海角社区官网

The Toronto-based chief revenue officer of U.S.-based BNPL giant Affirm says the alternative loan product is the preferred payment option for millions.

Rather than rolling credit, monthly bills and steep penalties, BNPL financing providers invite shoppers to pay for specific purchases in predetermined instalments.

鈥淲e don’t have any of that funny business,鈥� the former professional rower says. 鈥淣o late fees, no compounding interest accounts, no deferred interest; it鈥檚 an easier to use product and a much more customer-focused product.鈥�

Pommen gained an appreciation for the emerging payment category while in private equity and searching for alternative financing product investment opportunities too small for the big banks in the early 2010s.

That鈥檚 when he discovered a Canadian company helping customers defer payments for costly health care services.

In 2015 Pommen joined as an investor, president and CEO. The next year, taking a cue from global competitors, the company pivoted toward major online retailers, and rebranded as PayBright.

PayBright experienced explosive growth, signing major retail partnerships with the likes of Wayfair, Samsung, Hudson鈥檚 Bay, and Apple, 聽and expanding to a team of 200.

Pommen says an acquisition wasn鈥檛 part of the plan, but he was left with no choice after the pandemic e-commerce boom.

鈥淭here was a lot of investment capital going into other players in our industry, and it was becoming clear that they were all going to come to Canada,鈥� says the Victoria-B.C. native. 鈥淲e were a bit too small and a bit too far behind to compete, and at the same time those players started to express interest in acquiring us.鈥�

In early 2021 PayBright was acquired by American BNPL giant Affirm for $340 million. Its services have been used by nearly 22 million consumers聽who average 5.6 transactions a year of $273 each, including 2.5 million Canadians. In the last 12 months Affirm processed more than $33.5 billion in payments.

Today, seven per cent of every eCommerce retail transaction in the U.S. is processed through a buy-now-pay-later provider. According to a 2021 by the Financial Consumer Agency of Canada (FCAC), 34 per cent of Canadians are familiar with BNPL programs and eight per cent had used them.

The industry鈥檚 rapid ascent, however, has raised concerns over enabling consumers to overborrow and make purchases they can鈥檛 afford. 聽聽聽

The Star recently spoke with Pommen from the company鈥檚 Canadian headquarters in 海角社区官网about the industry鈥檚 growth, why many people 鈥� and especially young people 鈥� prefer the instalment model, and whether the industry is encouraging unhealthy habits.

How did you end up in the financial technology industry despite not studying either?

I didn鈥檛 know what I wanted to be when I grew up, but I was a professional rower. I was the captain of the Harvard Crew and president of the Cambridge Crew, and rowed on the Canadian National Team, so that was my focus.

At Harvard I majored in sociology and French, then did a master鈥檚 in philosophy at Cambridge, followed by a PhD in international relations.

After I graduated in 2006, I did what most people do when they don鈥檛 know what they want to do, which is management consulting. I worked at Bain & Company鈥檚 London office until my wife, who is a neuroscientist academic, got a tenure-tracked position at the University of Toronto, so I transferred to the 海角社区官网office in 2008.

The next year, I got an opportunity to join a private equity firm called TorQuest Partners, which is where I started developing an interest in nonbank financial services. Canada has these huge banks, but then there鈥檚 financial services they don鈥檛 bother with because they鈥檙e too small or too difficult from a tech or regulatory perspective. That鈥檚 where we found pockets to invest. 聽

In 2014 I met with a small company called Health Smart Financial Services that was doing point of sale financing for health care products and services. For customers of dentists, a fertility clinic, a vet or a med spa, Health Smart let them pay in six- or 12-month interest-free instalments.

It wasn鈥檛 a good candidate for TorQuest, but I stayed in touch with that company and spent some time with its main shareholder and joined as an investor, president and CEO in December of 2015. I was employee number six.

What inspired the pivot to eCommerce?

We raised some money in 2016 to invest in growing the product, the team, and our sales and marketing, and ultimately doubled the business, but it was still very small.

