a16zWhy AI Agents Could Finally Reinvent the Credit Card
EVERY SPOKEN WORD
60 min read · 12,473 words- 0:00 – 1:01
Intro
- MLMax Levchin
The card payment interface is the singular best user interface ever created. It is the world's largest market by any stretch of imagination, and there are no niches in payments that are smaller than $100 billion.
- ARAlex Rampell
Once you go really big, the numbers get small, which is strange. There's a lot of volume, but the large volume revenue opportunities in payments tend to be the smaller dollar amounts.
- MLMax Levchin
There's always an opportunity to use another form of payment delivery device to satisfy a basic need. Convenience just trumps as the total amount you're trying to send goes down. The best user interface ever created is the credit card. This may actually be finally up for renegotiation because AI's already there. It's just that you haven't yet trusted your agent to do as good a job as you would.
- ETErik Torenberg
Is there something else that you're surprised has not happened yet?
- MLMax Levchin
I went to some cryptography-related conference and presented a new idea in digital payments, and was literally booed off stage because it was certainly not anonymous. And the, the big innovation of PayPal was, what if we don't care about anonymity at all? And in that sense, um...
- 1:01 – 1:33
Meet Max & Alex: 25 Years of Thinking About Fintech
- ETErik Torenberg
So you guys go way back, having co-founded Affirm and, and met, you know, well, well before then. You guys are pioneers in, in fintech. You've been thinking about the space, trying to make sense of the present, you know, think about where the future is going for 20-plus years, 25 years, m- maybe even more. And I'm curious, you know, given so much time has passed since you first got into this space, what has most surprised you, uh, about what has happened, what hasn't happened? What did you expect to happen in the early 2000s of how, how this sp- space would, would play out? Maybe Alex, why don't
- 1:33 – 3:36
What's Surprised Them: Apple Pay, Google Pay & Changing Consumer Behavior
- ETErik Torenberg
you start?
- ARAlex Rampell
I think the rise of Apple Pay and Google Pay, and to the extent, the, the extent to which they've really penetrated, because it's very hard to change consumer behavior in general. And it was a bizarre set of accidents, if you will, where there was this merchant liability shift because magstripes were so easy to replicate that, uh, you probably noticed a while ago, you s- y- your new cards had a little chip on them, and you had to dip the chip, and then the machine would be like, you know, "Don't remove, don't remove. Remove, remove," right? That's because the chip was being rewritten. It was much more secure than a magstripe. And basically Visa and MasterCard, um, and then the Europay, that's what the E is for. Uh, what, what is E stand for in EMV? Europay?
- MLMax Levchin
Euro card?
- ARAlex Rampell
Eurocard?
- MLMax Levchin
Pay?
- ARAlex Rampell
I don't know. The Europeans somehow got their say because they always do.
- ETErik Torenberg
Yeah.
- ARAlex Rampell
They, they, they insert their cookie easily and they-
- ETErik Torenberg
It's definitely not electronic. That-
- ARAlex Rampell
Yeah, it's not, it's not... It's, it's Euro something, MasterCard, Visa. So it was, it was called the EMV switch. So all of these machines, if you did not wanna be liable, um, like I could go to Best Buy, buy a TV, and then get home, use my TV, and say, "Nope, never bought the TV." And if I was using my magstripe and Best Buy didn't have the, the machine switch over, then Best Buy would be like, "Oh, shoot, we lost all the money on that TV," and Alex gets the free TV. And I'm, I'm exaggerating slightly for effect. So everybody had to get a new machine, and then it turned out that those new machines had a little contactless, you know, thing where you didn't have to dip the chip or swipe the card. You could just tap. Nobody was using taps when those machines came out, and now it's ubiquitous. So that's, that's something where, I mean, generally speaking, it's hard to change consumer behavior. But I feel like between COVID and the fact that all these merchants independently had to switch over their machines, and the fact that, I, I mean, I wouldn't have guessed in... I mean, you obviously did because the, uh, uh, Confinity was, was PalmPilot sending money, so you were, you were ahead of the whole PDA wave. But I wouldn't have guessed that those three things would've come behavior. It's like change of c- of consumer behavior, ubiquitous new merchant payment terminal, plus ubiquitous, uh, mobile telephony, and that's, that's certainly one thing that has changed the
- 3:36 – 10:00
Max on the 60-Year-Old Rules Still Running Payments
- ARAlex Rampell
world a lot.
- ETErik Torenberg
H- How about you, Max? You, you were dreaming about, you know, what, what the future of money would look like a long time ago. What would surprise you about what has happened or what hasn't happened?
- MLMax Levchin
It's very hard to, uh, step back from the soup if you're cooking in it, uh, for the last plus or minus 30-odd years. Uh, I think the, to sort of further illustrate Alex's point, one of the things that's really amazing and subtle about Apple Pay/Google Pay and its interaction with the Visa and MasterCard networks is Visa and MasterCard have a hard two-and-a-half-second limit on interaction between the network, the issuing bank, and the merchant, and the acquiring bank. And so the whole thing has to happen in two-and-a-half seconds, or the transaction gets retried or maybe just canceled out, and really leaves very little room for any kind of clever innovation. And online, you can play games. If you're doing e-commerce, you're like, "Well, yes, we're gonna submit your card to Visa, but first we're gonna run some anti-fraud checks, and we're gonna do some other things to, like, reduce liability." But offline, like once your card is presented, two and a half seconds, that's all you got. And Google and Apple Pay have singularly time shifted the whole thing by creating secure enclaves inside their chips and saying, "I already know your card. I can do all kinds of things before I actually have to talk to Visa and MasterCard." And maybe the shocking thing is that Visa and MasterCard have not yet introduced some new standard saying, "Actually, it doesn't have to be two-and-a-half seconds at all. It could be 15 seconds while we, you know, go and get a bunch of issuers to bid on a better credit quality terms for you," or any other type of innovation. But the sort of hard-written rules of Dee Hock era are more or less intact, and that's not 30 years. That's like more, you know, 60 years. And so I think that's probably a critical or more criticizing take on what happened. Um, but the shocking thing about payments is that it is the world's largest market by any stretch of imagination, and anything and everything you could have possibly thought of being sort of deconstructed and being the nicheiest little thing to poke around and innovate in always turns out to be $100 billion niche. Like, there are no niches in payments that are smaller than $100 billion, and so that's probably the most surprising thing I've seen.
- ETErik Torenberg
Yeah.
- ARAlex Rampell
Although it's interesting, like once you go really big, the numbers get small, which is strange, right? Like if I send a $1 trillion wire Right? The United States just announced, uh, we, we are $40 trillion in debt, right? Let's just say that like, you know, Elon's Mars colony is worth $40 trillion and, you know, Ro Khanna decides to tax him $40 trillion and he needs to send a wire. That wire is not going to be very pro- like, uh, there, there's a lot of volume, but the large volume revenue opportunities and payments tend to be the smaller dollar amounts. Um, which is surprising, right? Because it turns out, I mean, like all of the QSR, the quick serve restaurant, the payment opportunity there, that's massive. That's why Starbucks invented Starbucks Pay, because they wanted to stop having to pay. It's like these prepaid... They only have to pay one time. You char- you put $50 on your Starbucks account. Well, they only have to pay Visa, MasterCard, and everybody else one time as opposed to every successive time. So a lot... Like what's surprising about payment, uh, area under the curve, if you will, is that like the bigger the dollar is, like the smaller the rake. Which I guess makes sense because you're not gonna get 2% of that $40 trillion payment.
