Why Max Levchin wants Affirm to act like your smarter older sister

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The Scene Max Levchin clutches his chest in mock horror at the suggestion that his duties as CEO of Affirm must mean that he is no longer a software engineer. “I’m having an identity crisis right now,” he says in an interview for The CEO Signal show. “I am an immigrant engineer. That’s who I am. If I couldn’t write code anymore, I would feel like I’m missing a finger.” The deep computer science background that led the Ukrainian-American entrepreneur to found PayPal with Peter Thiel and a “mafia” of other tech luminaries has defined the way that Levchin now leads Affirm, his buy-now-pay-later lender. He wants to understand his $25 billion company’s software intimately enough to be able to push his engineering teams to keep improving it. Levchin still spends much of his spare time coding new products. The productivity boost AI agents give him makes him feel like he’s flying, he marvels, and that suits a founder who is known for his impatience. When a colleague tells him a project will take six months, his instinct is to ask whether it can be done in six weeks. “You can’t be ridiculous… [and] say, ‘I actually want [it done in] six minutes because, by God, I’m in charge,’” he admits. But “if you know how things are made and you’ve made them yourself, and you have the credibility, you can say, ‘Look, I think we can actually find a way to do this,’” he says. “I’d like to believe I straddle the ridiculous and the reasonable reasonably well.” How dystopian sci-fi shapes Affirm’s strategy Before Levchin started coding, he was already hooked on science fiction and still considers the Russian authors Arkady and Boris Strugatsky among his most formative influences. “They wrote book after book after book, just infused with enthusiasm about the future… [where] engineers and scientists just made the world a better place,” leaving humanity with only moral dilemmas to wrestle with, he enthuses. “And that is the future I want. I want to live in a world where we’re struggling to decide what truth and good and evil and all those things… really mean? And everything else will take care of itself because we’re engineers.” But Levchin is also a big reader of dystopian fiction, recommending E.M. Forster’s The Machine Stops, which was first published in 1909. Its portrayal of humanity in thrall to a machine it does not understand foreshadows one possible scenario for our AI future, Levchin says — “the future I’m working very hard to prevent.” What connects his sci-fi preoccupations to his business of offering installment loans is the importance of transparency. “The most important solution to the Machine Stops problem is knowledge,” he says. “The problem [we’re solving] is lack of knowledge… [by] being the source of clarity on how things work.” Customers of the traditional financial “machine” have little understanding of how it works, Levchin says, and its complexity is sometimes by design. The fees on which the lenders he set out to disrupt depend for much of their profitability are hidden in the fine print on purpose, he contends. “We won’t touch things where we feel the market is efficient because we are first and foremost a mathematically driven company,” Levchin says. But where it thinks consumers are being taken advantage of, “that’s an opportunity for Affirm… We will not create a financial product where we are betting on your failure as a consumer.” How AI agents will outsmart consumers’ wiser siblings Levchin tells two stories about how he started Affirm. The best known involves him going shopping for a Mercedes convertible after PayPal went public in 2002 and being turned down because his credit score was too low. But, between that incident and Affirm’s 2012 launch, there was also a conversation with old friends from the University of Illinois about how much “borrowing sucks.” Each of them had a story about feeling that they were “probably getting screwed” by a lender, or not understanding the interest rates on their credit cards. The cost of the charges they paid was “not actually as big of a deal as a sense of loss of control,” Levchin concluded. That insight led him to set up Affirm as a lender that does not charge late fees or compound interest. Critics fear that BNPL companies encourage impulse purchases that leave consumers with more debt than they can pay back. Levchin counters that being transparent with customers about what a loan will ultimately cost them, and why it sometimes turns them down, is at the heart of his business model. When Levchin and his team went looking for an analogy to describe Affirm, they concluded that it should act like a “smarter older sister.” Like the supportive if annoying sibling who can say “you’ve got to use deodorant” or “this is more than you can afford,” he says, Affirm wants to offer its users advice that’s not comfortable, but is needed. That positioning underpins Levchin’s belief