eventually got it within like ninety cents but we're still ninety cents off of the so which goes to show that if two people that are in
00:13:07this lending business one of which has done a lot of financial math at people in the other has done it in a P. firm ultimately ended up giving up ninety does not a lot of money in the context of a thousand dollar bill but it's frustrating to not
00:13:22be able to even understand where exactly the money go how do you think most consumers feel when they're presented with a credit card Steven saying you're a PR is thirteen ninety nine and the starting next year it's going to change to fourteen ninety nine of the minimum payment
00:13:35of so and so on an annual fee of accidentally fee of wine a penalty P. R. Z. to remediate Lee just shut down and so you know what I have no idea what the status and so part of what we did was that well you know what what
00:13:46if we told you here's the APR and we eventually figured out exactly how to calculate the stuff and build systems that could do it for us Barry precisely down to fractional penny of course because that's part of being a blind all the rags but in addition to sort
00:14:00of being perfectly compliant why don't we also just express our prices in dollars what if we told someone here's your principal here's your interest here the P. R. and here's what it actually meets by the end of the loan period you will have paid back this many dollars
00:14:17plus as many dollars and that's it and within that was very powerful set of assumptions one is you can't extend people past the point of their chart even if their lead a little bit even if there's some sort of a irregularity was %HESITATION payment schedule you commit that
00:14:33you're not going to change the troop total price and that requires a lot of financial assumptions and changing of the math that goes into it and we were from the very beginning extremely non compromising in our point of view that the end user has to have an amazing
00:14:50experience they have to walk away thinking whether the got rejected or approved for a loan most difficult thing to do in lending is you have to give someone a very robust reason why we can't borrow money and it is required by the regulators that you disclose as much
00:15:06as you possibly can why they can't bar according to your underwriting models but what isn't required although perhaps it should be or to to good idea anyway you also have to treat it like a human being when you are rejecting someone already approving someone they need to know
00:15:21exactly what they will %HESITATION or why they couldn't borrow to editor and so we always to the position that even if it takes an incremental amount of work for us or we wind up making less money or we can charge some fees that the industry enjoys charging we
00:15:38would rather forgo all of those benefits and fever off treating the customer better than everyone else and so incredibly high NPS score of eighty two largely based on this non compromising on comfort writing point of view that if we can't explain it if we can show it in
00:15:54a one or two lines of very large text we would rather not venture there and so that was probably over time the biggest thing but I think initially he was partially I think the fact that the industry has just prejudice self enough times to be seen as generally
00:16:11a bunch of liars and having someone who says I'll stand by these numbers no matter what was very powerful but the other thing that's very hard to underestimate is one her flowers and the subsequent merchant said you should give you guys a try their real we endorse them
00:16:23they're our friends on the other hand we always made a very strong statement that we want our name in the transaction we don white label we have the last white label in part because we learn very early the merchant is not a lender and they don't want to
00:16:39be a letter that I want to deal with and rightly so they should not deal with customers calling and saying Hey I can make my payment today he can I please do it next week or something along those lines but also customers don't necessarily want to pay back
00:16:52a lender whose name they don't remember and so we've always insisted that the interaction of the consumer is truthful where its motion axe and the firm are offering this loan and you will have to pay money back to for companies of all those things and probably a million
00:17:07other ones ultimately resulted in us taking off one I guess decisions I'm curious about is how you landed on we're gonna do the POS side verses I guess the general card side right his wife is one of the cars as a macro which is you have interest on
00:17:21your general statements and kind of all that I assume there's something plane into the transparency thing which if you want to do it almost on a transaction like level kind of what was some of the thinking that went into that and how was I kind of freaked out
00:17:32the industry of point of sale lending started out many years ago many years ago at this point lending money in the wake Carl interment the modern way of doing point of sale lending until firm came along is let us give your card and sometimes can be a card
00:17:50that's only useful in the story the card is issued circle private label card or can be a co brand where it's a store card but it also works as a visa MasterCard and their banks that will provide partnerships to enable those in either direction we ran into fairly
00:18:06early into strong sort of evidence that young people are essentially saying I certainly don't want a card that only works in one store today I'm gonna be shopping here tomorrow there this just isn't worth my time the credit look up the embarrassment of applying and potentially getting declined
00:18:25but most importantly I don't know if I'm gonna come back and of course the merchant typically sees these cards as a great loyalty device and sometimes they are but for a lot of young people its become a nuisance as much as an invitation to come back and the
00:18:39core brand which carries a visa MasterCard amex discover logo on it sometimes is the most wonderful thing where the consumer says you know I have been thinking of getting a new credit card and this particular store this particular merchant online is just you know the top somewhere I