- MLMax Levchin
Yeah.
- ARAlex Rampell
But everybody goes after B2B payments. Everybody has a clever idea for B2B payments, and like that's the only one that is probably the exception to the rule.
- MLMax Levchin
Actually, because by the way, I was trying to find... So it, it's lost in time, the original email between the two of us, which I think we have slightly different origin stories of how we actually met.
- ARAlex Rampell
[chuckles]
- MLMax Levchin
But I was trying to find the original email between the two of us where we start mentioning what becomes Affirm eventually, and it's dated April 2011. And, uh, in it, I think I ask you like, "Tell me more about this Bill Me Later thing," because I was working on something else while you were watching PayPal buy Bill Me Later, and you send me this really long elaborate sort of here's exactly what it is and all these ideas around it, and we then veer off into this ping pong of emails around Bill Me Later for business, and conclude that it's actually a dumb business, where there's a, there isn't an opportunity.
- ARAlex Rampell
Well, that, that... And that's actually, it's funny that you mention that. I bought the domain Pay Me Sooner-
- MLMax Levchin
Yes, I remember that
- ARAlex Rampell
... as a result. So it's like, ah, Bill Me Later was a good idea. Pay Me Sooner would be an even better idea. Actually, the idea there, it still is, it's not, it's not terrible because it's not payments, it's lending. So think of it this way. Imagine that like big companies beat up small companies all the time to get better payment terms. Better payment terms for them, right? It's like, so if I'm GE and you're Eric Torenberg and you're a little guy, I'm big GE. I'm like, "I'm gonna pay you net 90." So you invoice me and I pay you 90 days later. Now you have to pay your employees. So you go to a bank, you go to somebody else, you're like, "Hey, I'm Eric. Uh, I run this business. Most of my money comes from GE. They're an awesome company. They're gonna pay me in 90 days." Bank doesn't care, right? They're just like, "Yeah, we're gonna charge you 15%." Meanwhile, GE can issue bonds at like, you know, whatever SOFR plus 10 basis points or something. Like GE is paying 5% for credit, you're paying 15% for credit. But it kinda doesn't make sense because your credit is GE's credit, if that makes sense.
- MLMax Levchin
Mm-hmm.
- ARAlex Rampell
Now there's something called factoring where you can sell the invoice. You can actually sell the receivable. That's somewhat usurious. Um, that, that's very, very ex- actually it's not usurious because it doesn't... Like credit laws don't apply because you're selling a receivable. But I always thought that Pay Me Sooner was an interesting idea because the whole economy runs on the fact that like my business is waiting on payments from you. Like the reason why I have to borrow money is because you don't pay me sooner. Uh, or other way around, sorry. I don't pay you sooner and yeah, so but yes-
- MLMax Levchin
Well, yeah, there, there-
- ARAlex Rampell
... we didn't, we didn't pursue that
- MLMax Levchin
... there, there's some healthy businesses these days in both accounts payable financing and accounts receivables financing, so it's not, this is, it's not a bad idea, but the revenue opportunity, despite being an unregulated lending space, is seemingly lower than the one in consumer because the convenience factor is something that every participant understands and there are plenty of players that'll offer you a slightly cheaper charge, which is also the root origin of why a $40 trillion wire to Ro Khanna is gonna be, uh, not a very profitable business-
- ARAlex Rampell
Yes
- MLMax Levchin
... whoever processes it.
- ARAlex Rampell
Yes.
- 10:00 – 12:36
What Idea Should Exist But Doesn't Yet?
- ETErik Torenberg
What, what, what's, what's another idea that you're surprised, uh, does not exist yet, that you were thinking at, at some point, "Hey, the world obviously sh- should work this way. There's, you know, an obvious opportunity here," and for whatever co- you know, completion of reasons just ha- hasn't happened yet or, or to use, uh, you know, Mark's quote, "There are no bad ideas, only early ideas." Is, is there something else that you're surprised ha- has, has not ha- happened yet?
- MLMax Levchin
You know, we're forever in search of the great way to pay biometrically, and it manifests itself more in movies where people's thumbs and eyeballs get removed for authentication purposes, and yet like we're still paying with chips. By the way, the card payment interface is the singular best user interface ever created, and it, it's not something that people haven't tried to do better. Remember even before PayPal, there was this wand that I think MasterCard and one of the gas, um, s- uh, re- refueling station networks produced this thing where you could just like wave this wand next to a gas station and payment is secured and you can fuel your car. And when I saw it, I'm like, "Oh my God, this is obviously gonna take over credit cards," and it didn't. And it's actually therein lies a really interesting lesson in payments innovation in general. There's some unobvious a priori but clear a posteriori version of critical mass, and if you don't reach it, you're going to fail. Like there's not really a okay outcomes in payments. You either get there and everyone needs to have your widget or your network or your whatever, or it's just gonna go into the, uh, the annal of time. And this is a fine example of a thing that actually made a lot of sense. Like of course you want to have a little wand on your car keys to just sort of wave and get refueled, but it's just a little bit faster, not a lot faster than the credit card you have in your pocket and that just works. And so I, I keep on waiting for some completely different way of authenticating the payer to the device and like other than the mobile phone, we haven't done better.
- ARAlex Rampell
Amazon actually just discontinued the whole thumb payment at, at Whole Foods.
- MLMax Levchin
I loved... They actually... It, it's not a thumb payment. It's like a-
- ARAlex Rampell
Yeah. There's a palm
- MLMax Levchin
... palm scanner.
- ARAlex Rampell
The palm. The palm. Yeah, yeah.
- MLMax Levchin
I, I loved it I, I would literally go to Whole Foods next to whatever hotel I'd be staying in on travels
- ARAlex Rampell
I was sad that they got rid of it. I know. I used to use it too.
- MLMax Levchin
It's, it's actually, it's not even faster, it's just fun.
- ARAlex Rampell
I know. I know.
- MLMax Levchin
Ooh.
- ARAlex Rampell
It's probably slower, actually.
- MLMax Levchin
It is slower. It's like, "Tell me my fortune and these grapes."
- ARAlex Rampell
The fortune is you owe me money.
- MLMax Levchin
Yes.
- ARAlex Rampell
That is, that is the only fortune that you ever get. Well, that, that was... I mean, may- I think I called it Thumb by, by, uh, by accident, just given the, the almost, uh, almost name of Affirm.
- MLMax Levchin
That's right.
- 12:36 – 17:15
Did Crypto Feel Like the Realization of a Dream, or Orthogonal?
