James Faucette: And then just as a follow-up, you mentioned a couple of times, particularly as it relates to the changes in pricing, et cetera, that some of those implementations took or price changes and work with the merchants took longer than expected and was more back and forth there maybe than you had anticipated. What is that €“ what are you being able to do so that in the future, like you’ve got more flexibility there and can move more dynamically as rates, you’ve got to imagine in the very long run, we’re going to move around quite a bit? So just wondering how you’re approaching that.
Max Levchin: Yes. This is, if I have some egg in my face to clean off still, but this is the one. I saw myself a bit of a payments expert going back 30 years, and I think I still am, but I completely forgot the part where Visa and Mastercard, whenever they change rates where any network rule changes, they always operated in the six months schedule with a six months notice, and then there’s a six months implementation window. And late summer we decided this is what’s going to have to happen, and it in fact takes six months. And the way you do this right, is you structure these into the contracts, you make sure that these contracts stipulate both what happens when the rates go open, when the rates go down you make sure that, what the transition periods look like, et cetera.
And this is, again somewhat embarrassingly our first effort of that kind. This is the lesson that we’ve all now learned here. Certainly I am first in the line of the lesson learning, so I think you should not expect us to have to have another one of these apologizing sessions where we say, yes, we were going to change prices, but we took a lot longer than we thought. So, we’ve now figured out or we’ve learned how to price in the right amount of time.
Operator: Our next question is from Eugene Simuni with MoffettNathanson. Please proceed.
Eugene Simuni: Hi guys, good evening. I wanted to ask about the merchant counts actually. So see the data on the slight decrease in total merchant counts and understand that, that’s driven by smaller merchants as you’re showing in a very helpful disclosure on what’s happening with the larger merchants. So even with the larger merchants, there’s a pretty noticeable slowdown in kind of the incremental merchants added to the network. Just wanted to ask about that, what’s sort of driving that in your view, and what’s your expectation for that trend going forward? How important it is to the overall growth of your platform for that kind of number of larger merchants, let’s say, to keep growing at a decent pace?
Max Levchin: First of all, merchant count as a little bit of vanity network at our scale. I think Michael has a few promises in the letter. We’re going to publish a slightly different metric to make sure it just shows kind of a true state of penetration. Huge merchants €œis a very countable set€, and we are very well penetrated there, as I’m sure all of you know. Mid-sized merchants are important because these are kind of leaps and bounds of volume that we’re picking up, and that’s where majority of our, if you will, hand-to-hand sales combat takes place these days and probably has been in the last few years. And so those are important. Little merchants are a little bit different. They sometimes become inactive, especially at the really small scale, become inactive over a course of a quarter.
The true count of installed merchants or activated, but not necessarily active is significantly larger than a number we published and be easy to sort of have a even more inflated vanity metric here. But we’re trying to be transparent here. So the growth of merchant base is kind of a set of weights for the weighted average total of GMV. Obviously GMV growth is what we are entirely focused on.
Eugene Simuni: Yes. Got it. Okay. That’s helpful, thank you. And then quick follow-up. I wanted to ask about the Affirm app and kind of the transactions that I initiated through your app, through your website. Think if I’m kind of looking at these numbers correctly, the proportion of that has declined a little bit sequentially, but my question is really broader, sort of what are the €“ what are your initiatives around improving the engagement with the app and again, how important it is to keep investing in it and what are you doing to keep driving traffic through it?
Max Levchin: Yes. Let, to be honest, I don’t have it off the top of my head, whether it declined or, oh, yes, I guess it’s slightly down quarter-on-quarter on the percentage basis. It is super important to us. So for the points of doubt, that is a thing that I care tremendously about. There’s a little bit of equivalence between transactions that happen in our partner apps, for example, as we grow within Shopify that, or imagine that you can service those transactions both inside the Shopify app and in our own app. And we always route the consumer towards the most likely place of repayment because again, job number one, job number zero is making sure that credit metrics remain excellent. But the overall reengagement within the network is what we care about the most and our app and our site and our user extension and a bunch of other things.
And most importantly, to me, at least right now, the card is where we are investing a huge percentage of our engineering cycles. The opposite required companion to the card in fact, the functionality is in the app. You’re borrowing money in the app, you’re not ever borrowing money than the card itself. And that is where we think a lot more of this for engagement will take place. There’s some really cool experiments taking place there. I’m staring at a spreadsheet titled Max’s Top 20, which has 35 elements in it right now, which all the projects that we put in the motion over Christmas break with our Head of Consumer Products and we’re shipping a couple of those every week now. So, I’m very happy with the velocity of the experiments we’re doing there.
Michael Linford: And then there’s just also some math that’s really important when we are scaling programs like we are with the largest platforms and, e-commerce players and Amazon and Shopify as an example. All of that growth, all those transactions are obviously not starting, on our platform. And so a lot of growth is coming from there, which means that like, I’m actually very impressed we’ve been able to hold it as constant given, the rapid rise in growth in these partners. And so I think to Max’s earlier point, that the health of the network is reflected in those engagement stats and the user stats and growth in transaction counts, and the fact that we’re holding serve on the level of engagement through our properties today is a really encouraging sign given the growth that’s happening away. As those growth rates attenuate, you’re going to see our share pickup.
Operator: Our next question is from Andrew Bauch with SMBC Nikko Securities. Please proceed.
Andrew Bauch: Hey guys, thanks for squeezing me in. Just wanted to hone in on one of the comments in the shareholder letter here in where you say you’re redirecting R&D efforts towards margin improving projects. I mean, I guess how much of that is tangible in the current guidance. And is it fair to assume that is a bottom line margin improvement variable rather than, any kind of shift to potential long-term RLTC numbers?
Max Levchin: Yes. So the short answer is, when we talk about some of the speed of, for example, taking pricing, we would have a lot more of the impact in this year’s guidance had we acted earlier and especially true given the size of the balance sheet that we’re sitting on right now. So, we feel like there’s a lot of very long, very big initiatives to improve the margin, and that is up in the revenue less transaction cost line item, much more so than in an OpEx. We feel like there’s a lot of very big and structural improvements that we’re going to be able to make, but they don’t really show up in the vertical periods in Q3 and Q4 just given the timing of so many of, the flow-throughs for any moments on the balance sheet, for example. And so that’s where the focus is. The effort is reflected in our guidance, but you’re not going to see the full benefit of all of the efforts until the quarters play out in the back half of the calendar year.
