Yahoo Finance Presents: Affirm Founder Max Levchin
Yahoo Finance Editor-at-Large Brian Sozzi sits down with Affirm Founder Max Levchin to discuss his childhood, coming to the U.S., the Russia-Ukraine invasion, and Affirm’s company mission.
Video Transcript
[MUSIC PLAYING]
BRIAN SOZZI: Joining Yahoo Finance now is Affirm's founder and CEO Max Levchin. Max, good to see you. And good to get a little more time with you. It feels as though when you come on, we talk about a firm, talk about some numbers, and we catch you a few months later. So good to get a little more longer time with you here. We appreciate it.
MAX LEVCHIN: Thanks for having me. Always appreciate it, too.
BRIAN SOZZI: There's a lot to get to. And you know, it feel as though I've been following your career since I started in this crazy world of business. I never actually asked you who you are. So you were born-- I hope I'm right-- July 15, 1975. Am I right?
MAX LEVCHIN: 11th.
BRIAN SOZZI: 11th. OK, July 11, 1975 in Kiev. What are some of your earliest memories of growing up?
MAX LEVCHIN: Unexpected question. But I grew up in a very happy household, like most Soviet families back then. Three generations lived under the same roof, so I had this unbelievably inspirational grandparents. My grandfather was a famous scientist who was responsible for exploring oil and gas fields in the, sort of, old Soviet Union's fuel for World War II battles and crazy things like that.
And my grandmother was also a famous scientist. She had two PhDs in astrophysics and ran the Kiev Observatory for a time. So it was just a very, very colorful sort of generation away from my parents. And then my mom and dad and my brother and I all lived in this relatively small apartment on Lenin street in Kiev. And it was very sheltered and very happy.
BRIAN SOZZI: What's it like growing up with family members with that type of extensive background? I'm just thinking back to my own personal experience. My parents were not physicists or going on oil fields.
MAX LEVCHIN: Everyone around me was a physicist. Literally, like, every single person. My dad was an outlier. He was a writer, but also a chemical physicist. And it was intense, but also very cool. Definitely the idea of, like, getting a B in your homework was, like, what are you? Is this child adopted? Like, why did-- how can you not work as hard as you're expected to?
And so I think the pressure was on, but it was, generally speaking-- I could always turn to many family members for any kind of a homework question, at least in all the precise sciences it was very easy.
BRIAN SOZZI: I read an interview from you. I admit, it's older, but you had a quote in there that really caught my attention, and it hits home, too. You like to work until exhaustion, which I certainly appreciate. Where did you get that drive from, your mom or your dad?
MAX LEVCHIN: You know, primarily my grandma. She was this crazy force-- crazy in a good way-- force of nature where she was just really, really tough. And over the years I'd sort of gotten more of her story, sort of pieced it together, but she had breast cancer right before I was born and sort of decided she was going to will herself to it. She was, like, stage four, very late discovery, and she just sort of willed herself to survive and be a great grandma and teach me things like English and physics and math.
And so she would always work very, very hard and expected everybody around her to live up to sort of the expectations that she would put on them, which were, from my point of view as a child, were often unreasonable, but 40 years later, I find myself shaped by this woman who was just telling me that if you think you can't, you're wrong. That was one of her favorite lines.
BRIAN SOZZI: Do you think, you know, just growing up with that background helped you found some of the companies? And we'll talk more about that later. But PayPal, Affirm, these are sizable companies that have become so integral to the lives of many folks around the world.
MAX LEVCHIN: You know, I think entrepreneurship in general is sort of a 1/2 a percent idea and another 1/2 percent, I don't know, other things, and that it's just some luck and a lot of grit. And I can absolutely trace my grit to this woman and many of my other relatives. I grew up among people who were very, very driven and very much not expecting to take no for an answer or any sort of handout from anyone.
And so in that sense, I think that very much shaped me. That said, my grandmother was very disappointed when I decided not to get a PhD. I was the first black sheep of the family without a PhD. So it's like, how dare you?
BRIAN SOZZI: How did you get in-- or how did you get the tech bug?
MAX LEVCHIN: It was very random. My mom, who is also a physicist, was ordered by the state, which is what the Soviet state did back then, to learn how to program, because they had some Soviet-made computer in her lab. She was working at a research institute, and she was ordered to go take this manual, read it, become a software engineer and make software.