- MLMax Levchin
When, when sort of the crypto industry was, was becoming popular, or when, you know, some of the major projects, uh, were, were starting in, in the, in the space, d- did that... Were there parts of that that seemed exciting to you, or a realization of a, you know, long-held, uh, sort of dream, or did it feel, hey, orthogonal, or just not really? So I, I'm frequently late to trends. Like, I'm not the world's earliest adopter of majority of things I encounter. I feel like PayPal was pretty early, right? Well, sort of. Um, to give you full context for PayPal, I really wanted to build something very specific and quite different from PayPal, [chuckles] uh, that operated on very low power chips. And to do that, I needed to work out how to make cryptographic primitives work on a very, very low power chip. And we did, and then we promptly realized that it really couldn't do very much other than encrypt some very, very small amounts of data, and small amounts of data that need to be encrypted and decrypted quickly, that kind of leads you to payments, which is how PayPal came about. But right before all of that began, I went to the wind down/bankruptcy party for DigiCash, which was the original granddaddy of all digital payments. And, uh, it was sort of a somber affair. It was on Stanford University grounds, and there was like, you know, pouring out of the '40s, and a bunch of very sad-looking cyberpunks telling each other how the age of digital payments is not upon us. And, uh, so in that sense, we were very late when we... So I was listening to these people talk who, who, whose idea was crushed. It was blind signatures, and David Chaum was somewhere. He was actually not present, but he was roaming the, uh, streets of Palo Alto despondent because his brilliant idea, and a truly brilliant one, was, you know, basically being proven to be not having a, a product market fit. Uh, and then we promptly, soon thereafter, started PayPal, and, uh, I went to some cryptography-related conference and presented, you know, a new idea in digital payments, and was literally booed off stage-
- ARAlex Rampell
[chuckles]
- MLMax Levchin
... because it was not nearly as secure, and it was certainly not anonymous. And the, the big innovation of PayPal was, what if we don't care about an-anonymity at all? In fact, people don't, they just need to pay for their coffees or their, you know, online purchases. And, um, in, in that sense, um, I feel like we were, again, very late to that game. That, that game had played out. Like, all the enthusiasts had left the building. Uh, and so cryptocurrency, not to be confused with cryptography, uh, when... So I, I read the original Bitcoin paper and thought, "Wow, that's a really clever way of solving the Byzantine general problem." And I sort of, as, as all the, uh, sort of math/cryptography nerds, was impressed with the approach. But I did not think for a second it would become a currency or a payment method, uh, uh, and et cetera. And I'm not convinced it's a payment method now, [chuckles] and it's been quite some time. But as currency and commodity and a store of value goes, it's certainly proven to be extraordinarily successful. And so I think the... As I watched, uh, cryptocurrencies expand and, and become a thing and more and more of a thing, the use cases are coming out now where, you know, stablecoins are upon us, and that's certainly a collection of very clear uses. But none have, in my opinion, come close to breaching the, "I'm gonna use this to buy a cup of coffee," which is kind of... That's the canonical and most important, I would argue, use case for all forms of payments. So as currencies go, as store of value goes, fascinating. You know, when was the last time you spent a Bitcoin or a Satoshi on anything actually important? You know, putting aside people who make it a point of spending it just to sort of prove the point wrong. And, and it's the most important, um, that buying coffee is the most important metric because of just the, the volume of it, because the frequency, the practicality. There's always an opportunity to use another form of payment delivery device to satisfy a basic need. So if you're sort of contemplating a $40 trillion transfer, you'll spend a lot of time figuring out-
- ARAlex Rampell
Yeah
- MLMax Levchin
... the secure way, the, the fast way, the cheap way, et cetera. If you're passing through your nearby bagel shop and you need a cup of coffee, if your cryptocurrency wallet passphrase is too long, you're gonna look for change in your pocket, and if you don't have it, you'll pull out a debit card or credit card. And so user interface, as the payment amount diminishes, it takes over cost, takes over everything. Basically, convenience just trumps-
- ARAlex Rampell
Yeah
- MLMax Levchin
... everything else as the total amount you're trying to send goes down.
- 17:15 – 20:01
The Origin of Affirm: Solving the Pajama Problem
- ARAlex Rampell
Yeah. I w- I want you to take us both back to mem- memory lane as to the beginning of Affirm and how you guys navigated the idea maze of, of what would eventually become Affirm.
- MLMax Levchin
Um, you go, or-
- ARAlex Rampell
Well, hopefully our stories match.
- MLMax Levchin
Yeah. [chuckles]
- ARAlex Rampell
We should put us in separate-
- MLMax Levchin
These questions were like, uh-
- ARAlex Rampell
No, separate room
- MLMax Levchin
... w-really hard.
- ARAlex Rampell
This, this is like the prisoner's dilemma, right? It's just like, yeah, ask me. If, if our stories match, we have to, we get to leave. If they don't match, then we have to stay here all day. Um, so my recollection was, um, I ran this company TrialPay, which did, um, alternative payments for digital goods. So you don't wanna pay for throwing a sheep or doing something on some silly social game, something that was not hard, valuable, or fun.
- MLMax Levchin
Who would do such a thing?
- ARAlex Rampell
Who would, who would do such a thing? But, you know, you're, you're buying coins in FarmVille, or you're doing something. You're buying poker chips, virtual poker chips, of course. You don't wanna pay. Get it for free if you sign up for Geico. There's a lot of economic t- value to Geico. You don't really care if you use Progressive or Geico. Ooh, I can get FarmVille coins if I switch to Geico, or get a credit card, or sign up for Netflix. So that's what we did. And, uh, I, I was, uh, somewhat persuasive and annoying, probably more annoying than persuasive, so signed up every other social gaming company, um, except for this one called Slide. And, uh, Max ran, proudly or unproudly ran Slide. And, uh, I went to the Allen & Company conference, which I almost didn't go to because my wife was very, very pregnant. So this was in March of 2009. It was like the first week of March. My son was born March 28th, 2009, but her due date was March 16th. So I'm like, "I'm not gonna go to this conference." And then, uh, the, the Allen guys were like, "This is a very good conference. You should really go." I was like, "Uh, my wife's very pregnant." He's like, "You should go to the conference. If she goes into labor, we'll fly you back." I was like, "All right, that sounds good. I'm going." So I went to the conference. I think we met there briefly. Uh, successfully did not persuade you. Um, but then I think I followed up with a note in Russian.
- MLMax Levchin
Yes. Exactly.
- ARAlex Rampell
Um, and th- this wouldn't have worked today because now obviously I would've used Gemini or, you know, you know, ChatGPT to write this probably somewhat riddled with grammatical flaws Russian note. Actually, that, that probably would've given it away of not being ChatGPT. It wouldn't have passed, it would've passed Pangram. But I took Russian in, in high school and college, worked there, lived there for a while. Um, and I think you were like, "Why do you speak Russian?" I think that was the response. But then we just became friendly. Uh, I think I... You, you sold to Google, so I could not ever convince Slide to become a client of, of TrialPay, sadly. Um, but, uh, I, I seem to recall you had like a tweet, like, "I'm looking for something to do. Any idea?" And that was like my reason to reach out, and I think we, we had coffee at the forbidden building at Google. Remember how like there was one Google building that no guests were allowed at, but you just didn't care? Um, statute of limitations are up, so I can.
- MLMax Levchin
[chuckles] You're revealing all my secrets.
