Affirm’s founder talks Apple partnership, Elon Musk, & AI

Affirm founder and CEO Max Levchin is one of the preeminent tech entrepreneurs of the past 25 years. He worked alongside Silicon Valley heavyweights Peter Thiel, Reid Hoffman and Elon Musk to create PayPal and then take it public. Levchin has since invested in hundreds of startups and mentored many of the top tech executives now creating the revolutionary AI technology that is taking the world by storm. When he isn’t keeping his ears to the vibes in Silicon Valley, Levchin remains hard at work at buy now pay later fintech Affirm (AFRM) – which he founded several years ago with the mission of wanting to improve household personal finances. Affirm has a new tie-up with Apple (AAPL) that will see Affirm be a payment option embedded into Apple Pay. Yahoo Finance Executive Editor Editor Brian Sozzi chats with Levchin about his new relationship with Apple, his friend Elon Musk, and the importance of appealing ‘to both sides of the aisle’ in Silicon Valley.

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Video transcript

Welcome to a new episode of Yahoo Finance's opening bid uh vodcast slash podcast.

I'm your, well, I'm your trail guide.

Uh Yahoo Finance's executive editor Brian Sazi.

Now, let's uh well, let's make some money and get a lot smarter here with me.

Now is the founder and CEO of a firm, Max Levchin.

Max.

Always nice to get some time with you and get a little more of a, a little bit of a longer period of time with you.

I know your time is very precious.

Uh So thanks for uh hopping on.

I mean, really the big news for a firm take us through what you are.

Exactly.

What did you exactly announce with Apple?

Uh I think Apple announced that sometime in the future.

This is a WWDC announcement which means that they are speaking to the developer community describing what will happen affirm will be available directly through Apple pay, which means that you'll be able to get the transparency and uh sense of control that affirm payments offer directly in your Apple pay wallet, which is obviously super easy and convenient to use.

And so it's very exciting.

Um It speaks directly to the core value of what we're trying to build here, which is a network, bringing as many new shoppers with credit that we responsibly grant them to as many merchants as possible through as many channels as possible.

And this is probably one of the most beautifully designed channel of the mall that's that just announced today super early.

Lots and lots of wood to chop before.

This is a, this is a reality.

I thought I, I was thinking back, didn't Apple try to get into buy now, pay later.

And you, I mean, I remember asking you about it and you know, like, uh don't worry about it.

What, what happened to their efforts?

I really don't think it's my place to comment.

Uh And I, I certainly don't know uh what other strategies they're pursuing.

I think their announcement spoke to the idea that there are other providers out there that are, that have their own consumers that are using those products and they have created a platform with a wallet and they're just pursuing that strategy.

But I think you'll have to ask the right person from Apple to comment on, on, on their own products for sure.

This is how big could this be for a firm financially?

Now, I know you mentioned didn't now, no, weren't sharing any impact to financials.

But I mean, there's a little bit of common sense here.

1.4 billion iphones worldwide.

I know this is us focused I mean, the user base huge.

I, how, how could this change your company again?

It's too early.

I think the thing that I've always said and I'll, I'll say it again, things that are worth doing, take a long time.

And, you know, if you look at another really amazing part of virus is Shopify.

So it, it's in its third year and it's accelerating and that just shows that when you build something really well, it takes time.

But if you put the right foundation in and continue iterating, you really get some extraordinary results.

And I think with this announcement speaks to probably more than certainly a lot more than just affirm the idea of unbundling the credit card is here to stay Apple.

You know, as you said, they, they're enormous, they have enormous exceptional coverage of merchants.

They're online, they're offline, they're directly embedded in your iphone.

So it, it, it's a great product and for them to say, hey, installment pay, the idea that you want each transaction where you're going to pay over time, treated separately or you know, exactly what your interest payments are going to be.

If any, in our case, there'll be no late fees, no gimmicks, all the, all the things that makes a firm so great and unique, they're real.

