We also want to make sure that we don’t paint ourselves into a corner in the following sense. The product is a new idea. This is not something that existed before. We have lots of intellectual property protection around some of the stuff that we invented both kind of what meets the eye and what’s under the hood there. And every time you launch a new product, even if it has exceptional uptake, which we think this one does, you are educating a consumer. You have to look for long-term effects. Like, one of my many nighttime jobs is to read consumer feedback that comes to me directly from the card and it’s now a very steady stream of content. And a lot of it is about sort of getting in touch with our PMs and saying, hey, there’s this wrinkle on the card that people still don’t fully understand, how do we fix this?
Again, so in service of that, let’s get 3% more conversion, let’s get 5% more conversion. The card is so new, every time we find some major comprehension unlock, we find ourselves in another 10% gain. So, it’s gratifying to unblock — fix a mistake we made or unblock a comprehension detail and suddenly lot more volume. So, we’ll continue growing users quite deliberately. We’ll be very, very focused on unblocking all the quirks of these interface, doing all the educating that we have to do before we start sending a card to everybody as they sign up. But over the long period of time, I fully expect to get to a place that is, hey, welcome to Affirm, the card’s in the mail. That’s not going to happen anytime in the immediate or even foreseeable future.
But the long-term point of the card is, it is the best way of experiencing Affirm. We will build all of our product roadmaps on this idea of you should have this card, it is the best thing ever and you should just have one of these, even if you’ve transacted with Affirm for the first time yesterday.
Operator: The next question is from Dan Dolev of Mizuho. Please go ahead.
Dan Dolev: Hey, guys. Great results. So proud. Max, the B2B initiatives in the Amazon partnership, I think it was last week, got a lot of excitement and a lot of press. Can you maybe tell us what makes you so excited about this, kind of the opportunity, sizing it and maybe talking whether or not there’ll be other B2B partners? And then, I have a very quick follow-up. Thank you.
Max Levchin: Thank you, Dan. We are very proud too, but I really appreciate hearing that. The team works very hard. I know a bunch of Affirm folks are listening. You nailed it this quarter. Thank you for your hard work. The B2B thing that we started showing is certainly not a one-off. In fact, when we start reviewing the opportunity, my ask to the team was please come back to me with a plan of what this looks like in a market, sort of what’s the true opportunity across many, many possible platforms, not just one. So yes, you should expect us to do more. Obviously, we will speak to it when we’re good and ready. The current product as you see it today is for sole proprietorships. And it’s this interesting space where the efficiency of the lending market to that user is really, really poor.
And so, as a result, the consumer typically borrows money either on their personal financial devices, which is just for a variety of reasons a bad idea, or through all kinds of just unoptimized old school sort of 19th century lending platforms. And there’s no reason why that should be this way, given our expertise and underwriting, in particular underwriting consumers. So expanding our models to small, very small full proprietorship type business underwriting was not a huge challenge. The actual work began something like more than a year ago where we primarily just tested will our underwriting work as well as it does in consumer if we expanded it to very small businesses. And obviously, we feel confident enough to start rolling it out with the largest e-commerce player.
So, feel very positive about it. We’ll be very deliberate. It’s a new business for us. Nothing is — we will not do anything that damages our stellar credit performance. That’s certainly, as always job number one, but exciting. There’s lots of merchants that have very sizable side hustles, if you will, where they sell their goods or goods on their platform to sell props that either use them or resell them and they too need some honest financial services and here we are for that.
Dan Dolev: That’s super helpful. And maybe as a quick follow-up for you or for Michael. I mean, I was – what caught my eye in the shareholder letter was the ability to sustain 3% to 4% revenue less transaction costs. We all know that with the key pushback from clients that we were talking to. It sounds like you guys have figured out a way to — for this not to be a problem anymore. So maybe just kind of walk us a little bit through sort of the path to making sure that this 3% to 4% is sustainable even in a higher for longer environment. Thank you, again.
Michael Linford: Yes. We’re really proud that we were towards the high end of our long-term range in a quarter when we were obviously up against substantially lower rate environment, and we feel like we’re settling into the higher for longer. I think there’s maybe two things to call out. The first is that we’ve done a really good job of making sure our assets have the right economic content in them. In our letter, we do plot what the yield of our asset is and also where our funding costs have gone. And you can see that, certainly you’ll see a pretty big inflection towards the end on the Affirm asset yield, and that’s a reflection of our pricing initiatives but also the really strong credit controls that we’ve had place over the past year.
And it all starts there, you got to get the asset yield right, but then the second piece is really important is we’ve been executing really well in the capital markets. We have added forward flow partners to the mix, which of course helps the imperative earning power as you can sell loans and earn the gain on sale, which is really important for us to do. And maybe notably is that the percentage of loans sold in our first quarter was more in line with the historical averages than we had been in the prior quarter, which was a pretty depressed level. And so, what you’re seeing is the benefit of the improvement to the asset yield and the benefit of the capital markets execution, which in turn is a benefit of the discipline that we’ve had on the asset yield, right?
Those two things are very much linked. And you’re seeing it really shine right now where our engagement with capital markets partners is really positive. Max mentioned that we went and saw many folks over the past couple of months, and the discipline that we’ve had is really giving us credit there. And so, that’s what gives us confidence that this rate environment is one that we can operate well in. We’ve done the work to get the asset yields that they need to be. We’re getting credit for it in the capital market. And our focus is really around, at this point, continuing to scale the network, we’ve earned the right to do that.