00:18:55shop all the time be great to have a deeper relationship I I would like to collect my rewards and my points and cash to men and analyze and so it's a perfectly sensible model however if you already have all the cards you're gonna need in this part of
00:19:09the life those folks basically say well I would finance this item but I'm not gonna put on my credit card for whatever reason maybe I'm too close to maxing out my limit maybe I know the number of all the you know and rolling any more maybe my car
00:19:22cars for mercy purposes only which is kind of how a lot of young people see credit cards they don't like to carry a balance but the understand sometimes you must and so having a card handy is good using it a lot is not debit card is really what
00:19:33serve lunches and dinners going to but occasionally borrowing it to return mon formats installment loan is really really handy and as we started testing this notion of honest finance show people exactly what they'll pay not changing the price not charging any kind of unexpected feeder any fees at
00:19:55all we realize that the term loan really lends itself beautifully to that because you can say it starts and stops it's only for this purchase there's no liner card or anything afterwards and when you're done you're done and if you don't like the experience even though we hope
00:20:10you'll come back there's no obligation you don't have to cut up your card and make sure you don't owe anymore money it's four by time you're done there's nothing left we initially he didn't expect it to be quite a powerful but over time it became a huge differentiator
00:20:25who were people would say I would not have borrowed money had been offered to me a former liner card but the fact that this really just covers of purchase I don't have this is a great quote from one of our earliest customers saying I I asked the person
00:20:40in the survey but this was like conducted over the phone why did you choose a firm verses %HESITATION point of sale offer card and the woman said forget a new credit card it'll lurks in my wallet and it encourages me to spend and I don't want that at
00:20:55all I just wanted to finance this piece of furniture and and be done with it and so that's a part of this honest finance of true transparency simple to understand lending doesn't mean that point a silly should cards are inherently terrible in fact some of them are wonderful
00:21:13products but I think there's a lot of room for this is as simple as buying a car when you're done you're done so I want to talk I guess about the brand building peace a bit in the white label part %HESITATION talk a bit about like the journey
00:21:25of of realizing the power and the need to kind of build a brand for that trust point and then also kind of the decision that you wouldn't white label because I would assume you'd encounter merchants who are adamant that we don't want this thing on our site you
00:21:37know we want to retain our brand and how you kept the position %HESITATION strength and it based off of all the you know evidence you have a lot of our customers are small and medium merchants we now have a bunch of very large ones as well and so
00:21:51those conditions are certainly a lot more of them because they invested a tremendous amount of time and effort into their brand and they they don't take it lightly but for a lot of the smaller folks the brand as we grew became as much of an endorsement from them
00:22:04to us as the other way around typically they would hear about us from their friends and started because system and say Hey these are firm guys they're meeting the added thirty percent more sales to my bottom line you got to give a try a lot of the retailers
00:22:19of the new retail industry is very very tightly connected every time I talked to one they already know the five other ones that we're we're speaking with ever try to convince and we very often ask for references were very often to Hino can introduce you to the CEO
00:22:34this version because that I think I'll give you a sense for just how helpful we can be and so for a lot of the smallest guys in endorsement another merchant goes a very very long way but the addition of a firm especially as more and more people realize
00:22:49that are in PS is bar none and our treatment of their customers is at least as good as their own Sir became a self enforcing thing was it well we want to say we have in store financing and we are very comfortable with the idea of a firm's
00:23:06logo and suddenly we don't try to take over their logo we were very polite and are affirmation ourselves on their side or in their app but it is very important their logo is seen the other side of it is actually regulatory and legal most merchants of scale understand
00:23:24that if we are completely white labeled the disclosures of who's actually doing business and who is behind these loans and who do complain to it who take up you disputes has to be stated somewhere and so from here is the name of a company you can contact them
00:23:40and the welcome your contact that's what they're set up for three different from having a peach full of very very small print that says would you may have heard of as merchant X. Y. Z. financing is actually not instead there's this other company if you can click on
00:23:54this link and go to their site right and mail a PO box yeah and that that certainly doesn't inspire trust so we we've always taken part imposition of we need to make sure that your customers understand you ship them the goods we take care of the loan we
00:24:12paid for the goods and then you'll have to pay it back over time our name doesn't have to be in glowing letters and giant print but it's important that is there in part because when the first email from us comes in saying Hey you know your five days
00:24:25away from your first due date we don't want people marking the spam and saying oh wait a second have no idea who you are and then for the merchant doesn't want to say merchant X. lending because that's just not true and typically the legal so I'm curious to
