Affirm Holdings, Inc. (AFRM) Earnings Call Transcript & Summary

Hello. This is Pete Christiansen from Citi's U.S. payments, processors and IT services team based out of New York. Today, we're glad to be welcoming Michael Linford, CFO of Affirm. Michael, welcome to Citi FinTech 11. Great to have you here.

Thank you for having me.

Well, why don't we start off with a big-picture kind of question? The rise of buy now, pay later has clearly demonstrated that there's a segment of the consumer population that's been underserved, and the category is clearly going mainstream. At the same time, buy now, pay later competitors in the U.S. have continued to expand rapidly. How do you think about Affirm differentiating at both the consumer and merchant level? And why do you think it's, per se, not easy to copy Affirm's approach? Is it simply a case of a friendly application interface or easy-to-understand payment terms? Or is it something perhaps more, I don't know, broader cultural reasons why Affirm has resonated so well with consumers and merchants today?

I mean, first of all, the market is very big and it's growing very fast. We'd estimate that penetration in U.S. e-commerce is less than 2%. Due to global comparables, that number should be high single digits, even into the teens. And so you've got the kind of tailwind around e-commerce growth, combined with penetration of our kind of payment methods. And so the market is very big, growing very fast. And that -- it's why you see multiple players. And any time you have such a big and growing market, especially a new one, it does attract competition. The reason why it's growing so fast and the reason why it's so big is the consumer preferences are changing at the most basic level. This is, we believe, a fundamental pivot in consumer preferences that has started a few years ago and we think will survive for decades to come. Consumers are demanding honest financial products. They want simplicity. They want transparency, and they want certainty. The existing ways in which credit is delivered offers none of those things. And so we, over the past decade, have built a company that's kind of underpinned with technology to be able to deliver an honest and simple financial product while preserving strong unit economics. And that's been the trick is you got to be able to deliver -- meet that consumer demand, that consumer pivot and still have a business underneath it. Our expertise and technology has enabled us to build what we think is a real underwriting advantage, which, in turn, allows us to do the way -- to serve our customers the way we want to serve them. Merchant needs are changing, too. So you have the consumer needs changing. On the merchant side, you have the same sort of pivots going on. The most recent change with Apple and their advertising tracking is like a -- probably going to end up being a footnote in what is continuing to be a fundamental pivot in advertising online, which means e-commerce players are more and more needing ways to drive conversion, attract consumers and try to grow their businesses. And that's -- take the consumer preference changing and the merchants being squeezed, we think, creates this Goldilocks opportunity for this kind of a business to start. And so with that as the backdrop, why do we win? First and foremost is technology. Technology enables us to approve more people, underwrite deeper, to remove friction from checkout, which, in turn, drives better conversion for merchants on their site. It allows us to do a wider range of transaction types. We can do low AOV transactions, the Split Pay business. We can do high AOV transactions. We can do 6 weeks or 50 months, and we can do anything in between. And that ability to serve all transaction types and to all consumers is a real value to the merchants and the consumers as they know that Affirm isn't just for breaking up a t-shirt purchase into 4 payments. You can do that with Affirm, but you can also find a way to finance that new couch over 24 months. And all of this is done with honesty and transparency. Affirm is a leader in how we treat consumers, and that benefits the merchants as the way we treat consumers reflects back on their brand but also enjoys loyalty to the consumers as they know they'll never charge late these. There's never any uncertainty in what they'll have to pay when they use Affirm. And meeting that consumer on those kind of financial terms while delivering a great experience that's digital and mobile-first is the reason why we win.

That's great. One of the developments that recently just came out is expanding your agreement with Amazon, which is super interesting here. Can you talk about what the amended partnership entails? And perhaps what will the offering look like for the average Amazon consumer? And to take it a next step further here, how do you think you've aligned the incentives within the structure of the agreement for both parties to really get this going?

