A billionaire with bad credit? Sounds like a joke right, but this is the reason the Buy Now Pay Later (BNPL) company Affirm got started.
In a podcast episode of How I Built This with Guy Raz he interviewed Max Levchin, the founder of Affirm. Max Levchin is a serial entrepreneur and computer whiz who was one of the co-founders of PayPal. Levchin co-founded PayPal along with Elon Musk and Peter Thiel. The group is known as the PayPal Mafia.
Max Levchin also sold a company to Google called Slide. This was a social network and photo sharing app, it was shutdown by Google several years after being acquired for $182 million.
In the podcast episode Levchin told the story of how came up with the idea for Affirm;
I fly down to LA and I try to buy this, one of the very first retractable hardtop convertibles, which was one of the most coveted possessions in my late 20s. And the dealership said, “Oh cool, you are the PayPal guy you guys went public. You are still going to have pay cash because your credit that I just checked is terrible. I don’t know what you did but my god.” I’m standing there next to Nellie (Max Levchin future wife) and Luke, one of our PayPal co-founders, and sort of I’m slowing shrinking. My face was probably purple with embarrassment.
At this point Levchin was not in fact a billionaire but he was in fact still quite wealthy from his success with PayPal. So he was still a millionaire that you would assume would have decent enough credit to get a loan to purchase a convertible car if he wanted.
It was one of many experiences where my credit would get checked and it would be this bone of “Please don’t say outloud.” I came to the US as a 16-year old, I got my first credit card on campus. I had no record at all and I no idea how minimum payments worked at all. My FICO score went through the floor. It was a decade later I took a company public and it still doesn’t matter. I still looked like a deadbeat to the rest of the world because of my credit record.
There are a lot of people like me would like to buy things with credit. Probably are priced out or have this horrendous triple digit rates they have to deal with and it seems to be stuck in the 1970s. That was the jump-off point.
Levchin continues in the episode to discuss the issues with credit scoring and how some of his PayPal buddies realized the potential for a company like Affirm. As well as how confusing and credit scores and lending was in the current environment with the banking system.
Later Affirm would do business with Wal-Mart to approve more people for purchases and the entire BNPL space would take-off.
I’d highly recommend listening to the entire episode. It digs deep into how Max Levchin really thought through how bad lending practices are with credit cards and payday loans. Then how Affirm set how to change the entire financial market with more humane lending practices.
If you listen to the episode I’d be interested to know what you thought of it? Are you surprised someone like Levchin could have bad credit? Do you believe Affirm set out what Levchin’s vision was?