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

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 is a fantastic place for us to go shine a light on. Because no one’s going to be upset if we say, “Wait a second, do you know that you’re overpaying? Did you know that you’re paying for this? You may think you’re getting a deal, you’re not.” So that’s always been sort of like a honey pot for me where like, ooh, people are getting taken advantage of. Great. That’s an opportunity for Affirm.
We won’t to touch things where we feel the market is efficient because we are first and foremost mathematically driven company. So showing up with some sort of a, we’ll sell it cheaper or we’ll undercut on price is not part of the culture. And I just don’t see how that’s worth chasing. We’ve never touched secured lending. So lending is fundamentally one of two things. I trust you, you’ll pay me back. Or I trust you, but if you don’t pay me back, I’ll take the thing away.
I’ve never figured out a way to have a humane, for lack of a better term, approach to the latter. I don’t know if we could be in the business where we say, we need to take your car now because you haven’t made your last payment. And that’s actually more than anything on me. I would love to go and find a way to be in secured lending as well, just because it’s a huge market, and there’s all sorts of things going on there that I think are quite ripe for disruption. But I don’t know exactly how to do it without the repossession part.

Andrew Edgecliffe-Johnson:
At what point does Affirm stop being a startup and start being a much more scaled financial player?

Max Levchin:
I hope never.

Andrew Edgecliffe-Johnson:
Why do you say that?

Max Levchin:
We have to remain hungry. We have to remain reasonably scared. This sense of we can still reinvent ourselves. We can still reinvent the future. We can still do crazy things and be exciting and be a little bit terrified of the next launch. That’s what makes startups so cool. It’s also what makes them so prone to failure. So it’s nice to be scaled, it’s nice to be profitable, but the excitement of launching new things, it’s hard to replicate that in a stable, scaled financial company. I think that’s why we’ve been able to infiltrate the industry and do as well as we have because we’ve always taken this underdog approach.

Penny Pritzker:
You’ve mentioned a couple times engineer founded or engineer-led companies. Talk about being an engineer leading a business, but also at what point did you realize you weren’t the engineer anymore, now you’re the CEO?

Max Levchin:
I’m having an identity crisis right now. I am an engineer. Every time somebody asks me, “What do you do,” I introduce myself, I’m an engineer. I am an engineer. That is how I... I’m an immigrant engineer. That’s who I am.

Penny Pritzker:
I love that.

Max Levchin:
That really is honestly who I am. 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.

Andrew Edgecliffe-Johnson:
What do you think it gives you to be an engineer, sir?

Max Levchin:
You understand exactly what’s happening underneath. AI to most people looks like magic, and it is quite magical. The experience you have the first time you talk to ChatGPT or you sort of try to... I mean, it’s not thinking. It’s just predicting the next token, but it sure looks like it’s thinking and it’s got a personality now, and it will write code for you if you ask it correctly. And so the magic is amazing.
If you know what’s going on, both from the point of view of how does it actually work, but also what is it actually doing? When you tell a, “Go build me an app.” For a layman, it’s like, well, it’s an app. I can run it. I could scrap it. To an engineer, it’s like, I can start modding it. I can start telling you, go change the way it works. I want a different feature. I want a different approach. I think it would be faster if we did this.

Penny Pritzker:
How have you changed in this process of being an engineer, but also you have to run a business? You have to recruit those 1,000 engineers. You have to have a vision of what are the products. You have to stand up for the things you won’t do.

Max Levchin:
The most important job is still sort of in reverse order of what just you said. The number one job of a CEO is to set the vision, to keep true to the culture, to have the core values in mind, to recruit the team of like-minded people who will actually follow the vision and the values. So that is still a lot of what I do.
In the past, I would have 10% time available to me, and mostly would go to email. I probably still have 10% time, given those things have not yet been replaced or aided by AI that much. But that 10% time can now be spent building software again. And you could actually, it’s not a thing that you built episodically over the course of a year to have one feature. It’s a thing you build over a weekend and it’s a new product. And you could do it alone or with two other engineers and you feel like you’re flying.
And so just the productivity gain you get from AI is extraordinary. It’s, I think, harder to tell an engineering team, “We could do this, go,” if you don’t actually know that you could do it yourself. 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.

