How Does Affirm Get Us to Buy Now Pay Later?

Behavior change is hard. Actively changing another person's behavior is even harder. But there are plenty of companies out there that have been able to crack that code. They understand that people don't always, or even rarely, act rationally. I'm Kristen Burman, co-founder of Irational Labs. Over the years, we've helped countless companies understand and leverage behavioral science to increase the health, wealth, and happiness of their users. The idea behind the science of change was to create a podcast that demystifies the psychology of decision making. So here's how it works. Each week, I get to chat with visionary product and organizational leaders to uncover their insights about user behavior and how they've managed to change it. I mash this up with some of the latest research in the field to get to the bottom of our core psychology. The Science of Change podcast is presented by SETSale, the world's number one revenue execution platform. In the last few years, BuyNow PayLater has become the hottest development in the digital payment space. Like its name suggests, BuyNow PayLater lets you make a purchase and receive the product immediately. But instead of paying the entire amount up front, you can pay over a series of installments. For example, if your total purchase is $200, you can pay $50 at checkout, and then have three remaining payments of $50 each due to weeks apart. Unlike traditional loans, some BuyNow PayLater plans can be interest-free, which means they allow for a more flexible long-term payment without any additional cost to consumers. Because of its convenience and flexibility, not to mention the minimal to zero interest feature, BuyNow PayLater has quickly gained in popularity among consumers. And you can use it now for pretty much any product or service with the digital payment option. As of 2021, 56% of Americans had tried at least one of the BuyNow PayLater services, which combined are projected to top $1 trillion in annual gross merchandise volume in the US by 2025. And with nearly 9 million users, a firm is one of the biggest players out there in this market. So, I was super stoked to have Newport, Cantonini on the show this week. Newport is the head of consumer product for a firm. Or at least she was. Not long after this interview, she was named VP of Product for the Investment Startup Titan. But she was with a firm for eight years. So there's probably nobody in the BuyNow PayLater space more qualified to talk about this new frontier of online payments. We discuss our tendency towards present bias, how we actually value the things we buy, and our irrational obsession with free. As you can imagine, payment strategies are an absolute goldmine for people interested in behavioral science. It checks so many boxes. So, let's start digging. Do you want to kick off by describing what a firm is? Sure. So, a firm is a BuyNow PayLater payment option. We enable users to have the flexibility to pay over time. Generally for large considered purchases, things kind of like furniture, home equipment, things like that. But we are also expanding into sort of non-lending, non-pay over time payments and products as well. We have a savings account. We have rewards programs that we're building out and a debit card on the launch as well. Wonderful. So, you've started as this BuyNow PayLater and you are taking over the financial wallets of folks who use you in good ways, of course. Yeah, our mission is to deliver honest financial products that improve lives. And it just happens to be one that was universally confusing, predatory as well with a great place to start. So, we think a lot about experiments and small changes that have helped you basically grow over time. You know, when you do something and you learn from it or you do a real A/B test, what are some of these experiments that stand out to you as helping a firm to learn and grow over time? Yeah. I can share just a couple really helpful insights. Some of them are small A/B tests, but some of them actually went on to create entire products for us, which is pretty cool. I would say kind of on the small A/B testing side of the house, we really were thinking about how users understood their payment terms. So for example, once they added something to their cart, selected a firm as a payment method, they then were shown options for how they like to pay over time. Was it three months, six months, 12 months, etc. And we really wanted to make sure they understood with that their monthly payment was fixed. And so the way in which we showed how much is the monthly payment, how did we come up with that, needed to be very clearly articulated to the user. So like the APR and the interest, how many months, etc. And some of the tests that we did were really thinking about the ordering of the cards, really thinking about the placement of how large the monthly payment was relative to the interest and the dollar figure of interest. So for example, the user would see something like 10% APR, but then they would see the dollar figure associated with it. And like really getting A/B testing down on ordering and sort of UI/UX of those cards was super critical. Because it was really about like, did they understand it was a monthly payment that wasn't going to have additional fees, etc. Great example. What is the ordering that best helps communicate it, is it APR second and monthly payment first, how are they sized differently? Yep, so definitely the overall monthly payment is the largest and what the user indexes on right below it, they'll find an APR and parallel to it, they'll find a dollar value, which is basically how much in total they would pay. And so when you do kind of the quick math, the number of the dollar amount you pay an interest over, call it like 12 months is like pretty nominal. And so that was sort of an easier way to articulate to the user was happening