00:24:39talk a bit about kind of the like online versus in store piece in terms of I've seen the law goes all over the place online how much of the vision is online verse offline kind of where is it evolving today so we started online only we had a
00:24:54very serve a strong point of view that online is where the future is and then I look it up one day and realize that %HESITATION flights are quite dead despite the %HESITATION significant press insinuation to that effect at still ninety percent the size of online and so we'd
00:25:11certainly realize we have to provide the omni channel of the call it's Lucien online offline phone non sort of a fully operated embedded retail locations so that all these different form factors were sales happen and if we were in the to offer a solution to quote unquote large
00:25:30merchants folks that have started off line and then expanded online it was unsuccessful in both places we have to have an offering that cuts always not just online and so we had built out one by one old those offerings for every different channel and there's a lot of
00:25:46things that is really just ripe for improvement there as you start looking at other channels he realized that attribution and cross channel sales and be able to track a customer that says Hey look at this online but then I walked into the store and then I didn't walk
00:25:59out with the thing that I wanted to get one back online goes a really really long way were anything from sales associate comp two attribution of marketing dollars spent is just profoundly we call it GEV but it's certainly not pro sports and so opening our eyes to that
00:26:18has both allowed us to go to a larger merchants but also create an opportunity to say well they're more things we can do we are just a lender for these folks we're also a partner in more ways than one so it's been very gratifying journey to start branching
00:26:34out and said that they were probably in the %HESITATION act one of ten %HESITATION or fifteen over multi channel on the channel strategy we're still doing majority of our business online other are often business is growing very rapidly whenever disclose any of our numbers but this week was
00:26:50a nice milestone so I'm tracking it enough to be aware of weekly milestones were deeply my or exit this with this with a monthly milestones that we can also use the matter and the milestones matter at this point we're we're seeing an attraction were celebrating once a month
00:27:03seems like a good idea I I think that's a nice kind of segue into talking about some of the results in kind of the inclusivity of what you're working on Ben came into high before he was like you should just ask about like the degree to which like
00:27:14I see you tweeted almost every week now the results coming from surveys in and lifts and conversion rates and all these things did you think it was gonna be as conclusive as it actually is and then talk about how it is so I didn't initially I didn't really
00:27:27know what to expect in terms of conversion one of our theories has always been there are people that say I need a new credit card and the fact we offer one isn't going to be helpful to merchant and it's gonna be hell for the consumer and we can
00:27:41stand by in Java down and say but we have a a product that is more transparent more convenient in the consumer will still say no I actually want a credit card on the other side will be lots of you'll see I do not want a credit card and
00:27:52the question is what is the breakdown between those two groups when you're real plan here is actually purchase a table or a bicycle or something so when we started we didn't really have particularly well formed said assumptions around incremental sales improved conversion rates things like that and then
00:28:12I saw the %HESITATION millennial destruction index study but it had a pretty staggering number and it said sixty two percent of millennials do not want or do not have a credit card I still don't understand exactly whether that's true or just %HESITATION bizarrely true but it was a
00:28:29study that surveyed more than ten thousand people so it was certainly statistically significant and what went up conspiring of courses that typically for a mid sized merchant we can bring anywhere from ten to fifty percent more coils sales combining it with some of the cool promotional tools we
00:28:47built over the years we have times can account for half the sales basically double immersion sales net of any credit card related promos at such and so it had a meeting impact and at this point were sophisticated enough to know that differ merchants different industries different price points
00:29:05different timing of these promos how do you explain this to the customer where and when in there buying journey to actually do this makes a big difference and so you can move from two and a half percent to ten percent incremental sales just by optimizing where it's placed
00:29:20and how you talk about it but the fact that our scores are the original idea behind the company is better and is getting better everyday but also the fact that we do appeal to folks that have no patience for complicate the P. R. as in calculating compounding interest
00:29:37on amortization schedules that they could be bothered to read through and fully understand repeal combined with better under writing much younger looking tech much smoother process much faster underwriting time does seem to have a massive impact so people that are hovering over an item saying you know I'd
00:29:59get it but it's probably gonna wind up revolving and I just don't know what is going to cost me verses I know exactly what it's going to cost me for the next twelve months makes makes a huge difference so twenty thirty percent internal sales in different categories is
00:30:13not at all unusual and were running more more studies early on was very difficult to get anyone to serve publicly say Hey this was like a twenty percent left in part because we became kind of a everybody secret weapon so folks were cautious to tell the competition that
00:30:30affirming tests and we need to get through that and what we try to be very very respectful of motions that mean they're all kind of competing brothers and sisters where they have a cool thing they're trying to bring to market and we have to be very very careful
