PayPal co-founder Max Levchin launched a new payments company called Affirm this week. Described as an online “charge card” along the lines of American Express, Affirm will cover consumer purchases for 30 days. Using social media data, as well as other sources yet to be identified, Affirm will take on consumer risk in order to raise conversion rates for online merchants and allow one-click shopping.
The initial beta partner for Affirm is 1-800-FLOWERS.COM Inc.
As we understand it, Affirm will essentially eliminate mobile checkouts or shopping carts. Rather, when a consumer is shopping for, say, flowers, rather than finding the arrangement she wants, clicking “buy” and then going to checkout and entering payment information, Affirm will allow the consumers to simply click buy and “affirm” to complete the transaction. Affirm will then settle up with the consumer later.
The beginnings of PayPal were driven by risk, as well. In the early days of online commerce, eBay needed a financial services provider to take on the risk for buyers and sellers. As Dan Schatt, PayPal’s GM of financial innovations, told Bank Innovation, the banks thought that online transactions were too uncertain and the risks too great, so PayPal stepped into the breach. PayPal later launched Bill Me Later, a service that allows for delayed payments — on PayPal. It’s a “secure, instant, and reusable credit line without the plastic” according to PayPal.
A competitor of Affirm is Swedish payments company Klarna, which generated $200 million of revenue last year, according to All Things D. Stripe will process credit card payments on Affirm’s back end.
“The mobile shopping experience attracts a certain type of shopper – impulsive, time-constrained, exploratory, Levchin told GigaOM. “Retailers must evaluate how their purchase flow aligns with these motivations. Affirm greases the skids between intent and purchase for these shoppers.”
Intriguingly, Affirm will employ Facebook and other social media and data sources, such as income by ZIP code and the customer’s mobile device ID, to determine transaction risk. It will then guarantee payment to the merchant for a fee. Levchin said, “You will essentially be putting a purchase on a digital tab, and we are going to make it work for us by looking at all available data to determine if you are someone who will pay it back.”
The focus of Affirm will be mobile payments.
“In mobile, it has become an imperative to be able to buy it now or you lose a customer quickly.”
Learn more about mobile payments at Bank Innovation 2013. Request your invitation here.