here. So I'd say like that was one where we also thought really critically about how many options a user could have, how many was too many, right? Like four, six options, etc. as well as the way to kind of design simply if there was a single option or do they prefer three. And the truth is like they actually prefer choice. And so not kind of defaulting them and showing other ones a secondary was important. It was important to say users have different preferences. Here's a menu of three sort of power of three literally at its best and really give them the flexibility to make that choice themselves. That's great. And what are you varying when you vary the choice? Are you varying the amount in the type of payment or what is involved with the choice architecture there? I think it's really sort of the duration. So could it be longer term shorter term, etc. And it really becomes the affirm team itself needs to also have a good perspective on what should a payment term be for a particular amount, right? So like we're not going to have 24 months for something less expensive, right? Like that's not good for anyone. We don't want them making sort of like $5 payments and one things like that. So kind of like having a little bit of that like taste and intuition and then also balancing that with the economics of what a longer term period, which is higher risk would need to say the user or the merchant and just kind of like putting a stake in the ground for some of those things too. That's great. And this is a guess, but did the middle option usually work best? We call this the compromise effect where people sometimes just pick the middle option when they're not quite sure. Yeah, actually, I would say the middle option in our case probably is like the least interesting for users, generally like the longer the term, sort of the more flexibility they have, but also the shorter the term, the less interest they pay if they're happened to be interest. And so for folks who weren't as price sensitive to the interest, they would just take as much time as they wanted. For folks who really wanted to minimize interest, they might take the shorter one, but above and beyond no interest with a longer term length is what everyone's excited about. Like that's kind of the free money, give myself the most flexibility that they gravitated towards. So not so much the middle one. One of the basic principles of human decision making is how we use relativity to figure out how much we value things. We see a sales sign and the comparison of the current price to a more expensive past price makes us think we're getting a good deal. In actuality, we know very little about how much things are worth. It's hard to know or guess in items true value, so we use comparisons to help us make decisions. Humans are hardwired for comparisons. We compare everything around us whether we should or not. For example, my partner to rational labs, Dan Arieli, conducted a study where students at MIT were asked to write down the last two digits of their Social Security numbers. Then bid on items like rare bottles of wine or boxes of chocolate. The students with higher numbers, somewhere between 80 and 99, bid over 2 to 3 times more than students with lower numbers. The Social Security numbers were entirely irrelevant to the prices of the items, but it didn't stop students from unconsciously making that association. Any experiments that didn't work or surprises were going to say, "Man, I thought that this would work," and surprise, surprise, good thing we tested it, not so much. Yeah. In terms of ones that I think maybe we were surprised by the outcome. I think we were a little surprised when we made savings a top of funnel onboarding value prop to a user, even though most of our users knew us for pay-over time and shopping. We sort of just assumed that if you put it further up, a user will opt in and maybe will use us for pay-over time, but then we'll also be interested in the savings account. The reality is that users really come to a firm as we're starting to create more products, and really for any financial product out there that's trying to do new things over time, most users have a job to be done that they're coming to this app for. And so just being like, "Hey, look over here. We have something else as well." You have to be really thoughtful about the hierarchy of how you introduce those things, and not just assume that by making it one of the top things that a user can do, they're just going to opt in. And so I think it's important to be able to, in a very pitty fashion, share the value props of what your product has to offer, but also really have an opinion on what is the hierarchy by which a particular user will opt in and will adopt a product, and then what's the second one? Okay, so they came here for this, get them to that one thing first and quickly, then earn the right to actually show them something new and different as well, and be really careful about kind of leveraging real estate for that, because you kind of never get a second chance to make a first impression as something I'd like to say with product, and I find that to be a helpful principle. And do you think that some of this is just some cost? Like, I've already had my money with you, so why not add a savings account versus maybe ordering or gaining people's trust in this manner? Like, if you switch them in you to savings and then by now, could you have the same type of effect? Does it have to be linear? Or is it just, I've already started with you, it's wildly easier than for me to continue with you versus going somewhere else? Yeah, well, I think when you think about alternatives that a user has for a savings account, there are so many. The alternatives for kind of pay over time in an installment loan fix fashion or fewer. And so that's not to say that it's not great that we have a way for users to save with us, and most of them