Max Levchin, who cofounded PayPal more than 20 years ago, believes we’re witnessing the twilight of the banking and credit card industries.
Of course, that comes from a man who says his latest company, Affirm.com, will “remake consumer finance from the ground up.”
Affirm is a consumer finance company that circumvents traditional banks and credit cards. The seven-year-old Affirm partners with business — Peloton and Walmart are key clients — to make business-subsidized small loans to customers for their purchases. “We make money like a regular bank, but with less margin,” he said.
Levchin spoke at the Philadelphia Federal Reserve Bank on Friday, capping off two days of its third annual Fintech conference. Levchin was interviewed by Michael D. Calhoun of the nonprofit Center for Responsible Lending.
“Consumer sentiment is shifting,” Levchin, 44, said. “With millennials and those that come after them, there’s a real change about how they think about money and financial services. They require transparency.”
Too many banks and credit card companies “build their business models on the fine print,” Levchin said, counting on late fees, floating interest rates, and insufficient funds penalties. “If they can’t understand it in 10 seconds, [young people] move on.
“That’s a core reason that lots of millennials are opting out of credit cards or using them like their parents did. My younger brother won’t even bother to read the fine print because he believes their business model is to screw him.”
That’s why Levchin believes fortunes will be made from disrupting companies that depend on the fine print — and his seven-year-old Affirm.com will be one of them.
Levchin said that a recent survey asked millennials where they would most likely look for financial services in the future. “They mentioned Google and Facebook, not the venerable banks. Their parents’ banks aren’t good enough.”
Levchin wasn’t just the cofounder of PayPal. His also is credited — or blamed — for creating an early version of CAPTCHA, the online test that confirms website users are humans and not bots.
He immigrated to the United States from Ukraine when he was 16, and his family settled near Chicago.
“My brain was turned onto capitalism at a relatively late age,” he said. But he adopted it wholeheartedly. He founded his first start-up shortly after he entered the University of Illinois at Urbana-Champaign as a computer science major.
Levchin knows all about bad credit first hand, and what it’s like to go up against the traditional financial giants as a small consumer.
He maxed out his first credit card funding an early company. “I had no idea I had to make minimum payments.” He earned the wrath of collection agencies. And even after he was worth millions, he found that the incident had crippled him with bad credit.
After the PayPal IPO made him a wealthy man, he tried to buy a car in Los Angeles. “I was turned down because my FICO score was too low. I had to borrow cash from a PayPal team member.”
He still feels a quiet rage against the Los Angeles car dealer and the credit system.
New Fintech tools should be able to reflect a borrower’s changes in fortune more quickly, he said. “There’s no reason why they shouldn’t.”
Asked how his view on the world has evolved since leaving PayPal, Levchin said that while there, he didn’t care much about downstream users.