If anyone understands online payments, it’s Max Levchin.
The Ukrainian-born entrepreneur minted his reputation as something of a Silicon Valley superstar after co-founding the online payments service PayPal in the late 1990s. Levchin served as PayPal’s chief technology officer for four years, during which time he built the complex software that kept the Website operating while staffing up the engineering team. All the effort paid off big when eBay (EBAY) acquired PayPal for a cool $1.5 billion seven years ago (He reportedly banked $34 million.) Afterwards, Levchin had five-year run heading up mobile game maker Slide before selling it to Google, where he briefly served as vice president of engineering.
But for the last two years, Levchin has tried reinventing online payments, much the same way he did with PayPal. His latest start-up, Affirm, tackles consumer loans, but with a twist. Generally speaking, it’s a substitute for credit cards. “It turns out there’s lots of data there about someone, and a lot of it is completely relevant,” explains Levchin.
Here’s how it works: Customers of online retailers that partner with Affirm partner can choose SplitPay as an option when they’re about to buy something. To determine eligibility, Affirm weighs tens of thousands of different bits of information about a person. Traditional credit approval usually relies on FICO scores, which are based on five categories including a person’s credit payment history, debt, the length of credit history, any new credit and kind of credit they use. Affirm takes that information into account, plus much, much more like whether an applicant has a Facebook (FB) profile (which can be helpful in proving someone’s identity) to whether that person has had their cell phone account closed several times (a red flag). The goal is to deduce from such public and private data whether an applicant is worth the risk – a process Levchin says he has improved over the way traditional credit scores are calculated.
Loans can range from tens of dollars to upwards of $10,000, with the interest rate and number of payments decided on a case-by-case basis. Meanwhile, Affirm pays the online retailer the full amount of the customer’s purchase within 48 hours from its pile of $45 million in venture-backed funding. Affirm has just four retailers signed up, including cosmetics retailer Beautylish and Blossom Coffee, but the company expects to announce new partners every week moving forward.
To be sure, Affirm has a lot to prove. There are a number of startups like LendUp and Earnest that are tinkering with the idea of approving loans based on information culled from unconventional sources. Affirm also runs up against other, more established services like Bill Me Later, eBay’s layaway program. It also competes, to some extent, with Lending Club, which bases its risk calculations on the income of loan recipients and has already lent more than $4 billion.
Of course, credit card companies already occupy a huge market. But part of Affirm’s potential appeal lies in its more detailed loan approval process. Because it takes into account tens of thousands of bits of data — versus FICO’S five — applicants who don’t have a long credit history, but may be responsible borrowers, are more likely to get approved.
Affirm is one of two startups that came through HVF, the startup incubator Levchin founded in 2010. Currently, HVF is home to at least at least give such potential startups, or “projects.”
“It’s like a mad scientist lab where I invite my mad scientist friends to hang out and sit around and try to come up with something interesting for six or seven weeks,” says Levchin.
Aside from Affirm, the other HVF-funded startup graduate is Glow, a fertility app launched last fall aimed at helping couples conceive by tracking information like a woman’s menstrual cycle and offering health tips based on information users add daily. Four months ago, the company introduced Glow for Enterprise so that businesses could offer their employees more fertility benefits beyond the typical health insurance plan. To date, Glow for Enterprise has signed up tech startups like Evernote, Eventbrite, and data software company Domo.
So while Levchin remains busy with multiple projects, he’s focused on taking Affirm mainstream and enjoying the daily minutiae of being CEO. Says Levchin, “I realized that running a company is something that I missed and really enjoyed.”