who signed up for a savings account are actually strong pay over time users who really liked our brand, and we're excited to have another firm product. But I think it's just kind of like being aware of your alternatives. And so I think the experiment was maybe more on this, when you're a new user, you're coming to us with a job to be done, and we need to actually facilitate that job to be done, even though we're really excited about the other products we have. We haven't earned their right or earned their trust for that second product yet, just like thinking about that ordering of onboarding experiences like that. I like her point on mental models. So basically a mental model is a deeply ingrained view of how the world works, or doesn't work. There are mental models for how we talk to children, what risks to ensure, what to save money for, what the climate is like, and what causes disease. And like us, companies can also have mental models. For instance, we wouldn't use Yelp to hire a babysitter. We'd use it to find a daycare or an any service. You wouldn't go to Amazon to buy designer clothing. When Amazon has tried to launch higher end brands, customers have failed to respond and adoption has been low. A firm has done the same. They are a buy now pay later service. So introducing a savings product falls outside of that mental model. But I do wonder maybe if savings was available when they first launched, they wouldn't have had this adoption issue now. Thanks, don't have any issue here. I know I can go to a bank to open up a savings account and get a loan. After a mental model is established, changing it is hard. But back to a firm's core offering. I wanted to find out more about this buy now pay later. Let's focus on buy now pay later. In the beginning, it still is for many people. But in the beginning or years ago, this is a new concept to how we can buy a refrigerator or buy a large expensive item. And so what have you learned about making it generally more appealing to people as you've had to kind of position it against what is typically the norm, which is just I'll take your credit card and say goodbye. Yeah, yeah. I mean, I would say that we had to do two types of selling. One was to merchants to actually have them put us on their site and the other type of selling is to a user that this is a good payment method for them to consider. And I would say that like we got, there's definitely a value prop for what we were doing, but I can't discount the environment of direct to consumer shopping and brands that were starting to come up at the same time. Casper was starting to come up. Peloton was starting to come up. Wayfair had done this incredible job, sort of creating e-commerce, conglomerate for furniture and home goods. And for some of those direct to consumer brands, I won't put wayfair in that category. It's more kind of like the caspers, etc. Because they were direct to consumer and they didn't have a middle man, they had a little bit more, they had more flexibility when it came to the economics. And so they could pay for interest free. Then when a user had interest free, Casper financing or interest free Peloton bike, that was a no-brainer. Or why wouldn't I pay for this over time if it really is 0% APR, which ours was. ours is not the marketing demonstrative interest free, but if you pay us late or something like that, we'll actually talk about a bunch of hidden interests. ours was different, it was literally 0% and 0%. And so I think that was really helpful in terms of kind of having the right product market fit for the product unit of itself. It's no secret. We absolutely love free stuff. You'll see people line up for hours in the cold just to get a free slice of pizza, even though it only costs a few dollars on every other day. Let's go back to Dan Arielie again. In his book, "Predictably Irrational," he writes, "Most transactions have an upside and a downside. But when something is free, we forget the downside." Soon in other words, when something is free, we immediately think it's more valuable than it really is. Arielie demonstrated the power of free in a study where a group of people were offered a choice between buying high-end Lint truffles at 15 cents per piece, or the more downmarket Hershey's chocolates at a penny a piece. An overwhelming majority chose the Lint truffles, despite its higher price. But here comes a twist. In a second scenario, the price of Lint truffles was dropped to 14 cents, and Hershey's chocolates, you guessed it, were free. So the price difference was exactly the same, but people overwhelmingly chose the free option. To consumers getting something for free, evokes a particular positive emotion. It just feels better. A firm knows the power of free, and the appeal of zero interest with full transparency and no hidden cost is simply irresistible. But then what I think started to happen is users started to actually feel like they could use a firm for more things other than just kind of these large considered purchases. What we know from our users is that they default to debit. That's generally how they make purchases, and that credit credit cards can often be a last resort purchasing tool. You had this opportunity for things that were not kind of everyday spend a little more aspirational, but maybe weren't the most expensive things where pay-over-time could make a place. I would say that the industry, the product market fit, the competitors amongst those merchants themselves all starting to get on the train a pay-over-time. It became more common to see it on e-commerce, and then we were able to create more of a space for it within other categories, like a payroll, etc. that were lower basket sizes. In particular, I will say again, another sort of cultural thing that happened is like Goat and Stock X, these websites for sneaker heads, also blew up. And that was when you think about those really cool sort