This is a first class citizen inside of the wall.

And so I think that's what's important and the opportunity obviously, you know, you, you said it yourself but it's the sort of thing where there's a lot of work to be done before anyone myself included, knows what will happen and how big will it be?

Is this?

And of course, the firm's been in business for a, a good number of years now, you're uh pulling in a large number, a large amount of revenue each year.

But is this somewhat of a validating moment for a company like yours?

Maybe something comparable to?

I don't know, Warren Buffett coming in and loaning a a company money.

Um I think every single time we sign with a great platform, you know, this, this is not the first major announcement we've announced, we work privileged frankly to work with shop.

If I just mentioned with Amazon with Walmart was Target Great American brands where we are trusted to take care of consumers that choose to shop or to pay with their, their payment products and the validation is real.

You're totally right.

But I think what it speaks to is just the wave of, by the way, I really hate the term by now.

Pay later.

I I think it's a, it's an awful term.

It, it really should only mean the pain for.

And as you know, we do pay in two, we just announced literally last week and pay in 30 days and pay in six months and 12 months and 18 months, those sorts of things.

But the idea of unbundling the credit card transaction I think is a really powerful idea and it is here to stay and that is the validation every time a major wallet says.

All right, this is a thing that we need to support, you know, it's here to stay.

You know, it's getting larger and, you know, for the record, Warren Buffett hasn't lost any money.

But, uh, II, I would, uh, I would welcome such validations too.

Does, you know, it's so creepy.

I, you can't probably see, but just as we're having this conversation, max, my visa debit card popped up, but I have it saved on my, in my apple wallet.

I don't know how that happened, but it's really strange but it just got me thinking like in real time, I mean, is this a moment where the credit card companies think like, holy crap.

I really need to be worried about the my business model looking out over the next 1020 years.

You know, I think that's probably uh 1020 years perhaps.

Uh just to be, you know, to know where my place is as, as my mother used to say by now, pay later or a firm like transactions paying over time, whatever you want to call it.

Still about 5% of us e commerce.

It's less than 1% of the overall spending.

And so it's, you know, it's a slightly larger than the nat but uh maybe smaller than a fly.

So we, we, we got a long way to go before we are threatening the wanted halls of, uh, card issuing banks.

But I do think they're taking notice.

I think the, the favorite stat that I'm sure I probably quoted on your shows over the years when we started, everyone laughed at us, like, properly laughed that we wouldn't charge late fees.

Like, how dumb are you?

I can't realize that that's what the profit is.

And we said, look, whatever you charge late fees, you're fundamentally misaligned yourself with your customer and consumer is stumbling financially either because they're a sloppy payer or because something happened or they just can't make a payment telling them.

Aha.

That's my profit opportunity.

I'm going to take your money and take your money with an extra fee on top of it just seems so profoundly wrong for a customer obsessed company.

Like, like we are and fast forward, you know, you're right.

I've been at it for, uh, north of 12 years and going and I have no intention of, of, uh, of doing anything else.

But today, more than half of all paying overtime products like a firm like apple Pay later.

Um, like paypal do not charge late fees.

Like we've actually caused a real shift in the industry.

I think that's what credit card issuing companies need to be thinking about.

How am I going to live in the world where consumers expect for me to be on their side when I can't make a payment, not to rejoice and make a little extra money.

Yeah, you're, you're a competitor.

I mean, you cycle Max.

You've founded companies.

You've been at this a while.

What is, maybe you could weigh on this.

What is this announcement with Apple mean for Klarna?

And I don't mean to giggle but like I, you, you're going to battle with Clara.

I mean, look, let's call a spade, a spade.

I mean, this is a big win for your company.

II I it's unclear to me what Klarna is doing over there.

I'm sorry, I'm not familiar with the name.

I mean, you don't have to say it.

I mean, you compete with them.

I mean, this has to like, I mean, they, they're probably not having a good day at Clarins headquarters.

