Michael Linford: Yes. We’ve not given any update to the framework that we laid out last year. I think that we would probably say we’re in the midst of one of the biggest kind of moments of volatility from a macro sense. So, not sure that we would hold ourselves to the framework that we outlined a year and a half ago in this very moment. But I think part of the reason we laid out our profitability commitment to the end of the year was a reflection of the fact that we were wanting to get ahead of that from a framework standpoint.
Max Levchin: Just for the record, this is not the growth rate that I personally like. We intend to grow the business faster. So the expectation of where they are now is not the expectation that I have for this business. That said, we will manage credit, most importantly as job number zero. Like we will never allow growth trump the necessity of managing losses, and yields, et cetera. But there is absolutely no reason to believe that having taken over a quarter of U.S. retail sales, we’re going attenuate and match some steadiest gross growth rate.
Operator: Our next question is from Dan Perlin with RBC Capital Markets. Please proceed.
Dan Perlin: Thanks. I wanted to explore the long term profitability question again. But from the viewpoint I feel like I’ve heard you say at conferences like one of the biggest toggle points is, is really kind of the human capital aspect of your business and you obviously just did a very large reduction of force here. So my question is that seems to be helpful today, but to the extent that you’re able to sustain long-term profitability, are you going to have to lean into something that requires a lot more automation on your part and are you doing that or are you just trying to match, obviously right now, obviously you’re kind of matching an expense versus a downdraft in the top line, but I’m thinking about this longer term from a sustainability perspective. Thank you.
Max Levchin: Couple of different thoughts on that. The rift is very unfortunate and certainly saddens me greatly and the rest of the team. It is an economic reality that we have to live within our means and match growth of headcount with growth of revenue. But for the record, what we’ve done is we’ve rolled back six months of engineering hiring. This is not a €“ everything is going to be replaced by robots and we’re writing a lot of code and we’ll continue to do so. We have definitely shifted our geographic hiring focus to Poland where we’ve been able to attract exceptional talent at significantly lower cost than Silicon Valley, for example. We have a lot of things that we want to build and we’ll certainly expect ourselves to build it and deliver it.
What we’re doing right now is not building all those things concurrently. What we’ve really done is reduce the surface area of engineering projects we’re allowing ourselves to invest in, which a year and half ago or two years ago was exactly the right strategy. And I stand by those decisions. Today, it’s a little bit tougher to justify having things that will create the next billion dollar business three years from now built today. We’ll have to build it a year from now.
Dan Perlin: Got it. If I could just do a quick follow-up on the pricing initiatives. The question here is really, as you increase APRs up to 36% is the cap. And then you are also, I guess, toying with the idea of increasing MDRs on the 0% APRs, which kind of puts a burden on merchants. I’m just wondering, do you kind of foresee any, I guess, diminishing returns associated with that. From a merchant perspective, I know you have to get some approvals it sounds like, in order for you to actually take those caps up. But I’m just wondering how those discussions have gone and what that kind of feels like from a merchant perspective.
Max Levchin: I think everyone, merchants and firm alike are keen on more volume. And I’ve repeated often, and I’ll say it again, we are fundamentally governed by yield and risk management. So we must maintain the risk frameworks that we’ve signed up with our capital partners. If we are able to increase the compensation we get for taking the risk and we really do think of it in terms of MDR/APR trade off. There are many situations where the merchant is more than willing to pick up the increased cost because they want to pass the savings onto the consumer and attract them this way, but obviously works really well for folks with direct-to-consumer brands where maybe manufacturing is partially owned or fully owned. And in other situations where the brand is already paying us minimal possible and is unable to shoulder anymore, then it’s the consumer that has to see increase rates.
In either of those two cases, if we are able to raise the rates, we will increase approvals. Like this is fundamentally not about expanding a margin. We’re quite comfortable with the margin structure that Michael outlined. We continue targeting those RLTC percentages. But being able to talk to our merchants about helping them sell more in a period of obvious consumer slowdown is a pretty welcome conversation. It is not in every case anyway, is it a, hey, well we’re just going to go do this because again, we run complex programs. Part of why this business is so defensible is because vast majority of our merchants have significantly more to do with us than just showing up our logo on their checkout. If you look at their product details pages, you’ll see that there are pre-quals and various forms of finding out the true cost to the consumer, which has to be updated for regulatory, and just marketing purposes, et cetera.
So it’s a more complicated thing to execute than perhaps meets the eye, but it is not a difficult conversation with the merchant. And as Michael pointed out, we’ve run the 36 versus 30 sensitivity tests last year and found that our consumers are actually smart enough to realize that when there are no fees, there are fixed schedules and there is no compounding difference between 30 and 36 on a $240 loan over 12 months is $0.70 a month. So, the true cost to consumer is practically de minimis on a cash basis, and our merchants are smart enough to understand that as well.
Michael Linford: I think it’s important to note that our direct-to-consumer channel, where we have complete control, is probably the best insight into where like the structural economics are here. And that’s our most profitable product and channel. We have a very efficient way to engage and monetize that engagement in our app. And I think Max’s opening remarks pointed out that one of the ways we’re getting to our goals is by driving that engagement back to our own services where we can very profitably engage consumers and we’re in full control of that experience.
Operator: Our next question is from Jason Kupferberg with Bank of America. Please proceed.
