‘Buy now, pay later’ group Affirm backs tougher rules for ‘wild west’ market

The ‘buy now, pay later’ credit industry would benefit from more regulation to help standardise an increasingly crowded market, the chief executive of US consumer lender Affirm has told the Financial Times.

BNPL soared in popularity during the pandemic by offering customers the option of paying for online shopping in instalments. This has helped fintechs such as Affirm report triple digit balance sheet growth while many traditional lenders have struggled to expand their loan books.

Affirm offers loans with interest rates ranging from zero to 30 per cent, with no extra fees. Max Levchin, who founded the business in 2012, said he would support regulatory action to improve disclosure and stamp out “hidden” charges such as late payment and transaction fees.

This would help make an industry that is a “wild west” at the fringes more mainstream, he added.

“I don’t think it’s great for consumers to use one of those products and say: Oh, so I tried this BNPL thing, I thought it was zero per cent but it wasn’t because I got this origination fee,” Levchin, who was also a PayPal co-founder, told the FT. 

Earlier this month, Affirm reported that revenues in its latest quarter rose 55 per cent on last year to $174m. It also expanded a partnership with Amazon.

At the same time, its losses in the quarter rose from $3.9m a year earlier to $306.7m, after it loosened credit requirements.

Levchin said the company viewed itself as a high-growth tech company and “in that world we are very comfortable being a lossmaking business”. 

He believed growth in BNPL would continue partly because it was a new payment method online and was still used in only a small fraction of transactions.

“If, five years from now, we are not the leader in our space and we no longer have the advantage, we’ll get displaced. Then shed a small tear for us and move on,” Levchin said. “But if we continue getting better, I don’t think we have too much to worry about.”

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The surge in popularity of BNPL encouraged Affirm to list in the US this year. Its market capitalisation is about $33bn, more than 10 times its valuation in a 2019 private fundraising round.

The sector is very lightly regulated compared with other consumer lending, but regulators are starting to worry about market safety and the potential for consumer harm as it grows.

Affirm prides itself on being transparent with customers. It is one of the few large BNPL providers that does not charge late fees, and though lending disclosure rules on the cost of credit do not apply to most short-duration BNPL loans, Affirm said it provided the information anyway.

It is also one of the few BNPL providers that shares data with credit scoring agencies like TransUnion and Experian. Levchin said that relationships with consumer credit monitoring bureaus could be mutually beneficial.

How the small transactions typically associated with BNPL should affect credit scores remained an open question for the industry, he said, adding that some rivals did not report information to credit bureaus.

“I think that’s not the right way to do it,” he said. “That’s something that should absolutely be both there to protect all parties and to help people build credit.”