of collectible sneakers, they are expensive, but they are really important and interesting to many users in terms of something that they want. And so being able to pay over time for it was a flexibility lever that just really made sense for certain types of purchases. Here's the thing. By now, pay later encourages people to spend more by drastically reducing the psychological pain of pain. Research has found that spending money triggers areas of the brain associated with pain and disgust, and the different forms of payment trigger different levels of pain. When the payment amounts are the same, pain cash induces us the greatest psychological pain. Oh, because people see themselves losing money in real time. On the other hand, paying with credit cards greatly reduces the psychological pain. Phew, it's a smooth process and almost completely removes actual money from the equation. So the feeling of losing is less tangible. And now, by now pay later arrangements cut down the psychological pain even more. Unlike credit cards that require paying back the total amount, by now pay later allows you to spend a smaller fraction of money over an extended period of time. According to a survey done by consumer spending data firm Cardify, just about half of all consumers spend more when using a buy now. pay later service than they would on a credit card. So people are buying things they wouldn't otherwise. That may be good to help people forward things they need or want. But there is an obvious risk that people are also living beyond their means. If you buy those collectible sneakers, even if you're paying for them over the course of a few months, you may not be able to pay your rent. Or remember, a firm isn't charging fees or interest. So while people may be spending more than they would put on their credit cards, there isn't advantage that they're not paying extra fees. And that's not nothing. So let's find out how they qualify people for loans and how the business model works. - So our business model is one where we make revenue in all collect for simplicity like two ways. One is for the merchants who have us on their website. We charge a transaction fee for transactions that go through a firm. And then the other way we earn is on what we call like interest income, which is basically if the loan has interest on it, we make the money on that. The last way I'll just go ahead and mention which is through our mobile app is when we drive traffic to a merchant site, we do partner with affiliate programs and kind of monetize the traffic that we're driving. It's like those primary ways. What happens with interest free is someone has to pay for that interest, right? Because we are for going that interest income that would have been recognized. And merchants actually pay a higher transaction fee to absolve the cost of the interest for the user, which is extremely user friendly. Like also works really well for merchants. Can also be a better marketing message than say a discount and gives merchants the ability to maintain brand equity and pricing power so that they are not just a discount shop, which many of them are very nervous about, kind of like this race to the bottom-own pricing. So it's a really elegant business model. On the how we determine eligibility, what you didn't hear me say is that we make revenue on fees, like late fees, hidden interest, things like that. That is 100% true. A firm does not make a dollar if a user doesn't pay us back, which means that we are very careful and considerate about who we will provide credit to. Because unlike other lenders who will actually profit off of someone's mistake, we don't. So for example, if you miss a credit card payment, that's a $25 bill at the gate just for missing it. That's a late fee that you get charged. So in some ways, some of these other financial services, arms are incentivized to actually have fees and things like that. You'll hear crazy stats, they'll make 20%, 30% of their revenue from fees, which is super consumer and friendly. So coming back to our underwriting model, how we determine eligibility, knowing that we are truly seeking out to very honestly say, will this person pay us back or not? It's fundamentally very important for anyone listening to appreciate. And so what that means is in addition to looking at normal signals that you might get from a credit report, et cetera, we of course have our own magic around what other signals we can be looking for from a user, what other information they can give us. And a lot of it comes down to their behavior over time with us, too. We want to be able to continue to reward users when they're doing the right thing and paying us back well and have a long relationship with a firm. So it's a little bit of the secret sauce as you can appreciate, but it is definitely the type of thing where we would never want, and we would never underwrite a user who we didn't think could actually pay that amount back. That would be us sort of doing something orthogonal to our values. And what have you learned about helping people pay back? How do you nag me, remind me to pay you back? And have you learned anything from what works or what doesn't? Research has shown that people often mispredict their future expenses. Predicting their expenses will be lower or fewer in the future. One study asked people to recall and predict regular expenses, such as rent, car repairs, and home improvements. People predict their expenses to be about 20% less in the upcoming week than what they actually paid during the previous week. This can have consequences for financing plans like, by now, pay later. If people underestimate their future expenses, that means they can also overestimate their ability to pay back their debt. So what does a firm think about this? One, it's important to give users also the opportunity to set up auto payments when they are setting up their initial, when they're