Affirm Holdings, Inc. (AFRM) Presents at 51st Annual J.P. Morgan Global Technology, Media and Communications Conference (Transcript)

Affirm Holdings, Inc. (NASDAQ:AFRM) 51st Annual J.P. Morgan Global Technology, Media and Communications Conference May 23, 2023 3:15 PM ET

Company Participants

Max Levchin - Founder and Chief Executive Officer

Conference Call Participants

Reggie Smith - JPMorgan

Reggie Smith

Hello. I'm Reggie Smith, I cover fintech stocks here at JP Morgan. And I am excited to interview CEO and Founder of Affirm, Max Levchin this afternoon. Thanks for coming out, Max.

Max Levchin

Always a pleasure.

Reggie Smith

I know the name well. Most people probably do as well. But I wanted you to talk a little bit about, like what makes Affirm different than other BNPL companies, credit card companies. You guys have a unique mission, I believe. And it's worth kind of starting there, I think.

Max Levchin

Thank you, I think it's always a great place to start. So that is right. The thing that makes us most different is we are fundamentally a mission-oriented company. Comes from a personal disappointment/credit travels all the way back to college, I was an immigrant to the U.S. And I found myself unaware and unprepared for the American credit card system, promptly ruined my credit and then took me a long time to fix it.

And I think the fundamental problem, or at least at the foundation of Affirm, the problem to solve was to fix credit scoring, it turned out that the problem is much deeper, it's actually access to credit. And the way we built the company was to be as transparent as possible to our borrowers, give them as much control as possible, and most importantly, to never surprise them with hidden costs. So every transaction we approve has full total transparency and the total cost, the cost cannot go up, can only go down. There are no prepayment penalties or any kind, there's no fees, not even late fees, which has allowed us over the last 10 years to build a brand of transparency and control for not just our borrowers, but also for our merchant partners, which is where we're always introduced to our point of sale lender. So it is very foundational to who we are. One of the things that I'm sure we'll talk about is our long term guidance of 3% to 4% our LTC. One of the easiest ways for us to deduce that number is to just introduce a few fees here and there.

I remember one of our early advisors told me, all you've got to do is harvest some fees. That's how the industry works. And we are anti that part of the industry in a very profound way. We will never harvest fees and that is what makes us different. And that's why our consumers come back to us over and over again.

Question-and-Answer Session

Q - Reggie Smith

Sure, sure. I guess to start, like what are two or three things that you're spending most of your time on these days?

Max Levchin

So I'm not sure what this is. It's a pre cycle or in a cycle or mid cycle. I don't know what we're in, but I know we're in something. And as a non-depository non-bank lender, job number one for us is maintaining credit quality, because fundamentally, we're working for our capital partners, folks that fund our loans, look at our credit print all the time. And so long as we continue delivering results for them, our next year, next five years of growth will get funded. That is where I spend. We have extremely capable people working on that. So it doesn't actually take up an enormous amount of my time. But a lot of my brain share is making sure that we are as good as we always have been on credit. It's been most of my time when not doing that on Debit+, which is our card product that we have finally rolled out and are scaling up in a pretty big way now. And then I'm a product guy. The -- one of the sort of corollaries of being in this very cautious credit stance and yet wanting to grow -- and I said it before, even in the zero interest rate environment, and there benign economic world, growing as a function of loosening credit is always a bad idea, you eventually come to regret it, it’s just the question of when. And so still you want to grow and today we're in a, what I would call a, poised to be even more conservative already or quite conservative on credit which means that the way you grow is you optimize, you'll look for places where you left a few points of growth on the table, be it the user interface, be it capital efficiency, be it underwriting efficiency, all the various things that you could have done, but because growth was so plentiful, you just kind of postponed for a while, there's a lot of opportunity left, just in not touching credit yet growing through optimization. So I introduce new products, Debit+ is a focus. And I also look for efficiencies in existing systems.

