AFFIRM

Max Levchin was one of the original PayPal Mafia — he co-founded PayPal with Peter Thiel and Elon Musk. After PayPal sold to eBay for $1.5 billion in 2002, Levchin built several companies including Slide (sold to Google for $182 million).

But he kept coming back to the same idea: consumer credit was fundamentally broken.

Credit cards were designed in the 1950s and hadn't meaningfully changed. They used opaque pricing — minimum payments that stretched debt over decades, late fees that punished the most vulnerable, and interest rates that compounded until people owed three times what they originally spent.

Levchin thought technology could do better.

In 2012, he founded Affirm with a radical proposition: transparent lending. When you buy something with Affirm, you see the exact total cost upfront — the principal, the interest, and the exact number of payments.

The total never changes. There are no late fees.

If you miss a payment, Affirm pauses your ability to buy more but doesn't charge you extra. The idea was to make lending honest.

Affirm makes money from two sources. First, merchant fees — when a retailer offers Affirm at checkout, Affirm charges the merchant 5-8% of the transaction value.

Merchants pay because Affirm increases average order values by 85% and conversion rates by 20%. Second, consumer interest — on longer-term loans (6-48 months), Affirm charges interest ranging from 0% to 36% APR depending on the buyer's credit profile.

The 0% APR loans are fully subsidized by the merchant.

Affirm Pay-over-Time lets shoppers split purchases into biweekly or monthly payments at checkout. Affirm Pay-in-4 is the interest-free option — four payments over six weeks with no interest.

The Affirm Card is a physical debit card that lets you use Affirm anywhere Visa is accepted, not just at partner merchants. Affirm Savings is a high-yield savings account.

The Adaptive Checkout technology shows each customer personalized payment options based on their credit profile in real time.

Affirm grew by landing big merchant partnerships. The breakthrough was Peloton in 2019 — when Peloton offered Affirm financing at checkout for its $2,000+ exercise bikes, both companies exploded.

A huge portion of Peloton purchases were financed through Affirm. Then came Walmart, Amazon, Shopify, and Target.

Each major retailer partnership brought millions of new consumers.

The "no hidden fees" message cut through. In a world where every financial product has fine print, Affirm's transparency was refreshing.

Levchin made honesty the brand. Every ad, every checkout screen, every email showed the exact total cost with zero surprises.

Consumers who had been burned by credit cards were drawn to a product that treated them like adults.

The Shopify integration in 2020 was a game-changer. Shop Pay Installments, powered by Affirm, made BNPL available to hundreds of thousands of Shopify merchants instantly.

Overnight, Affirm went from needing individual merchant partnerships to being embedded in an entire e-commerce ecosystem.

Peloton dependency almost sank the company. At its peak, Peloton accounted for nearly 30% of Affirm's revenue.

When Peloton's business collapsed after COVID — demand evaporated, the stock crashed 95%, and the company laid off thousands — Affirm lost its biggest customer practically overnight. The stock fell from $170 to $9.

Affirm has since diversified, but the Peloton lesson was brutal.

Credit risk is the fundamental challenge. Affirm is lending money to consumers.

If the economy goes into recession and people stop paying, Affirm takes the losses. Delinquency rates have crept up as the post-COVID economy normalized.

Unlike banks that have decades of lending data and massive balance sheets, Affirm is still proving its underwriting models work through a full economic cycle.

The BNPL category has attracted regulatory scrutiny. The CFPB has warned that buy-now-pay-later products can lead to debt accumulation — consumers stacking multiple BNPL loans across different providers.

Affirm argues its model is fundamentally different from competitors because it underwrites every transaction and never charges late fees, but the regulatory risk applies to the entire category.

Khosla Ventures, Lightspeed Venture Partners, Founders Fund, Spark Capital, GIC, Baillie Gifford