Odd Lots: "Affirm's Max Levchin Breaks Down How Buy Now, Pay Later Really Works"

Air date: December 5, 2025
Hosts: Joe Weisenthal & Tracy Alloway
Guest: Max Levchin, Founder & CEO of Affirm

Episode Overview

In this episode, Joe Weisenthal and Tracy Alloway dive deep into the mechanics of Buy Now, Pay Later (BNPL) with Max Levchin, founder and CEO of Affirm and fintech pioneer (co-founder of PayPal). The discussion covers the origins, business models, and risk management behind BNPL, how Affirm operates differently from traditional credit cards and other BNPL players, regulation, industry competition, and the interplay with technology (including AI and potential crypto innovations). Levchin provides insider perspectives and candid takes on fintech business incentives, consumer financial health, and the evolving payments landscape.

Key Discussion Points & Insights

1. The Drive to Reinvent Financial Services

• [01:57] Joe and Tracy open by discussing the ongoing attempt by fintechs to chip away at traditional bank functions—especially in payments and lending.
• Quote (Tracy Alloway, 02:30): "For as long as I can remember, someone has been trying to either reinvent bank lending or reinvent the payment space."

2. Origins of Affirm & Levchin’s Motivations

• [05:42] Max recounts his early, negative experiences with credit cards as a Soviet émigré, culminating in being denied a car loan even after his PayPal IPO success.
  • Poor transparency and the compounding interest model left lasting sting.
• Quote (Max Levchin, 07:13): "...not only did I feel completely screwed by the moment when I found out that you're supposed to make the minimum payment and by the way interest accrues into principal and this seemingly low APR is actually not what it seems to be because I missed some date of the specific amount that I was supposed to pay, it bit me again five years later..."
• Levchin's solution: build a product without "misalignment of interests," i.e., where the lender isn't incentivized by customer mistakes.

3. Affirm’s Business Model — How Is It Different?

• No interest compounding and no late fees:
  • Lender only profits if borrower repays on time. (09:49 onwards)
  • Interest and schedules fixed up front; if the customer is late, Affirm loses money.
• Underwriting for every transaction, not just on opening an account. Allows for better, dynamic risk assessment.
• Quote (Max Levchin, 10:58): "We will not misalign ourselves with our borrowers... We need to understand your cash flow. We don't really care what your credit rating is... For every transaction, you have to be able to underwrite and decide yes or no for every single moment that you create these payment plans."

4. Underwriting Process, Use of Data & Compliance

• [13:05] Affirm pulls from traditional credit bureaus, but if there's insufficient data, they ask for account-level permission to assess users' cash flows.
• They avoid “creative” but intrusive variables (e.g., online behavior “telemetry”).
• Strict adherence to regulations (Fair Credit Act, etc.): prohibited bases like race, gender, age, etc.
• [14:46] The product bought may influence risk, but only as a subtle factor (i.e., useful life of purchase vs. duration of loan).
• Quote (Max Levchin, 17:45): "Anytime someone tells you I found this magic variable... they're lying. Probably to themselves, more than to you."

5. Revenue Model and Economics

• Interest-free loans: Retailer pays Affirm a fee (treated like a marketing/acquisition cost).
• Interest-charging loans: Consumer pays interest, sometimes merchant pays a smaller fee.
• 95% of transactions come from repeat customers (high loyalty).
• Merchant fees generally range from credit card-equivalent (2.5–3%) up to low single digits for longer, interest-free terms.
• Incremental sales, high approval rates, and no brand risk (from harassment/late fees) are key for merchants.
• Quote (Max Levchin, 21:26): "We offer both interest free and not interest free loans... It's the retailer that's effectively paying your interest."

6. Competition, Merchant Dynamics, and the Payments Landscape

• Affirm does not position itself as the cheapest; prefers transparency over hidden or predatory fees.
• The "payments" space, Levchin notes, has never had a sustained monopoly—it's intensely competitive.
• Merchants care about: (1) the fee; (2) incremental sales/approval rates; (3) consumer repeat business and minimal brand risk.

7. Affirm’s Physical Card & "Top of Wallet" Strategy

• [30:06] Affirm Card operates as both debit and credit—user can explicitly switch modes per transaction.
• Offered primarily to existing Affirm borrowers—no mass marketing.
• Levchin argues that "top of wallet" can be achieved with a genuinely better, aligned product rather than massive advertising outlays.
• Quote (Max Levchin, 31:24): "It's actually pretty magical. The card is a dual mode card. It switches from debit card to credit explicitly as you tell it to..."

8. BNPL Stacking and Credit Reporting

• [34:45] "Stacking"—using multiple BNPL providers—is minimal currently, but the answer “long-term is universal reporting.”
• Affirm is the only major BNPL company consistently reporting both positive and negative repayments to credit bureaus.
• Others are reluctant—Levchin suggests this is because they profit from late fees and thus prefer non-reporting for consumer appeal.
• Quote (Max Levchin, 36:51): "...if you are a BNPL provider and you're not furnishing data, you kind of have no excuse."

9. Impact of Macroeconomic Conditions

• As of December 2, 2025, Affirm sees no notable increase in missed payments or consumer distress among its user base. However, Levchin concedes that Affirm borrowers tend to be more financially responsible.

10. Crypto, Stablecoins & Rewards

• [40:35] Levchin remains skeptical of stablecoins' relevance to BNPL or payments for now, given low consumer cross-border purchasing.
• On rewards, he decries the credit card model as a "regressive wealth transfer" (rewards financed by interest-payers), noting most Affirm users prefer lower or zero interest to points.
• Quote (Levchin, 43:58): "Telling people that they should just not borrow and pay it off at the end of the month is an incredibly let-them-eat-cake equivalent for the 21st century payments. Lots of people in America revolve."

