Affirm (AFRM) topped fiscal revenue estimates and narrowed expected losses per share in its third quarter earnings report. Affirm Founder and CEO Max Levchin joins Market Domination to break down the company's future as it navigates the Fed's high interest rates.

"There is an oft-repeated narrative that it's a huge problem for Affirm that the rates are not coming down. And that's just plain inaccurate," Levchin tells Brian Sozzi. "So long as we are keeping job losses in check, people are able to spend, people are able to transact, people are also able to pay their bills, and that's really good for Affirm," he explains, attributing the company's strong quarter to the Fed's consistent rates.

Levchin adds, "The economy is in a better shape than popular opinion will have you believe...From where we sit, people are spending," he explains, saying that Affirm's users are still able to pay their bills.

While Affirm reported a strong quarter, not everyone is sold on the buy now, pay later scheme. Critics often point to the program as potentially creating a phantom debt issue, which Levchin aims to debunk. Monthly installments are reported to credit bureaus, he explains, adding that the weighted average life of 6-week loans is 3 weeks. "That is just a headline that is made up to get people riled up and click," he says.

The CEO says that Affirm users are paying their bills "in a very predictable fashion." While describing credit cards as "buy now, pay forever," he says that Affirm has a rigid system that gives users control over their finances and allows them to adjust their payment timelines if needed, with no incremental fees.

Having spent many years in the tech industry before Affirm, Levchin dubs himself as "an extreme techno-optimist." He says that people should be excited about artificial intelligence and points to Affirm's recent initiatives to use AI as a customer service agent. "We still guarantee that any human who wants to talk to a human will be able to do so," he explains, but overall, the company found that around 60% of the time, its AI chatbot satisfies user inquiries.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video Transcript

Another strong quarter in the books for a firm as credit quality.

Well, that says stable, let's get right to a firm founder and Co Max Levchin.

Max.

Good to see you here in New York City for a change for a change.

Yeah, I I before we get to the quarter, I follow you avidly on Twitter and a couple of weeks ago, you put out this higher for longer rates.

You, you seem excited about it.

And why is that one?

Why are you excited about it and doesn't benefit a company like a firm?

Uh It's not a benefit, but I think there is an off repeated narrative that it's a huge problem for a firm that the rates are not coming down.

And that's just plain inaccurate.

Generally speaking, the reason I said hire for longer is a good thing is because that's an outcome of the fed.

Basically saying, hey, prices are not coming down, inflation is a little sticky.

We're going to keep these rates a little higher for a little longer to make sure that the economy cools down just enough.

What that means though is the joblessness situation of the job claim just came out today, moved up a little bit but not a ton, still under 4% reasonably healthy.

So long as we are keeping job losses in check, people are able to spend, people are able to transact, people are able to pay their bills and that's really good for our firm.

So hire for longer is an outcome of a not great situation with inflation but not a terrible thing for us.

And as we have proven now over the last couple of years, so long as the rates remain reasonably consistent, we're able to print an excellent quarter just like we showed yesterday.

What are you, what are you seeing in terms of charge offs still quite stable?

You saw that they, they think ticked up a little bit but all within the ranges of uh of a very, very reasonable delinquencies.

30 plus is what we report to the street as kind of the forward looking metric down a tiny bit, but again, very reasonable.

We expect some seasonality coming through the summer, typically a slight increase in rates, but generally speaking, our consumer still borrowing spending, paying us back.

Never a so go to sleep and don't look at it again, sort of situation at affirm, we look at it all the time at any given day.

They'll always something to, to look at and obsess over, but so far so good.

I know you're not an economist, but you have a great insight into the health of the economy and we see consumer sentiment readings.

They're not great.

People are, are pissed off about inflation.

What's your read on the economy again?

I think there's a lot of people who have read the news and said, well, the economy is not doing so hot.

In reality, price of eggs is up a lot.

Some other prices are not up.

In fact, they're down, it's averaging to a number that's not the 2% target that the fed had set for itself.

But it's not exactly at nine points where we were looking, you know, a year or whatever ago.

So I think generally speaking, economy is actually in a better shape than the popular opinion will have you believe, I think some of the complaints you're hearing is actually from the upper echelons of income.

And if you look at the wage growth, I think the lower income groups have kept up better than the higher income groups.

And so I think it's a little bit distributed, but from where we sit, people are spending, people are still traveling, which is an important growth vector over the last 12 months, people are still buying nice things for themselves, which is good.

Uh, we're helping them finance it and again, they're able to pay their bills back on time to us.

It doesn't sound like an economy that, that needs a rate cut.

You know, that's where I stop at.

The economists.

Like, not, not for me to opine where and when to have rate cuts.