And she was sort of like, well, come hang out with me after school, and we'll read this poorly xeroxed, poorly translated manual, and maybe you'll help me. And she learned how to program and actually made her career, both in Ukraine and in Chicago, once we moved to Chicago, as a software engineer from that point on practically. But I not only learned it with her, I'd soon become kind of her go-to guy and then eventually just implement her, because I would just write all the code, and I couldn't get enough of it. Like, at some point I started begging her to bring the computer home from her research facility, which was not super far, and it's really big and really heavy, and we would lug this computer home so I could continue programming during the weekends when she didn't have access to it.
BRIAN SOZZI: Fascinating. That's is a fascinating story. So you arrived in United States in 1991. What did you arrive with? What are some of those early days like?
MAX LEVCHIN: We arrived with five family members, same grandmother. My grandfather had just passed away, sadly, but the five of us showed up here with about $600 and six suitcases that we were allowed to take with us.
And so as a means of somewhat of-- somewhat admission of minor crime, I guess, but we used up whatever Soviet currency we had to buy coats. And so when we showed up in July, mid-July, and we were all wearing these really heavy coats, because that was one way of transporting a little bit more of our meager belongings from Soviet Union and then promptly realized that it was very hot in Chicago in July and these coats were out of style and out of date and not particularly useful. But we had 6 bags, $600, and 5 coats, I think.
BRIAN SOZZI: How did you find your way? How do you get from riding here in 1991 to me talking to you on the screen? It's amazing.
MAX LEVCHIN: So we had a fair amount of luck, a little bit of help along the way. We had one relative in Chicago who kind of took us under his wing and said, hey, you're going to be shell shocked, but it's OK. So we left Soviet Union as political refugees. It was in the very last days of what was called Operation Exodus, which is sort of the attempt to extract Soviet Jewry from the anti-Semitic surrounds of the Soviet state. And so we were very lucky to get that that gave you a right to work.
And so my mom with her advanced degrees, and my dad with his advanced degrees, became a babysitter and a sign painter for grocery stores respectively, and did that for a number of years. Which, you can be as educated and as talented as you like, but if you try to make ends meet, you just kind of do what you have to do. I was transported from my tracked math and science high school in Kiev to a very normal public high school in inner city Chicago. And promptly got a little bit of a school of hard knocks in me, but also met some really amazing, really smart kids who were sort of trying to figure out-- it's junior year high school, so you're trying to figure out where to go to college and what to do.
And my ambitions before that were all about getting into the Moscow State University. And so for that you have to be a valedictorian because Jews weren't welcome unless they had perfect scores. And fast forward to Mather High School in Chicago, which was a perfectly fine high school, but not necessarily as academically demanding that I was used to, but there's a lot of really interesting kids from all kinds of walks of life with very, very diverse. 30% of the school body was Black and the other percent was Asian. Lots of people from different countries, immigrants.
And so we're all kind of intermixing together and figuring out what to do with ourselves as young adults. So I got very lucky. One of my now lifelong friends, but people I met on a school bus on day one, who was this dude named Eric. And I sort of followed him around and said, teach me the ways of America. And more importantly, teach me which school I should go to.
And he went to University of Illinois at Urbana-Champaign, and I followed him there. He was my roommate and still is one of my closest friends. And he and I sort of learned our way as computer science students do at a place where the web was born. So In 1993, which is when I matriculated, Marc Andreessen created Mosaic, the first web graphical web browser. I was on campus when it happened, and sort of the plan was to get a PhD in computer science, and it quickly became I'm going to go start companies like all these other cool kids are doing.
BRIAN SOZZI: That's just fascinating. Let's just fast forward here. I don't want to turn this into a childhood therapy session--
MAX LEVCHIN: I appreciate it.
BRIAN SOZZI: But you've been here for over 30 years now. You've created some amazing businesses, PayPal, Affirm. You know, as you sit and watch the situation between Russia and Ukraine, where has your head been at the past month or so?
MAX LEVCHIN: It's rough. I mean, I certainly know all the places being bombed and shot at. I've been to most of these cities, and so it's very real. I still have relatives there where they're all safe, at least safe right now. And the long and short of it is it's awful. I can relate probably the most to the people heading out towards Poland.
The refugee crisis that's happening there is very familiar. I think it's far, far, far worse and incomparable to what we have to live with. But this idea of just getting out of town with six, or maybe one bag worth of absolute necessary belongings, find yourself in a place where you kind of speak the language, but kind of not, kind of know people, but kind of not, and have to make due from this point on, make a new life.
