A young man holds a credit card and uses a laptop to shop online.
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Americans shopping online after midnight tend to make riskier transactions and are more likely to default on loans, according to survey confirm chief financial officer Michael Linford.
Linford told CNBC in a recent interview that the fintech company uses the time a consumer attempts a transaction as a key data point to help determine whether to approve a loan.Other factors include a user’s repayment history with Affirm and credit bureau transaction data Experian.
“Local time of day is the signal we use in underwriting, and most times of the day carry the same credit risk,” Linford said. However, between midnight and 4 a.m., things changed, he said.
“Human beings don’t make the best decisions at two o’clock in the morning,” Linford said. “It was crystal clear throughout the day – credit default rates spiked around 2am”
Although the data clearly shows late at night Financial decisions are riskier and their reasons are less risky. Shoppers may be intoxicated, or facing financial or emotional stress, desperately seeking credit, Linford said.
Affirm, run by PayPal co-founder Max Levchin, is one of the new fintech lenders competing with bank-issued credit cards. Buy now, pay later properties offer installment loans, often ranging from interest-free short-term deals to long-term credit with interest rates as high as 36%.
Instant approval
Companies include Affirm, clear and seize Embed their services into retailers’ online checkout pages.
Key to their business model is the ability to instantly approve or reject customers at the transaction level, using data to help judge the likelihood of repayment.
“We don’t need to know whether you’re going to have a job in two years,” Linford said. “We need to know if you can afford to repay the $700 you purchased now. That’s very different than a credit card, which gives you a line and says, ‘Good luck to you.'”
As consumer debt overall rises, so does the use of “buy now, pay later” loans. Although the industry touts prepaid rates and fees as lower than credit cards, critics say they cause users to overspend.
But Affirm manages repayment risk by declining deals or offering short-term loans that require a down payment, Linford said.Last week, it was confirmed report The monthly loan 30-day delinquency rate for the last three months of 2023 held steady at 2.4% Compared with the same period last year, total purchases surged 32% at that time.
Affirm has little incentive to allow users to accumulate debt, the chief financial officer said.
“If you can’t pay us back, we lose, unlike a credit card,” Linford said. “We don’t charge late fees. We don’t recycle, we don’t compound interest.”
Affirm has different interest rates than credit cards delinquent Since 2021, loan balances at the four largest U.S. banks have been climbing as loan balances have grown. The survey showed that as of the fourth quarter of last year, Americans owed $1.13 trillion on their credit cards, an increase of $50 billion from the previous quarter as interest rates rose and inflation persisted. Federal Reserve Bank of New York Report.
“The work environment is great, so it begs the question, why are credit card delinquency rates increasing?” Linford said. “The answer is that they took their focus away from underwriting, and from my perspective, they became aggressive at a time when consumers started to show stress.”
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