We realized that the private health care business in Canada is very fragmented; once you sign up the largest dental, veterinary, hearing aid chains, the rest of the market are small businesses, which made it hard to scale.

At the same time, we were seeing a similar business model emerging in other markets like the U.S. with Affirm, After Pay in Australia, and Klarna in Europe.

By early 2017 we realized there was a huge opportunity here; we were in the instalments business, we already had some of the technology, let鈥檚 focus on eCommerce and retail. That鈥檚 when we renamed the company PayBright and became the first in Canada to capitalize on this trend.

Was acquisition always the goal?

The plan was not to sell the business; we expected to carry it on indefinitely.

Then in 2020, after the initial shock of the pandemic wore off, a huge amount of spending moved online, and the industry reached a fever pitch. There was a lot of investment capital going into other players in our industry, and it was becoming clear that they were all going to come to Canada at some point.

We were a bit too small and a bit too far behind to compete, and at the same time those players started to express interest in acquiring us. We realized it would be foolish not to take those calls.

We had conversations with a lot of them and even considered a few Canadian banks. In the end, Affirm wasn鈥檛 the richest offer, but we felt like we had the most in common with them as a technology company founded by PayPal co-founder Max Levchin.

The products were similar, we aligned on our customer-first ethos, and we knew there would be great growth opportunities with Affirm, which was just about to go public.

How is Affirm different from traditional credit products?

Point-of-sale financing is hardly new; layaway plans originated in the Great Depression. In Canada it was often through store cards or private label credit cards, where you can do a 12-month instalment plan for large purchases.

The problem is signing up for those is cumbersome and don鈥檛 translate well to digital, and they鈥檙e still based on the credit card model. If you don鈥檛 pay your bill, the balance is carried forward at high interest rates, and if you miss a payment there鈥檚 late fees.

With some of those 鈥渄on鈥檛 pay for a year鈥� offers, if you miss your payment by a dollar or a day, you end up getting charged all the interest that was deferred since you made the purchase.聽

We don鈥檛 have any of that. Ours is much easier to use, and much more customer friendly, which is what鈥檚 driving adoption, especially among young people.

Why does it appeal to young people?

In the U.S. especially there was a bit of a step change after the financial crisis, when many younger consumers saw their parents struggling with debt. They don鈥檛 trust traditional financial institutions and are more open to digital alternatives.

How do you make money?

When we pay the merchant on the customer鈥檚 behalf we keep a small percentage of the total. For some purchases we also charge interest to the customer, but it鈥檚 a very simple interest rate, and its disclosed upfront, so they know how much they鈥檙e going to pay, and when.

Customers can make payments online or in the Affirm app with a bank account or debit card. They can also turn on the autopay feature.

Are critics right to suggest companies like Affirm encourage unhealthy buying habits? 聽聽

Unlike credit cards it鈥檚 not in our interest to let customers overextend themselves.

We don鈥檛 charge transaction fees, late fees, and or hidden fees. The customer will never owe us more than we tell them up front. We are totally uninterested in heavy handed collections. If they don鈥檛 pay us, we don鈥檛 benefit in any way. In fact, we absorb the loss.

We underwrite each transaction individually at the time of the purchase, based on the information we have about the customer, rather than the credit card model, which is like, here鈥檚 your $5,000 line of credit, good luck. 聽

We look at their repayment history with us, their credit file, the purchase they’re making, and dozens of other signals that we put into a machine learning model to decide whether to approve the transaction.

Since we don鈥檛 take any fees, our business lives or dies based on the quality of those underwriting decisions. If we鈥檙e wrong and we approve someone that we shouldn鈥檛 have, that鈥檚 on us, and we take responsibility. We believe that鈥檚 the most responsible way to do consumer credit, and why I believe we鈥檙e preferred by so many consumers.

Where does Affirm go from here?

What’s clear is that this type of installing product has gone from a niche curiosity to becoming very mainstream. All the largest retailers feel they need to offer it, more customers are adopting it, and they are using it more often.