I come on, I think one lesson I learned over the years is you gotta focus on yourself.

You can't uh on the day when you're having a good day and you're thinking, oh, those guys over there wherever they are, they, they are really hurting now.

I, I got where it hurts.

It's just about to flip and you're gonna be the one going.

Oh my God, they did.

What?

And like how did I miss this one?

So it, it is just good karma behavior to not too many, but it's been any cycles thinking and ultimately I, I'm a huge fan of competition.

You, you're totally right.

Like I, I uh I, I turn myself inside out on the bike as, as often as I possibly can.

But it's, you're also really competing with yourself.

You're, you're never really trying to show up someone else.

You're just trying to go faster.

Why?

Well, well, well, I think before I get to something else, what would you rename B NPL?

Since you don't like it pay over time?

I think that's just a better name.

It's moral encompassing B MP L is a snappy acronym but uh it, it's really come to me in paying for and B NPL or paying for is a product within the broader ecosystem of these pay later pay over time products.

And the reason they're so important is because they're not revolving like the thing that makes this industry, the industry that you know, we, we started here unique is we are not bucketing all of your payment obligations into a single thing that just sits there and spins faster and faster and gathering incremental interest.

That is the cause for so many lives damaged.

Like every, you know, you can watch a documentary or two or five about people who just got a credit card, got themselves a 0% asterisk.

Don't read the fine print.

Wake up five years later at 10 grand in debt and have no idea how to get out of it.

That is what B NPL as much as I hate using the term and pay later pay over time products.

They're all about the antidote to that, to not knowing when you're gonna be done paying for something.

Why, why are you still so passionate about this?

You said, I, I, you've said this repeatedly, you've not sold a share of a firm and I really, I'm get, I'm getting the sense that you may just retire at a firm.

Uh You aren't, you aren't you known as a serial entrepreneur?

Well, I am always going to do whatever gives me the most product development satisfaction if you will.

I think what I really am is somebody who loves building products.

I, I wake up in the middle of the night and think, oh my God, we should have built that feature already and start texting people.

And when we were a three person company, I just text my co-founders and we were, you know, 2000 person company.

I text randomly or not so randomly selected heads of product, you know who you are.

And uh that, that, that's what drives me.

That's what I love.

And uh I have a lot of fun and uh the conviction that I have is real, uh I'll, I'll keep doing it until the conviction goes.

But uh you know, we're less than 1% overall spending.

There's 99 to go fair enough.

Hang with us, Max.

We're gonna go off for a very, very quick break for those watching opening bid.

Hang with us.

We still have our 24 minute conversation coming right up.

All right, I'm still here with, uh, a firm, uh CEO uh founder and Ceo Max Levchin, uh, talking about his latest uh tie up with, with Apple, which really could be a game changer for the company Max.

Do you?

There's no really right way to ask this one.

I mean, you've worked with Elon, um, in the past, of course, with paypal, you know, he came out and voiced some concerns about Apple's tie up with open A I, I mean, do you share those privacy concerns as someone now working even deeper in that Apple ecosystem?

You know, I'm to be truly honest, I don't know how to make heads and tails of that and, you know, is a smart dude.

So whenever he says something, he undoubtedly has his reasons, I can't pretend to always know exactly what he means.

I do think that Apple is genuine when they speak to consumer privacy, how much they care about what they're willing to do to protect it.

And I think that's, that's real.

And so I don't think I'm overly worried.

I think, uh if anything just, you know, getting the first glimpses of, uh, of the word there, I think they hold themselves to a very high standard.

I think we hold ourselves to an extremely high standard.

Obviously, when you're dealing with money, that's just a whole different layer of how upset people might be if something goes wrong if their information isn't so much as perceived as available to others.

So I think uh I think the incentives are all fully aligned as far as consumer privacy and security is concerned, is the, is the A I community moving too fast for your liking?

