Water Cooler with Affirm CRO Wayne Pommen

🤝 Meet Wayne Pommen. He's the Chief Revenue Officer for Affirm, the largest U.S.-based buy now, pay later (BNPL) company, and the former president and CEO of PayBright, which was Canada's BNPL provider before its acquisition by Affirm. Wayne joined us to chat about how BNPL impacts consumer behaviour, whether fintech companies like Affirm can replace credit card giants, how AI will impact the payments space, and more.

With our model, customers can never owe us more than they expected at the time of purchase, no matter what happens. This is a fundamental principle for Affirm, and the decision never to charge late fees was made before the company ever even offered a product. Affirm was essentially a bet on building such superior underwriting models and technology that we would not need the late fees or hidden charges the financial industry relies on. 

Because we do not have these fees, we cannot benefit in any way from a customer who falls behind on payments. This aligns our success with consumer outcomes - and it’s also a key point of differentiation from other BNPL products. There are some BNPL providers that generate roughly half their profit from late fees or other junk charges like admin fees or “snooze” fees. These are similar to what we see at many credit card companies. We don’t have any of that. BNPL providers often claim to be a better alternative to other consumer credit options - but Affirm delivers on it. 

Affirm provides access to credit, which is a source of purchasing power for consumers. By using credit, consumers can purchase something today that they might not otherwise be able to. The same principle applies to any form of credit. The real question isn’t whether credit influences spending, but how that credit access is communicated, underwritten, and structured for the borrower. Not all credit is created equal.

The key thing to look at is the incentives of the credit provider. 

Affirm has no incentive for consumers to overspend because we have no way to benefit from that. If a customer becomes overstretched and falls behind on payments, that is only downside for us. There are no fees or penalties for us to collect. As a result, our underwriting is designed to identify those customers that can afford to use Affirm, and those transactions that will be repaid on time. This is why we underwrite each transaction individually - to be as accurate as we can. And then we collect from customers on a fixed, clear schedule, averaging about 5 months.

Contrast that with the business model of credit cards - the dominant consumer credit tool for decades. The average Canadian owes over $4,300 CAD on their credit cards, and nearly half of cardholders revolve a balance month to month. So long as borrowers make the minimum payment, they are able to keep spending. Debt accrues month over month, with interest compounding into principal. And if customers miss their minimum payments, late fees and penalties apply. What are the incentives of the credit provider here? For customers to spend more than they can comfortably afford to repay. Indeed, the best customer for a credit card issuer is the one that makes only their minimum payments and pays enormous amounts of compound interest every year. Affirm’s business model has been specifically designed to solve these problems.

Despite how much Affirm has grown, we are still just a rounding error in the overall market we’re competing in with credit card companies. This is a positive for Affirm as there is much more share for us to capture, but we also recognize that some consumers will default to what they know, or use credit cards for convenience and pay them off regularly. Given how massive the payments market is, we don’t see growth as a zero-sum game.

Ultimately we want to make payments more transparent and consumer-friendly. We would be happy if credit card companies adopted our approach of eliminating late fees and hidden charges while providing transparent upfront pricing.

The majority of our Canadian consumer base is made up of Millennials and Gen Z, as younger consumers tend to adopt new technologies first. Our users are employed and they are purposeful about how they spend and pay for things. What has changed in the past 5-10 years has less to do with the consumer base and more to do with the ongoing adoption of our products, which we view as a secular trend. 

Affirm started by solving affordability for larger, more considered purchases. When Affirm went public in 2021, our average cart size was over $600 USD, with consumers completing roughly 2 transactions per year. Last quarter, our average cart size was roughly $250 USD with consumers transacting more than 6 times per year on average. In building a payments business, we want to be there for consumers whenever and wherever they choose to shop because we think we can offer them a better product.

Affirm has been using AI and machine learning since our founding. More recently it’s been accelerating our business by boosting our productivity and velocity, but the adoption of AI has not changed what we’re here to do: help merchants sell and consumers buy through honest financial products. 

Today, we think of AI in three ways: 1) AI products we use at Affirm; 2) AI products we build and sell; and 3) AI as a catalyst for unlocking additional opportunities. 

BoostAI falls into bucket two. It’s essentially a way for merchants to run automated A/B tests of Affirm’s various levers to increase sales and boost conversion by determining the best-performing offers to present to consumers. Merchants see an average of 5-15% increase in volume when enabling BoostAI. All they have to do is set the budget they want to spend on Affirm and let our product do the rest. There is no technical lift or integration work required. 

Again, we’ve been using AI at Affirm for years and so we regard the recent trends as a continuation and not a brand new development. All technological advances bring risks and opportunities, but overall, we are very bullish on AI and its impact on Affirm. 

On the consumer side, our view is that AI is a massive tailwind for Affirm that will accelerate many of the trends we’ve been talking about over the last decade. For example, consumers having access to PhD-level advisors that can instantly read through all the fine print, or using agents to do the shopping, will accrete to Affirm. We believe AI can promote radical transparency in consumer finance, for example by detecting fake 0% APR offers and avoiding options that have deferred interest or other hidden charges. 

Internally, we’re very excited about the gains our teams are realizing from AI adoption as new techniques and tools become available. We’re heavily focused on this across the company. It’s a very exciting time to be working in a technology business and pushing the envelope in driving productivity and exploring new use cases.

Canada can be a great place to build a fintech company - it has strong technical talent, high consumer trust, a stable financial system, and a manageable regulatory environment. It also tends to be less brutally competitive than the US. The challenge in Canada is always scale - the market is smaller, there are fewer large partners, and capital markets are less deep. 

Canada’s banking sector is also very different from the US, dominated by five or six players in a very concentrated and profitable industry. On the downside for fintechs, this makes the banks powerful and able to resist change, including regulatory modernization. On the plus side, it means they lack competition and are slow to innovate.

I’ve learned never to say never - but it’s not on the roadmap.