Max Levchin (PayPal, Affirm & investor): Thiel, Musk, fighting fraud, Yahoo, "beneficence" | E794

Key ideas

Levchin recounts how fraud nearly killed PayPal and argues for entering markets with disliked incumbents, stating costs plainly, and judging rule-bending by the integrity behind it.

From a machine transcript of the audio. Quotes link to the moment they are said.

1. 1

   Pick hard, valuable problems with disliked incumbents

   Levchin's HVF label stands for hard, valuable, fun: engineers love hard problems, but he says most are not valuable, and without fun you give up. For entering an industry he adds a test: disliked incumbents, a big market and no technology. That led Affirm to credit cards issued at the point of sale, a product he says is designed to rob the consumer, and whose issuers, he says, earn 40% of their profits from late fees.

2. 2

   Say the price and stick to it

   Levchin describes Affirm as a fixed-installment loan whose total cost in dollars is told up front and cannot change if you are late. He argues the question a lender should ask is whether you can afford the payments until you are done, not how long you can stay in debt. He uses the word 'beneficence', a term he credits to Evernote's CEO, for helping customers more than you must, and suggests that since Twitter it has gone from optional to required, because wronged customers now complain in public.

3. 3

   How PayPal divided its survival problem

   Levchin says that in mid-2000, just after the X.com merger, PayPal was about six weeks from running out of money despite having raised a lot, because chargebacks made it liable for all of a stolen amount while it kept 1-3% per transaction. He recalls an apartment kitchen meeting where the jobs were divided: Peter Thiel would raise a buffer, the finance lead would manage cash and Levchin would fight fraud. He and his head of risk modeled behavior statistically and watched chargeback data weekly, and when Visa and Mastercard threatened a shutdown, the fall from about 10% losses bought more time.

4. 4

   Co-founders should keep trying to impress

   Levchin compares co-founding to marriage: what lasts, he says, is growing together so neither wakes up having outgrown the other. He says he and Thiel split duties early, Thiel on survival and fundraising and Levchin on technology, and each kept trying to prove himself to the other. That did not remove conflict; he recalls Thiel calling from Japan to say that if a late project did not ship, he could find another co-founder.

5. 5

   Judge rule-bending by intent

   Asked when disruption crosses a line, Levchin offers no fixed rule and says it comes down to the integrity of the people deciding. He says he is confident PayPal at some point operated vaguely in violation of some state's money transmitter rules and cured that afterward, while acting against money laundering and fraud regardless of regulation and fixing problems quickly once told. Knowingly breaking the law for the money, he says, is going to end badly.

In Max’s words

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