Yes. Thank you. We're thrilled to have this opportunity here to expand the partnership. We started off with a test that we were running. We started running the test in the summertime. We issued the press release around that. As people began to see it and pick up on it, we thought it was important that the market understood what was going on. It was a test. Folks got really excited about it. Us, too. We were really excited about it. But at that time, it was more an opportunity to begin to build something. And throughout the course of the test, the results were really good, which isn't surprising. We're leaders in technology, and we treat consumers the right way. Those are 2 things that Amazon cares an awful lot about. And the success of that test has led us to dialogue around how do we expand the partnership, and we went from testing the thing that had maybe the option of being something material to really rolling out the full program across Amazon.com. We hope to be live and fully rolled out for the holiday season this year, and we will be Amazon's only third-party, noncredit card, BNPL option. And those are a lot of words, but the way that -- the way to interpret that, I think, more than anything, is we've carved out a space for Affirm to be unique on Amazon.com and -- for some period of time. And that, we think, will give us a chance to build a real lead and develop a pretty big network of consumers. But with respect to aligning incentives, look, when you're working with somebody the scale of Amazon, it's important that you give them a reason to pay attention and invest and making sure that your particular product is valuable, both to the consumer but also to us. And the incentive structure we've aligned allows Amazon to earn a little bit for signing the dealers. 1 million penny warrants they get on signing, but most of the equity grants that vest over the next 3 to 7 years will be tied to performance conditions or to activity that Amazon needs to do in order to, we think, better grow our network. And the thing that we hope to get out of this relationship more than anything is a substantially higher level of scale. And in our business, scale is so important. That scale of users and merchants that we talked about, last quarter, we grew merchants to 102,000 on the back of our Shopify relationship. We've also been growing users very fast, but we're still not at a scale point where we want to get to, which is something that would imply more inevitability of Affirm over the next couple of decades. And that requires a step change in scale, and this is a chance for us to do that.

That leads me to my next question, actually. I mean, active users have more than doubled year-over-year. You've increased your merchant relationships 3.5x sequentially, which is super impressive. Can you talk about how the enterprise and the platform relationships that you've forged really have been driving some of this recent expansion across the network?

Yes. So with the addition of Amazon, we have direct integrated relationships with about 60% of U.S. e-commerce. That's a lot, and it's with the marquee names. It's Walmart. It's Target. It's Amazon. It's Shopify and all the Shopify merchants. These enterprises tend to pick us, their words not mine, because we're technology leaders. At Shopify, why do they pick Affirm? They pointed towards our technology leadership. It's a question we get a lot because I think people have a hard time understanding what does that really mean, why do they really care. When you're on the cutting edge, which we are at these novel payment methods, it's really important to be the source of technology change. We talk a lot about technology. It's actually not just the code we've written, but it's the fact that we have a team that can write the next piece of code and the next feature and the next piece of the product. Max talked a lot about our team at our earnings call, and the reason that -- why we talk about the team a lot is that when we say technology's advantage, actually the technology team that can write great code. When we started working with Shopify, blank piece of paper. We want to go build a great product. That led to us building what we call Powered by Affirm, where we've enabled Shopify to deliver a very specific Shopify experience and, for us, led to significant growth and scale in users and getting our merchant count up to 102,000 merchants, which is -- every time I say that number, it's just -- it's staggering to me given that we were at 6,500 last year. Now they are very different merchants, right? The Shopify merchants are small. We don't drive a ton of volume for each merchant, but they do have the benefit of that ubiquity of distribution or markets in more places, and we see benefits whenever Affirm's market gets distributed like that. And I'd like to think of this as the way we serve those merchants, 102,000 merchants, is proof of our ability to do technology-enabled scale, while the way we serve Amazon and Walmart is proof of our ability to deliver features and functions that enterprise-grade e-commerce players care about, and we can do both. And I think that's the thing that's unique about Affirm is we can span it all. And our ambitions are big, and you're going to see us continue to invest and making sure we serve the smallest merchant all the way up to Amazon.

