a16z Podcast | Building Affirm, and Why Max Levchin Has Watched Seven Samurai 100-Plus Times | Summary and Q&A

TL;DR

A Firm aims to build trust among customers in the finance industry by providing transparent and convenient purchase finance services.

Key Insights

• 💁 Max Levchin believes that banks, as they exist today, may not exist in the same form in the future as the industry trends towards a more transactional relationship.
• 🙊 A Firm focuses on building a trusted brand that speaks to young people's expectations and offers services that are fast, transparent, and mobile.
• 🤗 The company is open to partnerships with traditional banks and sees opportunities for collaboration in areas of shared interests, such as loan portfolios and reaching the millennial demographic.
• 🏛️ A Firm's approach to fraud and risk underwriting is based on rigorous analysis of historic data and building models that describe their own system.

Transcript

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Questions & Answers

Q: What led Max Levchin to start A Firm and why did he choose to focus on the finance industry?

Max Levchin was motivated to start A Firm after realizing the need for a Bank of the future for young people who didn't trust traditional banks. He chose to focus on the finance industry due to the outdated FICO score system and the lack of adaptation to the gig economy.

Q: What does A Firm do exactly?

A Firm primarily offers purchase finance services, integrating online and offline point-of-sale options. They help customers finance considered purchases, from a few hundred dollars to several thousand dollars, providing transparent and pre-calculated interest rates and instant approval.

Q: Why do young people have a lack of trust in traditional banks?

Young people often have a lack of trust in traditional banks due to their negative experiences during the 2008 financial crisis. Banks were perceived as not standing behind their customers and making decisions that were not in the customers' best interest. This, coupled with the inconvenience of branch banking, has led to a lack of trust in traditional bank brands.

Q: How does A Firm build trust with its customers?

A Firm builds trust by providing transparent and pre-calculated interest rates, instant approval, and reminders for payments to avoid late fees. They aim to be a trusted adviser for their customers and align their incentives with the customers' best interest.

Summary

In this podcast, Max Levchin discusses his latest startup, a firm, and its role in the world of payments and finance. He explains the need for a Bank of the future that caters to the younger generation who are disillusioned with traditional banks. Levchin also touches on the importance of building trust among customers and discusses the unique approach of a firm in tackling this issue.

Questions & Answers

Q: What made Max Levchin return to the world of payments and finance with a firm?

Levchin explains that while he had success with his previous company, Slide, he was never fully satisfied with it. His wife pointed out that he is a serious person who excelled in building a payments company like PayPal, and that is where he belongs. Levchin agrees with her assessment and was drawn back to the world of finance. He saw an opportunity to address the limitations of the existing FICO score and build a Bank of the future for young people.

Q: What does a firm do exactly?

A firm is primarily a purchase finance service that integrates with online and offline merchants. They offer point-of-sale financing to customers, allowing them to make purchases in installments. This service is particularly appealing to young people who may not have credit cards or who are hesitant to use them. A firm's transparent and straightforward approach to financing has resonated well with customers and has led to a significant increase in sales for their partner merchants.

Q: Why do young people have a distrust of banks?

Levchin explains that a significant factor contributing to the distrust of banks among young people is the 2008 financial crisis. Many of those entering the workforce at that time experienced firsthand how banks failed to support their customers during a time of financial hardship. This lack of support left a lasting impression and made young people skeptical of traditional banks. Additionally, the inconvenience of having to visit a physical branch for certain banking tasks is not aligned with the convenience and digital expectations of the younger generation.

Q: How does a firm aim to build trust among its customers?

A firm focuses on transparency and aligning its incentives with those of its customers. They make sure to clearly disclose the interest rates and terms of financing to customers. They also provide reminders to customers so they are not late on payments. If a customer does happen to miss a payment, a firm takes responsibility and does not charge late fees. By consistently delivering on these promises, a firm aims to build trust and establish a strong relationship with its customers.

Q: Do you see banking becoming completely disaggregated with various startups offering different financial services?

Levchin believes that both the disaggregation of banking services and the emergence of trusted brands that can provide multiple financial services will happen. He acknowledges that there are certain transactions, such as finding the best rate for credit card refinancing, where consumers will continue to search for the best deal. However, he also sees an opportunity for a trusted brand like a firm to become a financial advisor and guide customers in making smart financial decisions across various services. He believes that the relationship between a customer and a trusted brand can be a central part of their financial life.

Q: How does a firm view its relationship with banks?

Levchin sees potential partnerships with banks as valuable opportunities and is open to working with them. He believes that large banks have a strong customer base and access to capital, which can benefit startups like a firm. Additionally, he sees the opportunity for banks to partner with younger companies to cater to the millennial demographic. By aligning with startups that understand the needs and preferences of young consumers, banks can gain market traction and reach a new target audience.

Q: Why has Max Levchin seen the movie "Seven Samurai" so many times?

Levchin originally watched "Seven Samurai" in college and was struck by the story of building a team in a life or death situation. He found inspiration in the courage and discipline portrayed in the film, especially in the context of building organizations and startups. Over the years, he has watched the film repeatedly, often using it as a teaching tool for his management teams. Levchin believes that there are always new insights and lessons to be learned from each viewing, which is why he continues to watch it.

Summary & Key Takeaways

• Max Levchin explains the motivation behind starting A Firm and why he chose to focus on the finance industry.

• A Firm offers purchase finance services, integrating online and offline point-of-sale options, to help customers make considered purchases.

• The company aims to build a trusted brand that speaks to the expectations of young people who have a lack of trust in traditional banks.