Reggie Smith

So I'm glad you brought that up. I think you mentioned it either on the call back or on the earnings call. Can you give us some details around -- it sounds like they're multiple screens that sign up, there's different things you guys can do to kind of improve the funnel without giving away your secret sauce. Like, what can you do there, practically like make it real for us?

Max Levchin

So because we are in the purchase funnel, there's an enormous amount of user interface that we control, which is both a responsibility because we sell conversion to merchants. When the merchant signs up with Affirm what they expect is a certain number of people to make it through the application process and buying be a couch or bicycle or clothing. And credit is an input where we set the credit to the financial outcome we desire. Everything else is up for negotiation. So for example, how you communicate, exactly what the consumer will pay is profoundly important. And this is not a learning from this year, it’s a learning from 12 years ago. But for a long time, I thought as a computer science and math guy, that telling someone their exact rate to the fifth number after decimal point which is give them that much more precise data, and they'd appreciate that, I realized that actually, most people could not care less with the APR is. In fact, they're confused and terrified by APR. But they really want to know is if it's $1,000 thing there's some stuff about interest but what's that mean in dollars. And ideally dollars per month. Now this year is learning or in this last quarter's learning, you can optimize this very, very deep.

One thing you can do is you can ask the question, so are you the kind of person who cares about the total number of dollars, or the kind of person that cares about the monthly load? And depending on what we think you are, we will show you -- we will show you both for sure. And we'll show you the APR and we'll show you the monthly schedule. But we'll emphasize the piece we think your mind naturally goes to, you're planning a family budget and you're thinking, hey, a monthly thing is what I care about. I'd rather take 12 months to pay it back but I know it's no more than $100 or they actually say it's a Peloton Bike and what I really want to know is I'm not going to pay any interest at all. And if I am maybe it's this many dollars but no more.

Reggie Smith

Is that dictated by the merchant or the purchase amount or what do you think?

Max Levchin

It's fundamentally dictated by the item and the price of the item but also the type of the item the -- whether you think of this as a capital purchase of the consumer or a consumption purchase really matters. And then more than anything is dictated by your personal net worth and your earning capacity and your personal cash flow. So if you think that $100 a month is very manageable, no problem you have that access. That's you think in months. If you look at and say I have plenty of savings, but I don't like paying interest at all or I think in terms of bulk dollar outlays, then monthly schedule doesn't matter to you, but you don't have to prepay if you don't have to. So it's fundamentally a function of the consumer, but also how they think about the item.

Reggie Smith

So you talked about, I guess, tightening your credit standards, given your reliance on the ABS markets. There's a slide in your quarterly presentation that shows, I think it's FICO score. And it shows that basically for a given FICO score, your performance is better than credit card issuer, other lenders, right? The question is, I guess so how much -- is there a way to kind of quantify or think about how much you've tightened? And you obviously don't want to expand your credit box, but just like, what would going back to a normal credit posture, like how much have you restricted your GMV growth by?

Max Levchin

So I think last quarter, not this one, I mentioned that the demand, the inflow of applications relative to actual approvals is on the order of 2:1. So we could grow twice, or we could be twice the scale of issuance, if we approved everybody. We would also first lose their shirts and then lose our partners. So we will not be doing that. But the demand for credit is up for all the obvious reasons.

So I'll actually delve into a detail of our approvals and tightening just to sort of give a little more context, so fun anecdote. Most of our tightening, as you put it, happened about this time last year, maybe a little bit like another month or two after this time last year. And that has everything to do that we started seeing disturbance in the force of consumer repayment around April of '22. If you look at actual volume impact, it did what we expected it to do. It went down a little bit on a relative basis.

If you look at the approval rate, as a function of applications in yes, answers out, it stayed the same. Reason being is we are in the purchase flow. And so we have a chance to interact with you. We're not telling you swipe, oh, sorry, you're declined. We're telling you, hey, first of all, we always give you or almost always give you three choices, or on the order of three choices where we say, look, you need to borrow $1,000, you can pay us back in six weeks, three months, or six months, or three months, six months and 12 months, and we adapt that, we have a fancy term for it internally, what we market it under is adaptive checkout.

