U.S. markets closed
  • S&P Futures

    -9.50 (-0.22%)
  • Dow Futures

    -77.00 (-0.23%)
  • Nasdaq Futures

    -27.25 (-0.18%)
  • Russell 2000 Futures

    -5.60 (-0.32%)
  • Crude Oil

    +0.11 (+0.13%)
  • Gold

    +2.80 (+0.15%)
  • Silver

    +0.05 (+0.23%)

    -0.0001 (-0.01%)
  • 10-Yr Bond

    -0.0670 (-1.40%)
  • Vix

    -1.20 (-6.07%)

    -0.0005 (-0.04%)

    -0.0540 (-0.04%)
  • Bitcoin USD

    +380.45 (+1.39%)
  • CMC Crypto 200

    +6.15 (+1.05%)
  • FTSE 100

    -57.71 (-0.77%)
  • Nikkei 225

    +164.67 (+0.54%)

U.S. consumer 'still well employed' as student loan payments resume: Affirm CEO

Affirm announced a partnership with Amazon that allows customers to use buy now, pay later services when checking out. Affirm Founder and CEO Max Levchin joins sits down with Yahoo Finance's Brian Sozzi to discuss the partnership, the company's full-year outlook, the state of consumer spending and debt, and the prospects of artificial intelligence.

Video Transcript

SEANA SMITH: All right, Affirm shares closing the week up just about 10%, driven on news of a new deal with Amazon. Yahoo Finance executive editor Brian Sozzi spoke with Affirm founder and CEO, Max Levchin, earlier today about that new agreement.

MAX LEVCHIN: Very important. We're building a network, and networks are fundamentally about being ubiquitous, being available to consumers, wherever they want to shop. Obviously, we're big believers in the dominance of digital wallets. I read somewhere that by 2025, half of ecommerce will be conducted through digital wallets of some kind. And being embedded in one of the most important ones, Amazon Pay is really, really crucial for us. So we have 16 million consumers that already use Affirm all over the place. Finding their favorite credit card alternative inside Amazon Pay is going to be a good thing.

BRIAN SOZZI: Now, if I'm right, you already had a deal with Amazon. I think that a little while, I remember it was a big event and a big moment for you and your company. What are some of the observations from that deal that you have found?

MAX LEVCHIN: Very happy with the relationship. They've been a great partner to us, and I'd like to believe that we have absolutely done all the right things so far. Obviously, the big difference between Amazon Pay and Amazon proper, the Affirm relationship, is, this expands the coverage to all the merchants outside of amazon.com that use Amazon Pay. They can choose to offer Affirm.

But even within Amazon, we've seen extraordinary acceptance by consumers. You can actually see our payment rating. Amazon rates everything. They love ratings, and we are one of the highest rated payment methods that is available on Amazon, which we're very, very proud about. We share great commitments to consumer satisfaction. And that's a good measure.

BRIAN SOZZI: The vibe on Wall Street, Max, seems to be that this is good for your GMV, or Gross Merchandise Volume, but maybe not that big of an earnings lift. Can you debunk that?

MAX LEVCHIN: Never a good idea to go deep into any one particular deal, especially as multifaceted as the relationship we have with Amazon. But fundamentally, networks are powerful because they have what's called network effects. The more available we are, the more likely we are to be selected by consumers and by merchants. In this case, far more importantly, repeat transactions become much less expensive to underwrite, much more profitable through reduced losses. So, in the long-term, the network accretes to its value through broader distribution. And so this is a very, very important deal for us. We're very excited about it.

BRIAN SOZZI: Does it help you reach-- well, let me ask it another way. Are you still on track to hit your profit goals for this year?

MAX LEVCHIN: We're doing well. We've got-- what is it-- 20 days left in the fiscal year for us? I think we feel quite good about how we're doing towards all the promises we've made.

BRIAN SOZZI: Oh, good to hear. I know it's been a long road. And part of that road is standing up on the products. So I believe you've also launched, what, a new debit card or debit plus. How is that going?

MAX LEVCHIN: That's right. It's been a long time coming. That's a product that we spend a lot of time getting right. We've pulled back on a launch about a year ago, when we thought it was not quite ready. We finally felt really good about it about half a year ago. And we're really rolling it out now. It's an amazing product. I'm very, very proud of the team that built this and did not settle for a half-baked product. It's an extraordinary product. It's a debit card that connects to your existing bank account.

And at any time we need borrowing capacity over and above what your personal cash flow allows you to do, you can just, super naturally, using the Affirm app, turn a transaction into a loan before or after you swipe the card. It is nothing short of miraculous. And we're seeing excellent adoption with our existing user base. We're offering it today predominantly to existing Affirm customers of which we have millions and millions of, so there's no marketing cost.

And from day zero, it has got great, very strongly positive unit economics. It significantly improves frequency of transactions. I think in the last earnings call, I said, it's about seven times more active in the first three months as any new Affirm consumer. And so on and on, it's just a great product. Very proud of it.

