Lending platforms are evolving to the needs of younger customers’ financial habits, a pair of fintech executives told an audience at CB Insights’ Future of Fintech conference in New York Wednesday.
Max Levchin, CEO of point-of-sale lender Affirm, said roughly 67% of his company’s customer base is Generation X and younger. People of younger generations are actively opting out of credit cards because the true price of purchase is hard to estimate and they’re scared of taking on debt, he explained. Meanwhile, credit scoring models used by traditional banks don’t take full advantage of the information available on customers.
“We ended up building an entirely new payment model,” Levchin said, describing Affirm as an alternative payment service reaching consumers through a web of partnerships with merchants as large as Walmart. “We offer an alternative to credit cards that appeals to consumers for the very crispness and clarity of cost.”
This lending model makes Affirm reliant on responsible borrowers who pay back their loans according to the timeline that Affirm provides. Its appeal is based on the transparency of costs borrowers pay, as Affirm doesn’t charge hidden fees.
“When you’re done paying, you’re done paying,” Levchin said. “If you’re late, we’ll remind you, but we won’t make money.”
When asked whether Affirm’s model is contributing to debt problems among younger generations, Levchin said the “reality of our life as consumers” is that credit is necessary to make purchases. Non-revolving credit models like Affirm are “fundamentally better” than the revolving credit models used by credit card companies, he added.
Speaking in a separate fireside chat at the event, Doug Lebda, CEO of Lending Tree, said his company now has 15 million members on its online lending marketplace. The mortgage business, which was the origin for Lending Tree, now accounts for just 18% of its business, he noted. Since only 5-10% of all loans are done through online services, the company can still grow, even through “a tightened credit box” in any potential downturn, he added.
Among lenders, the move to become multi-service platform businesses is a positive, Lebda argued. Moderator Felix Salmon of Axios noted that alternative lender SoFi had started with student loan products and expanded into other areas when that market did not grow to the extend they needed it to grow. Lebda replied: “A multi-product company is always better than a single-product company.”
Lebda also said the more that technology enables online transactions and transparency for consumers to the market at large, the better off lenders and consumers alike will be. He noted that online lending is improving conversion rates, which can help lenders lower prices and increase their volume.
“The offers that the consumers get are highly competitive,” Lebda said. “We’re going to present them with the best five deals; we don’t want to overwhelm them with choice.” The average difference between low and high offers is about 500 basis points, he noted.