I think it was rough for me as a teenager. It was brutal for my parents. I remember my parents just crying at night trying to figure out, like, what did we do? This was all for our kids, but we're working these jobs we're not interested in and our life is apart and we have no money, et cetera. And so I can relate to the refugees probably most viscerally.
And my wife and I have been funneling our charitable contributions to the refugee helping organizations on the Polish border primarily just because it hits so close to home. You know, I'm no geopolitical specialist, but I sure hope that people soon understand that whatever outcomes have to happen here, they cannot involve killing more people or destroying more things.
BRIAN SOZZI: Have you thought-- have you had any time to think about how you might help or be able to help in the rebuilding process?
MAX LEVCHIN: I think right now I'm so focused on just helping people who are running away from the crumbling cities that I haven't yet. I do think and hope that when that day comes, I will have an active role to play. I'm certainly very much looking forward to that. And in one of the notes we sent to one of the organizations we're helping, with other new-- we're sending this money to help clothe and feed people, but we really want to send money to the rebuilding effort.
BRIAN SOZZI: Does Affirm do business in Russia or Ukraine?
MAX LEVCHIN: We do not. And perhaps, luckily, in the sense that we didn't have to make any particularly difficult choices. It is an interesting topic. I happen to believe that the right thing to do is to-- if we had employed people in Russia, if we had business in Russia, I think the right move is to remain involved because Western values and connection between people is really important, but I understand that obviously within the confines of the law, I think the sanctions are obviously going to have to be followed by all American businesses. But generally, the vast majority of Ukrainians are certainly not Nazis, and vast majority of Russians certainly do not want war, at least for my limited exposure to these people today and vast exposure in my past.
BRIAN SOZZI: Do you see-- and I want to dig into Affirm, of course, but do you see Affirm operating in Russia at some point, or is that off the table?
MAX LEVCHIN: That's probably-- even I cannot see that far into the future. We certainly have announced a plan to be international as a business week. We have a business in Canada. We have a business in Australia.
We have a couple of other things that we're working on and planning. And so I think at some point, if you commit yourself to being an international platform, you try to be in as many countries as possible. That said, Russia has not been on the drawing board before or after the invasion.
BRIAN SOZZI: Fair enough. So you founded Affirm 10 years ago. I'm sure it feels as though it was yesterday in many respects. How has the vision for the company changed compared to when you founded it?
MAX LEVCHIN: You know, this is probably my-- so Affirm is definitely not my first entrepreneurial journey by any stretch of imagination. If anything, I feel old just counting down the companies, counting back to the companies I started, but it's the first one where I never changed the vision. It's sort of been this thing from day zero, and it's always been this thing.
The only real change-- we originally started a company to build a better credit score. So the origin of the company, actually, is very tightly connected to everything we just talked about. I came to the US as a teenager.
I had no credit history. My parents had no credit history. We had no ownership of anything. And so trying to borrow money was completely out of choices, out of options for us. And so when I got to college, and I got a credit card on campus, because that's what everybody did back then.
Promptly misunderstood how minimum payments work, got my FICO score trashed. So all the sort of classic immigrant mistakes of, like, I don't understand how the system works, but I need money. You know, I'm guilty of every one of those things.
And so Affirm's origin story, which also has the added benefit of being true, was, hey, think back to Max, at the time, 20-odd years ago, completely confused, needs access to credit, taken advantage of. And generally speaking, seen as a completely unbankable, unlendable, too, because there's no credit history. Like, what can we do for that person?
And so Affirm was built around that idea. And initially, we just built up the score and thought we'd do better than the traditional banks, and we did, except no one we would talk to about using our score to include more people in a credit industry would even consider it. Basically, the answer we'd gotten was, well, if you're so smart, you get a better credit score, go lend your own money. Like, show us a few years of successful lending, and then we'll consider your score.
So nothing motivates entrepreneurs like being told that you can't do something, or something is not good enough. And so we went off and built this business largely on this notion of kids. You know, at this point, I think it's reasonable for me to call them kids. But at the time I read this Gen Z study, and I was like, oh, kids these days, they don't use credit cards. How interesting.
And millennials and even Gen Xers like myself were actively choosing opting out of credit cards. And so like, well, what if we gave them a way to buy things at the point of sale through this new product without gimmicks, more inclusive, more willing to take a risk on someone who's an immigrant, someone who's just not-- does not have a long credit file. And it took off like wildfire, and we've been on that mission ever since with practically no change.