agreeing. That said, we do send them both text message and email reminders that are pretty focused, really focused on sort of paying us back. We also let them know if they've already set up auto pay that they're going to see this payment come through, so that it's not totally set it, forget it. But it's like, yeah, you're probably going to see something on your debit card statement saying that you paid a firm. It's coming up. And so I would say that the combination of only sending text messages to our users because it's transactional in nature instead of spamming them. We don't use SMS as a marketing channel at this point. It's really like a high quality. There's something about your transaction that we want to share with you. Means that sort of the noise on that channel is low. And then I would say kind of on the email front and the communications front, we've been working hard to do more testing around deliverability in terms of the right times to send users particular communications and really trying to optimize around that. I think that generally sending those things can sound like very normal, of course, and very obvious, but sort of like sending on certain days, like on Tuesdays or Thursdays are generally good for our marketing. But then I would say kind of from a transactional perspective, we've just really seen kind of like the mornings be more effective for users in terms of sending them comes. That's great. And for somebody who's not paying you back, so they've missed a couple installment payments. What do you do? So if a user hasn't paid us back, one is, you know, it's not common for a user to sort of like miss a couple of that makes sense. Like once they've missed one, they're not eligible to take out another loan until they've made that payment. So there's a little bit of like kind of like a velocity throttle of like, hey, first you need to make your payment before you can take out, you know, use us again. We work really hard to try to contact that user, get them to repay. We do that for about 120 days after which period of time we consider that we call charged off. And that has to sort of be taken to collections for a user to go back and pay. But I think the way in which we sort of, and our repayment rates are quite high. Hence being a public company that makes no money on fees. But I should say sort of hidden fees and late fees. But yeah, I would say that we work really hard to try to get that money back. We are actually quite successful at it. And it's really interesting like a lot of users will say, no, I actually have like every intention of doing this. I just need a little more time if they fall into that bucket. And actually the very human element of I'm not going to charge you for this mistake or misfortune is actually heavily appreciated by your users. So I think that that aligning of incentives is actually really really promising. That's great. So when you talk about people have multiple installments payments with you going on at once, how do they manage this? So in theory, they're having let's do people have on average two with you at once. Or is this a normal case that people have multiple going on at once? Yeah, I would say it's normal. I wouldn't say we have like someone who is like, you know, 10, 20 out at a time. But once users use a firm, they do really enjoy the process and will likely take out, you know, another one certainly same year, if not kind of like same quarter, etc. Got it. And so the extreme level this could be hard for them to manage because they have multiple bills coming from you and multiple times in a month. And we know that people get paid twice a month. That may be hard to manage. How do people manage and are you helping them with their cash flow? Yeah, great question. I feel like you'd be a great product manager sort of thinking through all these down-served applications. One feature we do not have is sort of the ability to bundle payments, which users have asked about. What we do have is the ability to choose your own due date so that you can move and feel more confident. And so you just set around kind of a pay period, things like that. So users can actually go and set that up. And you can probably also appreciate that on the back end. There's a lot of elegance and sort of recalculating and figuring out all the details around exactly how that's going to happen since we're moving a due date. But it's a very, you know, consumer-friendly thing to do. I would also say that something like the pandemic was a big player in what we call loan modifications, which is kind of like the ability to modify your loan because we anticipated that with the pandemic users were maybe going to need a little more flexibility. It's a big period of uncertainty. Even if they ended up paying back exactly the way they initially expected to, we wanted to demonstrate that we were there to be flexible in these uncertain times as well. The ability to move your payment date is a sea change for the credit world. Most credit card companies don't allow you to adjust your payment date more than once or without calling. And of course, it's the consumers who suffer. Imagine this. If your bills are due a few days before your paycheck comes, you may be late on your bills. But if your bill was due on payday or a few days after you could easily make that payment since you have money in the bank. And what happens if you miss your payment? It usually costs you some kind of fee. So this mismatch between payday and bill due dates costs us. One study by researchers from University of Nebraska found the bank overdrafts happen 18% more when there is a greater mismatch between the timing of someone's income and the bills they owe. So props to a firm for developing little features like this that can really help consumers be financially healthy. A firm seems to pay attention to these small things that do drive behavior. Sometimes, ones that benefit