that Affirm can thrive in a future of agentic commerce. Asked why a consumer’s AI agent would choose to pay with his service on an e-commerce site, he predicts that agents will be smarter even than older sisters, steering customers away from businesses that depend on them not reading the small print. Few people pay attention to the asterisk beside the offer touting 0% financing costs, he says, but their agentic assistants will automatically spot such hidden fees. “Your agent has a PhD in consumer finance and a PhD in everything else… They will notice exactly what’s going on,” he says. “Agents will not make mistakes on your behalf.” Cementing a culture that can outlast a founder The idea that Affirm should not profit from its users’ mistakes is one of the “operating principles” that Levchin wrote down and published more than a decade ago. A CEO’s first job is to set out a vision for their company, he says, and he was looking to create a culture similar to the one that made PayPal a hit — “[the] smartest people I know, zero jerks, high integrity, no deviation from mission. Mission is more important than dollars.” Asked whether Affirm will be the last company he starts, Levchin replies, “I hope not. I have too many ideas to chase, but I’m also in zero danger of leaving.” For now, he is preoccupied with maintaining a startup-style underdog ethos at a company that is now 14 years old. “We have to remain hungry. We have to remain reasonably scared. [We have to keep] the sense [that] we can still reinvent ourselves.” When he wrote down his mission statement, “I was terrified of losing that,” he says. He pictured a future in which Affirm went public, only for an activist investor to come in and force it to start charging late fees, “and that would be the greatest embarrassment of my life.” Repeating “the mantra of who we are” seemed like his best chance of avoiding that outcome, he says, because it would cement a culture that could survive such a moment, and even outlast his own tenure. His goal, Levchin says, was to “infuse it so deep into the fabric that if I get lost in the mountains one day, no one would forget.” In this article: Notable - About one in four Americans often or occasionally pay in installments when they buy things online, according to Gallup polling. The figure is 57% among people who worry about making credit card payments, underscoring the affordability concerns that have soured voters’ views of the US economy. Transcript Max Levchin: If I couldn’t write code anymore, I would feel like I’m missing a finger. It’s that core to how I think of who I am. As an engineering first CEO, I know exactly what it’ll take. I know what I would do. I know what prompts I would write. I know which agent I would use. I know which set of techniques would apply here. It’s exciting for me, but it’s also, I think, more compelling as you tell people, “Hey, we’re going to go take this hill and it’ll be fun. It’ll be faster than you’ve ever seen. It will be 10X more productive.” And they get to believe me because they know I actually know how to do this. I’m not just reading it in a newspaper. Penny Pritzker: Today on the CEO Signal, we’re talking to Max Levchin, the founder and CEO of Affirm, a company built to challenge the way traditional consumer credit works. Andrew Edgecliffe-Johnson: The firm began with a simple idea, but a pretty radical one. Lenders should not make more money when borrowers fall behind. Penny Pritzker: That idea took Affirm from a checkout option to a public company. Andrew Edgecliffe-Johnson: The challenge is how he turns this disruptive model into a lasting business at scale. From Semafor, this is the CEO Signal. Penny Pritzker: Hello, Edge. How are you? Andrew Edgecliffe-Johnson: Great, Penny. Good to be back. Penny Pritzker: Good to be here. Andrew Edgecliffe-Johnson: So we have a different kind of guest this time. Penny Pritzker: Yes, we do. Andrew Edgecliffe-Johnson: Max Levchin, founder of Affirm, is the first founder CEO we’ve had on the CEO Signal Show. And 14 years after founding the company, he’s still firmly in charge. Penny Pritzker: He has a fascinating founder story. He comes to the United States as a teenager from Ukraine. He’s part of the PayPal Mafia, founding PayPal with the likes of Elon Musk and David Sacks and Peter Thiel. He then goes on to have a frustration in trying to borrow money to buy a car, and that leads him to starting a company called Affirm. Andrew Edgecliffe-Johnson: Yeah. And the business really interests me. He started with this simple idea, no late fees, no compounding, none of the penalties that customers hate about credit card companies. But what I’d really love to dig into is what he saw that others missed about how you could still make money in that world. Penny Pritzker: In fact, if you take away some of the ways that lenders have traditionally made money, I have a real question, how does his business model work? Andrew Edgecliffe-Johnson: And now he’s leading Affirm in