BRIAN SOZZI: What has been more difficult, is it founding something like in Affirm where you're going up against these established credit card companies or founding a PayPal when there's really no internet yet?
MAX LEVCHIN: I've never had to make the comparison. It's very different. The two companies couldn't be more different in some ways, and very similar, of course. Same industry, some of the same ideology.
But I think PayPal was this happy abandon where we would just build stuff because there was nothing to lose and everything to gain. It was amazing. And I approached Affirm with a much greater sense of responsibility. I think PayPal had a mission of just building something great and cool and interesting.
Affirm has a mission of improving lives, and sees itself as a force for social good. And in that sense, I felt the burden of doing it right, getting it right, doing it well with Affirm more than I had at PayPal.
BRIAN SOZZI: Does it-- I mean, clearly you're attached to Affirm, and you have a clear mission here. But are you surprised by the criticism the BNPL space has gotten?
MAX LEVCHIN: There's a lot of different conversation about BNPL writ large. I think anything new is always going to get criticized. So that doesn't surprise or bother me. Like any financial products. And financial products, for the most part, deserve the bad rap they get. Like, this is not lost on me that showing up with a new credit product has created a fantastic opportunity for someone to say, oh, god, another way to borrow money, get into debt.
Affirm does not charge late fees, does not compound interest. We cap out interest, so you cannot pay more than we tell you upfront you will, if there's any interest at all. About half of our transactions charge no interest of any kind to consumers. Merchants pay for it all. And we are entirely transparent about every little thing.
One of our core values is the company's no fine print, and we really stick to that idea. So we set out to build a product that was kind of the opposite of debt credit, which means the same thing, but it sure is a lot better. And in that sense, what frustrates me or surprised me is-- surprised me is when we get lumped into the, oh, all these lenders, which we were very much the opposite of.
That said, it's on us, especially given the late fee and no compounding, to not lend to folks when we feel that they are overextending themselves. And I think that's the quintessential piece of Affirm, is that we're not just a source of capital to consumers. We're also a source of responsibility. Our job is to tell you, hey, we will not make any more money. In fact, we will lose money if you can't pay or can't pay on time or need to reschedule. We'll do that, but we would rather tell you please don't borrow, because it's probably going to be a burden that you can't carry.
And so in that sense, I feel great about what we do and how we've done and how we've treated our consumers. Our net promoter scores and customer satisfaction scores speak for themselves. So it's generally been very, very successful. The criticism from, oh, it's just another way to borrow money, it is, but it's a better way. It's far better than your credit card. That's for sure.
BRIAN SOZZI: Is it-- as someone that has always seemingly had these big ideas, and Affirm, it looks to be another one of these big ideas. Is it frustrating to be a public company where you have to get these constant questions about when will you make money? It's like you're dealing with these things in the near term, but I'm sure you have this vision that you're trying to execute and you see it happening, but you still get sucked back into this near-term universe.
MAX LEVCHIN: It's actually not in the following sense. So I do think that it's my responsibility and the company's responsibility to make money. We're not a charity. We've never declared ourselves to be a non-profit, so I do not want to mislead anyone into believing that we do not intend to make money. We very much intend to make money, and hopefully lots of it and continue to do so for our shareholders forever and ever.
And we intend to be a self-sustaining business. In other words, the goal is to build something that goes on for a very long time and creates a lot of value. And so the short-term questions are sensible in a sense that you want to know which way things are headed. We're not profitable today. If you look at our unit economics, which is the amount of money at the end of every transaction, they're very strongly positive.
Which is pretty easy to estimate that if we were to stop hiring or stop building things, we would get profitable very, very quickly. That is not the goal. And at the moment in terms of pure profitability vision, we intend to get to self-sustainability and break even, whatever you want to call it, and continue investing into this business until we run out of great ideas.
And I think that's-- some great companies are on record doing exactly that, most notably Amazon. For years they were being told by Wall Street, why don't you go print some dividends, why don't you post some profits? And I think Bezos' answer has always been there's a lot to do, and I need the capital to invest in that doing. And so that is the plan for me as well.
We can absolutely get profitable, and we will, for sure, but the intention is to create value for the long-term. And in that sense, I'm much, much, much more long-term focused than short-term. But I also have shareholders and many of those shareholders are my employees, and so it's important that they know that they will have a lot of value that way, too.
BRIAN SOZZI: The stock price has been volatile to say the very least. Do I have this right that you've never sold a share of Affirm?