the merchant more than the consumer. They've championed a tactic that is now widespread amongst merchants. It's called as low as. - I think that what was really important was, first of all, a firm was a guest on a merchant's website, right, that was important for us to remember too and we wanted to provide value to them. The reality was if a user learned about a firm too late in the funnel, call it on the payment page, it didn't actually change a user's behavior in terms of maybe I will make this purchase that I was otherwise on the fence about making. So how could we, as a guest on their site, subtly create awareness and visibility for a firm that kept it very focused on the value that the user was going to get? And ultimately, the value the user was going to get was the ability to pay monthly for this product. And so what we were able to convince a handful of merchants to do literally would like an equation. (laughs) It gave him an equation, which is run this equation before there was an API for it was calculate how much something was going to cost in a monthly payment. So get this for a thousand bucks or as low as $70 a month, something like that. And of course, this was a subtle way of users seeing the value right next to the price point and the ability to pay over time. Certainly when you add at things like get this for $X dollars at 0% APR, got even more interesting. And the number of permutations we've done on that over the years is, I can't even count them. But the reason I think this was so successful was, it was at the point of consideration. They were on a product page looking at a product. The first thing you're looking at beyond sort of the photos is the price. And if anyone who was priced sensitive, they immediately then saw this ability to pay more flexibly. And so if they were on the fence, well, now they're less on the fence when we all know a big reason why users abandoned their cards is price. And then the other thing that we added over time was the ability to within that widget, once you clicked on it, the ability to actually pre-qualify and find out how much you were qualified to spend on this account on this merchant. And so now you can, early in your journey, sort of shop with this dollar figure in mind. And that leads to bundling, that leads to users also moving up purchases that maybe they'd been saving for, and giving them confidence early in the journey that they can actually make this. So I think that was really powerful. We had no idea that it would go on to be kind of like an industry standard, but I think something we're very proud of. - Quick interruption. People are four times more likely to start saving if they focus on saving $5 per day, rather than $150 per month, though they add up to the same amount in the end. Why? It feels smaller, easier, more achievable than $150. Of course I can save $5 a day. It seems a firm has figured this out. By framing prices with the language as low as, people focus on a smaller number, and purchasing that big item feels more achievable. But back to the conversation. When you guys first started, what were the types of products that were more intuitive to start with? You said you moved into a peril, but what did the beginning look like for how people more likely than not thought to engage with a buy now pay later idea? - Yeah, I would definitely say it was home worth, and so sort of like furniture, mattresses, et cetera. I mentioned some of the bed and the box retailers that we worked closely with. The other was exercise equipment, which also already had sort of, both of those already had financing as part of marketing levers that they thought about. And then I think it started to, the one that was less intuitive, but really interesting was travel. There was this big aha moment when we were able to convince Expedia to be a partner with us, and how valuable it was to families, et cetera, to be able to pay over time for an experience. And if you think about where folks are spending money today, especially millennials, a lot of their money is actually going towards experiences, less on kind of the physical goods too. So that was a less intuitive one, but one that we were able to put a lot of momentum and effort behind, and now Expedia and Christline and VRBO, et cetera, our partners, that was not intuitive, at least not initially. Maybe it was intuitive to max or someone, just always saw the future, but that was fun for us. - Yeah, that's great, 'cause I think one of the top things people say that they're saving for is a vacation. And so this is a little bit of reverse savings, where you may not have all the money you need saved up to go into vacation, but if you can pay over time, you've basically started your savings plan at the point you're going on your vacation versus needing to plan for it, months and months in advance. So very clever. Let's move actually on to talk about maybe the debit card and savings of what you've learned about launching these kind of adjacent products into the market and what works to get folks to do something new like open to savings account or swipe a debit card with you? - Totally. Before I get into those, I'll kind of speak about the bridge 'cause there was a big bridge before we got into some of these other consumer products. So chapter one at a firm was about partnering with merchants and being a payment method on their website, which was really cool after users first used us as there was this magic moment where they were like, "Where else can I use you?" That was incredible. And it was kind of lame to say, you know, these many merchants, right? Like these hundreds or thousands of merchants, what was much more interesting and powerful to say was you can use us anywhere you want. And so that unlock is what led us to create our mobile app and virtual card products, which basically gave a user the ability to generate a one time use debit card, a