What I do know is that we don't require a rate cut to be successful again, another great quarter just, just yesterday and looking forward to the rest of the fiscal year for us in fiscal 25 hire for longer is ok.

I wanna read this headline for you because I, I think you'll appreciate it or, or have something to say on it.

Phantom debt from buy now pay later schemes is a $700 billion black hole that economists aren't accounting for.

That is what they uh technically called Clickbait.

Um That math is so wrong, it's worth doing it on air.

What is Phantom debt?

Well, the claim is not mine and erroneous as it may be is that by now, Pali is this thing that is existing in the shadows of the economy.

It's not reported to the credit bureaus and by a year 21,000, it will reach some obscene number and all of it is wrong.

First of all monthly installments, which is part of the oral bop system is reported has been reported to the credit bureaus and, and, and it it's been reported for a very long time.

So that that's just not a thing at all.

So whatever indebtedness you see in the consumer land, it is visible in the credit bureau data part one part two, there's a fraction of bop Pao industry called paying four sometimes people call it split pay, sometimes they just call it B NPL, but that's the pay over six weeks.

And um weighted average life of that loan is three weeks.

That means money turns 17 times a year.

Last year's oral industry estimate for the US was $50 billion.

That's $3 billion in outstanding balances.

Total US credit card debt $1100 billion or 1.1 trillion.

That's 30 basis points, 30 basis points of debt that is not revolving.

Not generally speaking, compounding doesn't even pay interest.

90 plus percent of the time is not reported to the bureaus.

That's phantom debt.

You're terrified of 30 basis points of us consumer debt.

That is just a headline that's made up to get people riled up and click on headlines.

Do you think that people are paying your bill first as compared to a credit card company?

There's a great question.

I think they are paying our bills in a very predictable fashion because whenever they agree to use a firm, they see not just well, here's your bill.

Please make a minimum payment.

Don't worry about the long term.

So the the buy now pay never, which is what credit cards are, is or buy now pay forever is probably a better term is a stark difference to what we do.

We present the entire plan, you know exactly when your next payment is due.

Generally speaking, it's quite rigid, which may seem like a problem, but in fact, it's a huge benefit.

Consumers love the sense of control where this is the bill.

I gotta pay it.

Of course, if you need to have a little bit more time to pay later, slightly later, we will accommodate you.

And there are no incremental fees or combining interest.

That is what gets us into this grade zone where people generally speaking, pay our bills just fine.

Some people prefer to have their affirm in the best standing possible.

And so I think they do prefer us to their credit card bills.

Some I think just paying their bills on time as you saw 2.3% of delinquencies, 30 plus last quarter suggested they are paying our bills.

Good thing.

Good thing.

I, well, you and I have talked in the minutes, couple of minutes, we have left you and I have talked in the past about A I and I can never tell if you're like, man, I can't believe this guy's asking me this about, about this again.

Everybody in my life asked me about this.

But let me ask you from this perspective since we have last talk, we are Warren Buffett uh out here annual share shareholder meeting, talking about the genie is now on the bottle.

Apparently some weird video of him was posted and it wasn't actually him.

Is he right to be that concerned about A I?

And, and I should note too.

Yes, you're the founder and CEO of a firm, but you've spent many years in tech industry and of course, we're there for those early days of paypal.

So I think generally speaking, I am a, an extreme techno optimist.

And so asking me, should we be worried about some amazing technological breakthrough?

That's another form of Clickbait.

Like no, we should not be, we should be excited about all the opportunities.

We're going to make amazing things, efficiencies, assistant copilots, all of that is coming.

Most of it is not ready for prime time.

That important thing to be worried about is how far have these valuations run ahead of themselves.

There's some amazing things happening.

Most of them in labs that said we announced in our last quarter as it happens that we have for a long time now been experimenting with A I as a customer service agent.

We still guarantee that any human who wants to talk to a human will be able to do so.

But we found that our ability to satisfy consumer requests, questions, complaints, whatever it is they have with a chat bot that is powered entirely by our built A I is really, really strong 60% of the time a little bit higher.

Now the consumer says, oh, ok, great.

That works for me.

I don't need to talk to a human.

Lots and lots of gen Z and millennials like chatting don't like talking to humans.

They get their satisfaction through a chat bot.

That is A I powered.

Very cool.

They need to say, hey, I gotta talk to a person.

You don't get me.

I want to talk to.

I guess I'm the old guy.

Now.

Uh You're the one mashing the button.

Like operator, operator, we will, we will always have that.

We'll always support that modality of interaction.

But a lot of people get their questions.

Simple ones.

Anyway, done very quickly with a single interaction with an A I.

All right.

Well, I promise not to ask you about that until I don't know, a couple months from now when we talk again, Max Lech, uh founder and CLF Firm.

Always good to see you.

Appreciate it.

Good to be here.