Maybe we could talk a little bit more about your largest merchant partnership, obviously, with Peloton. You recently announced that you are entering the Australian market with Peloton as a partner there. Maybe -- can you paint for us a picture of Affirm's general geographic expansion plans? And perhaps why was Australia -- we know that -- it's a great market for buy now, pay later. But specifically as it relates to your relationship with Peloton, why was that the right market to go to first?

In terms of our approach to going abroad, we think about merchants as probably the primary point of leverage across geographies. So if you think about consumers, there are obviously some consumers who cross borders, but the vast majority of consumers don't. And so there's not really a -- on our 2-sided network, there's not the consumer benefit of going global yet. We're certainly not like the kind of credit networks that people would travel across the world and use the cards. It's very different kind of use case that we have. And so the real network benefit for us is on the merchant side. And our partnership with Peloton is deep, and they're one of our most valued and important partners, obviously. And so when they were launching in Australia, we were honored to launch with them. And we will continue to support them whenever way we can and whatever market we can. It does help that the buy now, pay later market in Australia is pretty mature. We view this as an opportunity for us to land and take real share away from the existing players because we're not having to educate the consumers on what the product is. We can show up with an industry-leading product. We're going to show up with long-term loans with no late fees. We're going to show up with really fair and honest, capped and long-term 0%, long-term interest-bearing loans. Those are going to be very different to that market. We think they're going to get really excited about them. But of course, you might point out that markets like Canada and Australia are relatively small, and it's true. Those markets are still measured in tens of millions of potential users, and so the market size is smaller, and that's okay. The work that we've done since buying PayBright a year ago -- earlier this year. It feels like it has been a few years, but we bought PayBright earlier this year. We've been working on building out what we call our international platform, which allows us to actually go add on smaller markets like Canada and Australia in a pretty quick manner, which gives us the ability to say, "Okay, where do we want to go proactively next?" But always, again, thinking back to the real way this reinforces our network is on the merchant side. So our large, global merchants who play in multiple countries are going to ask us to go live in certain geographies, and we're going to help them either launch or scale their businesses in those geographies.

That's great. Let's go to Split Pay real quick. I think you've noted recently that you expect it to contribute 10% to 15% of GMV this fiscal year. Perhaps can you tell us a bit more about -- or how do you think about its rapid market adoption has been? Why it's been taking place? How is the growth in Split Pay impacting your business in terms of overall velocity, purchase sizes, take rates, those sorts of things?

