Fixing the credit card business

February 5, 2020, 10:34 AM UTC

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Good morning.

Max Levchin, founder and CEO of Affirm, stopped by Fortune’s downtown Manhattan offices this week. I’ll get back to Affirm in a bit. But first, it’s worth noting that Levchin is part of the renowned Paypal Mafia—Silicon Valley’s most illustrious alumni group, made famous by this photo and story in Fortune in 2007. The Mafiosi include, among others, Levchin, Reid Hoffman, Peter Thiel, Jeremy Stoppelman, and Elon Musk—although Musk, in classic style, refused to sit for the Fortune photo. (No, we don’t hold a grudge.) The group has had a hand in starting a pantheon of tech upstarts, including Tesla, LinkedIn, Palantir, SpaceX, YouTube, Yelp and Yammer. Six of them have become billionaires.

As for Affirm—well, it’s Levchin’s effort to fix the credit card business. And that business could use a fix. High interest rates and late fees make credit cards abusive to many low-income borrowers. Affirm partners with stores—Walmart is the largest example—to offer credit at the point of purchase. It uses its own credit scoring system, bypassing the FICO monopoly. And it eschews late fees, deferred interest and punitive rates.

Many credit cards “are no different than payday loans,” Levchin says. By giving up on abusive practices, Levchin admits Affirm is “actively leaving money on the table… But we live at a unique time where that is the right practice. If you want to run a company for the long term, you have to” look after the borrower. With the grand ambition typical of the PayPal posse, he believes Affirm will eventually force credit card companies to change their business models.

More news below, including Macau’s decision to shut down its casinos as of midnight last night.

Alan Murray


Coronavirus update

The coronavirus death toll is nearing 500, but Asian shares continue to recover from Monday's precipitous drop. Macau has decided to shutter its casinos for at least 15 days—no easy decision to make, given that they represent more than half the island's GDP. Meanwhile, widespread restaurant and club closures across China are giving Western brewers a headache. And Hong Kong flag carrier Cathay Pacific has asked staff to take three weeks' unpaid leave, due to low demand. Fortune

eBay bid

Intercontinental Exchange, the company that runs the New York Stock Exchange, has reportedly offered to buy eBay at a valuation of more than $30 billion. There are apparently no formal talks yet, but ICE has approached eBay at least twice. However, ICE says eBay has not yet "engaged in a meaningful way." Wall Street Journal

Vaping fallout

The vaping crackdown has led Imperial Brands, the company behind Davidoff and Gauloises Blondes cigarettes, to slash its profit forecast by $52 million and write down its stocks at a cost of $59 million. CEO Alison Cooper stepped down with immediate effect—her successor, Stefan Bomhard, was named a couple days ago. CityAM

Vision Fund

Michael Ronen has stepped down as the managing partner for U.S. investments at SoftBank's $100 billion Vision Fund. The U.S. executive expressed concerns about "issues" at the fund, which has recently received a few black eyes through lackluster investments such as WeWork. Financial Times


Vodafone and Huawei

Vodafone is to spend around $220 million over the next five years to rip out the Huawei equipment in its European core network. The telco's decision follows policy decisions in the U.K. and the EU, both of which want to see Huawei excluded from the most sensitive parts of telecoms networks. Reuters

Saudis and Tesla

Saudi Arabia's sovereign wealth fund sold almost all of its 8.2 million Tesla shares as the electric-car firm went on the ascendant in Q4 last year. Perhaps not the best timing, as Tesla's share price is now going through the roof. Bloomberg

Musk poll

Speaking of Tesla, Musk took to Twitter to ask his followers whether the company should build a new "gigafactory" in Texas. At the time of writing, nearly 150,000 people had voted in his poll, with almost 80% opting for "Hell yeah" rather than "Nope". Yahoo Finance

U.S. politics

American politics had an interesting day yesterday. The results of the Democratic Iowa caucus started to come through—Sanders and Buttegieg so far appear to be in the lead, with Warren snapping at their heels—and President Trump's State of the Union address was marked by the president apparently refusing to shake Nancy Pelosi's hand, and Pelosi then ripping up her copy of the speech. Today: Trump's near-certain acquittal in his Senate impeachment trial. CNN

This edition of CEO Daily was edited by David Meyer.

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