a very different phase. He’s going from proving the model as the plucky startup into running a much more scaled financial network. Penny Pritzker: We’ve got a really interesting episode ahead of us. Andrew Edgecliffe-Johnson: Let’s bring him in. Penny Pritzker: Welcome, Max. We’re so glad to have you here. Max Levchin: Thanks. Andrew Edgecliffe-Johnson: Great to have you, Max. Thanks for joining us. Max Levchin: Thank you for having me. Penny Pritzker: So Max, you came to the United States from Ukraine when you were how old? Max Levchin: 16. Penny Pritzker: 16. And you moved to Chicago, my hometown. And so how has being an immigrant, how does that inform who and what you are today? Max Levchin: It’s definitely a core part of my identity, although I also consider Chicago my hometown. It’s more than anything American by choice. I want to be part of this country with all my own bag of tricks and perhaps quirks, but it is important to me was to assimilate as much as I could. Penny Pritzker: I love that. Andrew Edgecliffe-Johnson: So you have this early foundational entrepreneurial experience with a group of other very, very prominent now entrepreneurs, some of them are immigrants themselves, at PayPal. You do quite well out of that. And then you go to make quite a big purchase and you have this experience where you are refused credit. Can you just tell that story quickly? Because this is the foundation story of Affirm, isn’t it? Max Levchin: I’m not good enough to come up with foundational myths, so this is a true one. The very short version is I was bumming rides off my friends for quite some time during PayPal. And right after we went public, I decided it’s time to own a car. And so I flew to LA with my then girlfriend, now wife, and sort of with great panache, decided I’m going to buy a convertible, and then drive it from LA back to San Francisco. I had this great plan. We showed up 9:00 to the dealer having landed in LA and the guy checks my credit and says, “I cannot sell you a car.” I was like, “What happened?” So as it happens, this was not my first startup, it was the first successful one. The first few failed while I was still in college. And I lived primarily off credit cards, which I was not particularly diligent in paying off on time. That destroyed, and by that I mean mid 500s. So bad credit score. And then he’d recognize me, and said, “Wait a second, aren’t you one of the PayPal guys? You guys took the company public. Congratulations.” And they’re like, “Oh, cool.” And they’re like, “But your credit is still no good here. Pay cash or go home.” The worst part of it was the woman of my dreams was right next to me going like, wow, I’ve been dating a deadbeat. I was like, I will never want to go through this again. Penny Pritzker: So how did that experience of being turned down to buy a car or to get a car loan inform what you built at Affirm? Max Levchin: This was long before Affirm. This was like a full 15-ish years plus or minus before Affirm was born. But as I was debating with actually some of my University of Illinois compatriots also at PayPal what to do next after another startup, there was this one thing that stuck with me, the most embarrassing moment of my life when I was trying to buy a cool car and was told that I am basically unwelcome as a customer. I wonder if that’s just me. And within 15 seconds, oh, we all had this experience. Borrowing sucks. It’s embarrassing. We don’t understand the terms. All of us have gotten to like, how did I get this giant revolving balance? This idea that I have no idea how this works. I know I’m paying too much. I’m probably getting screwed and it’s too complicated. And that’s the origin story in that. Penny Pritzker: Okay. So you describe Affirm as its mission is building an honest financial services company with honest products that improves lives. So help us understand what does that mean and what is Affirm? Max Levchin: Affirm at the product level is a way to pay for things at the point of sale. It’s now in many different products. So we have a card, we have integrations with many retailers, but it’s a way to pay for things over time. But unlike credit cards, it’s deliberately transparent. It goes over the top to be transparent. You see a schedule. We don’t charge late fees. We don’t compound interest. We pre-price the total cost. If there’s interest, you find out how many dollars you’ll pay. If you pay early, we take out the interest so there’s an incentive for you to get out of debt sooner. Andrew Edgecliffe-Johnson: So how much of your role as a founder CEO is just explaining the model that didn’t exist 15 years ago? Max Levchin: For a long time, that felt like the only role. Because before we started the company, I sat down with a bank CEO and I tried to explain, here’s what I’m going to do. And guy said, “I got to tell you, you seem like a smart guy. Don’t do any of this. The way we make money in this industry is late fees. You’re not going to charge late fees? It’s