00:30:44with that data %HESITATION with what we know about that what we know about the industry but a certain scale you become an enabler and the tide that lifts all the votes opposed to the competitive banish from one industry to spend to another and so once we cleared that
00:31:00scale I think became a lot easier to get confirmation and public confirmation shareable confirmation of pretty amazing results that we've been able to bring so I'm curious kind of on a note to talk about like the business model piece because you're having a fundamental impact on people's businesses
00:31:17talk about just like how %HESITATION for makes money today and kind of how you either went as far you did %HESITATION limited it to kind of weird today given how it all shakes out so like any other provider payment type we wind up costing immersion something and cost
00:31:32the consumer something the good news about being a super transparent company what we do is we generally treat those two numbers as a somewhat Porras concept in other words the merchant can say look my margin doesn't allow me to pay a whole lot to our financing partner I
00:31:52think it has to be priced into the consumer interests and so at times we can ask the merchant if they want to contribute to the overall available pool of this risk base price and some merchants are delighted to do it's others are unable to the more interesting application
00:32:09of the same idea where you think of merchant pricing as well as because our pricing is kind of the same continuum she actually go the other way so you know what the motion has enormous amount of margin and some merchants have build really great businesses with very very
00:32:23sniffing gross margin they could buy down the interest from the consumer and offer all the way down to a true zero percent load were you could go to market with a promo that says buy this table by this stuff is peloton doing that Calvin certainly does that and
00:32:41it really does depend on mission to bring category category and fun of the gross margin but what happens there is the merging effectively pre pays the interest for the consumer and eight point of being a true zero percent you're effectively getting paid to borrow money you will pay
00:32:58exactly with the sticker says over exactly as many months as the loan that you choose to take out and not a penny more right which seems like a very interesting marketing lever for some of these companies what would finally means is you don't have to discount right the
00:33:13typical scored of every retailer in the sun is the wait for discounted price when you are buying something specially apparel you're kind of wondering five within a day or two or ten will this go into a sale bin or even more you know clearance bin or close out
00:33:34bin or you know whatever the next price reduction will be there SO messaging that the industry has has decided on where you never pay full price and it's terrible because it conditions everybody to artificially raise their prices and conditions consumers to artificially wait extra long so it's kind
00:33:52of games that as a participant I think are not healthy and fundamentally I think need to end is fundamentally the money quote unquote is being used to pay for this discounting comes out of the gross margin that's for the merchants says well this thing is not actually worth
00:34:07with my gross margin allows me to claim but I'll take it out of my gross margin and prices down presidents of more and during the clearance sale pull finally move it with the from zero percent promo would you can do is say well if you have the gross
00:34:21margin you don't need to discount the price the price can remain the same should remain the same I think it's important to say well if this thing is worth a thousand dollars it's always going to be worth a thousand dollars as a consumer I feel better about something
00:34:32that was priced fairly and isn't going to change but you can use the gross margin dollars to basically pay down the interest to reduce the cost to the customer and tell them you can pays off in eighteen months or twelve months and it'll remain exactly the same price
00:34:49and it's certainly not for everybody but for the merchant that have chosen to do this with us they typically see really incredible results they see up to half their volume more than half are all in the times go through the zero percent loans they're really wonderful way of
00:35:05not discounting and offering an incentive to purchase so we spent some time talking about the first kind of years a company what's happened since then I guess the last like two to three years and kind of wears a business today verses than six early in the year we
00:35:19announced we did a million loans since inception so that's kind of nice point in time to take stock we are still growing very very quickly although as a lender it's really important to grow responsible if you want to make sure that you don't over extend yourself three easy
00:35:34to be a high growth lender you're not afraid to run a money or if you plan to run a money which we don't so you have to be very cautious and have to be very smart about balancing expansion the business with making sure that you're correctly managing your
00:35:48risk and reserve enough capital if risk worsens but we've been growing better than steadily since the day we start lending we start a company with four people were now up to two hundred fifty four people or so and growing not growing our head count ask quickly as we're
00:36:04growing a volume which is a sign of productivity but still very very quickly eyeing all kinds of new concepts were still very focused on making sure the customer experience is profoundly good still not charging any hidden fees not charging any fees not charging a deferred interest still trying
00:36:23to prove to the industry that you can build a great consumer experience high quality product and not need to sell your soul to the evil god of deferred interest and so things are moving quickly problems million daily challenges but in general I have a big smile when I
