For six decades, the revolving credit line has been the bedrock of consumer borrowing in America. Yet, this ubiquitous financial tool was not necessarily designed as the optimal solution, but rather as a practical workaround for a time when underwriting was arduous, data was scarce, and lenders were forced to make long-term decisions about consumers based on limited information. This traditional model, which generates revenue through backend fees, interest, and lingering balances, often obscures the total cost at the point of purchase, disproportionately impacting those least able to afford it.
Agentic Credit: Redefining the Underwriting Paradigm
Affirm, through its approach to ‘agentic credit,’ is fundamentally altering this dynamic. By harnessing real-time data, sophisticated AI-driven decisioning, and the widespread availability of smartphones, lenders can now underwrite individual transactions at the precise moment of decision. This shift, as detailed in a recent conversation with Libor Michalek, president of Affirm, moves beyond abstract personal assessments to evaluate a specific purchase, at a specific price, today, against a consumer’s actual cash flow.
Michalek explained that the convergence of real-time data, constant monitoring capabilities, and the ubiquity of personal computing devices has created an ecosystem where credit can be priced in real time. ‘We are able to price credit in real time. Then we can offer it to consumers in a way that they actually understand as a part of the sticker price when they’re making a purchase,’ Michalek told Karen Webster.
Repricing Risk, One Transaction at a Time
The core mechanism of agentic credit is transaction-level underwriting, which leads to a dynamic repricing of risk. Instead of a static risk assessment tied to an individual, lenders evaluate a single purchase within its specific context. This involves examining what the consumer is buying, their existing debt obligations, and their current month’s cash flow. Consequently, purchases that might have been automatically declined under a one-size-fits-all FICO-based model can now be approved. Conversely, other transactions can be repriced to reflect the consumer’s actual capacity to manage the debt.
This approach offers a more granular understanding of risk. ‘We’re taking into account, based on the decisions that they are making, what that translates to on a per month obligation, and how does that relate to their cash flow, their existing debt,’ Michalek stated. ‘to be able to have a very specific answer to the transaction that’s in front of them at the moment.’
The practical implications are twofold: expanded access on the front end and enhanced financial discipline on the back end. Consumers who might be overlooked by traditional underwriting methods can become visible through cash-flow analysis. Simultaneously, consumers who risk overextending themselves are informed immediately, preventing potential financial harm. Michalek contends that both outcomes represent an improvement over the limitations of the legacy model.
Installments Overtake Revolving Credit
The financial industry has taken note, with many banks and card issuers now offering installment options integrated into existing credit lines. However, Michalek argues that these are often ‘after-the-fact, almost a cleanup of something that the consumer did,’ lacking the intuitive integration consumers desire at the point of sale. Unlike these post-purchase solutions, pay-over-time products presented at the moment of purchase are seamlessly adopted across the credit spectrum, from non-prime to super-prime borrowers.
Michalek observes that consumers increasingly recognize the value of ‘closed-ended, simple interest, no gotchas, what-you-see-is-what-you-get pricing’ as a superior method for accessing credit compared to revolving credit. Predictability, defined payments, and known costs offer a level of certainty that revolving balances often fail to provide.
A New Business Model Emerges
This shift fundamentally reconfigures the business model. While revolving credit thrives on sustained balances, installment credit operates on the principle of repayment. Once a loan is settled, the relationship resets, leaving consumers with more purchasing power. ‘In the form of closed-ended credit, you’re ultimately giving that back to the consumer,’ Michalek noted. ‘There is more purchasing power for the consumer, there are more dollars in the bank for the customer to spend elsewhere.’
This redistribution of costs means merchants often absorb a greater portion, benefiting from increased sales conversions and higher average order values. Consumers, in turn, see transparent pricing and can make informed purchasing decisions. Lenders, under this model, are compelled to be accurate in their assessment of each individual transaction, a significantly higher bar than managing risk across a portfolio of revolving balances.
Credit Integrated into Commerce
The distribution of credit is also evolving, moving from a standalone product to an embedded feature within the commerce and payment environments where spending decisions are made. Affirm’s focus, according to Michalek, is on ‘being a better provider of credit and being a better provider of payments to as wide of a range of consumers as possible across as many surfaces as possible.’ While online platforms have led this integration, the offline retail space remains a significant frontier for expansion.
Transparency serves as the unifying principle, connecting these advancements to Affirm’s foundational mission. When the full cost of a purchase is clearly presented upfront, consumers make different choices, sometimes opting not to proceed with the transaction. Michalek views this as a validation of their model: ‘We have millions of users every year who we show them what it’s going to cost them all in who decide not to make the purchase.’ A credit business that benefits when a consumer avoids a potentially detrimental purchase is inherently aligned with consumer interests. Agentic credit amplifies this alignment, making the moment of purchase the most impactful time for financial interaction and communication.