virtual debit card that are pretty common today. Now, we were one of Marquetta's first partners. So Marquetta sort of like basically created a bunch of virtual cards partners with everyone. We were literally one of their first partners and created these virtual cards. And so now a user could pay over time on Amazon and Best Buy and Home Depot and all these places that were not merchants to begin with. And so that created our mobile app marketplace where we could basically feature merchants regardless of whether or not they were integrated with us. And users would just kind of search and merchant. And of course we had all the ones that a user would know about and care about. And then they would generate a virtual card if the merchant was not a partner. The merchant was a partner, which took them directly to the site. If they weren't a partner, they would generate a virtual card and use it there. And the thing that was really cool was it ended up being a sales tool for our sales team. They could now go to like a Home Depot or a Walmart and say, "Hey, by the way, your users already use it from." And this is how much we're driving. This is the value that your users already use. - It's genius. - Yeah, it was super cool. It's really on brand for us, like really just not only have products that kind of like make money, but you know, are really there for the user. And so debit, the insight came from a fact that I gave you a little earlier in this call, 80% of users default to debit. And so when you think about a firm being a bigger part of a user's everyday spend, they didn't want another credit card. And they can't and really should should not buy now pay later for everything. So can we give them basically the flexibility to toggle? And so the debit card is what I've always called the world's first smart card, the ability to kind of like toggle and say, "Okay, I'm gonna pay outright." It doesn't require an a firm checking account, for example. We don't even have a checking account. Like you can load up your own checking account. You don't have to open up a new one. We'll read the balances from that account. You pay. And then if you happen to want to pay over time for something you just paid for, like let's say you buy a TV on it, you can select it and pay over time for it. So it just gives you the flexibility to kind of like make that decision later, as well as like gives you pay over time at your fingertips. So we're really excited about that. - Okay, let's get a little philosophical here. So why are by now pay later plans so popular? They're a bit like saving in reverse. Maybe to plan on needing a new washer and dryer, but yours broke. And now you need to replace it. Without savings, you're stuck going to a laundromat. With by now pay later, you don't have to wait. You can buy it now and pay it back over time. This is great, but is it? These schemes tend to take advantage of a real human tendency. We know that people are impatient and tend to want good things and they want them right away. In behavioral sciences, this is called present bias. People tend to attach a greater value to immediate rewards while putting less worth in longer term consequences. By now pay later plans take full advantage of this tendency by offering goods immediately. It can cause people to buy more than they actually intend because it's just so darn easy, right? - It's a question that we get. You can appreciate that we've probably gotten this question a lot. Our stance is just that we don't really pass judgment on what's important to some of you. And I think we're also very concerned about what the alternative is. Are they going to just put this on a credit card or take out a loan against it in some other way? And the consumerism, it's how we're all, it's really how the world's going round in a lot of ways. But I think that what we've really tried to do is be careful with our users when it comes to again, the amount that will give them being really thoughtful about how we came to that amount, working with them to kind of demonstrate their ability to make a payment. So for example, for certain users sort of developing credit, we may give them a small amount, and that's all, and one kind of loan at a time, right? So we're not like, hey, here's a way more than you can do. And so I like to think that we've baked that into how we think about credit evaluation, like how much do we really think is appropriate and right for this person? But we don't pass judgment on kind of like what you're trying to buy, then sort of like play God and like, oh, well, this bag, did you really need, need versus want, you know? Do you need this bag or do you want this bag? So yeah, it is a tricky position to be in. New pours not wrong. It is tricky. On one hand, we don't want anyone telling us what we can buy or not buy. On the other, if you stick a piece of cake in front of me when I'm hungry, I'm going to eat it, even if I'm on a diet and no, I shouldn't. So I'm so least responsible for eating a cake, or what is the person who gave it to me, there's some of the responsibility. A firm is no doubt helping to make people's lives better in many ways, but it's also possible, and people argue that the buy now pay later industry is pushing a bit more consumerism on us than we would actually design for ourselves. In one study, buy now pay later users were more likely to have a higher online impulse buying tendency than those who paid up front. So we definitely eat the cake when it is in front of us. But going down this path of reasoning is slippery. Is the sugar industry responsible for America's obesity crisis? Or is it the people who are eating the chips and drinking the soda? In a perfect world, we would all have impeccable self-control and eat as much as we need and spend as much as we can afford. But we know that humans don't have perfect self-control. I had chocolate at breakfast today. This was not in the