Diving Deep with Max Levchin

0:00 Hello and welcome back to the Fintech Takes podcast. Today's episode is special. I've long been intrigued by the long- form podcast format in which hosts and guests go deep into a bunch of different topics over the course of several hours. Some of my favorite non-fintech podcasts in areas like business, AI, and writing have adopted versions of this long- form format to great effect. However, I haven't seen many examples of this format in financial services, and this has always struck me as a bit of a missed opportunity. So, as we head into 2026, I've decided that Fintech Takes is going to take a whack at it. Now, of course, the challenge is that there aren't that many people working in any industry who you'd want to listen to for more than 30 to 40 minutes. And that's not a knock, by the way. it's just the reality. Very few people in the world are insightful enough and experienced enough to be a good fit for this long- form format. However, there are some of those folks out there, some of them working in financial services.

1:04 And the neat thing about having created FinTech Takes for the past 6 years is that I now hopefully have the ability to reach those folks and convince them to come on the podcast. So, today is the first episode in this new recurring format, which I'll be calling our diving deep episodes. And I could not be more thrilled about our first guest, Max Levchin. Max, as you probably know, is a co-founder and former CTO of PayPal and a co-founder and the current CEO of a firm, which makes him one of the most influential people in the modern history of fintech. In our conversation, we talk about that history, how to avoid the problem of chasing the right idea at the wrong time, his views on a firm as a two-sided network, better living through mathematics, the future of credit cards and BNPL, and of course, AI and Agentic Commerce. Now, I doubt I need to sell you any more on this episode. So, without further ado, here is the first episode in our newest format, Diving Deep with Max Lechin.

2:12 >> >> All right. Max, thanks so much for joining me. >> Thank you for having me. >> it is absolutely my pleasure. This is going to be fun. We have a little bit more time, so I thought we'd kind of wander around a few different topics. And where I wanted to start actually is a little bit of history. I have been doing my my homework and doing some research on the early history of Conffinity /PayPal and reading about all the the very early days which I'm sure takes you way back now. And one of the things that was I think maybe one of my kind of favorite anecdotes or things that I read was the early kind of search for product market fit. And one of the things that I I I guess I did not really realize cuz I became familiar with PayPal as a customer much much later obviously was that a lot of the early ideas that you guys were kicking around mobile device encryption, mobile wallets, contactless P2P payments.

3:26 they were really innovative and I was struck by the fact that like pretty much everything that was described that you guys were looking at at the time fit exactly with where like the market was going, where technology was going. A lot of it is stuff that's like either happened or is very much like in the zeitgeist right now. But of course, all of those ideas were too early. And you know, by contrast, the first kind of killer feature for PayPal, the sort of ability to email someone money using an email address, seemed from what I read to kind of be a bit of an afterthought initially in terms of the features. And I was I was curious because I I have this conversation a lot with founders about like, you know, an idea too early is, you know, it can be the right idea, but if it's too early, it's wrong. I'm I'm curious kind of what you've learned about this tension between I guess innovation and good timing when it comes to building companies and building products.

4:21 I think that's actually a fairly common thing >> in the world of startups and innovations and I think it's maybe more than anything a difference between being a futurist and a product designer. And a lot of us product designers think that seeing the future is hard and that's our job. And that's certainly what I was doing in the PayPal days. And >> yeah, it's actually the opposite. You can pretty readily see the future just by reading enough science fiction books.

4:58 Like if you crack open anything from >> turn of the 20th century like Jules Vern, you promptly see like, oh well, he thought of submarines and all these, you know, >> amazing technologies that we now take totally for granted. >> Yeah. And I think that's, you know, that trains us as we grow up to be product designers to think all I need to do is look into my mind's eye and the time domain doesn't matter. Like, you know, if Jul could see the submarines cuz they were just being talked about then and poof, we now have nuclear power submarines.

5:34 >> Yeah. >> What I need to do is see what the future looks like. And you know, we saw Palm Pilots. I saw a the first Palm Pilot was the first real handheld device that would fit into your pocket versus all the things that came before. And Newton was supposed to be a handheld device, but it was more of a brick, >> not not a thing that would fit into your pocket. >> And so, >> as I saw that, I was like, "Oh goodness, that that's a computer that fits into the palm of your hand." So, you know, what's the future going to look like?

6:01 It's going to need to have real security because it's going to have my most sacred and secret documents and >> my money and my contracts and all these things. So like what do we need is to go build >> encryption libraries that work on really low power devices. That that was the impetus behind the original confinity. >> Yeah. >> And like that's totally true. It's all came to be. >> Yeah. But if you are a thoughtful product designer, your answer is actually there are zero contracts and zero anything of value that sits on this. Fewer than 1 million devices sold mostly to nerds like me who just want to play with >> how to write code on this thing.

6:41 >> Yeah. >> Or for this thing. And so the sort of the comeuppance that I got back then was it was very clear in the moment that we were too early. Yeah. >> And the conversations internally were a little bit more like all right so >> some of these ideas are great but they're clearly 5 years out of time. How do we make sense with what we have today? And the honest answer then and now is it has nothing to do with handle devices. nothing to do with Palm Pilots. It has everything to do with the fact that >> there's absolutely no way to move money online. And >> right, >> we invented an extremely elaborate way to move money using two Palm Pilots >> and that's cool, but you just needed to move money. And you know, the product market fit there came by like hitting us in the face and saying your web demo is more useful than your product >> because the web doesn't have this functionality at all. And so, >> right, >> the it's a long way of answering it, but >> I'm often on the record with this notion of hard, valuable, and fun. And it stems from the right around the same time actually, Peter and I had this conversation that I sort of still >> remember vividly where he said >> something along the lines of the thing you built is really hard, but I'm just not so sure it's valuable. And most things that are really valuable are hard, but not everything that's hard is really valuable. And so you should always understand which way the arrow of causality is pointing >> because then you can decide whether it's it's something that you really want to spend your next 105 years or in my case back then four years working on. And so as we saw the market pull my real lesson back then was hey from now on when I gonna when I'm going to invent things I'm going to try to make sure I have a problem in mind versus a puzzle. you know, solving puzzles is great and I love solving puzzles as as as always, but real problems are more important.

8:37 >> Well, it's that's an interesting point, too, because I think the other thing and you you referenced it like back then Palm Pilots were the domain of people who really thought that was cool to have a computer in your pocket, right? And there weren't that many of them. And to the extent that like those people had it, it wouldn't grow that much beyond there, right? And I I've talked about this before as like in fintech I see it a lot as like the 15% problem, right? Where I'll see founders build something and they build it for them. They build it for them and their friends and you know it it always gets to like if it's maximally successful like 10 to 15% of the market who has kind of a brain or a set of circumstances that sort of work in that way and then it just hits this wall. And the thing that I've noticed that's really challenging I think about it is that first 10 to 15% of adoption, it's not just customer adoption, it's like rapid customer adoption, right? And you see this like today with even things like note-taking apps, right? There's always some new person inventing a note-taking app. And for people whose brains are just craving like a new way to do note-taking on a mobile device, like they just glom onto it and they run to it immediately, but then it just slams into this wall and it doesn't go any further. And I I guess I'm curious on the problem side when you're trying to tack towards valuable and you're thinking about what problems to focus on, how do you like make sure that the problem you're focused on is one that is like relevant to a large portion of the market and isn't just, oh, this is a thing I see because it's me or it's my friends or it's my family.

10:09 >> Yeah, it's funny. I I have exactly the same outlook on this problem. I don't call it the 15% problem, but I I think it is uniquely afflicting off the fintech universe. So I call it the mint problem, which >> that's where I came up with this was personal financial management. Yes. >> Yeah. So every every 3 years someone says, "You know what I need is to connect all my accounts and get a perfect dashboard of my finances and really know what my cash flow looks like and I want to color code it and with AI >> and in 3D >> and and and and the people who are like, "Oh my god, where have you been my entire life? I got to have this thing.

10:50 Of course, I'll subscribe for this thing for $30 a month or a year or whatever the cost." Those are the same exact people who had that exact reaction to the last one of these and the one before and the one before and the one before going all the way back to Mint >> which was the first one of these like connect your bank account difficult as it is Yodi's halfbroken >> doesn't matter it's so much easier than doing this in in Excel >> and of course that very same group probably like their parents or the genetic pre pre precedence of of these people were like >> all I want is to balance my checkbook I got this piece of paper and I've I'm never going to miss a dollar or a penny.

11:26 >> And that group of people is like maybe I think 15 is very generous. I think it's like 3% of the population. >> Yeah. Yeah. >> And so that group is your total target market. And for some of them 30 bucks a month is too much and they're not going to subscribe. But >> most of them are very good with money. So they actually have the money to burn on having a better tool. But you're sharpening an already very very sharp pencil.

11:48 >> Yeah. >> You're not expanding your >> bag of of pencils and pens. They're just saying for the this particular consumer like the proumer of personal finance, >> I got you your next mint. Let's go. And there there's a handful of these apps right now and they're absolutely stunning. >> They're gorgeous >> and yes, they're they're just like that much better and yet like >> I I know what their growth curve looks like. It it tops out.

12:12 >> anyway, so that's that we we agree on that front. The thing that I try to do and I'm again back to sort of over the years I spent a fair amount of my time rewiring my brain from being that of a software engineer to being that of a software designer >> and software engineers >> which I still am one as much as you know try as I might >> love a puzzle and build for themselves and great software designers or product managers product designers The first thing they do is they say let's embody the mind of a normal someone who lives in middle America who is not in fact a well educated computer science aware design conscious you know someone who's deeply obsessed with balancing their checkbook. In fact, like the the canonical person I loved to imagine when we were designing a firm was a mother with a baby in her arm pushing a cart in a multi-lane checkout environment trying to pay for something.

13:20 You have one hand. You got a line behind you. You got a screaming baby and a cashier who's overworked and underpaid. >> Yep. >> And the cashier is asking you, "Hey, are these organic or not organic bananas? I can't tell from the label." Like that's what that experience feels like. >> Yeah. >> And you have to deeply feel that to design a product that doesn't suck. >> Yeah. >> And so the idea of like, oh, cool. I'm just going to go into my app >> and dial me up a digital payment option is like, sure, or I'll go for the thing I know how to use, which is what's top of my wallet, >> right?

13:53 >> And so I think just having that mindset and reminding yourself you're not building for yourself. If you are, you're going to run into that 1% problem again and again and again. And so that that's where that's you know and over time you become better and better at it. I remember giving a talk at like startup school or something years ago >> where I said something along the lines of you have to embody the mind of a 17-year-old girl when you are trying to build a social media product. And the room looks at me like like what exactly are you talking about? Why does this sound vaguely >> sus? Yeah.

14:29 >> I don't think you think what I think it means. >> Yeah. >> You you need to be so one with your customer >> that you understand what motivates them. And like the baby on your arm is a real problem. I've I used to go to Whole Foods and watch people check out specifically to understand >> how this actually works. And it works pretty simply. You put down the wallet, you pull it out with one hand, and that's the cart that you're going to use. And so plastic is not going away anytime soon because of that specific modality.