So we adapt the checkout terms that we offer to the transaction and to the creditworthiness of the consumer. Other things we can do is say things like hey, we need to know more about you, we need you to disclose your earning potential or incapacity, we need you to log into your bank account so we can see your cash flow data. There's all sorts of step ups we have for information purposes.

Another really useful tool we have is we can say, hey, you're approved for $600. And we know you're asking for $1,000. If you have the means of paying us now $400, we'll take on the rest as a loan. And so we control the risk we take through all of these levers, not just yes or no, which is very, very powerful. Because a second order thing that we really care about is consumer experience. And actually, maybe it's the most important first order thing that we care about. We'd never want to tell someone you've been a great customer, but sorry, no. And so telling them hey, actually, we can still approve you, but it's less, we need to make a down payment or we need more information is really, really valuable to us. So it will continue optimizing towards least number of no's while credit outcomes that we want. That's the way we do.

Reggie Smith

So thinking about that, just really quickly, are you more lenient with your repeat purchasers? Do you score them saying -- like how do you treat them versus a new first time?

Max Levchin

The scoring is certainly the same exact math. The access to information that we have is better, because we've seen it before. And so the inputs, the way our models work, is we take every piece of information that's available to us, and we weight first party data as an information that we've collected ourselves, higher, because there's no filtering, there's no delay, there's no potential for error. And so if you have recently paid off an Affirm loan, we know that you're capable of paying off that Affirm loan and understand something about your cash flow. So inevitably, our approvals for repeats are higher than new but it's less through a function of blanket sort of, we don't like new, we want repeat more of a, if we have them capacity to -- if you were comfortable proving it, we will.

Reggie Smith

Yes. Is there any insights broader to glean from maybe late payments? Are you -- trying to figure out what helped the consumers in general? Is there anything within your portfolio or view that you're seeing for the broader economy, maybe?

Max Levchin

Sure. The very short hand is -- U.S. consumer is still white resilient, which is a surprising to me, to be honest, I expect it by now things to tip. And my -- the next breath I'm holding is for the loan apocalypse, the educational loans, to restart. But large U.S. consumer have generally remained in a reasonable financial shape as far as our ability to make their payments.

They are seeing stress and they're certainly seeing real stress in the lower income and lower credit quality, it is less or, in fact, not at all because of their ability to find a job that pays them reasonable wage. It's all about inflation. And so that translates to their consumption decisions. Basically the order of priority is feed my family, pay my rent, get to work, get out of town. So you look at our results from last quarter, you'll see that everything is growing but not quite.

We're taking share versus writing a secular growth in connected fitness or sports equipment or outdoor, like all of that is flat to down in the real world. We're still growing it at least in some of these categories, we're growing because we're able to assign new merchants or pick up new consumers. The part that's growing secularly and we're growing within it extra fast is travel. People are still refilling their experience battery because pandemic was such a restraint.

Reggie Smith

Sure. Sure similar vein, we talked about a little bit the ABS markets. You've talked about really making sure that your numbers are strong for your partners. At the margin, is it -- are things getting better in the ABS market? What's your expectation for when that will improve? And how quickly can that improve? And what impact will that have when you...?

Max Levchin

Sure. It's a little bit intertwined or complicated is one way to put it. So one vector is ABS markets are still looking at us and a bunch of people who are not like us at all, I would argue we're actually quite unique in this industry. It's easy if you are a debt buyer to say, well, okay, you may be a special unicorn, but I got these guys and these guys and these guys and they're all selling loans and so are you and their performance sucks right now.

You did something -- I'm not -- I don't have the time to figure out what you did, but your delinquencies are flat to down, but theirs are doing this. I'm going to hang on or get compensated for the risk I'm going to take with you. And so while the rates or at least the perception of rates are stabilizing, the spreads are still all over the place because people are basically saying, if you want to transact, you got to give me a lot of insurance and it's improving in our conversations.