Yes. We're really excited with the traction we've got with Split Pay. We guided to 10% to 15% for the fiscal year. We honestly thought that would be a number that we'd get to throughout the course of the year. We shared in our call that we're right in the middle of that range in Q1, which is just -- really creates strong out-the-gate traction of the product. The biggest driver of that is our relationship with Shopify, as we discussed above. And so that traction is a function of that partnership, but we also do have a meaningful business off of Shopify. The 2 do work together to reinforce one another. The Split Pay part for Affirm looks a lot like some of the other BNPL offerings that have become quite popular. We think ours, obviously, offers a superior checkout experience, and we never charge any late fees to consumers or any transaction fees or anything of the sort. And if you look at most of our competitors, they all have a little bit of a fee spot somewhere in their income statement. And they do that to make up for, we think, a lack of underwriting capabilities. It's easy -- the easy way out, which is, frankly, the way a lot of the banks have gone about issuing credit over the past 2 decades is -- the easy way out is just to take advantage of some subset of consumers to subsidize kind of lazy underwriting. And if you want to be deep on approvals, let's make it up in fees. Affirm's approach is a bit different in that we'll never do that. And that's actually part of the reason we built the relationship with Shopify for Shop Pay Installments. They actually expect in their -- in the RFP they were running to pick a partner that there weren't going to be any late fees, and that made it really hard for the competition to deliver the product, whereas we wouldn't anyway, and so it was fantastic for us. The way I think about the impacts on the business with the Split Pay product, firstly, it's going to reduce the average order value. That seems pretty obvious. $3,000 couches versus $150 pieces of apparel will drag down AOVs. And you saw that quite a bit in our first fiscal quarter, where last year's average order value was around $660, and it fell to about $400 this year. And that kind of change in average order value means that the GMV growth is coming on the back of increased transaction counts, and that means that we're ultimately driving more frequency. If you look at the way we communicate frequency, we measure that as transactions per active consumer. That number didn't move up a ton. It grew about 8% annually to 2.3%. That's a bit misleading because we've added 3.3 million consumers to our network over the past 2 quarters. And of course, if you're adding that many people to the denominator, then the transactions need to be picking up at a pretty fast rate. And we also know, in this category, it takes a little bit of time for users to mature into that frequency. But we're really excited because, again, the number of transactions we're driving today is showing up in user growth. In the future, it will show up in frequency and engagement. And that is really exciting to us. And then lastly, look, this will change the income statement quite a bit. So if you think about the business a year ago, we were pretty heavily concentrated into long-term 0% loans, in particular, with Peloton. This was the peak of the COVID crisis. That business is, of course, deconcentrating, and we're mixing in now this much lower average order value business. The things that happen when you do that is you get a lot more velocity. The GMV turns over faster, so you have less balances. You have a lot less unit costs because the loans are shorter in duration. And yet, you have lower revenue, too, because we make around 9% of GMV in revenue today. And the Split Pay products tend to be priced in the market rate 3% and 5% in merchant fees. And so you just have a much lower revenue base, lower cost base. So this year, we expect that to be 10% to 15% of our business, but we also expect it to be something that we continue to invest in and scale over the next couple of years.

That's helpful. And super interesting to hear that the 0 late fee strategy that you have is driving merchant relationships and onboarding there. That's certainly a hint. Maybe we'll see competitors embrace that approach as well. We'll see.

We hope they do. We hope they do. This is an interesting spot where it's a competitive advantage for us today, but we would be delighted if our industry peers joined us in removing late fees.

Yes. No, it's certainly interesting. One of Affirm's initiatives has also been with the Affirm Debit+ card, which Max indicated is being used by thousands of consumers. How should we think about the opportunity with this product? And maybe you could talk about how it works. And when do you expect it to be widely available?

So Affirm's history, if you go back and wind the clock back, we started off by saying, "Let's deliver a better credit experience than what a credit card does," And so we didn't invent the product, but we certainly made a comment that you would pay for a thing on a site in a really fixed and certain way with a closed-end installment loan. And we kind of deliver credit to folks who weren't using the credit card. And we realized, and as Max outlined in his description of the great unbundling, that was a piece of the total picture, but we were still only delivering part of the whole thing. And as the credit card became unbundled into its parts, we had an opportunity to step in and invent a new way for consumers to pay for everything, and that's what Debit+ is really about. It is both a chance to pay for things that don't require any sort of time, so things that you expect to clear from your account on a normal basis, a couple of days, as well as stuff that makes sense to spread over for payments. Eventually, we'll also bring longer-term and even interest-bearing loans to the product. And so instead of saying I've got a piece of plastic that I swipe when I want to pay now; a different piece of plastic that I swipe to pay over time; or in the case of a transactor, a piece of plastic that I swipe to earn points, we kind of want the consumer to take that piece of plastic out, that's the Affirm card, and use it for all of their transactions. And we want to deliver a great experience to them in all of those cases. So you can think of this as growing up from a very focused product of installment loans online to now a single payment device that we think delivers the best financial products in all environments, online and in store. In terms of users, yes, we've communicated a couple of thousand users. If you listen to our earnings call, there's a moment that was I thought quite just who Max Levchin is and asking an analyst a question in the middle of the call and getting real-time product feedback. And that's not uncommon for us now. We run to folks who do have the card because there are a few thousand out there, but we're still very much trying to make sure we get the product right before we scale it out and roll it out. We don't ship that product. Really excited about where it is, really, really like the future for it. For now, we got a couple of thousand out there. We would expect next year to be -- to see it more prominently rolled out. And obviously, when we do that, it will be done pretty loudly. We won't do that quietly. You'll know about it.