Andrew Edgecliffe-Johnson:
So you’ve described yourself as being pretty hands-on. You want to be involved in a lot in this company. But in the early days, you were literally in the room for everything, I imagine. You knew everybody by name. Now it’s a much bigger company. You can’t be there for every decision. What have you found is most important for giving people the framework to take the decisions you would want them to take if you were in the room when you’re not there?

Max Levchin:
That one is pretty easy. I think so long as you are entirely non-compromising in the people you surround yourself with. And in that set, you include that same idea recursively. You’ll have a team where a decision made at any level will, generally speaking, map to what I would’ve decided. We do not do these kind of products full stop. Or we would love to do this because it’ll make the world a better place. Let’s go. We don’t care about the incremental and we’re going to lose on this thing. And so it’s just team all the way down.

Andrew Edgecliffe-Johnson:
But you are quite explicit at setting out the culture. As you said, you’ve had a couple of different attempts to describe what you want people to be doing or how you want them to think about Affirm. You’ve sat down periodically and written quite long memos, which you’ve made public. How important is that just to be explicit with people?

Max Levchin:
As a founder, I think it’s your responsibility to try to set up some very clear guidelines. And a good way to do it is you don’t write, “We do this,” in extreme precision of what this means, but rather this as a concept, this as a category, this as a genre. And you have to back it up. And I’m very proud of the fact that we always acted with integrity relative to the core values. And those moments in that moment feel tough, but sort of like you have to make a decision, you know what the answer is, and you move on.

Penny Pritzker:
I actually think, if you’re really clear with your organization, this is my experience about what you stand for, then making the hard decisions isn’t that hard. Even though sometimes the consequence could be you lose some business, but doing the right thing and doing it the right way at the end of the day has its payoff.

Max Levchin:
Yeah, that’s exactly right. I think that’s applied culture.

Penny Pritzker:
Yeah.

Andrew Edgecliffe-Johnson:
And you’ve said culture doesn’t take care of itself. You know what? We’ve talked a lot about the mission side of culture, what about the speed side and what are you doing to keep that hunger?

Max Levchin:
You can’t be ridiculous. Somebody tells you this is going to take us six months and you say, “Well, I actually want six minutes because, by God, I’m in charge.” Okay, you’re crazy. 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. I think you can do it. I think you’re much better than you give yourself credit for. So come back with a plan that tries to get it two thirds faster.” And maybe it’ll be one third faster instead of two, but that’s the right sort of push versus saying, “Oh, well, I don’t really know how this stuff works, so okay, six months it is.” And I think I’d like to believe I straddle the ridiculous and the reasonable reasonably well, although the mockery I endure suggests that I’m probably more on the ridiculous side.

Andrew Edgecliffe-Johnson:
We’ve talked before about what a keen sci-fi reader you are, and how you use science fiction to help you think about possible futures. Can you give us any examples of how that’s actually informed your thinking about the business you’re in and Affirm and what it’s building towards?

Max Levchin:
It’s definitely, funny enough, I was somewhere today earlier, imploring the person to go immediately drop everything and read E. M. Forster’s The Machine Stops. I don’t know if you’ve read. It’s a fantastic piece of dystopia from 1914, which is sort of mind-numbingly old and yet so prescient. And it’s basically one of the forks in the road for AI. Where we all live in polyhedra underground, food comes from the sky, or from the ceiling and the machine prods and pokes us and feeds us and clothes us, and we don’t know how it works. The terror of it doesn’t work as well as it used to, what do we do?
The scary but exciting future is Skynet. The Machine Stops version of the future is the, we don’t know how AI works, which is the future I’m working very hard to prevent. I think that the happy future is the one where we are working with the machine to make it better, and we know how it works underneath and we are improving as producers, as creators, because we know not just what it can do, but what we want it to do next. And so I’m a big reader of dystopia in part because I want to know what the wrong fork could look like.

Andrew Edgecliffe-Johnson:
This sounds a lot bigger than lending, and I’m just curious when you say you’re trying to work towards the non-dystopian future. What kind of things are you doing or do you see yourself doing to stop that dystopian future for AI?