I I know this is wrong but I always view you as one of the founding members of the internet.

I know that seems maybe a little ridiculous and not necessarily true.

You've been around, you've been doing this for a while today.

Completely unrelated.

But since you mentioned this, so I, I was in a Yale CEO uh summit which happens every, every few months and in the same Zoom room was Bob Con who designed IP at Bolt Barani and Newman and I was like, I am living the dream, like, I mean, he's in his eighties, but he's still here and commenting on the design of the internet.

Like, I'm, I'm not really in the same room but virtually in the same room as one of my greatest heroes.

So anyway, III I thought, but no, I'm not by any stretch of imagination.

I was in the same, the same campus as Mark Andreessen in 1993 when he built mosaic and I was a freshman.

All right.

So do you see, you know those early days of building, building the internet and what's happening with A I are, there's some parallels you can call out and you know, is the is Silicon Valley putting in the right, I guess, safeguards to protect us all.

I think so.

I think so.

I, I'm privileged to consider, you know, folks like Sam Altman and, and many others who are working in the space very deliberately as friends.

And um I, I've had plenty of very on conversations with them and I think everyone and I really do mean this like, I've never run into anyone in A I like and by that, I mean, foundational model developers, designers, no one is thinking of this as, oh, you know, what's the big deal?

Everyone is deeply thoughtful, everyone is concerned with safety.

Everyone really wants to make sure that this is it.

It's obviously an extraordinary collection of breakthroughs and more are on the way.

No one wants to be the person who unleashed the Skynet or you know what, what whatever most terrified fears you might have.

So I think Silicon Valley is taking this very seriously.

I do think that we are not alone.

I think the A I space race equivalent is just starting up.

We're hearing announcement after announcement from China.

I think those companies are urged on by their government and it's an international competition and so sort of this.

Well, let's everybody just hang back a little and do nothing for a little while and see how we think about it.

I don't think it's an option.

I think you have to go forward.

Big fan.

Of only forward as uh as, as one of the guiding mottos of uh of how I work.

But you have to be smart.

You can't just be like, you know what, we'll, we'll uh fix the uh the, the seams in the seals later.

You, you have to uh you have to do the right thing as you build the, the systems.

But I do think that lots and lots of exceedingly smart people are very concerned with getting it right.

What do you think the next breakthrough in A I is um a couple of things I think may happen.

I'm not sure they qualify for breakthrough, but I think the chat interface is actually a slight detour, I think for a lot of so it, it's a great demo when you don't know exactly what you want.

It's fun and productive to talk to a bot and say so I'm trying to read.

So II, I use chat all the time to read papers.

So I love reading science papers, but a lot of times they're dense.

So I can say, hey, read this paper for me and help me understand this paragraph because I don't quite get it.

So that's a wonderful use case for a chat bot.

A lot of times I know exactly what I want and discussing it with an A I is demeaning like I don't really want a conversation partner.

I want you to do this for me right now.

And So a whole collection of new approaches to user interface, I think will start occurring in A I very, very quickly, incidentally, Apple's some of the demos in WW DC, I think nod towards this notion of you really shouldn't be spending lots of time talking to a robot.

You should just tell a robot, hey, go do this and they'll know what to do.

So I think that's a, that's a collection of maybe incremental, not necessarily true breakthroughs that are coming.

Uh The other one that I, I think will happen and I don't know exactly where or when or how, but I think the exponential cost of compute required to train and to a lesser extent infer is going to get.

So I don't know exactly what that means just yet, but we've never built a massive computing paradigm without someone going wait a second.

There's a cheaper way to do this.

Like if you sort of cast your mind back to mapreduce at Google and, you know, sort of mathematical breakthrough like that.

So I, I expect one any minute now and so that will create an interesting earthquake in the sort of, you know, do you have to have the most capital and the most computing the most power, which I think you still will?

But I, I suspect the cost of this entire thing is just gonna go down an order of five magnitudes.