- 20:01 – 27:00
Pay With Your Identity: Social Credit & the General Store Model
- ARAlex Rampell
Yes, exactly, because I know how much you love Vic. Um, so, so, [chuckles] so we, we had coffee there, and then that's where this... Yeah, we were talking about BML later, but it was like, you know, my recollection was it's really hard to pay for something on a mobile phone. Mobile phones are becoming more ubiquitous. We should have a way of solving the pajama problem of you're upstairs in your pajamas, you wanna buy something, your credit card is downstairs. How do you pay? Meanwhile, not just are mobile phones ubiquitous, but social networks are ubiquitous, and maybe there's a new underwriting mechanism of kind of going back to the old general store from like the 1800s of it's like you show up at the general store, you don't have cash, like both literally and figuratively. You don't have it on you, but you don't even have it, you know, back home. But you run the general store, and you're like, "Okay, Max, I got you. Don't worry about it." But i- today, you're just like a cookie and an IP address, so I don't really know who you are. Or if you go to Walmart offline, it's like, you know, you get greeted by the very nice greeter. I don't think they have them anymore. But like you get greeted by the nice greeter, they have no idea who you are. You can't do the general store thing. But if you have 500 friends on Facebook... This was wrong, by the way. But if you have 500 friends on Facebook and they all ha- and you have 1,000 pictures that you've uploaded, you're probably a low credit risk. And if you're not looking for credit, this is the key thing. It's like a lot of credit offers are sent out proactively. So you have an 800 FICO. I know that you have $14,000 that's revolving for some reason on your Capital One card. I'm going to send you a customized mailer saying, "Why don't you go refinance with me, Bank of America?" But if you go on Google and you say like, "I'm out of money, need money, need money, credit, credit, credit," like you're probably a bad credit risk. So kind of going back to the general store concept, people that aren't looking for credit, that might not have their wallet with them, kind of make it like the 1800s and pay with your identity. That, that was kinda how I remembered it.
- MLMax Levchin
Yeah. I think that, that, that matches. Uh, the... To add a little bit more color to it, so the year at Google was definitely a challenge in the sense that I was still coming to terms that I ran for like over five years a company in social media that I had no business running. Like I, I worked very hard. We had a financially very positive outcome for a lot of people. But ultimately, it never sort of scratched the sort of entrepreneurial itch that I thought I was, I was scratching. And so one of the things that happened during that year, I spent a lot of time soul searching, like what am I supposed to do next with my life? I was gonna start a company, but, you know, maybe, maybe I should be more thoughtful about what company I'm gonna start next. And my wife, who's pretty much always right, said, "You know, the hardest you've ever worked and the happiest you were was during the anti-fraud days at PayPal, like when you nearly died," or we nearly died. She, she was there as well. Um, those were the days when you looked exhausted, but you actually were obviously very happy. And, you know, I, you know, she was telling me, "Look, I know you swore off doing financial services. I know you were never gonna touch payments again, but just this once, give, give it a chance." And that, that actually had some influence as to my responsiveness too because you work in a payments company. And part of my reluctance to deal with TrialPay was like, "Ah, I can't handle another near payments company." Like I, I went into social media for a reason. I don't want anything to do with this stuff. And so as, as I was slowly getting reeled back into working on payments, we started talking about this. The sort of a social BML was one of the sort of shorthands we used dis- discussing what it would be. Um, the general store analogy was interesting because at the same time... I don't actually remember which one of us knew this 'cause you also speak Japanese, and this could've been a thing you told me. But I remember reading about social credit in different economies. There's a notion of just pay me later or pay me next time in Israeli grocery stores, which is still common today. If you're checking out in Israel, apparently in a small enough town, you can just show your bag to the cashier and they'll remember, and then they'll get you next time if you forgot your money. This is even more formalized in Japan, where until very recently, you would give your business card to the storekeeper, even if they didn't know you. If you had a business card, they would write what you bought on the back of it, and that was your total. And the notion of like you just put it on my tab is a thing that's, you know, obviously fairly American concept, and so on. And so we were converging on this. Uh, I was talking to a startup at the time. I was kind of just learning about the industry that was trying to build a social credit score, kind of modeling it on the Chinese social score, which is used for a lot more than, than credit obviously. And so we, we were swirling around this idea of Payments and solving the, "I don't have my credentials with me, but I still need to get through this." Like another sort of metaphorical, uh, version of this was I'm watching TV, there's this really cool ad, back in the day when people had advertisements in between things on TV. Uh, and I really want the thing that was promised to me at the price that was promised to me, but I could do it on my phone, but I'm definitely not gonna get off my bed. And so like what if there's some area under the curve that you can capture by bringing these, um, transactions closer in time and improving conversion obviously. And so that, that's the kind of the, the, the swirly origin story. Um, a lot of it, I think the two of us had a slightly different version of what would be fun. [chuckles] I think you, as a payments guy, you were mostly thinking like, "Let's go do some payments stuff." As a person recovering from doing lots of machine learning in the service of social media, which was, you know, good and well, but wasn't really what I w- was meant to do, and lusting for the days of doing machine learning to fight fraud, my MO was I just wanna build a really cool credit score, and then someone else will take care of payments, like lending payments. I don't really know anything about it, and I've done payments, don't need to do lending. But building a really cool score, that would be amazing, 'cause I remember just the reams of data we had access to at PayPal. We could maybe get some data, maybe we could buy some data, we could mine Facebook for data. I remember trying to get in touch with Mark Zuckerberg to see if he might give me some of his data. And so a lot of that was sort of in my head while you were like, "I just wanna close some transactions." I think that, that maybe if there, if there's any difference between the, the motivations, you were much more motivated by, "Let's go find a merchant."
- ARAlex Rampell
Well, but the similar motivation was like, you know, trial pay. I, I think we were in the throes of selling to PayPal, but then they, they left me at the altar. Not your PayPal Pete, the many, many generations later PayPal.
- MLMax Levchin
Definitely not my PayPal.
- ARAlex Rampell
Um, and I was like, "I never wanna start a company again. This is so painful." And I, and then you, you had been in that, in the throes of that as well, so it was also like, "Let's get this thing going, um, and, uh, we'll hire other..." Well, but then you introduced me to Nathan-
- MLMax Levchin
That's right
- ARAlex Rampell
... uh, and Jeff, um, and we kind of formally incorporated. But I, I also, like the other thing that I distinctly remember, and you'll, y- you remember this in a very negative light because it's PHP. But, uh, we had a meeting. This w- I, I kind of think of the origin as being the Allen & Company conference in 2012.
- MLMax Levchin
Oh,
- 27:00 – 30:57
The Allen & Company 1-800-Flowers Demo
- MLMax Levchin
yeah.
- ARAlex Rampell
Where-
- MLMax Levchin
I, I don't, I don't find it a negative thing.