The somewhat ironic/counterintuitive thing that actually helped us a little bit lately is the bank failures. In the short term, I think that's a huge boost for us in a long term, it's not going to get for anybody. But in the short term, every bank CEO of a mid-sized regional bank and higher, looks around and says, all right, so the thing that was not supposed to get me fired U.S. treasuries and long-term mortgages, absolutely got Greg Becker and some serious hot water in front of Congress. That's not what I want. What I want is, oh, yes, lend short and borrow short. That's what I want. I don't want to lend long anymore.

Where can I get some of these loans that have great yield, well managed credit and are very short term. There's not a lot of others like us. And so we are suddenly seeing lots of people saying, wait a second, you make the thing that is much more fashionable to and right now than mortgages and treasuries. And so that translates all the way down to people that want to buy loans from us as opposed to, I mean, obviously, we don't sell loans to small banks. And so that's a net positive or at least narratively net positive if the market says wait a second, you're onto something, you made these really short-term lending decisions. In the long term, the regulatory lows, the overall concerns are certainly not going to help anybody's cost of capital.

That's said, I think things are on balance, are a little bit -- feeling a little bit better. That's said, ABS market has been nothing but a rollercoaster for the last year. So it's -- I'm sure, even as I say now, something else is preparing to have an impact on it, maybe debt ceiling, maybe [alien invasion].

Reggie Smith

Is there an opportunity to fund these receivables outside of the ABS markets, I don't know, like private transactions or anything like that? Is that something you've ever explored? I cover a few other like lenders, and they've done some deals with money managers. Is that an option for you? Or is that even less attractive than the ABS markets?

Max Levchin

The most -- rule #1 is to fund the business. We will fund it by all the rational means possible. We have a very diverse set of partnerships already. So we do -- we securitize. We do private securitization. We will do public securitizations. We sell our loans whole to a variety of buyers from insurance folks that need stable yield and not too much of it and hedge funds that chase yield. And we are very picky relative to who we partner with, but generally speaking, from my memory, I think we've probably never lost a partner in the last 11, 12 years of doing this. So we've been good to our partners and they've been good to us. And we also have a significant amount of on-balance sheet warehouse capacity that we utilize whatever we feel like we're not getting the right level of execution. And so we'll look at everything from where we are today to whatever -- the one thing that's a little bit different between us and again, I feel like I'm beating up on an unnamed party here, but we're not interested in selling our loans below par or at some financial penalty that we do not feel we deserve.

We print excellent yield. We are in control of our credit outcomes. We'll continue to remain in that control. There's no reason for us to take a bath on our economics. And so if there is a buyer out there that will give us a good execution, competitive execution, we'll absolutely talk to them whatever the structure. We're very creative. And we have significant advantage in the sense that we've built a majority of our own software that does all the stuff, so we can account for whatever it is. We need to build. But if it ends up being just take it off my balance sheet already, which I think some folks are dealing with right now, that's not interesting.

Reggie Smith

So if I'm hearing this right, it's not that you are necessarily capital constrained. Maybe the economics aren't as great as they were a year ago, but there's no -- you're not feeling pressure from the capital markets?

Max Levchin

No. We are not capital constrained. The business is well funded through this fiscal year, next fiscal year. The constraints we put on ourselves is we never want to show off to the market with a story of, oh, we're so sorry we gave you -- I mean we're lucky or maybe better than lucky. We have not had to deal with we're sorry, we lost you some money. What we want to make sure, though is we show up with a, hey, we are delivering the yield we promised and then some. And so the constraints we put on our growth is that marginal dollar where we cannot be absolutely sure that we will deliver the yield that we promised. And so that we'll always stick to. We're not hurting for actual capital.

Reggie Smith

Got it. I wanted to talk about competition. It was funny, I was talking to Michael a few weeks ago, when Apple finally launched their pay later product, I think your stock was down a ridiculous amount that day.

Max Levchin

For our volatility, ridiculous amount is not much.

Reggie Smith

No, as I was doing the math and looking at your volume mix, like yes, you guys are a BNPL player, but that's not your biggest channel by any means. And if I'm understanding things correctly your relationship with Shopify and Shop app is near exclusive. And so it's not...

