High-Tech Lenders Target The Decades-Old Store Credit Card

Handout photo of Levchin, founder and chief executive of Affirm, a San Francisco startup
Max Levchin, founder and chief executive of Affirm, a San Francisco startup that offers loans to shoppers making online purchases such as a sofa or mattress, poses in this handout photo received on December 14, 2017. Courtesy of Affirm/Handout via REUTERS

By Heather Somerville

The once-hot online lending industry has been battered by scandal and losses since last year, but one of the oldest forms of lending – store credit – is increasingly attracting tech companies aiming to supplant a retailer’s credit card

One such lender, San Francisco startup Affirm, is attracting investment and large customers by using a new approach to underwriting that allows it to approve more borrowers than traditional store credit cards.

Max Levchin, Affirm’s founder who also co-founded one of the earliest digital payments companies, PayPal, boasts that Affirm approves 126 percent more borrowers than Synchrony Financial, the largest issuer of private-label credit cards.



Merchants have enjoyed the boost in sales. Affirm recently finalized a deal to become the exclusive financing option for customers of mobile phone company Motorola, replacing Motorola’s private-label credit card.

As of August, the most recent data available from a case study by the companies, purchases made with Affirm’s loans represented 19 percent of all Motorola’s sales.

“The point-of-sale market is monstrous,” said Peter Renton, an independent industry analyst who hosts an online lending conference called LendIt. “But it’s been really low-tech.”


Companies like Affirm are using smartphone apps, online messaging with borrowers and instantaneous approvals, removing the paperwork from retail lending

Synchrony did not respond to requests for comment. Reuters was not able to independently verify Affirm’s claim of loan approval rates.

Some industry watchers worry about the fallout of risky lending. Affirm, which is not profitable, has not yet been tested by a downturn in the economy.



“Long history will tell you, you have to be skeptical of someone saying they’ve cracked the code on underwriting,” said Todd Baker, a senior fellow at Harvard Kennedy School and a consultant for financial services companies. “You really won’t know until the credit cycle turns.”

Long before the internet, stores such as Sears offered credit cards, and some built profitable financing arms.


Private-label cards can provide stores with valuable consumer data and lower processing fees than general-purpose credit cards

The total balance on store cards roughly doubled between 2007 and 2015 in the United States to $84 billion, according to the Consumer Financial Protection Bureau. But while people are buying more on credit, fewer people are opening new store accounts, with the number of accounts down from 2007.

The average in-store credit card has a 26.38-percent interest rate, with jeweler Zales and department store Big Lots Inc topping the list at 30 percent, according to a survey this year by CreditCards.com.


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