- ARAlex Rampell
No, no, I know, but it was funny. So, so we have this meeting, like, so, uh, we're going through the, the list with, uh, San. Remember your, your old chief of staff, right? So we're going through the list, and it's like, oh, we both know Jim McCann, who's this very friendly guy who used to be on all the commercials for 1-800-Flowers. Remember, "1-800-Flowers, you can order flowers. Order it right now for me," or whatever the commercial was. So, uh, we ping him to get a breakfast meeting. Uh, it was like 200-person conference. Anybody can meet with anybody. But it's like, "Hey, why don't we have breakfast?" And I, I pulled like an all-nighter making this demo, um, in PHP. I basically like cloned... It's just funny, like AI can do this in five seconds now. But I, I, I cloned 1-800-Flowers' site, um, and then made a whole like pay with your identity. So you do a checkout, like add the dozen roses to, you know, make up for the bad stuff that I did, sending it to my wife. Click pay. Oh, shoot, I don't have my, my, my payment card with me. Ooh, I can pay with Facebook. What does that do? It does Facebook Connect and makes sure that I have over 500 friends. And actually Facebook had, I mean, to your point, they had a lot of interesting data. They had their own internal flags around did they think this account was fraudulent or not, and fraudulent for back then was more of like it was just created not as a real account. It wasn't a real person, because an account is not a person, right? Hopefully they're the same thing, but not necessarily, because one person can have multiple accounts. Um, but if there's one-to-one. So, so that was, uh, that was our fun demo, and then I remember Jim McCann was like, "This is great. Let's do it."
- MLMax Levchin
Yeah, so I... Two other colorful points from that. So it was a good breakfast, and then in the middle of it he goes, "Oh, yeah, we used to do exactly this thing back in the day when the service members would call us and say, 'Send me and my wife some flowers.' And, uh, 'No, I don't have my credit card with me.'" And we're like, "Oh, that, that's fine." Like, you know, "Thank you for your service. We'll, we'll just get you on the next one." And he like intuitively grokked this idea that like you can absolutely postpay a thing if you have enough trust, and we were basically there raising our hand saying, "We'll take the responsibility for, you know, if they don't pay you, it's okay. It's, we're, we're gonna eat it." And, uh, so he was like instantly smitten. And he, he had been a great proponent of the product and like a supportive per- you know, person/presence in my professional life ever since that breakfast. And he had absolutely no reason to trust us other than like he has some degree of sense who we were. And he was like, "You guys are great. You seem like you really know what you're doing." [chuckles]
- ARAlex Rampell
He was so excited.
- MLMax Levchin
We have no idea.
- ARAlex Rampell
Well, then we got handed to, uh, this... What was his name? He actually now runs a successful startup. The, uh, the guy that was his-
- MLMax Levchin
Amit.
- ARAlex Rampell
Amit, yes. Amit Shah.
- MLMax Levchin
Yes.
- ARAlex Rampell
Yeah, so Amit took over. We implemented. He was very, very excited. But, uh, and I remember I, I, I came up in Microsoft, I think I did this in Microsoft Word or Excel, like, "Here's our pricing sheet," 'cause we needed a pricing sheet. And I was like, "Why don't we charge 7%?"
- MLMax Levchin
[chuckles]
- ARAlex Rampell
Um, like so the, in, in consumer finance for these things, there's a concept of an MDR and an APR. So merchant discount rate, because you're discounting what you pay the merchant because you're advancing them the cash right now. You're not collecting it until later. So call it a, uh, 7% merchant discount rate, but I think there was like some table. I just literally made this up. Um, and then-
- MLMax Levchin
Makes sense
- ARAlex Rampell
... and then there was an APR. Um, but the APR here, there was no APR. It was just MDR. Um, but then nobody... Like I, I showed this to somebody. I think it was Rob Pfeiffer actually, uh, before we hired him.
- MLMax Levchin
I hired like a real finance employee.
- ARAlex Rampell
Uh, yeah, so but, but I, I showed him this. He was like, "Ooh, free flowers," right? Because it's like you just didn't have to pay us back. Um, so the, the returns were not fantastic on that.
- MLMax Levchin
So cynical.
- ARAlex Rampell
Um, but, uh, yeah, I think he literally said, "Free flowers." It's like, "This, this is a great demo. Free flowers."
- MLMax Levchin
He, he's just a generally very smart but very cynical guy, so we, we, we were not gonna be, uh, perturbed by some cynicism.
- ARAlex Rampell
I love Rob. Uh, his sister used to work for me. So I remember, uh, interviewing him in the context of Affirm, although I think at the time it was still Expedite.
- MLMax Levchin
Yeah, it briefly bumped around as Expedite.
- ARAlex Rampell
Yeah.
- MLMax Levchin
And then we finally renamed it.
- ARAlex Rampell
What was it? It was, it was incorporated as Expedite Software Inc.
- MLMax Levchin
Yeah.
- 30:57 – 33:00
The 40 Years in the Desert & Finding Product Market Fit
- MLMax Levchin
I think that's right.
- ETErik Torenberg
And so how did the idea evolve as you, you know, w- went from there? When did it start to really get, get product market fit, or, uh, how did the space play out in the way that you-
- MLMax Levchin
Every startup has the 40 years in the desert. Like, it's just a, a given. Like, if it's worth talking about ex post. I mean, some- sometimes people just, like, quit too early, or, you know, something happens to, to destroy it. But I've never run into a company where people start a company and they just, like, hit product market fit, and 24 hours later they're just selling and, you know, everything's going swimmingly. So you, you always have this period where, like, kinda still makes sense to show up to work, but you don't really know if it's gonna end in, like, a great nothing. And we were definitely meandering through the great nothing period for a while. After 1-800-Flowers, we had a sort of a nonstop interactions with said Ahmed, who was never happy with the conversion rate, with the user interface. I mean, there's... And he was mostly right. Like, he, he was kind of a grumpy, demanding guy, but he knew what he was talking about from the product and financialist perspective, and he was definitely not gonna pay 7%. Uh, and so, uh, w- we were sort of limping through that. We're generating a little bit of volume, but among other things, the notion of, "Hey, you can pay us later," showed up after you selected the flowers. And so he would say, "Look, you guys are cannibalizing my credit card volume. Like, if I charged... If, if I were charging nothing for it, of course I'd send you more transactors, but you're charging me more than credit cards, so it's, it's a dumb idea. Like, I don't wanna pay anything for it at all. You know, you guys ought to be ashamed of yourself, basically." And we were sort of trying to convince other merchants, but we had one merchant that was essentially saying, "Yeah, I, I mean, these guys are nice guys, but it's kind of worthless." And so it w- it was, it was going nowhere fast. And then we had another f- friend who, uh, somebody named Nils, who ran a company called Beautylish, which is kinda still around, but they were selling online cosmetics and beauty products. And the only
- 33:00 – 42:15
Beautylish, Mattresses & the 30% Conversion Breakthrough
- MLMax Levchin
difference that Beautylish did as they implemented Expedite s- I think by then it may have already... I think it was named Affirm by then, was that they told their shoppers up funnel, basically, as they were selecting their shampoos and, and perfumes, that you could pay in three installments or 30 days later or, or whatever it is we were trying to sort of do then. And that had an instant 30% increase in conversion. And that was the, "Oh, we know what this is. This isn't an alternative. This, this isn't actually solving the pajama problem. It is solving my budget is this, but if I could pay over multiple periods of time, it would expand a lot." And so the second we sort of understood the very beginnings of that notion, we turned it right around into a sales campaign, and very quickly found a bunch of small-ish brands, primarily direct to consumers, who could not care whether we charged them 1%, 5% or 12%, because they were trying to grow their top line. And telling their shoppers that, "Hey, you could pay for this over time instead of having to cough up the cash right now," it was transformative. And so we... I would literally get these love letters from merchant CEOs saying... And I'm still friends with a lot of them, like early adopters. Most of these people have now either sold their businesses or the business has failed, or they've gone on to do something else. But I still run into people who were... Like, there's this woman named Tracy from Tradesy. Tradesy.com was a-
- ARAlex Rampell
Oh, yeah. Yeah, yeah, yeah.