half my profits. Just go do something else. You’re obviously talented.” And explaining that to laymen was 1,000 times harder because if you are used to getting charged late fees, your answer’s like, yeah, I’m not a crook. No late fees. You’re not actually telling the truth, are you? And so just explaining this to the team, you would be interviewing someone, and like, “Hey, so we’re not charging...” “Yeah, we got it. We got it. That’s the thing you do as an...” It’s not an introductory offer. It is the thing we do. We have never charged late fees. We never will. But then behind the curtain, there is no curtain. What do you see is exactly what you get. And it got easier, but it took a long time. Penny Pritzker: Do they ask you, so how are we going to make money and margin? Max Levchin: Oh yeah, every time. Penny Pritzker: And? Max Levchin: We will make money by people coming back and saying, this was a great thing. I want to do it again. 96% of our transactions today come from repeat users. Penny Pritzker: Oh wow. Max Levchin: Extraordinary draw. People love transparency in their financial products. Andrew Edgecliffe-Johnson: What’s the biggest misunderstanding now about the model? Because I know a lot of people park you with buy now pay later lenders, you don’t like that term. Max Levchin: I’ve made my peace with BNPL. I now prefer to refer to it as an acronym because maybe over time it’ll just become a thing onto itself without the full unpacking of the four letters. But the thing that used to bug me when you told people I lend money for a living, it’s like, oh, compounding. It’s like, we don’t compound. How is that possible? We don’t compound. We tell you it’s this many dollars and that’s it. That’s the most you’ll pay. Oh, you make your money on late fees. Penny Pritzker: But part of the point you’re making is is that the retailer, if they want to make the sale, can say, I can compensate you- Max Levchin: That’s exactly right. Penny Pritzker: ... for what you’re doing, which is you’re facilitating a buyer. Max Levchin: That’s exactly right. Penny Pritzker: So then my next question is, what responsibility do you have to that buyer? Because somebody’s buying something they can’t afford to buy, unlike your car situation where you could afford to pay cash. Someone’s buying something that otherwise they would not be able to buy. How do you manage that part of the responsibility? Max Levchin: So that is not accidental, but absolutely crucial component of not charging late fees and not compounding interest. Our entire MO was if we don’t charge late fees and we don’t compound interest, the only time we can lend structurally is when we have 100% conviction that you will pay us back. If you cannot pay us back, and we can see it in the data we understand about you, and we have to be good at using this data. So underwriting, et cetera, has to be extraordinary. But if you have that level of expertise, you don’t need late fees. In fact, you are buying insurance, intellectual insurance, on never making a loan you think is not going to come back, but it’s okay because there’s late fee income to have. Penny Pritzker: This is the thing I said to Edge when we were first trying to unpack your company and said they’ve got to really believe in their underwriting because- Max Levchin: We certainly do. Penny Pritzker: ... they’re basically saying we’re not going to penalize the borrower if we get it wrong. Max Levchin: You got it exactly right. We pay for the wrong. The wrongs we make, the mistakes we make, we pay for every one of this. Andrew Edgecliffe-Johnson: I don’t think I’ve heard you mention a single percentage in this conversation so far. We talked about margins. Max Levchin: I’m holding myself back. Andrew Edgecliffe-Johnson: But what I hear you talk about instead is fundamentals. I think Affirm is your ninth or 10th startup. Is that a broad approach you have generally to start with first principles rather than with, hey, I could make 2% more than the next guy? Max Levchin: No. In fact, there’s actually a cool story in that. So PayPal was incredible. It was the most transformative thing, not just financially, but I grew up. I came into PayPal being very much a crazy, freshly minted undergraduate computer science kid with ambitions and no idea what I was doing. And I exited a seasoned chief technology officer with a public company. And I never understood why it was so successful. Well, we just did it right. Then I started another company and I just said, well, I’m going to dive right in, do it. It’s going to be like PayPal because I learned my lesson. That company did fine, but it was a shadow of what PayPal was. And it never really quite had that same intensity and excitement and the team dynamic. And I tried. I was genuinely trying very hard. In fact, I tried to do better than PayPal. I tried to shape the culture to fix the wrongs of PayPal. I knew some things that I didn’t quite like and I would do better. I was a CEO, so I had full