Max Levchin:
The problem we’re solving is fundamentally the machine that is made in lending and finance and consumer finance and small business finance, all the things that we think we’re going to impact one day, the problem is lack of knowledge. It’s lack of participants understanding what’s being done to them. They don’t know how the machine works because it’s too complicated. And sometimes by design, sometimes because no one’s gotten to it. But shining the light and being the source of clarity of how things work allows you to say, “Here’s how they should work.” And not everything’s perfect. I’m confident there are many things we can do better as we build this company. But the first thing you have to do is you have to understand it fully.

Andrew Edgecliffe-Johnson:
One idea that felt a little futuristic until recently was agentic commerce, but we’re already seeing a lot of people choose to let their AI agents do at least part of their shopping for them. Why would my AI agent choose to pay with Affirm?

Max Levchin:
That is maybe the single most exciting thing about the future that’s near distance. So you will probably not fall for an asterisk right next to a zero. I will not. I’m a payments professional. I know what I’m looking for. I know the fine print is where the business model is. Man, woman, child on the street of New York City, or everywhere on America looks at a zero, doesn’t notice the asterisk, gets trapped by a bad financial product all the time. That is where that half the business model comes from.
Your agent has a PhD in consumer finance and a PhD in everything else. They will not get trapped. They will notice exactly what’s going on. They will in fact choose Affirm. By the way, if they choose an Affirm competitor that sworn off late fees, sworn off all the junk that the industry is infamous for, great. I don’t mind changing the world by pushing everyone to come join us on the light side of this industry. So I’m very excited about just a simple idea that agents will not make mistakes on your behalf.

Penny Pritzker:
So building upon the fact that agentic AI is with us and is part of life and is very exciting, workforce is a topic that’s a passion of mine and something I care deeply about. And obviously there’s a lot of fear about the impact on work and headcount. How are you thinking about that at Affirm?

Max Levchin:
We’re still hiring engineers. The bar for the engineer has always been very, very high. If you look at our productivity per engineer, if you take a look at the revenue per engineer, revenue per employee, any sort of employee productivity metrics, we are extremely, extremely productive. So we have already built the lean mean revenue making machine for our shareholders. We have no one to lose. We actually need a few more hands.
The good news is the agents are force multipliers. We think we’re probably going to be, like right now we think we’re about 3 to 4X more productive than we were before. The goal, our head of engineering, who’s a very, very conservative gentleman, told me he thinks we can get to 10X, which of course I’m going to come back with, “Well, that sounds like a good starting point. How about 15?” Of course. But the fact that the guy whose job is to make sure the productivity remains high is already thinking in order of magnitude is unbelievable. And so the day we start running out of ideas is the day I’ll start worrying about, do we really need all these people? Right now we need all these people. We want a few more.

Andrew Edgecliffe-Johnson:
Let’s ask you to look a little beyond the middle distance. We have, let’s say 15 years from now, how profound a change are we in for in the world of credit?

Max Levchin:
We have a lot of plans that are easy to prognosticate about because they’re so far out, we haven’t started planning how to plan them. But I do think it’s all going to go to extreme transparency. I think the knowledge of how money works will no longer be domain of the elites who can do exponential math. I think the idea of everything from purchasing power to supply chain lending will compress because people will understand thanks to AI exactly where the inefficiencies are. If you look at a thing that was made in some country and imported here, and resold and stocked and warehoused, there’s enormous amount of leakage and there’s a margin for everyone in the chain. And someone’s paying for it and no one knows exactly who to whom.
The spotlights are going to be very bright. Because none of this will be, well, you know what? I’ll get to it later. You’ll have an agent that’ll get to it now and tell you exactly where you’re wasting capital and not putting it to work. One of the things about being an immigrant that didn’t come from capitalism is I have enormous and endless appreciation for capitalism. And we can improve on it by being more transparent and more honest, and that is the business we’re in.
But the idea of capital efficiency, capital wanting to find the most efficient way to improve the world is one of the many things that I hold extremely dear thanks to being an American by choice. And I think that’s what’s going to happen. I think the next 15 years is going to be all about spotlights brighter than bright going like, wow, that’s a huge waste. So I’m extremely optimistic on just efficiency of money.