MAX LEVCHIN: You do have it right. I have never sold a share of Affirm. In fact, I bought shares of Affirm all through the history of the company in addition to my founder grant. So I'm obviously fairly bullish, or very bullish, on my stock.
BRIAN SOZZI: So it's fair to say that-- you know, you mentioned Jeff Bezos and Amazon, that you're essentially using that same model here and you're applying it to a company like Affirm.
MAX LEVCHIN: Yeah, I don't think I'm unique in that either. I think if you have conviction that what you're building scales. In other words, there's a long road, and you have the earning capacity, which we certainly do just judging from our unit economics. You want to use that revenue to hire and to build and to invest and to create and take bets.
And sometimes potentially build things that [AUDIO OUT]. And so that's all in a journey of a start-up. Once we start plateauing and becoming a slow growth value stock, maybe we'll talk about dividends, but for now we just have a lot of things we want to build.
BRIAN SOZZI: Two more for you. 10 years from now, if we're talking about Affirm, what does it look like?
MAX LEVCHIN: We've built a lot of things. I'll give you a long answer on this one. So the mission of the company is to improve lives through honest financial products. That's the evocative way.
The more kind of a cut and dry engineer's way, which is certainly who I am at my core, is to improve efficiency of money. If you look at the industry, all the questioning and eyebrow raising about financial services, buy now, pay later included, is always about, but don't you guys have fees? But aren't you there to push people into debt?
And the answer is no we're not, and we don't have these, and we don't push people into debt, but the reason the industry does all these terrible things-- and there's a bunch of things that it does that are truly terrible. Deferred interest is kind of my favorite whipping post here, but it's an awful product. It should be illegal from my point of view.
The reason all this happens is because our financial services industry, and worldwide financial services industry, but US is probably in the lead there, and not in a good way, is highly inefficient. So if you restate our mission in terms of what is we're actually trying to do. We're trying to improve efficiency of money.
There's a lot of inefficiency in money movement in particular well beyond just buying things, well beyond the point of sale. And so 10 years from now, I certainly plan to be in many more financial services where efficiency could be improved, and it's really easy to spot where they are. We've done very, very little in small business, but that's probably one of the next kind of biggest ripe areas of just horrific inefficiency where people really should be getting access to credit.
There should not be getting into these awful financial deals that you see a lot, borrowing money and sort of structures that are designed to basically put their little businesses out of business. So that's a big area of opportunity that I see. I think there's a tremendous number of value to deliver to normal, regular consumers who kind of are sitting on the sidelines with things like crypto and even investing and trading, rightly kind of confused and staying out of things that could hurt them financially. There's a great opportunity to just deliver that value to them in a way that's honest and transparent, and once again, without any gimmicks to give them participation in the financial system without endangering them.
And so to that end, we announced already we built and launched a savings product, which is doing really well for us. We've just announced we're going to do interest within that savings account. You can choose to get that paid to you in crypto in a safe way.
And so there's a lot more like that. So I see a sort of vast field of financial services to be built by us to improve efficiency of money and improve lives. And between now and then, I sure hope to invent some other things that I haven't thought of yet.
BRIAN SOZZI: Well, that was my segue to our last question. As an entrepreneur that has created these big businesses, where are you, Max Levchin, in 10 years? What are you doing? Do you have another big bet in your back pocket?
MAX LEVCHIN: I am ashamed, proud, not sure, to say that 105% of my intellectual capacity has been entirely focused on Affirm, and it's probably the first time in my history that I can remember where I've completely run out of cycles to think big ideas outside of this company, mostly because-- I have plenty of ideas for the avoidance of doubt, my shareholders, I'm still generating good ideas, at least ideas that I think are good, but they're all now weaved into this what will happen to Affirm. It's such a platform to create more value.
And so my guess is I'm still here if my shareholders will have me, and hopefully building cool stuff and-- I did financial services as my first kind of a real project with PayPal. I wandered through the desert for a while and came back to financial services at the urging of my brilliant wife who said, like, you're good at one thing, go do that thing. And I probably just going to stick to that one. Financial services is what I'm good at.
BRIAN SOZZI: Fair enough. I wish you continued success. I know it's rare to get 30 minutes from you when you're trying to change the world. So Max Levchin, Affirm's founder and CEO, always good to get some time with you. Stay safe. We'll talk to you soon.
MAX LEVCHIN: Thank you, thank you.
[MUSIC PLAYING]