control. And at the end, it was sort of like, okay, well, people made a bunch of money, but it did not feel that way at all. So right before I started Affirm, I sat down, and said, “I’m going to compare the two and I’m going to be very, very deliberate about what it is that made PayPal so special and why did the next one was such a dud from the culture perspective because that’s clearly what happened.” Andrew Edgecliffe-Johnson: And what did you identify? Max Levchin: I had a whole list. And the most important thing I learned, and again, this is the thing that I took for granted. So at PayPal, we recruited the smartest, but also the highest integrity people we knew in college. And then we wouldn’t want to work with jerks. We literally had the best people we knew from the crucible we just spent four years in pulling all nighters and eating pizza on the floor and all the things you do in college. And we never had to write down core values. We never had to say things like the mission is X, because the shared context of how we do things we do was just ingrained. So this Affirm founding, before I write a single line of code, before percentages enter the conversation, I have to have a mission. I have to have core values. I have to write down, not just the core values, but the bible interpreting core values. So when someone comes in and says, “I want to work here, I think.” Say, “Read this. If you can sign your name under it, you’re at the right place. If you can’t, please go. I would love for you not to join this company if it doesn’t ring true.” And I try to make all of it public. So if you search Affirm core operating principles online, you’ll find a document from I think 2012 where I say, “Here’s how you interpret what we mean.” And it was very, very deliberately, I want to reproduce this smartest people I know, zero jerks, high integrity, no deviation from mission. Mission is more important than dollars. On and on and on and on. Andrew Edgecliffe-Johnson: Where did you get the most pushback early on? Where did it look as though this might not get traction? Max Levchin: We got rejected by a fair number of people, which was actually quite embarrassing. It was like, “I’m starting a payments company. I’m the PayPal guy.” And they’re like, “Yeah.” Andrew Edgecliffe-Johnson: You’re Max Levchin. You’ve made a name already. Penny Pritzker: But what did you see that others missed? Max Levchin: So my co-founder, Nathan, and I go back to high school days. So he was one of the two smartest kids I knew in college, full stop. He was my head of risk at PayPal. He built all the really sophisticated anti-fraud stuff. He managed the team, and he and I built it together a lot, but he’s incredibly good at this. And I read this study as we were discussing this idea that said, it was called Millennial Disruption Index, and it basically said, the study could have been boiled down to what do millennials hate? And what do they hate the most? And it turned out that they hated banks the most. So that was sort of the product and marketing insight. And then said, “I’m going to do this. I would love for you to help me. Do you think you can build a model that does not need the safety margin of late fees and compounding interest and all the stuff that the guys who are hated rely on?” He said, “I’m sure I can.” I have no idea if he thought he could, or if it’d be a fun adventure to do another company with Max, but he was like, “I’m in, let’s go build this model.” And that was that. Andrew Edgecliffe-Johnson: But in those early years, was there ever a moment where you thought- Max Levchin: Oh yeah. Andrew Edgecliffe-Johnson: ... this is not going to happen. We’re up against too big a- Penny Pritzker: Yeah. What’s the white knuckle moment? Max Levchin: Oh, we had so many. There are many stories, and I would love to save them for the tell all memoir one day. But if you’re a non-depository lender, you’re lending against capital that someone provided. And we were not exactly having a great time raising money. So the bank of the Levchin family was in fact the capital provider for our first loan book. I am perfectly comfortable putting, I don’t know, a few medium-sized inheritances into the bank of Affirm to lend against. The day before launch, I was like, “What do you think the loss rate’s going to be on our first iteration of the model?” Nathan was like, “I don’t know, 25%.” He’s like, “We’re getting a round of money.” And I was terrified. And of course I couldn’t show it. This is not a thing you do on the eve of your launch to your team that you recruited and told we are going to break this industry’s bad habits and teach them how it’s done. If you’re losing a quarter of the principle, doesn’t come close. Penny Pritzker: The math doesn’t work. Max Levchin: The math does not work. And so I was like, “Well, we’re going to find out.” And of course, this is, by the way, classic example of the fear you have is not the fear that you should. As an entrepreneur, that is a... And