14:57 >> Sure. Absolutely. Well, so I I was gonna ask like so you would actually go to Whole Foods and just watch or like I mean like in terms of because I think this is the other thing that I I sort of sometimes I analogize it in my head to screenwriting which is a strange analogy but like it's kind of like you know if you're writing about like working in a hospital like old school screenwriters they didn't like have Google they would actually like go to a hospital and embed themselves there for like 3 months and like hear the language and see the rhythm of how it was working. And so I mean in terms of like putting yourself in the mind of your customer, is that kind of do you guys still do that at a firm? Is that like a thing that's very central to how you how you approach product development?

15:39 >> Yeah, very much so. I mean part of why I do my own customer support on Twitter, right? We we met through trying to offer customer. >> it's not just because I care about the product. Although I certainly do. >> I want to have that first touch moment when someone is upset or confused or unhappy, you can read your own copy a thousand times. Like the number of times I'd written what I thought was a great piece of product copy, you know, totally use this in the following way and then show it to someone like what exactly do you mean by this word? Like >> does the word sync orphasetron mean nothing to you idiot?

16:15 Like no, it turns out to be not a commonly used word when it comes to, you know, day-to-day consumer physics. And so that I I absolutely do. one of my favorite things to do when I travel. >> Yeah. >> In fact, every city I've ever been to more than once, I can name my favorite grocery store to go to to people watch primarily to figure out how they shop, >> what they buy. Like >> you learn a lot. Like there's a >> totally >> I haven't been to Shanghai in forever, but there is a Japanese themed grocery store underground right next to my favorite hotel in Shanghai.

16:54 And I would go there like right after getting off the plane cuz I wanted to see >> if they changed the way they place things on shelves. What's eye level? What's below eye level? Like they added selfch checkckout way before anybody else did. I was like a dying to understand how the selfch checkout thing works. >> Interesting. they had a person help you selfch checkckout because it turns out to actually be harder to selfch checkckout than not. So anyway >> certainly been my experience. No, that's that's really really fascinating and again like there's just no substitute for it, right? I mean that's the thing that's challenging is there's just no other really good way to do it. I want to go back to the software engineering point that you were making before because like you're an engineer in your heart of hearts and one of the the best quotes I think I've ever heard actually was something that you said on a firm's Q4 earnings call this year. and I'm just going to read the quote because I love this quote. It's quote, "We love math here more than just about anything else.

17:52 I think most of our competitors just don't, and that's our strength. are advantage is that we live better through mathematics. End quote. First of all, I I I think you have to have an affirm shirt that says live better through mathematics. And if you have those made, I would like to get one of those. >> that's a good idea. I'll take a note to do it. >> Necessary. I I love this quote. My mom was a a math teacher for 35 years, high school math teacher, so like I need to get her a t-shirt. but I I did want to dig into that because I think it does speak to that sort of like engineering like we just love math. We want to live better through mathematics. And I wanted to to ask you a little bit about kind of the evolution of credit underwriting because I've made a bit of a study of this over the years having worked at FICO and worked in the space for a long time. And one of the things that I've noticed and I guess it's not that different from disruption in any field is that it kind of moves cyclally, right? And so everyone sort of standardizes on one way of doing it and then someone comes along has a different set of incentives and comes up with a different way of doing it. In the in the mid '9s this was Capital One, right?

18:56 With riskbased pricing and propensity models and like really being able to figure out like how can we engineer the outcomes we're looking for using math in a way that others aren't, right? and they they pioneered, you know, things that we're all now doing in credit risk underwriting, but in 1994 it was really revolutionary. I wanted to ask you about like real time transactional underwriting because when I think about like point of sale lending has been around forever. It's not a new idea, but it seems like what changed in was it 2012 when you guys got started? Am I remembering that right? We really kicked it off in 11 and 12 I think is like the official incorporation date. A firm came out of a speaking of hard valuable funds. So I had a Yeah. So this is sort of a a brief historical detour. But >> please a firm was birthed in kind of a very slow nine-month process or so where I was hanging around with a couple of friends who eventually became my co-founders >> but who I mostly knew >> from PayPal years and we talked a lot about >> underwriting and how we build these super elaborate models. Like we when we were at PayPal random forests were already a thing as a modeling technique.

20:12 >> Yeah. >> But we absolutely pioneered it. known in an industry that at least I was aware of was doing random forests to do fraud fighting >> and we built these like ensemble models that attacked each other and you know voted on outcomes and did all like all the sort of under oversampling techniques and a lot of these things were just coming out of our own research. We like we were not I mean we're reading all the academic papers obviously Berkeley is where a lot of this stuff came out.

20:35 >> Yeah. And yeah, we were like definitely being told by a lot of people like what are you doing? Like there's some very basic ways of of doing this. And >> yeah, >> at the time my answer was but like if you imagine this thing as a curve of events like you are like literally living in these like lumpy sums like you're you're barely approximating the curve like you don't understand integration and like these things are infinitely differentiable. Like you should only be using integration. You should not be trying to like >> build up a bunch of, you know, >> rectangular blocks to sort of use.

21:07 >> Sure. >> Your mom, your mom would appreciate this analogy. >> She would. She would. I'm thinking of her right now as you're saying that. Yeah. >> Yeah. And so, and so we're like I just like people who compete with us like they are stuck in middle school math and we like we can't wait to get to grad school. Totally. >> And so like that that was always and it's a little bit of a hubris like obviously at the time we were we probably thought we were the the smartest tools in the shed and we we certainly weren't. But we definitely were a lot smarter than some of the players that we had to compete with.

21:34 >> And so the same cast of characters but like 15 years older and a little bit more grounded and less >> less self-obsessed. So like you know on the one hand like we learn a bunch of things. There are a lot of other smart people doing a lot of other smart things. Maybe we didn't really know about them. But this notion of a lot of competitors, a lot of people who have to solve these problems just choose the easy way out. They take a score that someone built not for the purpose like FICO is a brilliant company and an amazing collection of people and research but the tools are primarily written that that FICO creates they were all published for the world that was largely offline and so the decision to say yes or no was around the person their ability and willingness to repay at the time of underwriting a line of credit or a mortgage or an insurance policy or something that you know it's a moment in time >> a big thing yeah that they're doing at a moment in time >> and so even though the event chain or the event curve is infinitely differentiable they just didn't have the luxury of saying and by the way we reserve the right to change our mind next time you swipe your card >> because that just wasn't a thing you could do it to fight fraud a little bit but like no you can't change >> the risk assessment and certainly couldn't repric it >> and so you had to repric it on the spot once for every 5 years on average or whatever and So we we had all these conversations and basically like if we applied the same kind of if you're willing to do calculus or slightly more complicated math surely we're going to find some real savings like the the area under the curve we're going to fit with our approximations. It's just going to be much smoother. We're not going to have these big lumpy boxes that are adding up to something roughly resembling the area under the curve.

23:19 Yeah. >> And so that was the foundational kind of logic behind a firm where we can do better through math and the better living through mathematics is like I mean obviously it's a reference to better living through chemistry or whatever the exact line of that that album but >> it's >> it it it's it's in our DNA this idea that you can and should >> not be afraid of applying progressively more sophisticated math to to these problems if you have the opportunity to benefit from it. And we thought that >> point of sale lending in particular, which by the way was a later idea, we really settled on point of sale lending because it's the sort of a self-distributing loan type. Like we we weren't particularly married to the idea of, you know, this or that loan type. We just thought we would do better underwriting because we could do it in real time.

24:06 >> Interesting. >> We then we have four computer scientists starting a lending company. What do we know about distributing loans? like well the one place where you could have a loan is when somebody's already saying yes I'll buy this thing and I would like to use a credit product and well like literally we're competing with a thing that was underwritten on average three and a half years ago and by the way a merchant price that was set by some independent Salesforce salesperson who sold you a box that is like literally from 1980s with a integrated chip on like eight generations ago like that's thing is is like it's not computing anything it's just collecting an MDR like so if we floats both the MDR and the EPR. We could like really really find the perfect approximation of the risk curve. So that's that's the that's the origin story that that's where it came from. The thing that actually doesn't get a lot of airplay >> and it it's worth highlighting in terms of like what what turned out to be important. So there's a hypothesis like so we were having lunch in our favorite Middle Eastern place and sort of bantering around >> wouldn't it be cool if we like we found out what so by the time we were having this conversation random forest we're like not just a thing there was everyone's thing and you know the model modeling with that was like okay everybody's doing it now >> like well so what's like the latest hotness what should we do and so you looked at gradient boosting and like all all the next things that are now of course well understood and well accepted >> so we we could find some interesting >> area under the curve from Yes. And you know as as as we were poking around all this stuff we basically asked ourselves like what you know given that we know that at PayPal we were like the tallest you know mo most intelligent species because we were willing to read these papers and apply all these interesting bits of math and of course now now everyone caught up. So it's not a permanent advantage. So how do you build a more permanent advantage? And so the idea we had which has turned out to be completely true >> is you build a factory to produce model after model after model. So you're not beholden to a single technique. You're not beholden to a single new paper. You don't just read about random forests first and then sub suddenly everybody caught up. You have to have a machinery to fully industrialize the production of the next generation of model. Both in terms of we have new data and so we need to process it differently and learn from it. But when and if there is a new paper or a new technique that sort of kicks you out of your chair like oh my god like this is a completely different way to model things you're ready to just pick that up and go which app propo today. So we we had that moment in 2017 2018 when attention is all you need came out and so every one of us who was in the industry said wait a second I thought like first of all when we were doing this at PayPal I remember trying to build a neural network driven way to detect fraud and fight it and it totally flopped and like just not functional and it it comported well with my experience in college doing this stuff or like yeah neural networks are like they were supposed to be a thing in the 70s and you know I went to college in the '90s And they still science fiction, right?

27:06 Like these things sometimes take some time. Yeah. >> Yeah. I I remember reading the age of thinking machines and going like, "Oh my god, like it's it's here now. I just need to build a bigger computer." And we we built a lot of big computers in the '90s and nothing happened. And then in 2017 it did >> and it was this amazing moment where suddenly like wait a second you can actually build a simpler thing a lot simpler than some of the earlier networks that people were were playing with. And it really seems to work.

27:32 And so the thing that we were able to do at a firm is say all right so like obviously we're not in the business of chat bots or or LLMs but we are in the business of building new models >> from the latest scientific ideas and and observations and so we have been building models based on a lot of the ideas from attention is all you need and sort of surrounding papers before and after and we have some really stunning results to show for it and so you know I don't want to >> front on anything too exciting here but we we've been we've been consist consistent in our ability to stay ahead of the research with the the most cutting edge research because we invested in building out this model building factory which has just been an really really fun thing to to be a part of to be honest.

