I’m sorry everyone, about Affirm
I’ve tried three times now to take a small position in Affirm, but each time I just can’t get myself to hold it, and I exit in a few days. There’s something about it so that I can’t get all excited about it. It just doesn’t seem like what I’m looking for. Perhaps Pavlos explained it better than I have (and I quote, somewhat shortened and a tiny bit paraphrased by me):
Upstart’s only job is to assess the risk. Upstart doesn’t need cash to underwrite (approve/disapprove) the loan. All it needs is the technology and the personnel to keep feeding their AI/ML models to learn and improve…
Affirm’s job is to take the risk. Affirm says yes or no to clients who wish to use the BNPL feature and charges the merchant a % of the sale right at the spot. And then makes back a portion of the interest earned through the loan given to the end consumer. But in reality, the client doesn’t take on the loan. Affirm does that. That’s why Affirm needs to pay the bank a fee for servicing the loan as well as a % when originating the loan in the first place. So, you could say that Affirm is like the customer of Upstart who needs access to credit. Affirm then goes on and pays the merchant the amount of the sale minus its % fee as explained….
So, it’s like opening a business and having someone (Affirm) standing outside telling people come on in buy this for free today and you can pay me (Affirm, not the actual business owner) later with a small interest. This person then goes around forming good relationships with other business owners telling them that I can bring in a lot more customers just by allowing me to take on the risk. You as the merchant will get your money no matter what. Even if the client doesn’t pay me back. I’ll cover that too!..
Thus, Affirm is first and foremost a company that makes money from loans, followed closely by the money they are able to extract from merchants from both transactions and interchange fees. Upstart is solely a technology company.
So why in the world would I want to invest in Affirm, really? Especially if I can invest in Upstart instead.
Here’s another way Pavlos looked at it
I like to go over the social media (especially Instagram) of the companies I follow to get a sense of what kind of customer they are looking for. Upstart’s message is that it wants to help people get their finances right by giving out financial self-improvement tips regularly. You can see lots of examples here https://www.instagram.com/upstart/
…Upstart speaks to the logical part of humans. How to be better financially, save on your interest rates, create a budget, assess your income and spending, make your home efficient, etc.
Affirm, on the other hand, https://www.instagram.com/affirm/ tells a different story. The theme here is a bit more celebrating, colorful, and shows lots of people taking trips, adventures, enjoying new clothes and buying stuff with the motto of buy now and pay over time. I guess the whole point of Affirm is to help people buy what they want now and split the cost along the way, which for a lot of people, may not be doing them a favor….
I hope that what Pavlos wrote helps explain my decision about Affirm.