Web: How Fintech Is Reinventing the Installment Loan

November 2018 by: From The Web

If you’ve shopped online recently, you may have seen Affirm on the checkout page, next to the familiar options to pay with a credit or a debit card. If not, you will probably notice it over the holiday shopping season. Affirm combines the ease of paying online with the repayment schedule of an installment loan.

Yes, thanks to financial technology, a new kind of lending business has emerged.

Affirm was founded by PayPal Holdings (ticker: PYPL) co-founder Max Levchin, along with a co-founder of the data-mining firm Palantir and a data executive at videogame publisher Ngmoco.

Yet Levchin says he didn’t start out trying to create a lender. Instead, he wanted to disrupt the credit score, a closed-off and opaque system that consistently disadvantages groups like recent immigrants and the young. And credit scores may not even be very good at predicting creditworthiness.

Levchin developed a new way of gauging a consumer’s credit risk and started talking to financial institutions about how to use it to make better underwriting decisions.

“It was almost an academic experiment to try to be a better risk assessor and underwriter,” Levchin tells Barron’s. The response he got was disheartening: The big banks weren’t interested.


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