Appreciate that. Looking forward to it. We did touch upon competition a little bit here and there so far. But I guess, as you think about it, we have some players that are embedded within payments apps. We have some other players that are stand-alone entities. But generally, how do you think the competitive landscape shakes out over the next 3 to 5 years? And why do you think Affirm continues to win?

First of all, 3 to 5 years in a space that's changing this fast is really hard to predict. I mean, I think this past year has shown the landscape changed fundamentally. I mean, the amount of activity and attention the category has is really pretty remarkable, and I think that points to just the things I started out talking about. There's some fundamental consumer behaviors that are going on, and so it's a bit difficult to say with precision what will happen. But from our perspective, we're really no stranger to competition. We've grown up competing against some of the largest financial institutions to create the category. And of course, we fight and compete with our competitors in the more technology-oriented spaces who have started up and tried to address parts of what we do. The biggest thing for us, though, again, is that we are a true technology leader. Enterprises pick us because of that, and that technology leadership shows up in the form of a truly honest financial product that we think is unique in the market. And our competitors just can't do what we can do. We think there's a lot of leadership that we display, and our competitors tend to want to follow us. And that can be from the largest fintech companies down to the smallest technology companies that are just now getting started. They look to us and try to really follow vastly what we do, and so we always try to stay ahead of it. Part of the reason the debit card is so exciting to us is we think that's a thing that a lot of folks are going to look at and attempt to catch up on, and that's just one of many things out there for us to continue to further our lead. And so we think about competition as something that we'll always have to deal with. We think that if we maintain our product and technology leads over them, it will serve us well in the end. We think about the trust that we have with the consumer that we've earned through the way we treat them from an honesty standpoint will be an asset that serves us very well in the long run, and we're going to keep building cool technology and great products here to deliver these experiences. And if we do that, we're pretty sure we're going to have a great and big company.

That's really helpful. I guess I want to pivot, Michael. Maybe you could talk a little bit on how the sausage is made proverbially there. But maybe can we discuss how investors should think about Affirm's credit decision capabilities? I mean, lenders seem to be operating in a very conducive environment today. And I mean, we have government assistance programs, distribution starting to wear off from the previous months given the pandemic. But how should we think about Affirm's growth opportunities, I guess, in a more normalized credit environment?