- MLMax Levchin
Like, I just saw Tracy-
- ARAlex Rampell
I remember her. Yes.
- MLMax Levchin
Uh, she, she's wonderful, and she was an early advocate for us because her business literally-
- ARAlex Rampell
I forgot about her
- MLMax Levchin
... uh, she, she would email me screenshots of her dashboards and say, "This is the Affirm effect. Here's a 35% pop you guys caused for me. Like, please do more."
- ARAlex Rampell
Well, there, there was a solution to the pajama problem, and then it was also all the mattress companies.
- MLMax Levchin
Oh, yes. [chuckles]
- ARAlex Rampell
That, that, that was-
- MLMax Levchin
That, that was another, uh, big category
- ARAlex Rampell
... that was the big one. I just remember it's like, you know, wait, there's a company called Purple, and there's a company called Casper. It was just like they just kept coming out of the woodwork, and that was transformative. And I remember actually we were talking about this in the context of, like, how can you charge a high MDR and get away with it? Uh, that sounds bad, not get away with it, but, like, actually show sufficient value to the merchant. The highest MDRs are actually for-profit education institutions.
- MLMax Levchin
Hmm.
- ARAlex Rampell
So some of them are, like, 50, like... I mean, I, I don't like these guys in particular, but, like, University of Phoenix.
- MLMax Levchin
Yeah.
- ARAlex Rampell
Um, so there's the private equity firm Apollo, but there's also, like, this holding company of all these for-profit institutions called Apollo Group or Apollo something, and University of Phoenix, I think, is the biggest one. And they just assume that most people aren't going to pay, and the, the gross margins are so high because it's an online course. They're like, "Okay, you can take 50%," right? But you're stuck with the receivables on the back end, which goes back to the fraud fighting that Max was talking about before, because the gross margins of the mattress... Like, these mattresses, I don't know if you ever bought one. It's pretty cool because they didn't actually ship you a mattress that looks like this. It rolls out. So you get this, like, cylinder. It's pretty small.
- MLMax Levchin
Some of them are boxes.
- ARAlex Rampell
Some of them are boxes, but some of them, it's like-
- MLMax Levchin
Right
- ARAlex Rampell
... you just open it, and then it just, like, shoo. It's like one of those old, like, toys that you'd put in, like, your bath and then it would expand or so. It's, uh, that was, like, the mattress. So they had very, very high gross margins, so therefore a lot more flexible on the MDR. And more importantly, nobody wants... Like, you're in your pajamas on your uncomfortable mattress. You don't wanna spend $1,200 on a mattress, but if it's, like, 30 p- like, it, once you subdivide it, it just has a massive increase of conversion rate.
- MLMax Levchin
Yeah. There's a couple of other sort of technical things that are probably worth tapping into in, in that story, but that, that, that was the next big leap. So the mattresses was the precursor to the great expansion into D2C brands, which I'm sure we'll touch on. But before we get there, Affirm briefly flirted with Being a payment provider to the online educational facilities, which we ran out of kicking and screaming because the reason they're willing to pay these enormous MDRs is because the quality of education is largely terrible.
- ETErik Torenberg
Yeah.
- MLMax Levchin
So the reason people don't pay most of the time isn't because they're like, "Oh, I thought about it. Now that I have a master's degree in basket weaving, I just don't wanna pay for it." It's the, "It turns out my degree is worth nothing. Like, why did I sign up for this ridiculous thing?" And so we were... If you go back to sort of, you know, things like, um, oh, what is it called? General Assembly? Is that their-
- ETErik Torenberg
Oh, yeah, yeah, yeah, yeah.
- MLMax Levchin
So there's a whole sort of class of these, like, we will teach you how to code.
- ETErik Torenberg
Yeah.
- MLMax Levchin
Another pre-AI thing, like learn how to code? Just ask ChatGPT, it'll code for you.
- ETErik Torenberg
Yeah.
- MLMax Levchin
But, uh, back in the day when it was still important to learn how to code, but you didn't really wanna go to college for it, you just wanted to take a six-week course, there were plenty of the sort of University of Phoenix clones that-
- ETErik Torenberg
Code Academy.
- 42:15 – 48:58
What People Miss About Affirm Today: From Satisfying Demand to Creating It
- MLMax Levchin
thing."
- ETErik Torenberg
'Cause fa- fast-forwarding a bit, a, a, a lot of people hear Affirm today and, you know, one quick thing they think is, you know, buy now, pay later. What does this not fully encapsulate or what does this miss about the company today in its f- in its entirety?
- MLMax Levchin
One of the things in the email thread that I just reread in the origin origin of Affirm was your claim that advertising and payments are converging, which was the thesis behind trial pay and the thesis behind a bunch of different things. There's actually a failed project within PayPal called PayPal Shops where I was trying to... Personally, I built this thing where I was trying to remarket what you just bought. That information should give us a sense for what you might buy next and, you know, all that. And all these things, by the way, have turned out to be true. Like, they were just, you know, 15, 20, 30 years before their time. But Affirm more and more today is means for merchants to not just Satisfy demand. So somebody comes in and says, "Look, I'm gonna buy this thing, but my budget is this big. I want the shoes and I'd love a bag, but I'm j-," and Affirm's there to say, "Actually, we can help you finance this on transparent terms a lot of times, a third of the time on no interest at all. You should get the bag and the shoes. It's safe." But that, that is the brand promise of Affirm, and it works tremendously well, you know, tens of billions of dollars a year worth. That is now becoming more and more about creating a platform for merchants to tell their shoppers, "Hey, we are launching a new thing. We have this desirable new product we are selling." We've transacted with roughly 50-plus million Americans alone, and we're now live in four countries and, and growing pretty quickly. And so we have shifted to just satisfying demand to helping merchants create or guarantee demand. And the convergence of payments and advertising is upon us, although 15 years later than Alex predicted.
- ARAlex Rampell
I always say like-
- MLMax Levchin
You, you were too early with TrialPay. I'm certainly too early with PayPal shares.
- ARAlex Rampell
Well, the, the other side, I remember, uh, maybe it was in that thread or not, I should, I should find that email. But most companies have very high customer acquisition cost, and like the joke that I make now as a VC is that when I see 90% of consumer companies, I'd kinda rather buy Google stock or Facebook stock because that's where all the customers come from. And I distinctly remember many, many conversations around how do we have negative CAC, right? And like I think to me, one of the coolest things about Affirm to this day is it has negative customer acquisition cost. I mean, it is paid to acquire a customer, and there, there are some companies that you would think they look like this, but they don't because they're basically white labeling something. But going back to the mattresses, um, let's just say that you're late on one of your payments. Casper, the friendly white ghost mattress company, because Casper's a white ghost, doesn't wanna get... Or a cat or something. We had a cat named Casper when I was growing up. They don't wanna send you a dunning notice saying like, "Get off my mattress. You haven't paid me back." They want that to be a third party.