Andrew Edgecliffe-Johnson:
You’re a serial founder. Will Affirm be the last company you found?

Max Levchin:
I hope not. I have too many ideas to chase. But I’m also in zero danger of leaving. So it might be. It’s a cliffhanger even for myself. Don’t know.

Andrew Edgecliffe-Johnson:
On that cliffhanger, Max, thank you very much for joining us.

Penny Pritzker:
Thank you, Max. This is really, really fabulous.

Max Levchin:
Thank you.

Andrew Edgecliffe-Johnson:
Stay with us. Penny and I will be back after the break with the readout. So Penny, when we arranged this conversation with Max, I was thinking of it as our first founder CEO. We’d get a very specific insight into how different it is to have a company led by somebody who created it. I don’t think that was the point at all. I think the point was he’s an engineer CEO.

Penny Pritzker:
Totally. In fact, he self-describes as I’m an immigrant engineer, and if I’m not coding, it would be like I had lost a finger. And so his whole persona is not one of CEO, it’s one of engineer. And he really fundamentally believes that’s how you have to lead his company. And frankly, he believes it’s the way you should lead most companies.

Andrew Edgecliffe-Johnson:
And so what do you think the difference is, having heard what he said, what do you think the special source is of an engineer CEO?

Penny Pritzker:
Well, I think he understands under the hood how the product works. It’s not, here’s what I want it to be. And in fact, remember, underwriting is critical to their success. And so he’s right in there understanding how the machinery works, if you will, to produce the insights from all the data that they’re collecting. I was so fascinated by him and his the combination of being a serious, serious engineer and mathematician, and also his moral leadership. I mean, he’s on a mission.

Andrew Edgecliffe-Johnson:
I think it’s quite unusual to have somebody in the finance business fundamentally talking in those very sweeping moral terms as openly and freely as he does, and to have that as a motivating factor for the business he’s running.

Penny Pritzker:
And in fact, the other thing I found so interesting was he really believes in the age of AI, agentic AI particularly, that he’s a winner because we’re going to use our agents to examine our financial activities. And the agents are going to tell us where we’re being inefficient or spending money we shouldn’t, or taking on products that we should stay away from. And since he’s in the business of transparency, which he believes transparency is absolutely essential, part of his culture and part of his product development, I think I had no idea that that’s what we were going to learn today.

Andrew Edgecliffe-Johnson:
Yeah. I think two things will stick with me for a very long time. One is the idea that he’s setting this company up to be like your smarter older sister who saves you from making terrible decisions. But then that is the idea that our AI agents are going to be even smarter than our older sisters and will sort of clean up a lot of the bad practices that we’ve fallen into because we just don’t understand some of the businesses we’re dealing with.

Penny Pritzker:
Fundamentally helping us.

Andrew Edgecliffe-Johnson:
So I knew he was a huge sci-fi fan. What did you make of where he took that sci-fi conversation?

Penny Pritzker:
Well, the fact that he’s so interested in dystopia and what can go wrong makes me think a lot about where we are in the world of AI today. And I think he’s very committed to having a moral agentic AI. I’m not sure every company is thinking about it that way. And I felt like he used sci-fi to help bring that to life.

Andrew Edgecliffe-Johnson:
And I think if anybody is thinking our dystopian futures and morality are a bit sweeping for me, I think the point here is a lot of businesses could save themselves by thinking about what might go wrong and just asking that question so they can make some decisions about what they need to do to avoid that kind of future and actually help their customers build something more positive.

Penny Pritzker:
Well, also this idea that you’re going to have a PhD in your pocket really for almost everything that you do, including your financial life, and that’s going to advise you as to what’s smart for you as a customer. I think as producers of product, as leaders of businesses, as CEOs, you can’t pull the wool over people’s eyes anymore. And he made that point. I think he didn’t drive it home, but he made that point. And I think that’s an advantage for Affirm.

Andrew Edgecliffe-Johnson:
And so maybe one of the lessons here is that CEOs right now have to be planning for a future where the customer is a lot smarter than they might have been in the past.

Penny Pritzker:
Absolutely.

Andrew Edgecliffe-Johnson:
Thanks, Penny.

Penny Pritzker:
Thank you, Edge.