Are you s are you out investing in some of these companies.

And I, I think I saw a podcast from you like six years ago and at the time, you said you may have invested in 100 and 40 companies.

I mean, how does your life outside?

You're investing life outside of a firm?

Look like at this point with every passing year, the full time this of my job became fuller and fuller and fuller at a firm.

I think at this point, I officially take up 100 and 80% of my copious spare time here.

Um My wife happens to run a venture fund.

I'll give her a plug since she's both brilliant and thoughtful.

Hey Yahoo Yahoo team, next guest, next guest.

Go ahead, Max.

Go ahead, Max.

Uh So Nelly Lehn is, is my wonderful wife.

She runs sci fi VC which invests quite a lot and so on occasion, I am able to uh get a glam glimpse of uh what she's working on with both her portfolio and uh people that she's listening to and quite a lot of her work these days is in A I, although I think we agree on the idea that investing in A IA I is probably a very short lived affair for people who just can't figure out what's gonna happen next.

The, the best ideas in the I that we're seeing right now are companies that are solving a real problem and are doing great things on their own.

And A I is an accelerant as a rocket booster as opposed to the reason for the company to exist.

Lastly, max before I let you go.

Um I mean, we are in election season and neither one of us are political commentators.

I get it but someone that is familiar with, you know, the vibes in Silicon Valley, I mean, are you surprised how divided things have gotten in Silicon Valley?

You know, as we near November, um things I would say over the past month and a half have taken a turn that not many folks would have expected.

I mean, President Trump doing various dinners in Silicon Valley, getting that support.

Um Just curious on your take, I pride myself in staying out of politics for a pretty good reason.

I think one of the things that I learned pretty early on in a firm is the, the what we are, what do we have appeals to both sides of the aisle?

And it's dangerous in a sense that in Silicon Valley, you know, no secret, it leans largely left, you know, based in San Francisco, San Francisco Le, you know, leans left of left of left of center and yet you're building products that are gonna get used by someone in a mega hat and you have to pretty early on decide, hey, that person has tremendous amount of value they're expecting from us and we better deliver.

It doesn't matter what their political leanings are, it doesn't matter who they vote for in, I may or may not agree with any one of the left of left of left of left or Maga hat wearers or, or both depending on the issue.

But it is critical in my opinion to not allow yourself to become too dependent on an image of right and wrong in the customer.

Obviously, modulo legality, modulo decency, morality, tho those really, really matter.

But the second you start sort of getting too caught up in, oh my God.

But the people over there you don't care about your consumer, your, your, your end customer as much as you should and that that's dangerous.

And so I, that for that reason, I stay very far away from a pining in politics.

That's why you never see me hosting fundraisers being at fundraisers.

I just Huawei, that's it.

You know, the world is polarized.

Silicon Valley is not immune dinners for both sides being hosted probably at the same time wise, man.

You know, I, I made a quick note, uh, before I let you go that as a former Yahoo board member, we just came out with a great Yahoo mail update.

You can go on my linkedin page max, check it out.

It's very A I friendly.

It's awesome.

Just wanted to give a plug to the Yahoo mail team and I figured you appreciate that.

And that's it.

I do actually, uh in my very last act in the board office, it would seem like 5000 years ago, I was pounding the table for the greatest acid that Yahoo has is Mail.

My wife and my mom and finance and finance.

Well, obviously present company goes without any kind of saying, but for, you know, for, for the majority of the masses, Yahoo Mail is still a fantastic product.

So, and, and I mean that, you know, neither, neither Brian nor uh nor anyone at Yahoo paid me to, to say this, I, I'm a big fan.

I have an account.

We appreciate that.

Love Max Levchin, uh founder and CEO of a firm.

Always nice to get some time with you.

Uh Keep doing what you do in the firm.

We'll talk to you soon.

Thank you, Kevin.

And that's it for the latest episode of opening bid.