So first of all, technology -- when we talk about technology being a benefit, one of the biggest ways that shows up is in our underwriting advantage. It's what allows us to profitably lend to a deeper pool of consumers. It also is what allows us to flexibly and dynamically change our risk posture very quickly. One of the things that we learned at the onset of COVID was that, you wind the clock back, of course, it ended up being very benign. You're right. But at the time, most folks were quite worried because we were staring down unprecedented unemployment. And so Affirm took the right steps in tightening its credit box and tweaking our offers and repricing them with merchants. And we did things that we had told investors over the prior few years as a private company that we would do, but we kind of -- we frankly had a little bit of skepticism and like we don't really think you'll be able to do that. And we -- while the outcome ends up being quite benign, we learned a lot, learned about how quickly our book turns over. We learned about how quickly we can change the mix of credit. We went from being roughly 1/3 sub-prime, 1/3 near prime and a third prime and super prime to being 2/3 prime like overnight. And that kind of quick pivot is a function of the fact that we play in these very growthful pools with the e-commerce tailwinds that we play with that allow us to be very selective. Credit for us is always a thing that we choose. It's not a thing that happens to us. A lot of people talk about what happens when credit goes back for you. Well, no, that's not how it works. We make an underwriting decision, and our technology allows us to accurately estimate the probability of repayment, and we choose the level of losses that we make and which means that we go about approaching pricing a consumer or a merchant with an eye towards what's the level of loss that we can handle in that relationship. And so that's a fundamental point about how we think about it. In terms of what drives our advantage, we do a better job of collecting data than we think anybody in the market. That can range from understanding the SKU that you're buying, to the time of day that you're buying it, to the channel that you came in on from a marketing standpoint. Our APIs allow us to collect a very healthy and robust set of data to inform an underwriting decision. And you take a data advantage, and then you take a requirement that we put on ourselves -- in a Darwinistic sense, we've created the conditions necessary for good underwriting because we've removed the crutch of things like late fees. And then you add to it world-class machine learning capabilities and sum all that up, and what you get is a really accurate decisioning model that can accurately predict for pools of consumers where the losses are going to be, and we can price relationships with merchants and consumers and a lot of that risk that we're taking. And the game of risk, it's most important to know what the outcomes will be. It's not -- traditional banks, frankly, they rely on and only approve to FICO 700. And they missed a lot of great quality credit underneath because they can't accurately predict it because FICO is a pretty bad indicator of repayment. What we've done is build technology to allow us to accurately assess that credit and then pick the level of loss that we want in our business. And look, it definitely is a decision that's hard. You are always trading off how much growth do you want and how much risk can you take, but it's never an uncertain exercise. We're never waking up worried about where the numbers are. That's why we invest so much in our machine learning models.

So going forward, I'd imagine there's a lot of shifts that are occurring. You're adding more merchants, more partners, Amazon, certainly. AOV mix should certainly change going forward. How should we think about tolerance levels for credit losses, I guess, over the next year or so? How are you thinking about that design as you continue to ramp so quickly?

Yes. I think in terms of tolerance for credit losses, we think about the business, and when we give guidance for -- I know this is a mouthful, but we call it revenue less transaction costs, which is just kind of what we think is the unit economics of the business, we really make decisions around credit in light of that economics number. So where we have the margin, we'll spend it back, either in subsidizing transaction costs for consumers or taking more risk, and that's how we really tune the business. And so when we give guidance to what's our revenue transaction cost, especially as a percent of GMV, those are numbers that we really do try to operate the business to and make trade-offs consistent with that number. And that becomes the governor, right? We -- if we felt like we could run the business with no margin, which we definitely can, then we would take even more losses. And if we felt like we needed to run at much higher margins, then we would take a lot less loss and then sacrifice growth. And for us, it's always a balancing act. We're really proud of the growth we deliver. If you look at the GMV, especially excluding our largest partner, 138%, you look at the consumer growth of over 100%, the active merchant counts that we talked about, that growth happens because we're able to and willing to take some risk, and that's a good thing in our eyes. We take prudent risk, though, and we're careful to make sure that the economics that we're getting out of those transactions is consistent with what we've committed to the investor base.

It certainly makes sense. Including -- and kind of melding that customer acquisition cost with credit losses, that sounds like a fair approach there in maintaining unit economics. I want to jump a little bit to the balance sheet you said generally here, which is the majority of GMV today. Should investors expect Affirm to see an increase in the level of loans that are sold to third parties? How do you think about expanding your network of third-party investors more generally? And maybe how do you think about the capital intensity of the business as you continue to scale so rapidly?

