Jan 2, 2019 · 35m · a16z
a16z Podcast | Building Affirm, and Why Max Levchin Has Watched Seven Samurai 100-Plus Times
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In this episode of the a16z podcast, Affirm founder and CEO Max Levchin joins host Angela Strange to discuss modernizing point-of-sale consumer finance, disrupting legacy banking through transparent credit modeling, and applying leadership lessons from Akira Kurosawa’s Seven Samurai to startup execution.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 3.4 Guest teaching 4.0 Guest disagreement 1.5 The host pushing back 0.9
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 20:32 Direct rejection of social data underwriting
Max bluntly refutes Angela's premise about alternative social signals, asserting that social data is useless compared to internal transactional risk data.
Hardest push from the host ▶ 25:28 Challenging incumbent disruption narrativeAngela challenges Max's view on incumbent banking decay by citing Jamie Dimon's proactive defense strategy and successful regional bank underwriting partnerships.
Biggest teaching moment ▶ 20:32 Schooling on internal risk modelingMax educates the host on credit risk reality, dismantling tech industry myths about social media metrics and explaining why proprietary loss data is indispensable.
The host holds their own ▶ 10:04 Framing the fintech disaggregation thesisAngela demonstrates deep domain expertise by mapping out structural unbundling across financial sectors before pressing Max on re-aggregation.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Re-entering Consumer Finance and Rethinking FICO Scores | 2 | 3 | 1 | 0 | Angela opens with a standard interview question asking what motivated Max to return to consumer finance after Slide. Max explains his background and critiques legacy FICO scores in the modern gig economy. | |
| Affirm's Point-of-Sale Model and Merchant Impact | 2 | 3 | 1 | 1 | Angela asks Max to explain how Affirm operates specifically relative to other lenders. Max details the point-of-sale mechanics using Casper mattresses, with playful brief interjections from Angela. | |
| Disruption of Legacy Banking and Rebuilding Trust | 4 | 4 | 1 | 1 | Angela brings concrete statistics around millennial distrust of banks and low credit card adoption. Max elaborates using historical crisis examples like USAA and American Express. | |
| Disaggregation versus Re-Aggregation in Modern Fintech | 5 | 4 | 1 | 1 | Angela articulates a clear thesis on fintech disaggregation versus re-aggregation across robo-advisors and business loans. Max agrees and details transactional versus core banking relationships. | |
| Embedded Point-of-Need Finance and Customer Loyalty | 4 | 4 | 1 | 1 | Angela frames the shift toward the on-demand economy and instant financing. Max explains merchant channel acquisition, installment transparency, and repeat purchase patterns. | |
| Risk Modeling, Internal Data, and Fraud Engine Design | 3 | 7 | 5 | 1 | Angela asks about novel social data signals for underwriting. Max directly rejects the premise, explaining that internal loss data and PayPal-style risk modeling are the only true predictors. | |
| The Evolution of Banking and Incumbent Partnerships | 5 | 4 | 2 | 2 | Angela asks if Affirm will become a bank and cites Jamie Dimon's warnings about Silicon Valley alongside incumbent partnership models. Max outlines how institutional capital and modern front-ends cooperate. | |
| Management Philosophy and Lessons from Seven Samurai | 2 | 3 | 0 | 0 | Angela asks about Max's obsession with Kurosawa's Seven Samurai. Max shares a monologue on writing his college paper overnight and applying samurai leadership principles to startups. |
Statements from this episode (19)
Levchin: FICO scores drive bank credit decisions despite being outdated
“All the different decisions by even the most sophisticated lenders and banks are largely driven through this magical number called the FICO score. Which was invented in the eighties or even late seventies and has really not changed that much. Certainly has not…”
Levchin: Affirm does not perform hard credit pulls for instant loans
“We don't do a hard pull as they call it in the industry. So you don't really, we don't ding your credit record.”
Levchin: Affirm drives a 30% sales increase for most partner merchants
“We see about a 30% increase in sales for most of these merchants.”
Levchin: Four of the top 10 most despised millennial brands are banks
“In the Millennial Disruption Index study, which was a giant survey, they, I think for fun, basically said, you know, list your top 10 most despised brands, top four wound up being banks.”
Levchin: American Express has failed to market to young people
“One is American Express. Which I think is probably one of the best financial institutions out there, but they have not figured out how to market to young people at all. There's really not that much cool left in the black card if you're an 18 year old.”
Levchin: Affirm uses USAA's corporate history as a precedent for branding
“So every time we sort of asked ourselves, what is the right next branding move for us? We sort of Search for a precedent in USA's history.”
Levchin: Transactional financial services will remain permanently unbundled
“I can see that being permanently deconstructed into this extremely efficient, very thin, once transactional service, and then you're done, and you feel very good about sort of satisfying your need.”
Levchin: Modern fintechs will replace traditional banks for direct deposits
“There's definitely going to be several probably winners that take the spot in your brain that belongs to Wells Fargo for your parents, the sort of a place where your money goes into a direct deposit account of some sort that takes care of your billing mostly a…”
Levchin: Affirm is competing to become consumers' primary financial advisor
“We're certainly in competition for that, the opportunity there is not just to be the thing that's in your head and you're using it every day, but the thing that in your head that you know is your trusted advisor is actually your helper.”
Levchin: Point-of-sale credit cards with deferred interest are borderline evil
“There's a sort of an implicit indictment of the larger banks that do what's known as point of sale issued credit cards, which is, you know, some are borderline evil product because they give you a zero percent financing unless you miss the first payment, at wh…”
Levchin: Affirm does not charge late fees to consumers
“And if you're late, we're not going to charge you a late fee because that's our fault. We didn't remind you correctly. And when we made the underwriting decision, we made the choice to take you on as a risk and that that's, we're going to have to stick with.”
Levchin: Home furnishers make 85% of brand purchases within 45 days
“When people are furnishing a house, they make 85% of the purchases that they will for From that brand within 45 days of the middle point of the largest purchase.”
Levchin: Repeat Affirm purchases are 80% larger on average
“So second purchase is 80% larger than the first one on average.”
Levchin: PayPal had six weeks of runway left in summer 2000
“So when we looked at our loss rates in the summer of 2000, we were basically Bleeding out millions of dollars in fraud related losses per week. We were basically running out of money, even though we had sixty million dollars in the bank, which was very strange…”
Levchin: Internal transaction data outperforms social data in risk models
“The most valuable data is not social data, not what you eat for lunch, not even debt to income ratio, even though that's fairly predictive, but your own data, because every data set that you're looking at internally Describes your own process, including your b…”
Levchin: A properly launched new credit card initially loses 50% of volume
“One of the things that happens for a brand new launched credit card Done right, you lose about 50% of the dollar volume in the first several months, which is terrifying because it's half the money, literally.”
Levchin: Traditional banks will not exist in their current form soon
“So I actually think banks in a few years will probably not exist the way they are today.”
Levchin: Banks fail with millennials due to brand identity, not tech
“Finally, I think the smarter ones of these banks kind of recognize that an impediment to their forays into the millennial demographic in particular is not lack of technology or lack of the right product. It's actually who they are.”