Affirm may struggle to meet its CEO’s expectations

In an interview with the Wall Street Journal, Affirm CEO Max Levchin said that a recession will prove Affirm’s underwriting models to be better than those of banks. Affirm's stock has dropped 77% since its all-time high in November 2021; the S&P 500 has declined 9% in the same time frame.

Why should we care?
While Levchin claims that Affirm’s underwriting processes are more modern and can offer BNPL products to customers that banks wouldn’t engage with, the company also lacks access to key revenue streams that banks use to buoy themselves through volatility. Namely, Affirm can’t use deposits to fund its credit lines, and instead is dependent upon securitization deals to continue having a stream of money it can use for its BNPL efforts. In addition to its underwriting mechanisms, Levchin thinks Affirm’s no-interest payment plans could add further wind in his company’s sails during a pandemic, as merchants will pay higher fees to offer no-interest payment plans to penny-pinching customers. But the percentage of delayed payments by Affirm customers has doubled in recent months—and, if it increases from 2% (where it is now) to 6%, Affirm could be shut off from lines of credit. The very tools Levchin views as keystones to success may only exacerbate investor skepticism and lead Affirm further astray from Levchin’s vision.