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The ÎÚÑ»´«Ã½-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.

“We don’t have any of that funny business,â€� the former professional rower says. “No late fees, no compounding interest accounts, no deferred interest; it’s an easier to use product and a much more customer-focused product.â€�

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’s 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’s Bay, and Apple,  and expanding to a team of 200.

Pommen says an acquisition wasn’t part of the plan, but he was left with no choice after the pandemic e-commerce boom.

“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,� says the Victoria-B.C. native. “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.�

In early 2021 PayBright was acquired by American BNPL giant Affirm for $340 million. Its services have been used by nearly 22 million consumers 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’s rapid ascent, however, has raised concerns over enabling consumers to overborrow and make purchases they can’t afford.    

The Star recently spoke with Pommen from the company’s Canadian headquarters in ÎÚÑ»´«Ã½ about the industry’s growth, why many people — and especially young people — 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’t 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’s 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’t know what they want to do, which is management consulting. I worked at Bain & Company’s London office until my wife, who is a neuroscientist academic, got a tenure-tracked position at the University of ÎÚÑ»´«Ã½, so I transferred to the ÎÚÑ»´«Ã½ 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’s financial services they don’t bother with because they’re too small or too difficult from a tech or regulatory perspective. That’s where we found pockets to invest.  

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’t 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’s focus on eCommerce and retail. That’s 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’t 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’t translate well to digital, and they’re still based on the credit card model. If you don’t pay your bill, the balance is carried forward at high interest rates, and if you miss a payment there’s late fees.

With some of those “don’t pay for a year� 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. 

We don’t have any of that. Ours is much easier to use, and much more customer friendly, which is what’s 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’t trust traditional financial institutions and are more open to digital alternatives.

How do you make money?

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

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

We don’t 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’t pay us, we don’t 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’s your $5,000 line of credit, good luck.  

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’t take any fees, our business lives or dies based on the quality of those underwriting decisions. If we’re wrong and we approve someone that we shouldn’t have, that’s on us, and we take responsibility. We believe that’s the most responsible way to do consumer credit, and why I believe we’re 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.