28:17 >> Oh yeah. No, I'm sure. So all right, I have two questions based on that because I think that's that's really really interesting. I want to come back to Transformers and attention is all you need as a new sort of technique for making decisions because I I do I I think there's a whole bunch of really interesting stuff there. And without giving anything away, I am curious to get kind of a high level readout on that. But before I do that, I do want to poke at the model building factory because I think that's really interesting, right? like if the idea is, you know, we live better through mathematics. you know, I I've noticed a similar thing that I think you're describing, which is that someone finds the thing that's cutting edge that will differentiate them, but they kind of fall in love with it specifically, not the process of finding it, but the thing, right? And so, like I was going to circle back to Capital One, like the advantage did disappear, right? When people figured out what they were doing, suddenly like that arbitrage opportunity was kind of gone. And you know, not that those guys are not still really good at what they do, but you can kind of tell that like generations of these improvements kind of get frozen in time because they're like, well, now I'm a random forest guy and the way I process the world and think about data is all through the lens of like random forest and I'm not willing to sort of change my my mindset there. So when you think about it more from a it sounds like almost like an industrialization perspective internally, how concretely do you do that? And in particular, I think one of the things I'm interested in is like how do you stop people from falling in love with a way of solving the problem rather than like the search for the best way to solve the problem? Because I think that's a very human tendency to kind of like fall in love with the tool that you like learned and mastered at some point in your career.

30:03 It's definitely I mean one one of the reasons why AI is not taking any of our jobs or not not not many of our jobs in in my foreseeable future is because ultimately the question you're asking and like many in that class of questions >> are very human like it is you can program an AI to do X or Y and you can tell it to try to be creative and it'll sort of span the between X and Y but to get get out of the box you need creativity which is primarily curios iosity, intuition, and taste. And we're pretty far from encoding taste. We're we're quite far from encoding. Intuition, and curiosity can be programmed, but curiosity in and of itself is not enough. You kind of have to know which lines you're going to paint outside of. So, the way we try to encode those three behaviors inside our very human team is combination of just challenging them to ask, are we plateauing or not? And you need metrics to tell you yes you are or no you're not. And so there are some great well sort of agreed upon metrics in statistical learning and AI and sort of all all the I mean this is a wellstudied area of of math and so you have that very same area under the curve where you can look at how the model ability to rank is progressing and ask the question so how much better has it gotten from version n to version n plus one and if your area under the curve improvements are gently asmtoing towards nothing, you're not winning. You're you're you're doing fine. You're not losing, but everyone else who is taking these leaps forward is catching up definition unless there's sleep on the switch.

31:46 >> And you're kind of thinking in the back of your head like if we're like kind of flattening out, there's someone behind me who's going up a hill like this. >> They're just earlier in the curve. Like you got to be very aware of the fact that you're not the only one competing. And so every year, every 6 months, we ask ourselves, what have we not tried that at the downside would actually bring the area into the curve down?

32:09 >> Which is okay because we already have this performance and it's great and we love it. >> Yeah. >> But what's the high beta thing to do? What what crazy thing can we pull out of a bag now? For example, can we try something that's transformer-based? Yeah. There's all sorts of risks and like not not just like what if it doesn't work but also what if it run you know it's a sort of classic thing to worry about with transformers is hallucinations and so like what if it hallucinates a result that isn't real what if it hallucinates a result that isn't compliant. So there's all the very very serious things that you want to worry about as an underwriter and certainly somebody who is subject to all the relevant underwriting related regulations. But if you don't try it, you're not going to find out that it's, you know, it it it's working. And that that's how we keep ourselves honest. We ask the question like, you know, given what we know about the industry, if for this particular family of models, the curve is bending towards flat.

33:00 >> Mhm. >> And we know everybody else is chasing us. >> Yeah. >> What new curve are we doing? And by the way, this logic, it has to apply not just to underwriting, but also to product. We we have a very similar approach to product building >> where every time we look at our growth curve, we ask ourselves, all right, so if we are just the first in a pack, >> who's behind us and how far below the elbow of this particular curve are they?

33:25 Cuz if they're not that far, we better be inventing a new curve. >> Right. Right. Absolutely. Well, and on the subject of Transformers because you brought up hallucinations and stuff, I actually think even setting like the hallucination aspect of it aside, one of the I guess kind of philosophical questions that I wrestle with a lot with all of these capabilities, not just transformers, but earlier innovations within the field of artificial intelligence is like almost the interaction between like our societal expectations, the sort expectations that regulators have and then like the outcomes we're trying to drive, right?

34:03 And so like one of the one of the words that I always think about a lot in this context is explanability, right? And explainability is fascinating to me because you know in the 1970s when a lot of our like fair lending laws were written and FC was passed and all these things. there was a very different way that all of these decisions were made. None of them were made using computers or statistical modeling or anything. This is obviously even prefo and like in that environment an idea of explanability I think had a lot more to do with almost like how do we hold a human being on the other side of the lending desk accountable to that individual. Right.

34:46 >> It's basically enshrining the fact that we are all biased as a species. Like you sort of look a lot like me, you know, alone for you and that lady over there. I don't know. I I just don't know. Oh, and like 1950s people are like, "Huh, you're not from around here, are you?" Like, "I'm not sure I >> can right as as code for like me sorting things in my human brain between things I I think are a good idea and things are a bad idea." And so it's like you can imagine that like, okay, well, if we say that everyone is do an explanation for the decision that's made, maybe just the the verbalization or the writing down of that reason will sort of act as a way to kind of modulate this behavior and and hopefully correct for it a little bit.

35:25 And again, I think a lot of the the laws that were passed that then were very smart about those kind of problems. But you fast forward to today and you know, it's interesting because on the one hand, when I look at like transformers and LLMs, I see a technology that could be vastly better than what we do today in terms of explaining to a customer like here's why you were approved, here's why you were declined, here's what maybe you could do better or differently next time. and like giving like like personalized customized narratives that are way better than like quite frankly like a reason code coming out of a model like that doesn't really tell you much. Yeah.

35:59 >> but by contrast I think like an interesting trade-off and this kind of gets to like almost our societal idea of fairness and explanability is we might not quite know deterministically exactly why the model did certain things in a way that we maybe were used to knowing before. So like how and I guess this bridges us into a conversation about regulation which I did want to get into, but like when you think about applying those ideas that are sort of like both a principle but also a principle enshrined in very specific regulation written decades ago to evolving technology like how do you sort of think about that?

36:36 >> Lots of good threads to pull on there. So I I use the word explanability all the time. >> Yeah. Over the last sort of couple of years as I've been looking at all the all the lat latest greatness in in AI and ML, I've become more and more convinced that we'll probably solve explanability really really well. Specifically with LLMs and things that are sort of hang off the LLM tree, if you will. The most interesting problem that I think needs to be solved for this new class of models to be really sort of to come into its own is replayability, which is a it's sort of a code word for getting a different result while running a model with the same exact inputs. You know why FICO is so valuable? It's stable. like it's actually too stable in my opinion for a variety sort of viable occasions like but it has to work like a few years at a time without costing lenders too much money.

37:39 >> A firm's internal transaction score internal user level scoring system that we've built like half a decade after we built the transactional one. >> Yeah. >> They're they're significantly more sensitive but they rely on real-time data and so and and but they're 100% replayable. The same exact real-time data runs through that model will give you exactly same decision, same score, same same everything. And so I think that's the bar you have to meet with these transformer like again like we're throwing around terminology and I'm deliberately being vague just because I I don't want to give anything away to my >> well then if you were too technical I wouldn't understand it anyway so we're >> and so but I think this explanability thing is actually almost like a downstream problem from replayability and replay-ability is a navigable >> part of these models you can, you know, go back to there's some really great papers out there like very recent like last 30 days that I I just looked at >> that were sort of dismantling this notion that in the older versions of GPTs which are now just one of several contenders here.

38:46 >> Yeah. >> if you set temperature to zero, you would get the same exact response every time, right? The answer is wrong. If you actually set your sort of the the randomness factor from the possible candidates for the next token, you just say always pick the very very top one. Don't don't mess around. >> You'd think you'd get exactly the same response. And the answer is no. >> There's some really fun kind of if you remember your sort of college days, sort of numerical methods is probably the name of the class that you would have to take to to sort of know >> what I'm talking about. you will immediately recall things like fixed length precision. So you have a 64-bit float and like you decide that of that maybe 48 bits is going to be representing your floating point and that's like 48 bits of precision. So if you need a 49th bit of precision to define a float, you don't have it. It's going to get rounded down to 48 and that's it. And so and by the way, a lot of the modern models actually use like 8 bit precision. So they're like much much much much more narrow. So because of that you have compounding of errors and all that good stuff. So you actually do end up with some fairly easy to understand ways for why hallucinations and lack of predictability, lack of replayability were a thing.

40:02 >> Yeah. >> But then there's more and I I I'll stop there because it's like I was like whoa this is blowing my mind and like I thought I understood it and I I forgot which lab put it out but it was sort of like a thing that I thought I understood better than the average bear. I was like, "All right, I I came in here thinking that I got this and I'm walking out knowing that I know I don't I know more now that I read the paper."

40:22 >> That's the first step to wisdom is Yeah. realizing you don't actually know as much as you thought you did. >> Yeah. I And I I thought I sort of left my arrogance checked my arrogance at the door at the founding of a firm, but it turns out that I still got arrogance to give up. anyway, so but back back to the more tangible maybe easier to sort of to reason about regulation side of things. Mhm.

40:39 >> So I actually think a lot of this this will sound like totally upside down from what maybe as a Silicon Valley entrepreneur I'm expected to say but first of all I think regulation is more good than bad in a lot of cases. Some regulation is dumb. Some regulation is outdated like profoundly outdated. And it's mostly when the regulator or the writer of the regulation, which is frequently enough not actually the the same person who's charged with enforcing it, writes things down almost too literally.

41:12 Like thou shalt not use an 8-bit integer. Only 16 bit integer will do is like total lunacy. If you ever see that in the regulation like that is a dumb regulation because before you know by the time it's it's written and published and enforceable 16 bit integers will be like a thing that no one ever you know cares about because you had 128 bit integers now and so like any anytime it gets super specific as to the implementation of the regulation it always ends up falling short in my opinion.

41:37 >> Yeah. >> On the flip side things like you can't discriminate against people based on who they are. you should be allowed to do so financially based on what their financial state is really sound. It made sense when they wrote down the very first words of fair lending >> and it's still true today. And so the hold yourself to the standard of don't discriminate based on who the person is, where they're from, what they believe, who they marry, like all the sort of obvious things that we take for granted now but did not take for granted 1950s.

42:09 I think they're still true today. And that serves us really well. And the the thing that is not in the in in the law, which is great, it doesn't say things like, "And by the way, if you're doing this with a computer, different measuring stick." It's like, I don't care if you're doing this with an abacus or in your head or with a scorecard or or a FICO score, >> if you end up discriminating based on race, that is not okay. And full stop.