00:36:40walk into the office everyday what's been the cheapest and most expensive lesson you've learned building this company well I don't if it's the cheapest are the most expensive but really early on we had a mistake in the code somewhere that treated what the coder thought were cents as
00:37:00dollars and so for a brief while we were a hundred times off on a financial math which actually resulted in real money being moved around and your recover lost not a whole lot of money at all but as far as the value in learning and money bad I'll
00:37:20never see again serve the terror that place and your heart in the level of Q. a human to immediately enact the great lesson sticks with you pretty well side of that's the least expensive for the most expensive I hope it remains the least expensive lesson of its kind
00:37:36but it was early enough or the ultimately not nearly as much as I would imagine if something like this would be today one of the reasons for success one of the reasons for our growth from the very beginning because so many CEOs so many engineers are involved in
00:37:48building this thing out when you need to bring on great designers and excellent sales people and smart support groups to make sure that our merchants are accessible but the engineering team was built from some very very good early folks and at this point we kept the quality up
00:38:07very very high as a result we were able to build all of our suffer from scratch and so on like almost any other lender out there we've built every single system here ourselves that does place a lot of pressure on the engineers and people who verify the system
00:38:23function correctly to make sure we don't screw something up adversely but it does give you a lot of flexibility so we're able to go to merchants are to our financial partners and say what can we do that really fits your business what can we build that really plays
00:38:38well with what you're trying to do and we typically can do it very quickly it's as a competitive advantage ability to modify E. reinvent point two and sometimes three right our entire systems have been pretty powerful when you look at I guess like the general kind of retail
00:38:54landscape now as you kind of build up this expertise where is your level of optimism about where stuff is headed in general I think lots of people are very prone to doom prognosticator in fear mongering and I think that's just you know I I don't mean to sound
00:39:10Pollyanna but %HESITATION I think it's just hard to see the world in which new things don't get invented a for static scenario of human creativity and all the things that threaten us in retail or everywhere else three easy to be despondent because Caesar look around say well things
00:39:25are changing for the better and all these things are changing for the worse we're all gonna go off a cliff and Amazon is gonna take over every opportunity and we're just gonna maybe have enough money to eat at the address in that's just not true every time there
00:39:39is a sense of fear desperation or Amazon does something that disrupt the market the typically creates an opportunity for someone else and you have to be flexible you have to be in G. is sometimes you have to complete reinvent business models but people have and every time these
00:39:59structures happened the also end up generating winners I am certainly not one to advise retailers thing that's gonna be your job soon but I think one of the key thing is really emerged from through the onslaught of in the US Amazon internationally the couple other giant E. tailers
00:40:19view the personalized view the customer experiences centered around the product and run the design that comes with it is really powerful I think if your Amazon and you have several million skews at this point I think is just really really tough to make a very special experience around
00:40:40a very special product in it certainly becomes harder to scale a business like that if you're selling commodities maybe you should be worried because selling commodities at scale is more and more expensive as Amazon makes it cheaper and cheaper for themselves and everyone else is very interesting to
00:40:57sell commodities I think what's really interesting is to create these really amazing beautiful products that come with experiences that come with innovative business models that require subscription that require some server current relationship with the customer does this again thrive fighting there's for every everyone that's crushed by the
00:41:17onslaught of commoditized there's there will be two more that cold or something that is just too hard to do rate if you have several million skis to take care lastly worsening from the kind of a cool story so there's this naming company called master McNeil as far as
00:41:36I know there's no McNeil there's a very nice the name S. B. master who is the one half of master McNeil but I think she may be the only half because McNeil than exist and I better years ago when we were struggling to name PayPal and she did
00:41:52the PayPal maybe exercise and it was this kind of a mystical experience where hundreds of names are flashed in front of us and at some point someone said %HESITATION PayPal that sounds silly and one of our earliest board member said that's the greatest name ever he should go
00:42:09over that right now rest history for PayPal obviously but ever since then every project I have I always %HESITATION hook up as the master asked her to name it for me and she's always been a good luck charm and so I'm always happy to give her the naming
00:42:23rate for my next project awesome thanks so much for talking thank you thanks for listening to the loose threads podcast sign up for record at loose threads dot com and feel free to lever of you on I tunes we always appreciate it thanks to George Strait junior crediting
00:42:45this episode I really enjoyed talking with Max about his journey from PayPal to affirm and help build the consumer first experiences is producing promising results in industries that are used to the total opposite we have a great roster of upcoming guests including Dan would mire full threads David
00:43:01Barton of David kind in Arial cave parachute home thanks for listening to talk to you soon

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