I was dumb enough to forget that, but I literally wrote that down for myself years ago. The thing you’re scared of is the wrong thing. There’s another thing, and that’s the true scary thing. This isn’t one. Whatever. Penny Pritzker: So what was the true, scary thing? Max Levchin: No one cared. I said, “I’m okay losing $100,000 of my personal money in the first week. We’ll make $400,000 worth of loans. And if a quarter disappears, I will live. I’ll explain it to my wife. We’ll be fine.” And we made, I don’t know, $500 worth of loans in that first six months. Andrew Edgecliffe-Johnson: So you threw a party. Nobody showed up. Max Levchin: No one cared. Penny Pritzker: Nobody showed up. Max Levchin: No one cared. Penny Pritzker: So what’d you do? Max Levchin: So we experimented with the product. We experimented with how we explained it. We launched a product that said, “Pay us back in 30 days.” We introduced the idea of Affirm as here’s an affordability calculator. It’s a $500 thing. You can pay for it in four $125 hits. And that thing people were clicking on a little bit. It wasn’t yet a thing, but it was like, wait a second, people care about affordability. They like this idea of a schedule. They love the predictability of when it’s done. And that was the tail we grabbed. So explaining what Affirm is and how we make money was a huge deal in those days. Penny Pritzker: So Max, it’s a little bit of a tightrope it feels like you’re on. In other words, you’re serving merchants, you’re serving customers. You’ve got to make loans that are responsible as well as profitable, so you’re judging individuals. What happens when the economy changes? Max Levchin: So a big part of the design behind the product from the very beginning, so this we knew from day zero, the advantage that we would find in modeling would be threefold. We would ask retailers to share a lot more data with us than normally goes to Visa, Mastercard, et cetera. So we would ask a lot more from the consumer about themselves, and we would also ask the retailer a lot more about what it is they’re selling. So that was kind of idea number one. Data is profoundly important. The other part is structural. We approve or decline every single transaction separately. We do not tell you, here’s $5,000, don’t spend it all in one place. It’s the, you would like to borrow $500 for this coffee maker. We will tell you what the price would be and we reserve the right to say no. We’re pretty good. And in the age of AI, we’re actually getting even better at telling you why. So most of the time when your card doesn’t work, it’s like, I don’t know what happened, but that’s embarrassing. So I really wanted to avoid that, but sometimes you do have to say no. We have to be able to say, “This is more than you can afford. And we love you. We want you to come back. We would like you to get your purchasing power back when you’re done paying off an obligation to us or to whoever else you owe money.” Penny Pritzker: And it sounds like trust. Max Levchin: Yes. Penny Pritzker: Because you’re having a dialogue with the borrower or the customer and you’re saying, and somewhat you’re paternalistic maybe in looking out for them or- Max Levchin: We spent a long time asking who are we? If we were a relative or a friend, or a bird or a pet, what are we? And we basically decided that we are the smarter, older sister. We’re like, “Hey, let me tell you what you’re doing wrong. Your parents didn’t teach you this part, but you got to use deodorant.” Or whatever, the advice that’s not comfortable. But you have someone who is in your family telling you like, “Listen, this is what’s going on.” And so that’s the persona we embody. I think sometimes we call it the coach persona, but I always think of it like that when I’m telling the truth. Penny Pritzker: So when you think about your culture and the notion of trust, how does that fold into- Max Levchin: That is profound. We ask ourselves every time when we launch a new product, when we send a communication to our consumers, “Is this trust enhancing or trust destroying?” And if the answer is not trust enhancing, the bar isn’t, oh, this will not change things. If we are doing more things to help you trust us more, that is a worthwhile thing to do. If we’re doing things that are neutral, it’s probably not worth doing and we will never do something to break your trust. That’s very important to us. Andrew Edgecliffe-Johnson: As Affirm scales, pulling back from the individual decisions on what you say no to and the individual loans you say no to, you have many options for where you choose to compete. How are you using those values and that culture to decide what you will do and what you’re not going to chase? Max Levchin: One sort of litmus test for me has always been if there’s a margin being made in an industry, does the person paying the margin, supplying the extra money, if you will, understand that they are in fact the source of money? If the answer is not really, that