42:34 And so I think that regulation is like fantastically great and doesn't need doesn't need any words changed. >> I think some of the regulatory attempts to sort of corral technology into technology understanding of the moment frequently backfires because technology moves faster than the regulators can and that that is how it should be. don't want to change regulations too often because too hard to enforce and so so that that's sort of the the basics and the reason by the way sort of my philosophy on regulation writ large not just in financial services so I I'm a I grew up in Soviet Union and so that means I saw Eastern European flavor of socialism up close and personal and it sucked like there's anytime someone tells you you know it worked in worked in Nordics it's okay Soviet Union almost got it right but then they like no like it doesn't work it's inherently corrupt It's the idea that everyone's equal, but those distributing the money get to keep a little bit more than others is just like that that's abhorrent and and it is exactly what happens. Like the classic joke about Soviet Union was that people who ran grocery stores were always fat.

43:41 >> Just figure it out like you know maybe they stole from the shelves, maybe it was genetic, >> you know, one of those two. And so socialism does not work. And yet free market economies though they self-correct, they sometimes take too long. Like the classic example of the pizza shop that doesn't sell to gays is like, "Wow, that's really offensive." Fortunately, there'll be another pizza shop next door that will sell to gays and have a big rainbow flag. It'll be great. Yeah. But in practice, how long before the second pizza shop opens and kills the one that is prejudiced and and bad and and etc.

44:19 I think in practice a regulation that says thou shalt not discriminate based on creed or sexual orientation is actually a pretty good regulatory thing to do because it just runs the fact like most of us understand it's actually like not cool in a 21st century to discriminate based on something that's completely unrelated to what it is that you do as a business. And so I think that's the sort of like speed up towards normal sane not stupid way of the world perhaps pushing the market along versus waiting for the market to get there.

44:50 That is in my mind the primary purpose of the regulation or any kind of regulation. And so as a consequence generally speaking if it's thoughtful if it protects consumers if it's there to speed towards the natural equilibrium that most reasonable people can agree should be there >> big fan. like let's do have more of that. >> Yeah. No, absolutely. Well, and I I wanted to ask you specifically about kind of building on that general philosophy, a firm's approach particularly in the early days to kind of engaging with regulators, right?

45:20 Because I think, you know, you talked about technology being something that you don't want regulation to be too prescriptive about because then it like freezes and like it just becomes really really hard to kind of wrestle around with. I think a similar argument that's really interesting is like product structure, right? because you know on the one hand I think you're absolutely right like these principal based regulations of like if it has these characteristics it's a loan right and if it's a loan we think these things are fair you know you notice and I I see this I I I've seen it in lending I see it now in crypto I see it all over the place in fintech just over and over and over again is there's some clever lawyer somewhere who's like you know the way that this like principle has generally been interpreted means that if we structured our product this way and not this way, we could skip all of these steps and not do this. And you know, that's what lawyers get paid for. And particularly, I would imagine, and you would know better than I would, but like in the early days of building a company, you know, you're not going out of your way to try to go through more steps than you have to and you probably are sort of looking for the fastest way to get to market or to scale. But how what was your experience I guess in kind of helping to pioneer buy now pay later as a concept and then more narrowly as a set of different product structures and like fitting those into regulation because I I know just having watched it from the outside like there was a lot of debate around that over the years.

46:45 >> Yeah. And there's definitely no one-izefits-all. And if you want to be truly risk-f free, stay home and don't start companies because then >> Right. >> That that's one way to do it. >> Yeah. >> so we did a couple of things and they're not exhaustive in a sense that we did even more than I'm about to describe and as I go I'm sure I'll think of more and and and honest will go until you stop me.

47:14 >> Yeah. So one of the very first things we did, we basically said we should not do late fees and compounding interest and just we we won't do that. >> And you can actually mount a reasonably good argument why that's a dumb idea. So late fees are there to slap your wrist and tell you, hey, stop being sloppy. you should pay on time because when you're not, everyone in the system is paying a tiny amount for you >> to have the freedom to pay whenever the hell you want instead of actually sticking to a schedule. And I think that's actually true. Like everything I just said, I I happen to believe like it as a libertarian or at least a I was probably more ardent libertarian 25 years ago when I was also a lot more arrogant. hopefully I've become slightly more humble and aware of other points of view, but the the that that argument stands the test of time reasonably well. The reason not to charge lead fees more than anything else is twofold. One, it profoundly aligns you with your customers as far as financial well-being. If you charge lead fees and the user is or the borrower is late, you'll make more money. So, there's kind of a like every contract is basically a little bit of an agreement and a little bit of a bet. Like, I bet you'll be good for the money. I'm going to give you a loan and you bet that I won't screw you when you are late or something bad happens and you can make your your time of payment. In the normal world of late fees and compounding interest, where the bet I'm making is like, you think I'm on your side. I hope you don't notice that I'm not because I want you to over time pay me everything back, but I kind of want you to be late because then I'll make more money. And the marginal cost of that gain is nothing. Like literally $38 for you to skip a day of payment is like an amazing business opportunity for a lender.

49:04 >> Totally. The margin on that is crazy. Yeah, >> it's basically infinite. And >> and so the argument we made was if we get to make money only when consumers behave in the way that we ask them to behave >> versus ask them but wink wink don't do this too frequently all the time. >> Sure. >> We would build a better underwriting engine. And so as an incentive not to screw up, to build the best approximation of the risk curve, we should keep ourselves as pure as possible relative to the revenue-making opportunity of a lender. That is, if we say, "We're going to loan you $1,000 and you'll pay us back 50 in interest." That is the most we should ever have. no fees, no late fees, no compounding, no deferred interest, none of the sort of a cool bets where I bet you'll be on time, but I bet you're going to be less on time than you think you will be on time.

50:00 >> And so that that's sort of the like the the product innovation there came entirely from this let's just be purist because it'll force us to be good. >> Y >> sort of part one. >> Mhm. part two because we knew we were building a completely new class of products. So, you're totally right. As we were doing this, I would sit down with a partner bank to be or a law firm to hire and explain what we're trying to do. And like the reaction was inevitably the same. Like, okay, so part one, you're not charging late fees.

50:35 You're going to lose your shirt. That's like half the profits in the industry. Like, don't be an idiot. Like, yeah, but like, you know, we made a decision that that's what I want to do. That's how we're going to do it. >> >> But more importantly or more sort of relevant to the second part, they would say things like, "Okay, I don't even understand if this is a loan. Is this a retail installment contract?" Like, is that what it is?

50:51 Like, no. Okay. It's not a line. >> So, you have to show truth and lending disclosure every time. But like, you don't want to do that, do you? Like a truth and lending disclosure for every purchase in a store. Like, that that's just going to slow everything down. And in that moment, I sort of had a, you know, choice to make. I say, "No, actually, we are going to show a till every single time. You're totally right.

51:13 It is going to be something like a bump in the road. But I think if we're claiming that we are completely on your side, there are no lead fees, there are no compounding, etc., An extra screen showing you that you will owe nothing extra will maybe slow you down a tiny bit, but one will make you feel like you're making a more responsible decision, give you more sense of control, but more importantly give you clarity that we're not just like marketing ourselves as a no late fee company. Like we really will commit to you in a formal way that there are no late fees. And so that sort of like I convinced myself in the moment at the time that this is going to work like it's going to be okay. Like conversion is not going to suffer so badly. into a lawyer, a law firm, and they're like losing their minds on the other side of the table. You're like, "No, no, I think this actually makes sense." Yeah, >> it's going to be okay. And and so as we did this, I met with a bunch of regulators like this is, you know, quite some time ago now.

52:04 >> And they all asked me to the person like, "Hey, so like how are you cheating? Like this and this and this? Like are you are you doing any of these things?" Like no, like I really am not like we're building a product that's just going to not be a cheat code. Mhm. >> And the more I talked to them, the more I sort of understood that most of these people became regulators because they genuinely cared. Like they're not like these, you know, like I'm a lawyer and so I need to wield a stick and and find bad guys in the industry. They they all came to it from the place of there are people who are just too busy, too tired, too overworked to read the fine print.

52:40 and my job as a lawyer to protect them to to make sure the fine print doesn't say anything too horribly nasty and you know that actually influenced one of the core values we have which is no fine print like I literally had this conversation enough times like you know what we're just not going to have fine print so that people who regulate us don't have to read it and the consumers more importantly don't have to read it anyway so it my regulatory experience or the relationship was really shaped by these early conversations are like I am not trying to find shortcuts I I really want a product where people feel great about using it. So as I was doing this and we're trying to build a team so part three and I really will stop because it's all the memories are flooding back remember starting to talk to sort of early engineers and of course as we were building our AI team I really wanted the very very best people. So at PayPal because ML and AI were so underutilized we had this total pick of the very best people in academia and the industry and it was it was great. By the time we were starting a firm, Palunteer was a thing.

53:38 It it everyone wanted to hire really great ML engineers. And so I was trying to ask like so where will I find a gusher of people who are just really good in machine learning and artificial intelligence and like and are interested in what we're doing. And I'd realized that it probably a lot of people who would normally work in a quant fund would go to Wall Street and like build these major scale models and train them on like very proprietary data because we knew we'd have a ton of data because we're embedded at the point of sale.

54:08 It'd be really interesting to train these things like so where do you get the best people? And so the thought that came to me, which turned out to be exactly right, is if you build a product that they're not embarrassed to talk about to their parents and friends, >> they wouldn't go for the money because like I sit on Wall Street and I squeeze pennies out of the market and my job is efficiency of capital. That's a cool story, >> but it's like shorthand for I make a lot of money pushing bits around trying to find the next transaction that the other guys haven't caught on to yet.

54:39 >> Yeah. what we're building is actually like helping real people buy real things at like, you know, states that are not party to this Wall Street bonanza. And so if you have that connection to like if you didn't come from New York or LA and you're not just like naturally drawn to the Wall Street like moneym, >> you're like, I love the idea of helping people like my parents or people like my cousins come into whatever it is they need to buy.

55:05 >> I feel great about building machine learning models. I just don't love the lending world. It's like, well, this particular lending world is unlike anything you've ever seen. It's no fees, no screwing the customer. We have this extremely high sort of brow mission that we really believe in and care about. And we're not afraid of the regulators. We love talking to them and explaining who we are. We we like responding to information requests because when they say, "Please disclose all your fees."

55:29 Like, "Cool, a sheet of zeros, please." And >> so that that the early team foundations especially on the engineering and ML side of things was really this like hey you will be proud of what you do like you will not be embarrassed by who you work for or how we do our business. You will never have to own >> oh yeah I'm sorry I'm the one who like give you the 0% with an asterisk clone like we don't do those and like it's exciting to to be in that team. And so that those were the three kind of foundational trends that that fed our our our choices on the product construction. That's really fascinating and I actually did want to ask you about that because it felt like the and you brought up the Wall Street thing which is exactly where I wanted to go which is like it's the flip side to the better living through mathematics thing, right? Which is that like the the challenge with math and my mom's not here but if she was I think she would still agree with this is like you can get a little lost in the sauce in terms of like I'm just playing a game. the goal of the game is to maximize this output and like you you sort of start to think in very abstract terms and I see that a lot on Wall Street in particular where it's like I don't think it's like with bad intent really it's just like it's so abstracted away from the real world that it just becomes sort of a game that you play and the goal is to win the game and as a byproduct yeah some markets may end up getting manipulated people might get hurt like those are just like things that are sort of someone else's thing and not mine and unless I go to dinner after the great financial crisis has like broken. I I'm probably not going to like feel that necessarily on a day-to-day basis living in New York.