plans. A firm's mission of creating honest financial products is a really, really important one. It has not just inspired all of us who work there, but I think this new financial renaissance of being really consumer friendly and really putting the user first and thinking about how we can not penalize them for their mistakes or misfortunes is really, really important. And I think that what gets me and so many others so excited is that we have a business model that matches that and we have grown and continue to work hard to grow and be robust such that we can maintain that consumer friendliness in all of our products. And you know, definitely says something when you've been able to have a business model that can take you to being a public company and on the majority of e-commerce and still be able to say I've never charged a cent of a late fee is a really exciting and powerful thing that we're extremely proud of. So Peloton seems to be a first mover in the vinyl pay later or at least in the exercise category. What does it look like for them to have a firm on their platform? Yeah, I mean, I think what Peloton gains from a firm is being able to also reach an audience that really wants to be part of this community and needs the ability to pay over time, but then also has folks who already have tons of access to credit who just feel like this is a no-brainer, just use the term before. If you've seen Peloton's advertising, which you know, they do a great job of, you'll notice that 0% APR and the monthly payment is literally at the center of all of their marketing. So it is not surprising that a firm does almost a majority of their cart at some point in time. I have to look to see what it is more recently, but product market fit it's there for a firm in Peloton and we've had a strong relationship for a long time. That's great. Okay, I'm going to ask you the last question we asked most guests, which is basically back in the day when the first movie was filmed with one angle. So basically the camera didn't move and there was just a one shot film and you look back at that, you're like, why don't you just move the camera? You could have gotten different angles. It would have been much more exciting. What are you doing? What they were doing is taking the mental model of photography, which was you just stand in one space and you take a picture and applying that to the new thing, which was movies. So if you take that analogy and then move it to maybe the lending space and say, right now we're doing something and the future will be incredibly obvious that that thing was antiquated or that we could have improved it. When we look back in lending today, how will we view it? Yeah, I really, really hope that we look back and we say, man, that FICO score, that was dumb. I really hope we think thoughtfully about how much that score drives in a person's life, what kind of access it does or doesn't enable them to have and also think deeply about the age at which they become familiar with it, sort of like the natural maturation that a human being needs to do and also all the signals that could go into that. I really hope that we're looking back and we're like, man, that thing had an outsized impact on people's lives and didn't have the full story. I needed a lot more angles. So that's what I'm hoping for. That was Newport, Cantonini, the long time head of consumer product for a firm. As a concept, by now, pay later is probably not as good for us as his advocates might say it is. But also not as harmful as its detractors would have you believe. Me? I am generally pro-affirm. It does help people pay for things when money is tight or you know for sure you'll have more money later and at Limit's fees, which can be super helpful for people who are used to making a hefty APR payment when they use those credit cards. But I would encourage a firm and other by now pay later companies like them to go even further in saving their users from themselves. They should limit how many installment loans people can have open at one time and help people consolidate them so they aren't juggling multiple bill payments. What by now pay later companies have tapped into is getting people to value the present versus the future. Our current selves just want the refrigerator or the limited edition sneakers or the peloton. And the current self assumes your future self will be totally fine making those payments. A firm could be seen to be exploiting that discrepancy. And on one hand, it's not evil or predatory by any means. People can now afford what they need and want. But it does promote a level of consumerism that isn't always realistic or healthy for every consumer. The good news is that a firm seems to be pretty thoughtful about this. They do consider the individual customer when they decide what kind of payment amount they offer. And they are truly disrupting the credit card model, which hasn't seen any real competition for decades. They've made it easier for customers to negotiate the imbalance between their payday and their payment due date. And a firm was one of the first in the space. So if by now pay later can force visa and master card and other lenders to become more consumer friendly, then a firm would deserve a lot of the credit. The Science and Change podcast is presented by Set Sale. Act on the moments to lead to a sale. Visit them at set Sale.co or on LinkedIn to learn more about the world's number one revenue execution platform. If you like behavioral science and want to learn how you can apply it to your work head to irrationalabs.com. We have a variety of courses available. Use discount code podcast for 20% off. This podcast is produced by irrational labs and studio pod media. Our executive producer is Rachel Roberts. All episodes are written by me, Kristen Burman and Mienglin with experts crypt editing by Jack Bure. Special thanks to Lydia Troop for fact checking and citations.