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0 pointsjohn_moscow5y ago0 comments

From a quick glimpse, the business model of Affirm seems to be about letting people get loans for things they would previously have to save for. In other words:

Before: Alice wants to buy a chair that costs $100 from Bob. Alice saves $10 a month and buys a chair. Bob got $100. Alice can buy a new chair every 10 months. She may also conclude after 10 months, that she doesn't want the chair that badly, and would instead save the $100 for retirement, or pay it into the house mortgage, reducing the amortization by a week.

Now: Alice wants to buy a chair from Bob. She gets a loan, paying $10 over 12 months. Bob gets $100, Affirm gets $20. Alice can now buy a chair every 12 months. Affirm's founder buys a supercar.

Slightly later: Alice's job gets cut due to COVID. She can now only pay $5/month. She gets a $100 stimulus check, but instead of paying off the chair, she buys Affirm stock and remortgages the chair to 24 months. Now Affirm gets $40 in interest and $100 in fed money routed through Alice.

Net effect: Alice's purchasing power has reduced 2.4 times, Affirm's founder buys 50 new yachts and starts a company that lets people get loans to buy food.

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cosmie5y ago

The "before" was applying for a store-branded credit card at the point of sale, which evaluated your credit risk and (potentially) extended you a revolving credit line equal to what the lender deemed was your appropriate borrowing capacity, potentially far in excess of your purchase amount.

Affirm is just a "micro-transaction" take on that very large and lucrative market. They extend a fixed term, one-time line of credit equal to your transaction amount and no more. Want to use Affirm for another transaction? That'll be an entirely independent line of credit for that transaction, subject to its own application/approval process.

There are a lot of somewhat novel aspects to Affirm's approach, but the core premise of Affirm itself one of them. For better or worse, making it easy for consumers to over-extend themselves by dangling a credit line at the point of sale was widespread and lucrative long before Affirm entered the market.

john_moscowOP5y ago

A.k.a. subprime mortgages, 2020 edition.

kenrose5y ago

Your description sounds like the definition of financing.

Yes, with financing there’s a trade off. In exchange for paying interest, you have the item that much sooner.

Slightly tongue-in-cheek, but this is missing in your before example:

Alice has to sit on the floor because she doesn’t have a chair. After 10 months of doing this, she has terrible posture and joint pain from sitting on the floor all the time. Despite her pleas, doctors say that her increased purchasing power won’t cure her ailments.

john_moscowOP5y ago

>Yes, with financing there’s a trade off. In exchange for paying interest, you have the item that much sooner.

Except then you want your next item and can't buy it because your credit limit is maxed out. So you have moved your "item queue" forward once or maybe twice, and now have one more rent to pay. You still have to wait for the next item, it's just instead of waiting for your savings to reach $100, you wait for your debt to drop to N - $100 where N is your credit limit.

It makes sense for strategic items, like a house or a car. But doing it on a daily basis is just poor financial planning.

>Alice has to sit on the floor because she doesn’t have a chair.

Motivated Alice should go around garage sales and find a used chair for $5. Or research how to make a makeshift one from whatever she has. Or borrow it from a friend. Or read in a library and eat cheaper food for 2 weeks, and save $100 right away.

All these are problem-solving and prioritization skills, and they are crucial to one's long-term success. And the difference in life quality between America and Zimbabwe is because the previous generations of Americans possessed these skills and applied them wisely. Except now the big players realized that they can make more money off people without these skills, so the popular culture is instead praising impulsive decisions over carefully weighed plans, and pushing people deeper into poverty.

TheSpiceIsLife5y ago

> And the difference in life quality between America and Zimbabwe is because the previous generations of Americans possessed these skills and applied them wisely.

The grossly misrepresents what's happened in Zimbabwe.

I believe your intention was to suggest that by corrupting certain skills or values around finance or thriftiness or learning to build, etc etc, that the USA is on course for a significant decline in quality of life?

However, Zimbabwe's problems are rooted in a different, and much more pernicious, sort od corruption.

bytematic5y ago

Almost every time (in the last couple years) I've seen pay-over-time it is no extra cost to the customer. It's either $100 or 5 installments of $20.

john_moscowOP5y ago

There's no free money. If you see something like this and are willing to pay in cash, you can usually negotiate a discount.

jimjh5y ago

Didn't follow the leap to "remortgage". Which service allows remortgaging of consumer goods?

Don't forget that Alice gets to sit in the chair 10 months sooner, and study for their GMAT or CISSP.

john_moscowOP5y ago

Based on my experience, the skill of persistently studying for your GMAT evening after evening highly correlates with the skill of persistently saving a fraction of your income month after month. Delayed gratification and everything.

So a more realistic scenario is that first she won't study in a library because she doesn't have a chair. Then, having a loan on the chair she won't study because the old phone is too slow. Then, having a loan on both chair and the new iPhone, she won't study it because it's just too hard and going to the pub with the friends is more fun. So she will end up with another loan for a liberal arts degree, and will then wonder how to pay it off from a Starbucks salary.

Sorry, like it or not, people appreciate hard-earned things more than something that comes seemingly for free. The best example is that 70% of lottery winners go bankrupt within the next few years [0].

[0] https://www.washingtonpost.com/outlook/five-myths/five-myths...

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cosmie5y ago

john_moscowOP5y ago

A.k.a. subprime mortgages, 2020 edition.

kenrose5y ago

Your description sounds like the definition of financing.

Yes, with financing there’s a trade off. In exchange for paying interest, you have the item that much sooner.

Slightly tongue-in-cheek, but this is missing in your before example:

john_moscowOP5y ago

>Yes, with financing there’s a trade off. In exchange for paying interest, you have the item that much sooner.

It makes sense for strategic items, like a house or a car. But doing it on a daily basis is just poor financial planning.

>Alice has to sit on the floor because she doesn’t have a chair.

TheSpiceIsLife5y ago

> And the difference in life quality between America and Zimbabwe is because the previous generations of Americans possessed these skills and applied them wisely.

The grossly misrepresents what's happened in Zimbabwe.

However, Zimbabwe's problems are rooted in a different, and much more pernicious, sort od corruption.

bytematic5y ago

Almost every time (in the last couple years) I've seen pay-over-time it is no extra cost to the customer. It's either $100 or 5 installments of $20.

john_moscowOP5y ago

There's no free money. If you see something like this and are willing to pay in cash, you can usually negotiate a discount.

jimjh5y ago

Didn't follow the leap to "remortgage". Which service allows remortgaging of consumer goods?

Don't forget that Alice gets to sit in the chair 10 months sooner, and study for their GMAT or CISSP.

john_moscowOP5y ago

[0] https://www.washingtonpost.com/outlook/five-myths/five-myths...

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