Even if your credit score is among the best in the country — anything close to 800 — chances are, your credit card still charges you more than 13% interest. What gives?
These days, when 30-year Treasury bonds yield around 2% and high-yield, risky bonds yield 4%, this seems pretty outrageous. Thankfully, one company agrees.
One of Wall Street’s hottest new names in fintech, Affirm (AFRM), which just went public in January, has set out to make money on the fact that credit card companies are charging far too much in interest.
The company is best known for its buy-now-pay-later (BNPL) option for purchases, which gives consumers the opportunity to buy a good or service and spread the payment over weeks or months with no interest. Meanwhile, Affirm charges the vendors a bit, just as credit card companies charge vendors anywhere from 1% to 3%.
But now, the company plans to roll out a new card that will act as both a debit card, pulling money directly from one’s bank, or a credit card, spreading payments over time, with the consumer making the choice at the time of purchase.
Affirm’s card, which is expected to be available later this year, will offer interest-free and simple interest-bearing loans, said CEO Max Levchin, adding that more than a third of U.S. consumers have used a BNPL service with debit transactions accounting for 30% of all payments.
It’s not that interesting for a card to offer either debit or credit functions. Consumers can handle that simply by paying their credit card bill in full at the end of the month, thereby avoiding interest charges. The interesting part is the exceptionally low interest that Affirm has been charging.
While the company quickly scales up the interest it charges for payments that extend for several years, the very low or even zero interest on payments spread over weeks or a few months could force other credit card companies to rethink their exorbitant rates for creditworthy borrowers.