- MLMax Levchin
Yeah.
- ARAlex Rampell
Versus other companies where, yes, you know, what is the difference? What... B2B2C is a really interesting category. It's business to business to consumer. I tried doing this with TrialPay because it's like, "All right, you're playing a Zynga game. Go get, uh, free coins if you sign up for Geico, powered by TrialPay." Nobody knew who the hell TrialPay was, so we, we actually tried sending messages to consumers. Like, you know, we got... I think we got blocked by our email provider because nobody... We, we actually had a right to email these customers, but they had no idea who we were. Whereas actually having a financial relationship with 50 million people with negative CAC, I mean, it really is, not to pet my own, but it's, it's incredible. Like it's so hard to do. We never see anything like this in the venture land or ve- You know, like because, yeah, there are lots of companies that can get to scale. I mean, Casper got to scale, but lots of CAC, lots of CAC, and that's why a lot of these business models, they tend to degrade over time because all the economic value goes to Google and Facebook. So if you can have negative CAC and then you can launch other products as well, right? Because you actually own the customer, and most important, the brand wants you owning the customer. Like this is what I didn't get right at TrialPay. Like Zynga didn't want me owning their customer. Netflix didn't want me owning their customer. I just connected the two. But, um, Affirm, the, the merchants actually want you to own the customer.
- MLMax Levchin
It, it's very... You, you already have a burden of supporting a product and dealing with unsatisfied customers or technical support issues or whatever. A company that tells you 12 times for a year-long loan or 39 times, you know, if it's a three-and-a-half-year loan, "Hey, you're late," or, "You gotta, you gotta make your payment," or all the communications that come from your lender is just another type of burden that the brand is kinda like, "Hey, you know what? Affirm, you guys can handle this. This will be great." And so the, the relationship with the customer is a key component of the foundation of Affirm, and the, our ability to develop new products is, is really built on that. One of the other really sort of cool to sort of going all the way back to the credit scoring thing, so we are the only company in the industry really, there's plenty of competitors who are trying and some, some degree of success, but mostly not really, who will go into longer term loans. And by longer, I don't mean mortgage or, you know, 15-plus years, but like three and a half years is a fairly long period of time relative to the average buy now, pay later, which is like six weeks. And to do that, you have to underwrite. Like you can't shortcut the, "I'll just look at your FICO score," or, "I'll just sort of, you know, I'll look at your Facebook friends." Like none of that works. You actually have to do a real very sophisticated degree of, uh, machine learning work. There are two cool things about it. It's hard to do, and so it's just hard to compete with us on that front. But the other side is it gives you 39 shots on goal or 12 shots on goal to tell this consumer as you send them billing notices and as you have conversations with them, as they pay you, to upsell them on a new service. And so these long-term loans, which are actually quite hard to manage and quite hard to maintain reasonable default rates and, and delinquency rates on, is the price you pay as a provider of financing to upsell consumers on more and more services. And so our, our business has been fueled by these long-term products even though they are probably the, the most challenging part of payments.
- ARAlex Rampell
Yeah. You know, we've been covering some A-A-Affirm history while we're doing a historic episode. I also wanna ask a question about PayPal history. [chuckles]
- MLMax Levchin
Okay. I'll keep us straight.
- ARAlex Rampell
[chuckles] And you know, um, there's been, you know, the, a book came out, F-Founders recently. There's, there's been sort of a lot of, uh, you know, revisiting o-o-of, of, of PayPal, both in its impact as a, a, you know, pioneer in sort of, uh, you know, payments and, and, and fintech, but also in terms of the, the people, uh, that came out of it and sort of the... It, it feels like the, you know, highest concentration of, um, or and highest hit rate of people who would go on to do incredible things. The only comparable thing I could think of today is, is not even companies, is, is the Thiel Fellowship or, or, or something. I, I can't think of a comparable
- 48:58 – 52:44
The PayPal Mafia: Why So Many Founders Came Out of It
- ARAlex Rampell
company to PayPal today. I'm cur- curious if you, you can. Um, and, you know, all with, uh, or, or many with extremely strong strengths, but also, you know, very strong personalities and some strong weaknesses a-a as well. And so I'm curious if there's something you think that is, goes As that story's being told of both, of its impact in the industry, of, of, you know, how early it was, uh, and, and sort of the people that came out of it, if there's something that's underappreciated or you think not quite g- grokked or any, any additions you wanna make to how we perceive that, that company in that time period.
- MLMax Levchin
Sort of an old answer and a new answer to this question, which I've-- you might, you might expect I've answered once or twice before.
- ARAlex Rampell
[chuckles]
- MLMax Levchin
Um, so the, the, the canonical answer that I gave in a book, which by the way is very good. So there, there've been many, much ink spilled on the history of PayPal. The Founder's actually a very good book. Like, and part of it is because it's well-written, but part of it's because Jimmy, the guy who wrote it, interviewed every single character in the story extensively, and spent a lot of time talking to all of us. And so it, it's at the very least grounded in facts. Um, so the, the, the answer I gave for his research was, as we were interviewing certainly the early team and even the later team, we kept on selecting for entrepreneurs. We would ask... Like, one of the stock questions I would ask them, "So what are you gonna do after PayPal?" And the answer that I welcomed the most was, "Oh, this is the last one. I'm gonna start my own afterwards." So this-- And they're like, "Oh, if you're coming in here to kind of get your final graduate degree in entrepreneurship, of course, we'd love to have you. Like, you know, if you're, you're that smart, you're that good, and you're that ambitious, you know, please come along." And so that's kind of the why I think so many people that came out of PayPal proceeded to start companies. And, like, literally, you know, hot second after we all dispersed, YouTube and Yelp and Peter's first-
- ARAlex Rampell
LinkedIn
- MLMax Levchin
... major fund and LinkedIn. And so it, it-- That was not an accident. We were attracting entrepreneurs by design. The other part that I think has actually not been talked about, and may be subtle and sort of my own cut at this, but we knew the people in the room intimately. Like, we literally, you know, exchanged pheromones by hanging out in these sweaty rooms, brainstorming and screaming at each other and spending a lot of time at whiteboards and declaring the other person's ideas idiotic and, and so on. We knew the, the true version of that person, the sort of the extremely, I don't know, uh, the, the, the ultra-philosophical Peter Thiel and the, uh, you know, go all in every time Elon Musk and the, these days, uh, gubernatorial, uh, David Sacks. You know, all, all these people. Like, they, they all have kind of the, the, the present, the presentation layer, and then there's, like, the kind of what they are like at a dinner party, and then, like, what are they when they're really stressed out and r- just, like, head hurts, don't know what to do, and we have a real problem we need to solve. So if you know kind of the true base version of who we all are, as you watch one of these people go for something really big, like Elon taking humanity to Mars, which is extraordinary, and yet, you know, he's a human being. Like, I've seen him sweaty and tired and grumpy at the company kitchen a thousand times. Or Peter, when he is in his doubt and calls me from some fundraising trip saying, "I think we might run out of money." You know they're not gods. You know they're humans, and that inspires you to actually, like, "You know what? If that guy who's just a normal dude, I spent a lot of time with him, he's normal, and he's going for this big of an idea, I should do the same. I sh- I should, I should strive, too." And so I think the combination of... Like, these are very ambitious people. They all wanted to be entrepreneurs. But we also knew each other when we were young and filled with doubt, which many, I think, still are. Uh, I think that that sort of gives you confidence that it's not all, you know, bed of roses. It's, it's, it's, it's paved with, uh, with, with, with, with, with bumpy parts.