56:59 however, like you also brought up this idea of sort of incentive alignment, right? And I wanted to ask about that because I love the honest financial products that make people's lives better. I think that's an awesome mission. Everyone I talk to at a firm seems really like genuinely bought into that mission in a real way. But I also know and particularly being like a public company and stuff like the incentives of like hitting numbers and doing certain things on a quarterly basis like people are always creatures of incentives and I I find a lot of times when I ask people about like their mission they'll describe it in very like cultural ways but they won't describe it in like systemic or like structural ways. And I'm curious like how you think about particularly as a firm has really grown and you don't have your hands on the wheel for every one of these decisions or even like very many of them at all now and it's you know the the company is moving fast. How do you sort of make sure that that mission stays aligned with like the structure and the incentives in the company?

57:57 So that used to be like a major worry of mine >> because when we were tiny, I was in everything like I would every >> you know >> and back in the day like we would hire product managers and I would tell them like you got >> one question to ask me about lead fees like I know you came from financial services like people who didn't come from financial services just didn't have the the affliction but if you spent a lot of time in in financial services like classic FIS you'd be So you guys don't charge late lead fees. You know there's like a lot of money in there, right? Yes.

58:31 Let me explain. Here's why. We want to align ourselves with our customers. Like okay, cool cool. Like that was your first one. You can ask me again. And if it's the same question, you'll be fired. And if it's if it's the same question, but like in in an interesting new thoughtful way and you had an insight and like if you want to make the argument for like you're just stretching the cost of time value of money across the entire user base, like I'll humor that. But it's like I thought about it then we should charge lead fees because it's more money.

58:55 >> Yeah. you you you should not work here like you didn't get it. >> Yeah. And so >> so that was like year one or two. >> Yeah. And you know it's now almost year 15 and it is true that I I'm not really involved in hiring every single product manager or or any sort of I still interview quite a number of people but mostly mostly not and so it turns out that if you are completely obsessive about the cultural DNA of the company in the early days and you just never ever compromise early it actually becomes a self- sustaining it this is an experiment that you can only run once. So I I don't know if this is true for everybody but if you looked at the average tenure of senior people at a firm so Libbor our president so he's responsible for both product and engineering these days he started as CTO and kind of just and operations and risk by the way so he he's he's picked up a lot of things over the over the last 10 years that he's been here.

59:53 >> Yeah. >> He was also my college friend and so we've known each other for a very long time. >> Mh. and Michael our chief operating officer who is now his seven and a half year in >> and Pat our head of sales who is like 10 and a half years here. So you have a lot of these figures of importance and authority and you know like key sort of a cultural significance. Yeah, >> they all bought into this and they weren't just like I I didn't just interview them like I was there with them incubating the product ideas and making mistakes and realizing that we built something that nobody cared about or built something that really took off and and handling internal objections to why don't we do X or Y and you know 10 years ago or 12 years ago somebody asking me like you know late fees was kind of obvious from the very beginning but there were plenty of other like a much much much more subtle like you know why don't we do this or that and >> at some point or another like huh I don't know but I'm going to have to go think about it pretty hard because this is like an important cultural setting moment and sometimes I thought yes this makes sense and other times I didn't but in the early days you embed all these decisions in the popular conscious of the company the shared DNA and as you get to 2 and a half thousand people which is where we are now you have a lot of people who have been there through the years of this sort of crucible of what is a firm how does it do when this kind of a moral problem or moral hazard floats up in front of us. And so it's more than just me. In fact, I used to make this joke and you know, now that I'm in my 50s, I actually become maybe slightly too sensitive to it, but like if you if I if if if like a lightning strikes me to sort of not not make it too morbid, I don't think a single thing would change.

61:40 Like I think that the company would just self- enforce the DNA with or without its founder. I'm probably one of the more passionate people about the sort of the way we do business, but I think I'm far from the only one. I don't think it's like this one Max holding up the dam of late fees. It's not quite the opposite. I think if anything, a lightning strikes me or become scenile, which is was the 50-year-old joke, and started asking my own questions like, "Why don't we charge late fees?" Seems like a really problem.

62:07 going to say like they they might like they'd rebel against you and they would like literally toss me off the you know cliff like oh the old man's lost it like we got to get rid of him like we we are the company that does not charge lines under any circumstances >> so I think it's it's like so enshrined in who we are and how we do what we do that it's actually like entirely you know life of its own like we I used to take great pride in the idea that we never changed a word of our mission like the the mission and it's It's fairly awkwardly written down. Like I wrote it kind of off the cuff and I was like, "All right, cool." Like on a napkin, >> honest financial products that improve lives. Cool. Like I like it. Let's go with that. And like two years later I was like, "Oh, we should probably change like it could be could be a little bit more clever like you know, maybe pathier."

62:53 >> And so I was like, "No, no, you can't." Like it's it's it was like written down when you were starting the company and like 15 years in. Like I can't change a word. And if I did, somebody be like, "Oh my god, he is like modifying the mission. A comma has been introduced. Stop it. He's >> compromised. Can't do that." Yeah. Yeah. Yeah. That's likeation independence. >> That part is actually I'm okay with this part being calcified like the you know you cannot allow calcification of model building techniques or >> willingness to chase the latest hotness in in machine learning but like calcifying a great mission. Totally cool.

63:22 >> That's that's a good way of putting it. So, the other thing that is kind of a a little bit I would think of like a balance or attention that I was curious to ask you about, I mean, obviously I I got to know you guys originally, when the business was very like merchant focused, which is kind of where you started, but you know, now, you know, whenever I tune into earnings calls or kind of like look at what the company's up to, it's a lot of BTOC, it's a lot of consumerf facing stuff. obviously the Affirm card is like a huge centerpiece of that. I would imagine there's more stuff kind of in that vein coming at some point down the road. And you know, it's funny. I mean, I I think it's challenging anytime a company decides to do two things that are just completely different motions, like rubbing your stomach and patting your head. Like, there's just an element of like you don't want to do too many of those things at one time. And, you know, I I would think, and you correct me if I'm wrong, that like probably in the early days, there were at least some conversations with merchants about like, hey, why don't we like white label a firm? Like does a firm's brand need to be like front and center? Like can we talk about that? And I guess I'm curious like well first of all do you think of a firm as maybe more B2B versus B TOC? Is it like an even split? And then second like why are both sides of the business kind of important to the the type of company you want to build over time.

64:40 >> So it's actually refreshing to hear your analysis because it's wrong. But like in >> No, that's good. That's good. >> No, no, but but that's actually like it's wrong and it's right and it's wrong. So, >> okay. >> From the very beginning, the sort of the northstar when and when you're trying to build a thing that doesn't exist, like you're always leading into analogies like well we're like Uber but for songs or something. I don't. And so I was trying to explain to our earliest backers like what are we going to be when we grow up? And the shorthand was always we're going to be like American Express but in like 21st century technology where you would see us both as your source of credit >> but much more importantly as a network where more and more consumers would find us and more and more merchants and then assuming this idea of honest financial products. No fees, no screwing around, no gimmicks, >> you would prefer us. And so as your preference for a firm would grow, so would the number of merchants saying, "Well, I can't ignore it. It's just too many people who like this thing so much." It would create a flywheel of more consumers that like us because we are honest would naturally grow into more merchants. More merchants would then >> essentially act as an advertising engines for us with more consumers saying, "I've seen this logo before.

66:00 It's on a bunch of places now. Gosh, I've seen it on Amazon." And so it would just be a flywheel. So we've always had this point of view that we are building a network and one side has to reinforce the other. In fact I mean you know we are much larger company now than we've you know been through the years but we're still inevitably engineering constraints and so as we prioritize the next thing to build the first question I ask is does this help one side of the network or both? And if it's both that is the highest value thing we could be doing. So building like we could offer our consumer something like really really neat like everybody gets a free hat. How are the merchant going to care?

66:38 Like they're not like okay it's nice that everybody gets a hat or I don't know access to airport lounges that that's great but like that's not really helping the merchant side of the equation. It probably helps consumer retention makes them feel like we care for them even more which we certainly do. But a better version would be something like create a platform where all the merchants can promote their discounted APR deals. So we had this really cool thing called Big Nothing Day where we I we're like the entire management team, but also the company's like really big into silly puns and strange funny movies and things like that. So there there's a fair amount of like goofiness going on. We're very very serious company. So, if you're as serious as we are about math, like you have to take it out.

67:24 >> Yeah. Yeah. Yeah. >> Yeah. So, like my a lot of my shareholder letters make references to the big Labowski and things like that, >> which you know, my my my pronouns are El Dudino and and so on. Anyway, so so so as we as we build as we built our app, we thought like what was it used for? So, initially the use of the app was of course like pay your bills, set up your auto pay, all that stuff. And then it's like, well, we might as well make a catalog of all the merchants that allow a firm because that would be great.

67:55 Consumers would be able to find like, you know, if I'm going to go to store X online or offline, is a firm available? >> Then I'm like, well, some of these merchants offer 0% APRs >> and that's really great and we should let them highlight that at least in our app. M >> and so about a couple of months ago, we had this idea like why don't we have like a big festival where we have a day where any merchant that wants to offer zero >> will do so and we will make it in our business to tell all of our consumers that hey these merchants are offering 0% loans and like zero interest is the best price. And of course, this being a firm, it's not like zero asterisk secret message. It's like zero means zero. Like you're paying for $1,000 thing over 12 months and it's going to cost you $1,000, which is pretty flipping good.

68:39 It's like better than any credit card can possibly offer you. And so, >> so that's what we did. And it's like a great example of a thing that we built sort of whole cloth from nothing over the course of a few weeks. >> and and then over many months, we actually signed up a bunch of merchants who wanted to participate in in this sort of extravaganza. zeros and it it was huge like people loved it and it was you know very very good sort of explanation of like who we are to our consumers and to our merchants at the same time. And so the this like singular moment singular set of features, singular set of productization is a good example of how we think about building products and why like the card and the app and the point of sale and all these things. They all play together to just further the spin of this flywheel of >> more merchants care about accepting a firm and using our 0% and other promotional capabilities that we offer >> to inspire more consumers >> that will come back and shop at more of these merchants and feel good about how they're buying it and make sure it's affordable and there are no late fees and all that stuff. And so so that that that's like the the crux of our product strategy, our network building strategy, all of that. And so that that's why I was sort of chuckling at like yes we are like we we were very much a merchant company because we wanted merchants to believe that we will bring them more sales >> and then we did and we had a lot of consumers like 24 million of them last quarter 12 months training >> and that's enough now for merchants to be like I should offer a firm like you know having just Visa Mastercard logo like that's not enough like I got to have the firm logo too now on my door. totally as as that flies on it just it becomes like well we're now like much more of a consumer company aren't we like we have this app on the card and of course like the more of that we have the more merchants are like whoa like I definitely need to make sure our firm is available >> yeah I mean the the next the next question you get like a year from now be like boy you really seem to be like leaning into merchants and really the story is like this pushing on one side of the flywheel pushing on the other side of the >> and we have two hands and we're we're pushing both like in the same direction >> that makes sense and then I guess the other thing that that makes me wonder about and I I know you've compared a firm to kind of a modern day MX for a long time and I I like that analogy a lot. One of the things that I've always been fascinated with with any network business and MX is a good example is I I sort of view the world as like good problems and bad problems, right? Like you're a CEO, you're going to have problems every day that you have to solve for. But the question is like what's the portion of like bad problems I have versus good problems that I was like dreaming of having six months ago or a year ago or five years ago. And I I think that like when building a two-sided network, you create a lot of good problems for yourself, right?