11. Cost of Funds, Profitability, and Rate Movements

• Affirm's funding contracts reset rates slowly—by design, to guard against volatility.
• Increased cost of funds can be passed to either consumers (higher rates) or merchants (higher subsidies), depending on transaction structure.

12. AI in Affirm’s Operations

• AI now handles large portions of customer service inquiries, account lookups, and routine communication, especially post-purchase questions.
• Humans are freed to focus on more complex, specialized problem-solving. AI is also used in contract management and legal compliance (e.g., scanning merchants’ sites to ensure correct marketing claims).
• Surprisingly, Affirm’s finance team is the heaviest user of AI tools internally, aided by their coding background.
• Quote (Levchin, 48:33): "A huge percentage of [customer contacts] is handled entirely by AI now... What it has allowed us to do is to go really deep into specialization."

13. Theoretical "Perfect" Payment System

• Levchin argues the ideal system would look much like Affirm: no misalignment of interests, no predatory fees, dynamic and honest risk assessment, high transparency—just without the legacy artifacts.
• Quote (Max Levchin, 52:58): "It would look an awful lot like Affirm... it's pretty darn great. It really is something I'm very proud about. ... I would love to have a blank sheet design exercise in payments, but I think what would emerge is a system that looks a lot like Affirm just doesn't have some of the 1980s cruft in it."

Notable Moments & Quotes (with Timestamps)

• Max Levchin on the pain of credit cards:
  "My friends would prank me at restaurants, they would ask the waitstaff to tell me that my credit card was declined...and I would turn beet purple and basically be like, oh my god, like it happened again." (07:31)

• On Affirm’s incentive structure:
  "If you agree to those design principles, you are not going to make more money if someone is late and you're not going to make more money if they take longer to pay you back." (11:11)

• On creative underwriting data:
  "Anytime someone tells you I found this magic variable... they're lying. Probably to themselves, more than to you." (17:45)

• On the BNPL business case for merchants:
  "So as people come through and say, hey, I'm not going to use a credit card, not interested in buying unless I have an installment loan, let's say from a firm, they need to know that that rate is going to be high enough. Otherwise, why have a button that just sits there and looks pretty?" (27:29)

• On BNPL credit reporting:
  "If you are a BNPL provider and you're not furnishing data, you kind of have no excuse. We pioneered this. We did all the work. ... It will help consumers and it will eventually accrete to your brand too. But for now, we are the only major one." (36:51)

• On the “regressive” nature of credit card rewards:
  "[Rewards] are one of the less documented wealth transfers... The credit card industry in general is a regressive wealth transfer where people who never revolve ... get frequent flyer miles ... That's paid for by the people that roll." (43:58)

• On AI transforming Affirm operations:
  "A huge percentage of that is handled entirely by AI now... What it has allowed us to do is to go really deep into specialization." (48:33)

• On designing a theoretical payment system:
  "It would look an awful lot like Affirm... and I think the totality of the team here takes an enormous amount of pride in how we went about building this." (52:58)

Memorable Exchanges

• Levchin’s car story:
  (On being denied a car loan after the PayPal IPO)
  "I was very much trying to impress the girl who's now my wife... It worked, it worked, it worked." (08:53)

• Merchant fee focus:
  Tracy: "On the merchant side, again, I imagine they're getting offers from a bunch of different installment lenders, BNPL companies... So I assume the thing they care most about is the fee."
  Max: "Seems like they actually care about fee, three things..."
  (With an in-depth answer about fees, incremental sales, and brand risk) (27:03)

• On industry transparency:
  "We tell them, here is the price you will have to pay us if that's what you're paying. If you can't or don't want to, that's fine. We will probably not be the right one for you. ... We're not going to take it out of the consumer's hide when they least expect it." (25:27)

Takeaways

• Affirm’s approach pivots away from the traditional credit card model, aiming for total alignment with consumer interests and radical transparency.
• BNPL is not monolithic—Affirm’s willingness to report to credit bureaus, reject late fees, and deeply invest in risk modeling differentiates it from many competitors.
• Transparency, user trust, and sustainable underwriting are pitched as the keys to long-term success, versus addictive, headline-grabbing offers.
• AI is already embedded deeply behind the scenes, not just in underwriting, but all facets of customer and contract management.
• Levchin remains a fintech idealist: If he could reboot payments, it would look a lot like what Affirm is trying to do—just with fewer legacy technical shackles.

Timestamps for Major Segments

• 01:57 — Setting the landscape: Why fintech keeps targeting banks
• 05:42 — Max Levchin’s personal credit journey & Affirm origin story
• 09:35 — How Affirm’s underwriting & user alignment works
• 13:05 — Steps and criteria for Affirm transaction approval
• 20:27 — How Affirm makes money; merchant vs. consumer fees
• 26:39 — What merchants want from BNPL
• 30:06 — The Affirm Card and "top of wallet" philosophy
• 34:45 — BNPL stacking, credit bureau reporting
• 39:41 — State of the US consumer as of late 2025
• 40:35 — Thoughts on crypto/stablecoins and traditional rewards
• 45:27 — Funding costs and passing through rate changes
• 47:58 — Real-world applications of AI inside Affirm
• 52:29 — Max’s theoretical “ideal payment system”

Final Thoughts

The episode offers a uniquely candid, under-the-hood look at BNPL, its promise and pitfalls, and how Affirm (under Levchin's leadership) is trying to set itself apart—not just with technology, but through ethics, transparency, and business model design. Levchin’s fintech veteran’s perspective is frank, self-deprecating, and idealistic, making this a must-listen (or read) for anyone curious about the future of consumer credit and payments.