Max Levchin

It's exclusive in a sense that we are the only ones integrated to Shop Pay. You can still use one of our competitors in the general ecosystem.

Reggie Smith

What it seemed to me was that assuming Apple Pay Later blows up, like it's not as direct a threat to you guys as the stock would have implied that day, probably a bigger threat to PayPal, Square or somebody like that, that's competing straight up. Am I thinking about that right? And then maybe just talk about competition in general and what impact that has or can have on your MDRs within the split pay space?

Max Levchin

I think the pay-in-4, split pay, BNPL, whatever the moniker of the day is, good news is that we're all -- or at least we are well trained. We've had competitors like Klarna and Afterpay, not just pricing it below zero but literally paying merchants to use it. And so we remain disciplined in that space. And I think another entrant competitively on the pricing side of things has not changed the game very much for us.

I agree with your analysis, Apple is a meaningful threat to the likes of PayPal because it's an integrated wallet, a hardware integrated wallet of all things versus an unintegrated wallet. So there's obvious pressure. Our platform integrations are with Shopify, Walmart, Target, Amazon, places where these are very thoughtful, deliberate integrations that have both parties' financial and consumer interest squarely in mind. And so I don't think it's quite as impactful as the stock price that may have implied.

That said, it's actually a strong positive, at least a couple of senses. One, the sort of standardized BNPL like a flash in the pan and then it's just going to go and nobody is going to care. If Apple took up, I don't know how many thousands of engineers had to work on this, but it's unlikely it would disappear. There's not things -- does not do things as a flash in the pan modality.

And two, I'm very happy they chose to do no late fees. And when we started the fee harvesting, it's not a joke like literally a person with 30 years industry experience told me "You're total fool, if you think you can run a lending business without late fees. One, no one is going to pay back on time; and two, you'll never make a $0.01 of profit like this just does not work without fees." And at the time in my head, you're probably right. I don't know what I'm doing, but too late now. I made a commitment.

And I assure you, we've been able to -- even in the -- the world has changed, our funding costs went up and all that and yet our last quarter's print was north of 3.5% in reduction in cost as the percentage of GMV. So it does suggest that we know something without late fees and all the sort of yolk the industry loves to feed on. The fact that Apple showed up to the party and said, us too, we're also going to do no late fees is very powerful. The rest of the competitors' platform integrations are not, simply saying if my margin depends on late fees, the alternative is not just a weird company that Affirm who think they're too good for it. It's also the guy with the integrated hardware wallet. And so I think the pricing pressure is going to be put on primarily our competitors.

Reggie Smith

Got it. We only got 10 minutes, and there's a lot to cover. I want to talk about -- no pressure. Let's talk about Debit+. I know you've talked about the economics, you've tightened them up on all the different transaction types. Quickly, can you run through how the product works because most of us here probably have a charge card with rewards? And so like it's a different world. Break that down for us really quickly and then how the economics work? And I've got a few follow-ups.

Max Levchin

Yes. So it's a debit card. It connects to your existing bank accounts. So you don't have to open a new one. So if you got your Chase checking account, we can connect to it. And if you swipe and do nothing, it will settle against that account after 48 hours. So it's a pay now mode. You can also say, actually, I want to pay that over time. And so retroactively, you can go back into your transaction history in our app and say, take that thing and make it into a pay in 6 or pay in 12 or pay in whatever.

Reggie Smith

48 hours, do it 24.

Max Levchin

If -- I think right now, it's 24 hours. Obviously, depending on your standing with us, we can adjust that. That's not a -- there's no regulatory reason not to make it short or longer.

Reggie Smith

And mostly you’re doing it...

Max Levchin

Yes, absolutely, both post and the third mode is if you are thinking of buying something large, you open up your app and say, "Hey, I'm going to go to Best Buy and buy a TV and I'm going to need $200 for that, and we preapprove that. And then when you head to Best Buy, your next swipe just magically becomes a loan. And it's a far better product for that consumer than a credit card. You only pay interest on what you plan to finance. If you're swiping to buy a cup of coffee, that consumer, by the way, predominantly use debit for everything. They sometimes reach for their credit card because they need to buy something and then end up revolving and they pay a lot of fees and they hate it.