71:18 Because like there's always the you know these things happen, right? like a merchant wants you to say yes more but you might not think that's the best thing for the consumer or vice versa or like different merchants want different things that might conflict with each other and they compete with each other and like whenever I look at any network business I see a whole bunch of like we get the privilege of sorting out these conflicts or these problems and you know even like with the affirm card you know you guys announced a partnership with FIS to make sort of the affirm card model something that any bank that offers a debit card could could offer, right? Fantastic. But you are creating some type of like cannibalization or conflict sales channel problem for someone in the company to deal with. How do you think about like solving these like good problems to have in like navigating the conflicts of operating the network?

72:10 >> So that particular one and like a class of these problems actually it is is kind of very familiar territory. So long before we had this, so the the eternal name for this product is AC/DC, which I did not name, but it's one of the better names I think we have. And it's a firm card on other debit cards. So it's >> AC/DC. Okay. >> I And I'm sure it's being marked. I I thought it was great.

72:34 >> Yeah, that's good. That's good. >> I'm a I'm a t-shirt. Yeah. >> Yeah, that's a good call, actually. I'll come to you for old t-shirt ideas. merch. Fintech merch is a bit of a a passion of mine. So, I'm always happy to consult on that. >> I usually sport at least two more often three affirm logos. Like, you will not have a photo that I just took in front of 10 Downing Street in London where I was, you know, fortunate enough to be invited to to speak with some very very senior people there.

73:04 And I had to wear a suit and tie and so I was like, "My god, I feel naked. There's there's not an Affirm logo on my body." So, I snuck in Affirm socks. So I I have a photo of me in front of 10 Downing Street pulling out my leg cheekily showing I was like just just so you know firm socks are there anyway. So >> here. Yeah. >> Yeah. I would not be seen without it. So the the the point on navigating this class of conflict. So long before this began ACDC became a thing we had the kind of a natural channel conflict. So we are embedded in shop pay and in Apple pay and in Google pay and we are directly integrated sometimes or a lot of times now and so on. And so one question you have to ask is inevitably some of these are better than others. Maybe some of our partners are more successful at negotiating a better deal with us. Maybe we're more successful negotiating deal with them.

73:56 And so like the economics are like they're they're similar like you know it's a payments business so there's some natural constraints as to what it cannot and cannot can and cannot happen but you're going to have channel conflict and the honest answer that you have to give or the question you have to ask and the answer that falls out of it is so what's better for the end consumer. So clearly the merchant decides like I'm going to put up n logos on my site because I know my consumers are excited to pay with shop. Shopay is the best converting wallet on the web. like that's >> what they sometimes say out loud. It's almost certainly true. And that's, you know, that that's what those sites prefer, but like they're not crazy.

74:34 They're not going to exclude Apple Pay or other types of pays from because people have preferences. >> And so our goal was always like, look, we need to be available behind every door. When you push on a door that says payments here, >> if you find a firm there, it has to be about the same experience. You have to know that you're getting the no late fee experience and everything else that's sort of behind that. >> Yeah, that value prop has that value prop the value prop has to be the same and it can't be like actually if I knock on this door for this partner this wallet I'll get like a better affirm than the other firm because that other firm has been nerfed. Right.

75:09 >> So the notion of channel conflict between wallets and other financial services where we are embedded has long been with us and we've long long long navigated the good problem of how do you cope with people sometimes look for this door or sometimes for that door when they choose their wallets and a firm is in both like you just make sure that the merchant gets the same value and the consumer gets the expected user experience and the value. And so as we did this, we sort of asked ourselves, all right, so in the world where people have a preferred debit card and a checking account and a bank relationship that they're just never going to walk away from, like do we want them to have a firm card? Of course, that'd be lovely.

75:50 >> A firm card goes to the people who are like really really committed to a firm. They use the firm a bunch of times. They love it. They're like excited to go use our card for everything. There are plenty of people that say, "A firm is great. I use it in 12 different places per year." That's it. And for other things, I have a debit card from my bank X and like boy, they're boy, it's great.

76:10 I just want to do that. And so, as we were reasoning about this, we thought, all right, so like if that's another door and they're always going to open that door when it comes to paying for things that aren't like considered deeply thoughtful purchase. A firm is ultimately like where we came from is still kind of where we are a lot. And that is when it matters to you, like when you're thinking about it, you you should use a firm. like it it's it's pretty clear that if you're looking at a $1,000 thing or a $500 thing, whatever is like a meaningful amount of money for you when it matters to you to think about it, >> a firm is always going to be the best option.

76:44 >> You want you want to win that like that's I would argue I would argue we've won that but like we're winning it. You know, nothing's permanent, but we're doing well there. >> And so that that's the strongest kind of a brand and intellectual >> stronghold of what a firm means for people. Mhm. >> If you have other parts of your financial life, we don't want to tell you like, oh yeah, you know, definitely got to drop your banking relationship. Like banking is local.

77:10 Like you have a deep relationship with whatever bank you go to wherever you are in the world. And so >> if we could bring us and what makes us special into that instead of trying to uproot it, I think that's the better path at least from how we've built our business. Like we we tend to play well with the ecosystem versus trying to antagonize the ecosystem. >> And so that that's where that project came from. And we've seen a pretty significant amount of interest from folks that are looking from the outside into this BNPL world and saying, you know, my consumers are using these products and I have no idea how I can offer something like this even though I know it matters to them. So >> I think that that was the right choice for us to make. It also speaks to this idea of a network. Ultimately, what we're doing is we are connecting people who have completely different preferences, like who sometimes love Google Pay and sometimes only use Shopay because that's what they're completely conditioned to. And so if we're inside both, it certainly makes sense we would be inside a debit card or inside another payment instrument that you we haven't said out yes to out loud. Anyway, so that's sort of the that that that's the philosophy that led to AC/DC and that that's how we're going about it. And it has been so far at least the reception has been quite positive.

78:27 >> I I will say and this kind of speaks to like the credit card market and how you know point of sale lending and buy now pay later kind of compete with credit cards. But I was thinking about the FIS ACDC sort of like initiative and thinking, you know, >> like if I'm a bank that has a debit card but is just in no way ever going to be a major competitor in the credit card space cuz it's so consolidated. Like there's very little like benefit to me in trying to make trying to build a credit card that even has a a prayer of being able to compete with the big guys.

79:01 >> It's already happened. People have tried it and it didn't work. >> It just doesn't work. Yeah. I mean, and like there's always going to be some kind of like the PFM thing we were talking about before, like someone's always going to try, but like there's the dynamics in that market are pretty set. But by contrast, like if you can sort of to use the Shopify analogy, like arm the rebels, like if you can like give every small bank who has a good relationship with their customer and a bank account and a debit card and sort of supercharge that debit card to make it more competitive with credit cards functionally, I think that's like I mean I think that's a very compelling pitch for a lot of the banks out there.

79:33 and >> that is indeed the pitch. >> Okay. Well, no, that makes that makes sense. >> If you'd like to have a side career in explaining to banks like you have the credibility, you can come from that world. >> I you know keep me keep me in the loop as the press releases come out because I I I I am actually really intrigued with this particular model. And I guess it kind of dovtales to another thing I wanted to ask you about real quick, which is and I mean you have been in fintech for a long time and you've studied fintech I think pretty obsessively. One of the things I find fascinating is this distinction and you see it with every kind of product all over the place between how a product is sort of meant to be used versus how a product is actually used by consumers in the real world. And the the go-to example I always think of is when the online unsecured personal lending boom kind of happened and you had Prosper and Lending Club and Avant and all these different companies, they were offering really really easy access to personal loans which no one had ever had before.

80:28 Well, it made sense. There was an obvious arbitrage opportunity to undercut revolving credit card rates and refinance credit card debt. And so, everyone was doing that. And, you know, I was working at FICO at the time. And we actually had to like redo our scoring model a little faster than we wanted to because what we found was people's FICO scores were going up because people were paying off their credit card debt. But it actually was sort of a temporary bounce that wasn't reflective of an actual change in their behavior because a lot of them were just then piling more debt back onto their credit cards, right? And so like even though I think you know the personal lenders were very genuine in their desire to like we want to help people get out of credit card debt. We think this makes sense. Like I I know a lot of the folks in that space like they were trying to get consumers to do A and yet while some people did, other consumers kind of went down door B. I I'm curious how you think about that because obviously like and I think you and I have probably gone back and forth on Twitter about this like I think 0% interest buy now pay later is just structurally safer, better, lower cost than revolving credit card debt, right?

81:36 Like revolving credit card debt is a bad way to borrow, right? It's a bad way to live. >> it it's actually I would argue it's the great way to borrow. It's a crappy way to repay to >> put a finer point on it. It's so easy. it's too easy and the structure is designed to reward the lender and kind of screw the borrower. >> Right. Right. And I agree with that. I think that's absolutely right. and so like you know to to an extent and I've heard you talk about this publicly, right? Like we want to really disrupt the revolving credit card debt space.

82:06 Like that is that that is a goal we are aimed directly at. and I think that happens, right? Particularly for like younger consumers who maybe have never gotten used to credit cards and so they're like, "Oh, hey, I can just do this instead." And especially if it's attached to a debit card. Wow. But you also do see you know, consumers who use a credit card revolve a balance and take out buy now pay later loans, right?

82:28 And like those things can also overlap with each other. So I guess like I mean you referenced like libertarianism before like you don't want to be too paternalistic and trying to tell customers like you can do this, you shall do this, you shall not do that, but how do you think about like striking that balance and and maybe trying to nudge consumers towards one thing versus another thing? >> I think the practical reality on the ground kind of speaks for itself maybe better than >> the philosophical >> than than the philosophy. I agree with you like the the the the worry about >> stacking to use industry slang >> sure >> is >> very real and you could probably even start from the there's not just one BNPL so you suddenly have access to all these BNPL's and your credit cards still there >> y >> so I think there are a couple of things that you can do that we do as a firm all of them and I certainly am very very vocal about the industry what should be doing this as well so >> first of all so practice speaking, typical American household, if they're revolving, it's about $10,000 of revolving debt. So that that's kind of I think the average and it has been the average for quite a while. Typical outstanding balance to a firm in that cohort is $700.

