Operator: The next question is from Andrew Bauch of Wells Fargo. Please go ahead.
Andrew Bauch: Just wanted to ask a general state of the consumer kind of question. I know that the student loan forgiveness or forbearance is coming due. And so, any kind of updated thoughts on how you think that impacts overall demand? And then, maybe like a higher level question. As macro is deteriorating, I mean has deteriorated, and in the past, you’ve said that there is a reasonable possibility that BNPL becomes a more preferred payment method, in more challenging economic times. Just trying to get a sense of have things kind of played out the way that you had anticipated in both of those opportunities.
Max Levchin: A lot to go there. So, on the student loan, that’s an easy one. So we said it for two quarters in a row before this one, we too got very seriously. Obviously, nobody had sort of real sense for exactly what it would look like. I gave Dan props last quarter because he really something that predicted pretty precisely what we thought would happen to student loan repayment, impact on our ability to approve people. And the point is we’ve been looking at it for months and months and months and incorporated underwriting changes to make sure we are prepared for the student loan repayment resumption. At this point, they’ve been effectively back, the obligations for a month and a little bit. We feel that we’ve handled it really well.
We can see it in our credit prints that it had no material impact on us. In fact, the slight increase that we saw was seasonality exactly as we predicted. So, we did a really good job preparing for that and largely think it’s behind us. I think just more broadly, that has been our strength as a company. We take underwriting as the single most important thing we cannot make a mistake on. And we obsess over it. We look at all the metrics all the time. We call five alarm fires every time, some metric — ever so slightly off to make sure that we know exactly why it is. And that’s what has allowed us to maintain this level of performance in credit. I’m not sure I agree that the economy has deteriorated. That’s a very broad statement. There are definitely signs of stress going back as far as April of 2022.
It’s, generally speaking, for our consumer not been a dramatic change in their ability to pay their bills back because — remains effectively fully employed. Obviously, the most recent unemployment numbers start to show some very modest cracks in the full employment number, but still very, very strong relative to what we would consider to be serious area of concern. And we tune our models to both internally sourced data of actual repayments and the macroeconomic inputs such as job prints is what we consider as we try to forecast the not very distant future. The reason we don’t need to forecast the very distant future is because the terms of our loans are really, really short. So, we have to be right about what’s going to happen to our consumer in the near-term much more than we have to predict the world economic future.
As far as the BNPL popularity, we’re certainly seeing a stronger demand as we had seen in points of time. It does help that we are the only player of scale that is willing to write monthly installment loans. The paying for was a pretty cool idea when it was all fun and games and zero interest rates to underwrite people for 6 months loan and 12 months loans, you have to be quite a bit more detail oriented and thoughtful in our modeling and that is our strength and the source of our overall superiority. We feel very good about our ability to continue performing in those loans as well as the shorter term stuff. It seems that offering the full spectra of products really does drive consumer preference, but obviously still a very, very competitive market and we’re not going to declare victory just yet.
But it does seem that the BNPL has remained a consumer favorite. Certainly, the Affirm version of BNPL remained a consumer favorite, given as the economic party may have gotten a little bit cooler.
Operator: The next question is from Jason Kupferberg of Bank of America. Please go ahead.
Jason Kupferberg: I know the shareholder letter mentioned that you’ve seen some disparate GMV trends among some of the various categories that you serve. So, I’m wondering just as you look at the guide — the updated guide for fiscal ‘24, are you assuming any material change in the more discretionary categories?
Michael Linford: No, we’re really not. So as per the usual, we try to hold what we’re seeing right now when we provide our guidance. And we don’t really assume things are going to get materially better or worse because we really don’t try to prognosticate too much about where the economy is going. We do see some positive trends right now. You’re seeing categories that were real decliners over the couple of quarters returned to something that looks more like flat, certainly less decline. And we think that’s a good healthy sign. And obviously, we still have exposure to some of the largest platforms in e-commerce, and that does — that breadth of exposure allows us to get pretty wide category coverage. And so, the more operative question for us is, are consumers going to be out spending, and we certainly feel like the evidence is right now that they are.
Jason Kupferberg: Max, you touched briefly on decline rates. And I’m just wondering if you’ve seen any notable change in those decline rates, not just in terms of this year, percent of loan requests that you’re declining. But just how that might vary across different slices of your demographic, or are you seeing certain consumers coming back with more loan requests more frequently?
Max Levchin: I’ll start by reminding that decline for us is kind of the point of last resort. So, for a huge percentage of underwriting decisions, what we try to do and do pretty well is say, yes and, and is we need you to make a down-payment. We think that you should borrow, not $800 for example, but $600. And if you have [$200] to make a down-payment, that will be wonderful. And so that’s just an important thing to keep in mind. So, when sort of — we look at our approval rates, they’ve largely remained broadly the same. Obviously between sort of groups of consumers if you stratify them by credit, they generally remain the same. But by definition, the credit mix, the input mix has not really changed all that much. So very broadly, the answer is no, we’re not seeing anything dramatic.