BRIAN SOZZI: An important product for Affirm definitely, but it comes against a backdrop of a consumer-- I don't-- maybe put it-- it's weird. They're weird. So they're out there, spending a lot on services. They're taking vacations, but they're not necessarily in the stores buying stuff, furniture, apparel. What's your read on the consumer as we get into the really that-- those crucial periods of back to school and then eventually, the holidays?

MAX LEVCHIN: You know, I think consumer is still well employed. The US economy is performing a lot better, a lot more resiliently than some of the naysayers had said six months ago, nine months ago. That said, I think nothing's really off the table in terms of, is there going to be a recession, is there not going to be a recession, until we find out what happens with the student loan repayment restarts sometime in the fall.

And so, I think a lot of folks are mindful of that. They're cautious. They are also suffering, understandably, from inflationary pressures on commodity prices, services prices, travel prices. They are getting out of town. Vacations are growing. Travel and ticketing is a huge segment for us last quarter. We bragged about enormous growth in that segment relative to, obviously, pandemic lows, but even a year after the pandemic started to wither, it's still growing really well. There's plenty of pullback in things like electronics, homewares, things that you may have purchased significantly more during the time when we're all cooped up in our homes and trying to turn them into gyms or offices.

And so, all of that is, generally speaking, as predicted, very well. Seen growth in places, seeing retraction in other places. The real question is, what happens to the economy once the student loans come back? And what does the Fed do about it? We're prepared for both eventualities, as you saw we printed another extraordinary quarter of credit management or credit results last quarter. Job number one at Affirm, always, always, always, is making sure our consumers are able to pay the bills to the loans that we make them. We do not make loans unless we know we're going to get paid back.

BRIAN SOZZI: Do you see the student loan repayment-- by some estimates, that might pull $400 to $500, if not more, per person out of the economy each month. Is that a headwind to your business, or is that actually a tailwind? Because people may not have that cash, and they come and use services like Affirm.

MAX LEVCHIN: Exactly, and the complete honest answer is, it's an opportunity, but it's also a thing to watch. We do not want to overextend our consumers. We don't charge late fees. We don't compound interest into interest. We are the honest financial product, which means that we can only lend money when we know the consumer is capable and willing to pay us back. As they feel the pressure of student loan repayment restarting, they will need more access to capital. That's our job. That's what we'll be there to do, just like we were there for them when the inflation started to hit them hard.

That said, if they get to a place where they can no longer afford the money they want to borrow, we will be obliged to tell them no, and as we have and we've been always honest with all of our consumers. So we feel very confident about our ability to manage the credit of our borrowers. But I think for some, it will be a happy need to use Affirm, and we will be there for them. And for others, it will be a real strain.

BRIAN SOZZI: Max, since we last spoke to you, there has just been an explosion in AI. It's come out of, I wouldn't say nowhere because these products have been working on, but really, over the past four or five months, companies like an Nvidia, an AMD, a Salesforce, they have just done or starting to do even more mind blowing things. As a veteran in tech, is this just a moment in time? Or are we sitting on something very generational here in generative AI?

MAX LEVCHIN: So not to make too much light of it, but we've been using AI in a traditional sense of the word, machine-learning, and earlier versions of it for over a decade. And it was never that big of a deal until the moment we're having now. Generative AI is a new thing. It's a profound, new technological-- it's not really a discovery. It's been around for quite some time. But the current breakthroughs really are breakthroughs. And we are using it today quite successfully in both developing productivity and very, very carefully in customer service and consumer servicing.

And the reason we're so careful, there's always a human involved in overseeing generative AI results because we have not yet solved the hallucination problem. If AI advises you to do something very bad for you financially, personally, it's going to break someone's wallet and potentially create some real pressures on that consumer. Can't have that, so we have human loop for all of our generative AI exercises, but it's really exciting what you can do with it. I think the computer or machine copilot for human financial decisions is a powerful construct, and we're excited to be there with that.

BRIAN SOZZI: What are some of your reservations or concerns about AI as it infiltrates or this generation of AI as it infiltrates into the economy and corporations-- you name it.

MAX LEVCHIN: I'm not concerned about the job destruction, which I think there's plenty of naysayers are sort of warning us all about how it's going to come and take your job. I think humans are going to be quite important in a lot of intellectual work for quite some time. And AI is going to be a great tool. It's a productivity enhancer, not a job eliminator. I do worry that we will find ourselves placing too much trust on systems that are not yet fully proofed for safety.

The number one worry I have about AI is not AI infiltrates some important computer system and turns us all to paper clips. It's that some person asks a chatbot, hey, give me some code that I can cut and paste into a compiler or an interpreter. That code is faulty and actually causes real problems. And so inadvertent foolish errors are much more dangerous today with AI of today's generation than any sort of maliciousness or evil AI overlords.

SEANA SMITH: Our thanks to Affirm founder and CEO Max Levchin and Yahoo Finance's Brian Sozzi.