83:41 >> Mhm. >> So just to give you a sense for like >> scale. Yeah. >> it's scale, but it's also if you look at the annual spend, we are encroaching on like a typical borrower in that world also spends on the order of 10 to 12,000. M >> they are spending on the order of $300 to $4,000 with us. >> H >> and so I'm I'm a little bit apples to oranging it because >> yeah I'm I'm quoting data from our card which is a little bit more frequent. So like you can apply discounts a little bit >> but practically you borrow 10 grand a year and you revolve in 10 grand a year.

84:16 >> You borrow $3,000 from a firm >> you don't revolve and at any given moment you owe us 700 bucks. >> Sure. That's a pretty good trade. Like you are paying it down faster than you're spending it. Like and again like there's there's a little bit of a handwaving here going on in terms of like the cohorts I'm comparing are slightly different but they're not that different. And so that's a really good sign. And so first of all it's practically true that whether they're using credit cards or not and of course I'd rather they didn't revolve they are moving some of that spend into a device that's better. a 0% version of it is like most certainly better because then like you can potentially go in perpetuity and you're just getting paid to borrow money which unfortunately not our business model but it's you know it's good when retailers or manufacturers want to make it that much easier for you to to say yes to a thing by just essentially subsidizing your interest. The so that that just like that's factual like what's going on in in our world. So how do we do it? one, going back to the very beginning, no late fees makes you really, really care about underwriting. Like, if you were writing checks left and right to see what happens because you have, you know, the crutch of just paving over it carefully with some late fees and compounding interest, sure, like then you're not that far from being another credit card provider. If you're holding yourself to a standard of if you're not going to pay me on time, I'm going to lose money. You have two things. One, you want to be good at underwriting, but two, you also want to be mindful of other borrowing. You can't just say, "Hey, you're borrowing $1,000 from me.

85:49 You've always been good. Here it is again. No late fees." You have to be mindful of, "Well, but what else have you done lately?" >> Like, if you take out a giant loan from Prosper >> and it looks great, but your credit card's back to fully utilized. >> Yeah. >> And you've added this big pile of debt. >> No, you're not actually good for another thousand. You may be lying to yourself and you think it's cool, but it is not.

86:09 And the answer is going to be you're going to have to save up for a down payment or possibly the answer is no because like you are overextended and you know as often as we say no >> as compassionate and polite as we try to be >> sure >> we're pretty firm on it because we have no way of benefiting if you borrow and can't pay us back. So that's sort of part one. Part two and this is the part where I sort of yell about this with the industry quite a lot. It is high time that buy now pay later is reported to the credit bureaus.

86:38 >> Oh man, you are you are on the right podcast to yell about this. So please go ahead. >> I you know I I've I've I think I've called for following credit reporting act on maybe three podcasts in the last as many weeks or so. So this this this isn't even the first one. >> I love it. >> It's just and so there are two reasons for it like and it's like the most basic logical analysis. So part one if you are opposing reporting >> so either it's because majority of your consumers are telling you do not report us to the credit reporting agencies.

87:12 >> Yeah. >> Because we don't want anyone to know we're borrowing money. >> Yeah. >> Is that because you are encouraging them to borrow and be not exactly on time and the price is like I won't tell on you but you'll pay me money. Like that is like >> that's a that's a value prop that's like built into the marketing on some of these places, right? Where they're like like bullet points and you you always think about like five bullet points on a website of like why you should use our product. And bullet point number three is we don't tell on you to the credit bureaus. And it's like oh gosh that's a little scary.

87:42 >> And so that appeals to like a very specific group of people who are like actually like I'm definitely going to be late. >> Y >> I totally don't care. I'm sloppy. >> Yep. and I just don't want to ding my credit score because I care about the credit score, but I can't be bothered to be on time. So, it's like, great, let's teach you to be irresponsible and let's teach you that you can use money to pave over your irresponsibility. Like, maybe for a change, the better play is to say, hey, you really need to grow up and be an adult. And when you treat us like >> responsible adults, we will treat you like a responsible adult, which by the way means building your credit history and improving your credit score.

88:15 Totally. So if you are on time which 95 plus 97% whatever it is of our consumers are never late. >> Mhm. >> Their anger at us many many years ago we started reporting over 10 years ago >> was like hey I have been on time every time. Why isn't my credit score going up like I bought into your Kool-Aid you said drop the credit card use a firm. >> Yeah >> I did. I've always been on time. It's amazing. Like love the service. Why is my FICO score not improving >> or advantage? And the reality is like, hey, happy affirm customer, but I need to buy a car in the future. Do you do auto loans? Do you do mortgages? Like I need other things.

88:51 >> Like we we live in the world where your credit score matters for a lot of things. Like renting an apartment is a credit score extraction event. >> Yeah. >> Looking at a college loan is a credit score related thing. So there all these things like we for for right and wrong, we live in the world of credit reporting being very very important and your credit history is even more important than your credit score. credit score is always like it's behind they don't comput it frequently enough blah blah blah credit history is the lingua franca of here's what you look like as a responsible adult and so if vast majority of your users are absolutely interested in having a reflection of their responsibility in their credit report it is your responsibility as a lender to say here's exactly what happened this person was on time or they were not but then they cured like those nuances are really important when your car lender looks at it it's a difference between paying like an extra $100 a month sometimes and It's totally it's not our business, but it's our responsibility. And so that's why we are super pro reporting. That's why we were the first ones to report. We report to we don't report to all three right now. We report to two. We'll report to all three. We worked with FICO for years to help them adjust their scores. The initial cut from the bureaus was like, "Hey, we're happy to do it, but the FICO is probably not going to utilize it."

90:02 And then >> FICO has a BNPL version of a score coming out for FICO, >> which we co-built with them or co-designed with them. So like we were in the middle of this stuff for years because we care. >> And I think a easy way of telling the industry here's why or not I mean the people who care about such things if the question is like why aren't you just like a form of incremental credit that doesn't help the world. You're just encouraging over borrowing like well you have three credit cards in your pocket.

90:35 Most people have five. You know maybe I have 18 because I'm a industry. No, I don't actually have 18, but >> I have a few. Yeah. >> And you know, all of us I used to have a stack of debit cards I got from everyone. Like the >> I have a sock drawer that's full of old cards. >> You got got to try. >> And so so like that in of itself is okay. You know that your aggregate borrowing goes on a quasi public record.

90:57 You will behave more responsibly than if you don't. And which is why I think it's so important that the industry does it. I think we have led the way for quite some time. it. The time has come for others to follow us and I'll continue screaming until until people start following our lead. >> well, I appreciate it. I I will scream into the void with you. I sometimes feel like when I'm writing about this in the newsletter, I'm like I I kind of feel like everyone else is like, "Would you shut up about this?"

91:22 I'm like, "No, I'm not going to let it go. I'm going to keep talking about this." Because I I feel I think it's a good point just about and I just to put a fine point on it like we can have a closed loop ecosystem or we can have an openloop ecosystem, right? And like closed loop tends to be better for the unit economics of whoever is operating that network, but if you don't allow things to be open, and this could be open banking or furnishing data to the credit bureaus or whatever, like it it prevents the customer from being able to exercise a level of control and choice. And so I think that's the that's the thing I get mad about is like this might be good business, but it's bad for the customer.

92:00 >> Yeah. I think the it rhymes with this whole like I'm a libertarian in spirit at least if not in action all the time. >> Yeah. >> I don't want to be paternalistic. You know, we've used to have these debates long. So back to sort of like how did we set the DNA of the culture of the company? Like how do you know what's right and what's wrong? You debate and back in the day we had these like debates that we settled maybe in somewhat unpredictable ways where like you know should we be lending money for things that are luxury like because they're not essential. Why would you borrow if you should save? Like, >> you know, one man's luxury is another man's necessity. And it's hard to tell.

92:35 And like maybe you could interview the person be like, "Do you do you really need this really fancy bicycle?" Like in my case, yes. Like I don't replace my car unless it's stolen, >> right? >> But I love my bikes and I'm going to have to have just the right bicycle for the season and and so on. And then for someone else like bikes are total luxury but they need the >> you know buy you nylon rope to climb or you know that was the the original debate at the very very early days of a firm was there was this PM who was like raging against luxury borrowing and >> also bought this really really expensive rope and all right like I think some people might find your obsession with perfect rope for climbing a bit of a luxury decision.

93:12 >> Right. Right. >> And you know from that came our policy like we will not judge what it is you're using a firm for. If it's legal and we can underwrite it, we will. >> We also expect you to pay it on time even if it were a totally luxury decision. And so yeah, w >> within that sort of like how do you settle these things? >> We have long settled on this notion that on the one hand, sure it'd be wonderful to keep all this data for ourselves and continue our underwriting advantage because more data is better underwriting advantage. But in practice, what's good for the consumer is their history is public enough so they can get a good deal on a car and a mortgage. And like that is more important than hanging on to our precious data. And so that that's what we're going to do. And I think so should others.

93:52 >> I I totally agree. I totally agree. And I think that, you know, it brings me to the last thing I wanted to ask you about before I let you go, which is this sort of like again customer choice, helping customers make the best possible choices. You can't really talk about that in 2025 almost 2026 without talking about Aentic commerce and Aentic AI. a topic that I know you're spending a lot of time on and you guys have talked about publicly and I'm sure for as much as you talk about publicly you're talking about it a thousandx more internally that hasn't quite come outside yet. But I guess to start with like very very simply when you think about agentic commerce cuz it's such a popular term Max that I I can't keep track of what it means when I read press releases from different companies about it anymore but like in very simple terms like what's your framework for agentic commerce and that I'd love to kind of understand like how you think it will impact consumers merchants like how it shakes up this AMX type network. So first of all, I think the definition is being written even as we speak. So it's dangerous to declare here's the framework. So first of all, you need to be open-minded. It's a little bit like you haven't asked, which I'm grateful for because boy, that's another rabbit hole. But stable coins and crypto in financial services.

95:09 >> That's the next podcast we're going to do. Max, I'll have you back for that one because that's a whole that's a whole other one. >> But budget seven or so hours and we can go. Yeah. but you know since we're not there in in in 20 minutes or fewer. So like you know one one of my favorite phrases the the future is already here is just not evenly distributed and agenda conference is already here. It's not evenly distributed. So last night I got home after long day of you know podcast recording and doing doing product reviews.

95:40 >> I'm sorry Max. I'm sorry. >> No this this was yesterday not not today. but yesterday I got home and I I had this really a vision of cooking my own dinner and serving it to to my family. And sure enough, I agent commerced myself some Door Dash. >> That is Agentic Commerce. It's here now. And I don't know the name of the person who shopped for the >> Chinese takeout that I ended up having. Nor do I know the name of the person who delivered it. I just know that my app flashed up and said, "Your food's at the door. Pick it up cuz it's going to get cold." There was a swarm of agents behind the scenes >> basically.

96:14 >> There were multiple agents involved. Like not only that, they had my payment information. Like I didn't click on any like, you know, here's my CVV2 number, but poof, >> I wanted fried rice and there it was. >> And so so that that's agent commerce and that's like the the baseline is here and >> that that's I don't know if that's going to change in a way that we can perceive. It'll just change in a way that is going to make it cheaper. like there will be embodied AI sorting through. And by the way, when when I do cook or when, you know, my wife and I cook something together, >> almost certainly the ingredients are going to be brought in here versus us running out to the grocery store because what if it doesn't have everything we need, etc. And so, it's super convenient and it is agentic.