- 52:44 – 59:08
Agentic Payments vs Agentic Shopping: The Real Innovation Ahead
- ARAlex Rampell
Is there anything we didn't get to that you wanna make sure that we get to wh- while we're here?
- MLMax Levchin
I'm probably less optimistic about agentic shopping-
- ARAlex Rampell
Hmm
- MLMax Levchin
... and I'm very optimistic-
- ARAlex Rampell
I was just gonna talk about that. Yes
- MLMax Levchin
... about agentic payments.
- ARAlex Rampell
Yeah.
- MLMax Levchin
I think the, the notion of robots will buy our Friday night outfits is misguided. We want to know what we look like long before the robot delivers it to your door. But I think the friction, this notion of sort of the best user interface ever created is the credit card, this may actually be finally up for renegotiation, because agents are, in fact, smarter than pieces of plastic and even pieces of plastic with rewritable chips. And so I think that's a, a lot of conversation around agentic commerce is probably looking 20 degrees off, where, you know, how can I convince you to just trust a robot to buy the right thing? Like, I don't want to. Like, I love buying bike parts, and I spend way too much time looking at two slightly different bike parts because I just, you know, have to participate in the purchase. But the part where I'm like, "Okay, that one, the end." Right now, that one is the beginning where you pull out your wallet or you-
- ARAlex Rampell
Right
- MLMax Levchin
... and so I think we- we're, we're about to see some interesting innovation in payments user interface.
- ARAlex Rampell
So I, I... Can I ask a question on that? So, um, I mostly agree, but I think it depends on there's, like, the I need to research what to buy-
- MLMax Levchin
Mm-hmm
- ARAlex Rampell
... where AI is just yet another tool at your disposal. Like, you ask your friends, that's one. I'm-- If it's a bike part, I'm asking you. I'm also asking AI. I'm asking both of you. But now I have the SKU that I want, and I don't actually care which one of the 19 different places that I get it from. And I kind of think about the world, like, you have people that care more about money than time. You have p- people that care more about time than money. W- the way that I kind of think about agentic commerce, again, none of this is happening right now, so it's trying to prognosticate what's going to happen, is here is the, the UPC. Here is the, the SKU that I actually want. Go buy it for me at the lowest cost. It's kind of the thing that people that have a lot more time than money do right now anyway, and, like, that's why I always point to CamelCamelCamel as, like, my favorite example of this.
- MLMax Levchin
Right.
- ARAlex Rampell
Because i- it's one of the top 100 websites in America that probably nobody with over $100,000 a year of income has ever heard of. But it's, it's a way of saying, "I know what I want." You're not helping... The robot's not telling me what bike part to buy, what, telling me what soda to buy. I know. Just give it to me at the lowest price. But it takes way too much time, and sometimes you can just observe one group of humans that already have something as table stakes and then porting that to another group of humans. I, I guess, do you think that that form of agentic commerce-- Because it's actually related to agentic payments as well.
- MLMax Levchin
Mm-hmm.
- ARAlex Rampell
I have nine different cards. I don't remember the Amazon Chase, issued by Chase card terms for a non-restaurant purchase of something under $500 and if I've used my whatever. Like, it's the same thing. Like, people that care more about money than time, they will figure that out. People that care more about time than money, they probably won't.
- MLMax Levchin
I think directionally that all makes sense. I think the adoption curve is probably going to be fairly slow. And th-these things are always sort of easy to predict to be very slow and sort of the usual adage as well, slowly at first, then all at once. Um, I'm not, I'm not sure I, I can handicap that well. The reason people don't... So there's plenty of people who live in this somewhat murky world of sometimes I have money, sometimes I have time, and it has more to do than anything with the price and the degree of care you put into it. I mean, I don't always just buy bike parts. Sometimes I buy milk, and milk is milk.
- ARAlex Rampell
Sure, I mainly bike parts.
- MLMax Levchin
I mostly buy bike parts. Um, but, uh, the... I, I think what really happens for a lot of people, it's just sort of like, "Well, yeah, I'll, I'll get the, I'll, I'll find the cheapest price, but then I'm not sure how to handicap the probability of that item actually showing up at my door at the time of my desired outcome." Even if I'm okay buying a, some bike part from some faraway land and it's sold from three different retailers, I'm gonna go with the most reputable one versus the one that's got pro- promising me the cheapest or sometimes the fastest. And so I think we're probably a few steps away from AI grasping both the preferences, but also handicapping how these preferences would change based on the input, which may, in fact, maybe AI is already there. It's just that you haven't yet trusted your agent to do as good a job as you would. Like, you can eyeball a site and be like, "That looks like it was edited in the '90s." I'm just not quite sure that I'm gonna spend $1,000 for a new cassette or $600, whatever the cassettes go for these days in, uh, bike cassettes, the, the rear assembly.
- ARAlex Rampell
Well, Bi- BikeCloset is the site that I'm thinking about that looks like it was made in the 1990s that will sell you a very cheap cassette.
- MLMax Levchin
Uh, exactly, but do you know if it were used by-
- ARAlex Rampell
Yeah. It's got-
- MLMax Levchin
... by, by someone, you know?
- ARAlex Rampell
It's true.
- MLMax Levchin
Teeth rubbed off and all. Uh, yeah, so I, I think, I, I think we are in that difficult period where we're still figuring out... The, the other thing that, you know, just to sort of maybe end on a positive note, the thing that's really true that no one seems to be celebrating just yet is grocery shopping is 100% agentic, like for anyone who uses Instacart. Like you tell your Instacart shopper, "Go bring me milk," you don't think twice when they say, "Oh yeah, you, you wanted whole milk from Organic Valley, but I found some other brand, and here it is." And you're like, "Oh, of course, like makes sense." Like, and so the AI inside that shopper's head is maybe not even as good as Gemini or ChatGPT is these days, but you just sort of say, "All right." You just, you, you go, go through Trader Joe's or Whole Foods or whatever you're shopping and y-you figure it out, and it shows up, and 99.9% of the time it is exactly what you wanted or better. And so we are already conditioned to allow some of these purchases to be fully outsourced, payments and shopping and everything else. And so we're, we're definitely gonna get there. It's just a question of how soon will we work through the quirks of like, well, returning of this wrongly purchased bike part or waiting for it forever and not really knowing what's gonna happen to it because it's in transit, but we don't know where it is. I think that, that may be protracted, may, more protracted than people think.
- ETErik Torenberg
That's a good note to end on. We'll have to, uh, get a part two, uh, at some point when we talk more about the future. Uh, Max, uh, Alex, thanks so much for coming on the podcast.
Episode duration: 59:24
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