And so this card charges them no fees. There's absolutely no associated costs with pay now. And if you want to finance something, you explicitly finance that one thing at a time, still the same sense of control and certainty that you get with Affirm. We have seen so far -- so still very, very small. We haven't broken out the financial impact just yet, but we will start disclosing more. It's super sticky.

People love it. They really enjoy the product. When it doesn't work, I do a lot of customer service personally, and I spent a lot of time now dealing with people who are very upset that their card doesn't work. And these are - like the card works beautifully 99.5%, 99.7% of the time, but the few things when it breaks, the level of like what's the hell, this thing is so amazing. Where did the magic go even for a second is palpable. So I'm very proud of what we've built still has a long way to go. But that's where I spend a lot of my product making time.

Reggie Smith

Real quick, the interchange that you guys earn, is it the same for all transactions? Or is it determined retroactively after they know what...?

Max Levchin

So on the swipe, it's the same interchange. So it's debit. We do have hundreds of thousands at last reporting merchants where we have a custom interchange deal. You can imagine that some of those may or may not be willing to pay for a little…

Reggie Smith

Sure. I wanted to talk about your transaction margin, I get a ton of questions about that. I know you guys at your Analyst Day a few years ago, you gave kind of a long-term target there. And I've asked Michael about this a few weeks ago, people can get obsessive about ratios. And the way I think about it is profit dollars as opposed to the ratio. Question for you is, do you think about it that way? And is it fair? Or how can you get people off of that metric? Are you comfortable that 3% to 4% is the right ratio?

Max Levchin

Yes. So I'm with you. I think I think my ratio is, if you want to improve them, just either increase the numerator or decrease the denominator, so there's lot of ways to cheat. We're not cheating, but what we care about is achieving adjusted operating income profitability. That basically means dollars. So you can't race your way to that. And so this is particularly important as we start scaling Debit+. So Debit+ has three modes of transactions. One is -- priority one is pay now and one is a posteriori. The economics are quite different on each. And I assure you no one is going to pay me 4% for paying out transactions. There's some money to be made there from the merchant, but not a whole lot. They know the money settling against the bank, they're not stupid.

And so yet if we end up scaling pay now to be a huge component of the business, that is a risk-free transaction, and we get paid 100% through ACH. So the retaining from consumer always settled against the bank accounts. So that cost is de minimis. So once it becomes a big enough deal, we'll break it out. But if you next time you see me and you said, my God, your ratio went down to less than 3%, you did print $1 trillion of ACH funded transactions, I think we're both going to consider that to be an amazing success, not a forward-looking statement. I don't expect the $1 trillion of anything just yet. But the punchline here is, as the transaction mix changes, it's reasonable to start focusing more and more on the absolute dollars and less and less on the ratios. And we'll do a good job breaking that out as it becomes differentiated.

Reggie Smith

Yes, my guess is that once you guys reach that sustainable profitability maybe folks will stop focusing on that, you kind of prove that out. We've got a few minutes left. I wanted to open it up to the audience for any questions. Just give me a second for the microphone. Anybody?

Max Levchin

You can probably just say it, and I'll repeat it.

Unidentified Analyst

Can you just give us the key variables associated with your path to profitability over the next couple of years?

Max Levchin

Well, our adjusted operating profitability is at least has been announced as I think we will get to at the end of this fiscal year and/or entering the next fiscal year, which for us is in five weeks, something like that. So it's imminent or at least that's we said we'll do, and we've been decent at keeping promises. The internally, this is known as the Affirm equation. So our employees are all very aware of it. But it's at the highest level, it's transaction volume times transactional margin minus operating cost of the business. We calculate transaction margin, honestly, as we put everything in cost of data, cost of servicing, cost of funds. It's not a made-up margin. This 3% to 4% thing is a well thought-out thing.