96:58 >> And so, I think those apps remain relevant and they will continue to be relevant. >> Mhm. >> On the other side of it, there are things that I don't think anytime soon will flip to a different user interface. But user interface is the best way of reasoning about it. It's like I'll explain why in a second, but the UX part is like that that is the important piece. >> Yeah, you mentioned modalities before earlier in the podcast.

97:17 >> So that's the that that that's the fancy term for UX I think here. And >> so if you are using shopping as entertainment, which a lot of us do, you don't want to lose that. Like the fun part of my Instagram ad consumption is I get to see the coolest new widgets in cycling and coffee and like the five other things that I'm into when I'm not building a firm. And like no, I don't want a robot to decide that I need a new high efficiency shower screen for my espresso machine. Like I kind of want to read about it and I want to see the video and I'm sure it's it's it's beautifully shot. it's there for my entertainment and then yeah like at the end of this I'm gonna spend $25 getting a small piece of metal that I'm going to lovingly install into my machine but that's like that's a whole journey like a lot of value is acquired in the beginning when I realize that like it's the thing that I've missed my entire life without knowing and so that part's not changing anytime soon and it will appear like one of the things that I think people are kind of the engineers behind these products and and and maybe even people like me are cringing at but it is absolutely coming Your chatbot will have ads in it and those ads are gonna be really really good because gonna be like, "Hey, you we're not just like randomly discovering that you're into coffee, Max. You're into coffee and bikes. So, here's a great travel destination in some cool country you've never been to where there's this one coffee shop that all the cyclists go to and you'll run into your favorite pro there." Like, I can see that ad coming and like no Instagram ad is going to be that good. and yet like the Chad GBT or Gemini one or whatever comes next will be because it knows that I'm into travel and into bikes and into coffee and I'm kind of a shammy sniffer pro cycling lover and so and so all these things combined because I talk to Chad GP about it all the time. So anyway, so I think that that's that's coming and it's super fun and it's a little bit more like a glossy magazine that writes itself for you in real time and like a part of the thing like the ads will come alive and we'll talk to you and know your name and know your preferences and that that's more of an advertising thing and like the the part where you click in the shower screen for your espresso machine arrives in a box. like the fact that you clicked on buy versus it just knew to click on buy for you is like almost like a preference. It's like do you give Door Dash your card number or does it just know or do you just use Apple D or something? And so so those are the two things that are like they're both here and they're going to get better and there's not that interesting. The most interesting part to me is actually where a firm lives and that is where you are thinking about the item. you've made a buying decision or at least a buying sketch in your head and you want to talk about the thing you're buying with an expert and the expert in this case is AI because it is already smarter and only getting smarter about the world and so when I want to buy a bike part that I'm not qualified to personally service or change >> like a drivetrain replacement like that that's a big surgery on a road bike to replace you and somebody's listening be like I replace my own drivetrains all the time like I can do it too by the way, but it's really freaking hard to get right. Yeah.

100:26 >> And so, so >> I'm probably going to go to a local bike shop to get it replaced, but I do want to shop for it online and I want to talk to someone who can tell me all about the power characteristics and the weight trade-off and the new systems that's come out and do I want this or that sort of a chain lubrication >> and that's a conversation considered purchase. That's when it matters. >> Yeah. And within that world, you're going to have real AI thought partner.

100:51 And it's going to extend across the entirety of your interactions that are commercial and non-commercial. But the commercial ones are going to be >> I mean, first of all, it's going to be very tricky to navigate the what's certainly going to come first, an advertising business model for the chat bots and the the various sort of incarnations of that idea. and the need to be completely objective. Like, >> of course, the conversation about my drivetrain replacement plan is going to involve three main brands of drivetrains for road bikes, >> which one of them is going to want to pay for my attention and like you got to need to be and but then again, Google solved this problem. They have a little tag that says add even though you're searching for something that you expect to be honest. So, so anyways, we've solved a lot of these problems before in that domain.

101:34 I think you are not going to see just buy it for me in the sort of agent commerce allah door dash you will absolutely see we've decided you're tired and you need food and your favorite is Chinese vegetarian and it's on its way and you have 5 minutes to say no thanks or like we we will start flipping defaults to >> sure >> it's just going to happen and like it and there'll be some absorption into like so who who bears the responsibility when you said no in five and a half minutes instead of Right.

102:04 >> So like and like the harder problem here is if you use it with a firm and you have authorized your agent to look at a truth of lending disclosure. >> But then you have a second thought. You're like I didn't see it till here. Yeah. So I'm going to say no to this. >> Who has the power of attorney here? Like is the agent you or the agent you? But not when it comes to some legal agreements. And so so I think we're and like I'm not afraid of any of those puzzles because they're a lot of fun and we will sort them out in reasonably short time because we have sorted them out all the previous modalities of of past payments. The part where you're talking to your agent about I have in mind a TV or a drive replacement thing that I'm not an expert in >> and there's not that many choices >> but the choices are significantly different like I can have a TV that has a better black and white balance.

102:55 >> Yeah. or a better sound system >> for the best price. >> How do I compare the two? Like an agent or a dentic conversation? And by the way, agents talking to each other about my preferences and the size of my living room and the sound system I already have. >> Like that is a great timesaver and maybe not as important as like the I'm entertained by this purchase. Like I just kind of want a better TV >> and so outcome. Yeah.

103:24 >> Yes. So the outcome driven, that's actually a really good word. >> low skew, high featurization, heterogeneous transactions, like that is the sweetest spot for like that. That's where AI is going to punch well above the human weight like very very very quickly. Already makes >> sense. Yeah. Yeah, that that makes a lot of sense. So, I mean, like I was I a slightly different turn of that, but I I was having an experience where I talked about this on the podcast already, but like I had wasps living in my wall and that was unfun. And my wife decided that that was going to be my problem to solve. So, you know, I got I got the privilege of a good problem to solve, something to practice and to work on. And it was interesting actually because AI was very helpful in almost constructing like a workflow for solving a problem, right? So it's like take a picture of the hole. Oh, there's a wasp.

104:15 This is probably what's happening. Do these three steps. And interspersed in this workflow that it was building dynamically were moments of commerce, right? Like here's the type of spray that you want to get from the store based on this whole this is the thing you have. that there was like a responsiveness to the problem solving workflow that it was building dynamically that created like I I don't know how much money I spent solving my wasp problem in my wall but it wasn't insignificant and like every step along the way was a contextually driven sort of considered purchase in the context of this problem it was helping me solve and it just struck me when I was doing that like that's not something that I would have been able to replicate without chat GPT you know >> yeah and so to sort of finish the thought maybe.

104:59 >> Yeah. Yeah. >> I think that particular type of transaction >> is going to be very important for us, but it's also a firm will be very important for that particular type of transaction because just as AI is going to be your best Wasp nest elimination expert. >> Yeah. >> It is not going to sleep on things like deferred interest or excessive late fees or whatever other things make financial decisions dumb. So, it's going to be smart and it's going to ask the question as you buy your Wasp >> anti-wasp weapon, whatever it is. I'm imagining like an anti-wasp bazooka, but it was probably more like a a spray.

105:36 >> That's what I wanted. It was a little more mundane than that, but that's what I was hoping for. Yeah, >> if I if I fought wasps, I' i'd look for a bazooka myself. Fortunately, I I live in a place where it's more of a mosquito land. >> I I did I did have to consult Chad GPT in my search for like the best mosquito elimination device which I purchased and it's very effective. >> Yeah, that's what I'm saying. Works well.

105:57 >> Yes. And so I want my Chad GBT to automatically say by the way if I buy this thing and it's kind of expensive. I want the best possible financial deal and it should find hey this one is a 0%. It's offered by a merchant with a great reputation using a firm of course there will be no late fees and when you pay it on time because I will make sure you pay it on time as your Jad GBPT or AI powered financial adviser it will go on your permanent record in the best way possible and your venerable credit score will in fact go up. So this is the right financial decision for you. And so I'm I'm quite excited about that future because I think a lot of the yeah I probably should pay on time but I'm late. It sucks. It's good that I picked a firm. There are no late fees. Like, that's fine. Like, we we built a business around that. But a better version is my AI robot told me that I should use a firm because it's the cleanest, best, smartest financial decision for me. And by the way, I'm going to make sure that we the AI and I behave like responsible adults visav firm because they were responsible adults to me. So, I'm I'm I'm looking forward to that future.

107:01 >> No, I mean, and just yeah, to put a capper on this, to me, that's the thing that I think is really interesting, right? is that like going back to our earlier conversation like why are we doing this? Why why are we putting the tila box here? Why are we you know committing to 0% interest and in these cases and then no late fees in these other cases like why why are we holding ourselves to this standard that other people in the industry don't hold ourselves to and that quite frankly we could probably get away with because you know consumers don't always shop in the best way. They're not always optimal in the way they do these things. I mean, in a strange way, and correct me if I'm getting this wrong, like you guys have kind of been waiting for agents to scrub a lot of the like inertia and bad decision-m out of >> Absolutely.

107:40 >> totally. One of my favorite metrics to quote is when we launched a firm, we were the only ones charging no late fees and the industry mocked us. And like I I can name names, but I choose not to. Like people you'd know in the industry who like privately and publicly said like you're an idiot. like you not only are you leaving money on the table, you will never be profitable. Like this is just not how this is meant to work.

108:04 >> And you know, obviously we're living proof that yes, you can be profitable. Yes, you can build a big business on this like >> just do the right thing and they will come approach that we've taken and the the high standard that we hold ourselves up to. >> It is now I think last I looked it was true and I think it's still true. more than half the volume of BNPL in the US and Canada is late fee free.

108:29 So it we're not the only ones. People have followed us including people who have made money in the past not just like profit from late fees or deferred interest which is like a late fee >> exponentially. And so we have pushed the rock up the hill just enough to make it uncomfortable for those who none of these people are evil. They're just sometimes indifferent and like our high moral ground sort of a you hold yourself to the highest bar possible approach has pushed the industry towards being better. And I think that that's probably the most important thing we've done. The reason I'm so excited about these AI sort of everybody's smart, no one's going to get screwed.

109:09 >> Yeah. is because it's going to be a much easier time pushing that rock up the hill. Like before you know it, the majority or maybe the totality of the industry be like, well, it's kind of dumb to charge lead fees because people don't pay them anyway because their AI agents prevent them from doing so. So now we don't even have the marketing tagline of no late fees here. It's just these firm guys that get to say it and those who join them. So I think we are about to see a big shift in the industry towards this like more moral behavior because the I bet you won't notice play will not work anymore. Like yeah that is pretty great.

109:41 >> No it really is and I think that is an awesome place to leave it. Max, thank you so much for being generous with your time. This was an awesome conversation and we will do the stablecoin crypto one. I promise we'll we'll find a time when we have eight hours to spare and can really get into the weeds. >> Sounds good.