Yes. I'll answer the last question first. I mean, I think the team has done a phenomenal job of managing the capital intensity of this business. We measure that with I think we call equity capital required, and we measure that as a percent of total platform portfolio, which is how many dollars of equity capital of our shareholders' capital do we have working in loans as a percentage of the total book, whether we own it or anybody owns it? And that number fell on a dollar basis year-on-year and got down to 3% total platform portfolio and is a very efficient machine. And yet, we do continue to grow the loans held for investment on the balance sheet, and we do that because, for us, our capital programs' primary mandate, the thing we wake up every day to do and our only and sole focus is on enabling scale of the rest of our business. We are growing very, very fast, and we'll not let funding the business get in the way of scale. And therefore, we tend to be quite aggressive at consuming any all ways upon the business. Today, that's 4 primary modes. First, we have warehouse lines. These are pretty boilerplate, very vanilla for investors who have seen companies with these before. They're very basic. We pledge assets and borrow between 80%, 90% of the asset back, and we pay floating rate debt on that. That number -- the amount of our business funded through warehouses, though, has declined over time, and we've begun to use them less as a funding vehicle and more as what they really were intended for, which is it's a way for us to park assets until we're able to move on to other funding vehicles, which include, firstly, forward flow agreements, which we sell whole loans to counterparties, sometimes single counterparties, sometimes groups of counterparties. We maintain servicing totally blind to the consumer, but we do sell the risk off to [ for ] partners. It's very capital efficient, and it's what drives that gain on CLI in the income statement. And then we have 2 different securitization programs. We've got revolving securitization programs, which tend to be on balance sheet but advanced at really high rates, and we can do that because our asset that we generate tends to have really strong economics. These have pretty high spreads in them, and so we can borrow at really high rates. In fact, the most recent securitizations were done with less than 1% of our equity capital required in those, and they're performing very well. All public, you can go look them up. Don't have to sell you on that. And the second securitization program we run is a static pool where we move predominantly longer-term 0% loans into these static pools that tend to have 12- or 24-month durations, and these are also really efficient. While they -- when they're on balance sheet, they tend to let us advance at around 90%. We can also get off-balance-sheet treatment and have for the last 2 programs. So you sum all that up and multiple funding methods, all designed towards growing the business with a real eye towards making sure we're not using our shareholders' equity capital to fund loans because we're keenly aware of why you want to own Affirm, and it isn't to get access to the assets. We let that investors do that part for us.

That's great. I think we have time for one quick one. If we think about the ubiquity across the merchant base that you have and then certainly you've served that via virtual card with the nonintegrated side of the merchant base, how should investors think about that mix between integrated merchants and the virtual card business that you have there? And then we'll wrap up.

Yes. We think about direct to consumer as a benefit that we get after we build a big, integrated merchant relationship. So the life cycle of a consumer might look like this. We find you on Room & Board, and you check out. You find other forms of great experience. You then need to service your loans. You download our app. You then start using our app and realize that you can use Affirm anywhere with our virtual card product, and then you begin to repeat on that product virtually and with direct integrations. But if you're in our app, you'll also get pointed back to point-of-sale merchants that we have integrated relationships with. And so we think about the virtual card product as a great way to get consumers out of the mode of thinking of us as being a singular I found you at one merchant and into I can use you anywhere. And that's a real, real huge advantage for us. And frankly, it's the seed that we -- from the debit card game, we have a debit card idea now, and the debit card product stems from the idea that we have an opportunity to have a direct relationship with the consumer after we've acquired them on one of our integrated relationships. And so we think those things work in quite the flywheel. I hadn't used the word once. We wouldn't be a tech company without a flywheel description. We do, in fact, have this benefit of acquiring users at the point of sale, reengaging them, and we'll continue to see that motion work. We know our best users engage with us directly, and we're pretty invested in making sure that they have a really great experience and excited for what this will mean for our business over the years ahead.

And at the same time, I'm sure you're putting the onus on those merchants who haven't integrated with you to hustle along, right?

It's the best sales pitch. We walk into a merchant and we say, "We are currently driving meaningful business to you through our app. Why aren't you integrated. You're paying the credit card networks interchange, and you're not getting any of the real value incrementality. Come on, guys." And it's a great sales tool. But also, it shows the power of the network and the product all underlying with what's really going on with this consumer.

Absolutely. Well, Michael, this was a fascinating conversation. Really appreciate you joining us here at Citi FinTech 11.

Thank you for having me.