Affirm is looking to expand its lending business for online shoppers. The new lending startup from PayPal co-founder Max Levchin is today announcing it raised $275 million in debt and equity to do just that.
The round was led by Spark Capital Growth, with additional participation from the mid-cap investment bank Jeffferies and Andreessen Horowtiz. Previous investors Khosla Ventures and Lightspeed Venture Partners also invested as part of the round.
The equity portion of the round could be as much as $80 million, according to one person familiar with the transaction. Neither Affirm nor Spark Capital would comment on the mix of equity and debt that went into the financing.
Lending has become the darling of financial technology investors since it’s relatively low hanging fruit for venture capital-backed startups to pick off as they look to disrupt the banking industry.
Last month, JPMorgan Chase head honcho warned in an investor letter that “Silicon Valley is coming” for the banks’ business. And in the case of lending it’s apparent that the Valley is already knocking on Wall St.’s doors.
One of the reasons Silicon Valley sees an opening is due to the numbers of millennials that have opted out of traditional financing. More than half prefer debit cards to credit cards, 44 percent have said they don’t want to use credit cards and these shoppers will account for one-third of spending by 2020.
Affirm’s business is akin to the BillMeLater business that PayPal acquired in that it lets shoppers pay for purchases across many months with transparent interest rate loans.
Applying for a loan using Affirm is as easy as putting in a shopper’s name, phone number, birthday and the last four digits of their social security number.
Typical loans are roughly $500, according to an email from Levchin, but he would not confirm the amount of loans that the company has issued to date, nor would he say what an average annual percentage rate would be for a typical loan other than that it would fall somewhere between 0 and 30 percent.
Explaining the Affirm product Levchin wrote in an email:
Affirm’s first product is “Buy with Affirm”. Not to be confused with a delayed invoicing or layaway type product. Affirm settles with merchants within a day, guarantee all payments, and take on all the repayment and fraud risk.Buy with Affirm is available at the checkout of more than 100 online merchants and is now available to finance student’s education at coding academy’s such as General Assembly.
The impetus for launching the company stems from a perceived mistrust around banking among the new generation of savers and consumers who are joining the labor force now.
Arecent study from Viacom’s media group cited by Affirm showed that the top banks are among the 10 least-loved brands in America (according to millennials). The study found that 53% of survey participants didn’t think banks offered differentiated services and an overwhelming majority said they preferred dental work to banking.
If convenience is the pitch for millennial online shoppers, increased conversion rates are the reason why online retailers are turning to Affirm. The company says integration of its payment service can increase conversion rates by 20 percent and boosts purchase sizes anywhere from 79 percent to 84 percent. There are over 100 retailers using the service now.
For online merchants, integrating Affirm increases Average Order Values (AOVs) and conversion rates by more than 20% and increases purchase sizes by 79-84%, by providing consumers with access to fairly-priced, real-time credit, while promoting financial responsibility.
Founded in 2013 by Levchin, Palantir co-founder Nathan Gettings and former ngmoco data officer Jeff Kaditz, the San Francisco-based company has raised roughly $325 million in equity and debt. The company’s Series A round was roughly $50 million.