So take all our volume multiplied by the marginal unit economics, take out whatever OpEx we have to pay for. And if that number ends up being minus whatever is capitalized, which there's not a lot of but some that's adjusted operating income. The other adjustment out is stock-based comp, of course, which is -- at some point, will become less of a thing. But because of some of our agreements, in particular, with folks like Amazon and Shopify, those warrants have to get fully vested before they stop making impact on the SBC side of things, but that's it. Just need to -- in a less mathematical way answering it is just driving operating leverage on -- from the efforts of the team, which we are doing.

Unidentified Analyst

Does the asset turnover grow…?

Max Levchin

We are in control of the number of turns on capital. Last I looked -- I look all the time, our weighted average life of a loan is about five months. If you look back, don't quote me on this one because Michael is in the audience, he'll tell you the exact number if you really want to know. But that number has been steadily diminishing because it's easier to manage risk. The thing that actually people most misunderstand about Affirm is you don't actually have to believe that we are a bunch of geniuses underwriters. Like we are quite good. We really have some of the best underwriting minds in the industry employed at Affirm for the last 10 years.

Majority of the ML team joined us almost at founding time. So we have some very, very smart, very experienced, really good underwriting machine learning people and yet that has made much easier by having an asset that turns over super quickly. Like if you make a mistake, it's half gone before the quarter is out. And so we say, oh, I screwed up, but now I'm going to tighten and deal with it. And so the drive to lower weighted average life of loan is not an accident. We've wanted to prepare ourselves for a credit cycle by having a short an asset as possible. And at the moment, we're quite happy where it is. That said, the very long-term goal for the company is to be your primary transactional device for all transactions. Like we are not going up to elective medical and autos and mortgages were going down towards doughnuts and coffee and daily spend. That naturally tightens the number of turns of capital because you're not going to finance a coffee cup. And so in the longer term, yes, it will become more and more capital efficient.

Reggie Smith

Yes, I've got 25 seconds.

Unidentified Analyst

Hey, Max. I guess I was here just a minute late, so I apologize if I'm going roll ground. So two things. One is a short easy one, which is that you and Michael, when we saw you guys last, you are talking -- you spoke to a -- hey, guys, this issue of student loan deferment when -- which is not going to be coming in from the horizon, it could be a very serious issue. I'd love to just hear your updated thinking whether you still feel like that is -- there's some nervousness there and whether you're -- how you're thinking about that for your own book? And then second, I'm almost embarrassed to ask you this. But I feel like with Debit+, and I feel like with where you're going, there is actually a fascinating AI almost like a financial like health copilot thing? Or I don't even know what. But almost like something there or there. And as lame as that totally sounds and I never...

Max Levchin

Look at Michael, well, he's doing -- I was about to say like -- are you a plant -- did Michael plant you here? Both are short and easy to answer. I am terrified of the student loan apocalypse. I think it's the scariest thing in the world. I think part -- we don't have time to get political, but I think given our government's -- collective government ability to negotiate something as basic as let's not default as a country, our collective governments -- reserve currency of the world, who cares if we don't make our payments. So given that's really hard I know there's lots of very, very smart people, including people I know well personally, who are working on a variety of basically reentry into the cycle of paying your student loan, like every one of these people who are -- have not paid their bills for three years have heard the story.

They know they're going to be on the hook. They know these are not bankruptcy for most of loans. So it's a thing they're going to have to deal with. Yes, no one knows exactly what's going to happen. And so there's two ways to go about it. You can like in your face, pay up or collections and nasty things or you make it easy. And the government has to approve a lot of the programs to make it easy, for example, can't make this month’s loan, fine, we'll just stack it in the back of your repayment schedule, which is done all the time. It's not a new idea. I'm just terrified that given how hard it is to do that ceiling is going to be that much harder to do any of these programs because they're all going to have to get approved at the Congress level.

And then on the AI front, yes. That's all I'm going to say.

Unidentified Analyst

That was longer answer, I mean, right? So…

Max Levchin

We're given the get out of here look. So, I will…