5 ms·

I can understand the value prop to the consumer - but I have a harder time understanding why it's an actual business, and why existing credit card companies or

I can understand the value prop to the consumer - but I have a harder time understanding why it's an actual business, and why existing credit card companies or other lenders can't eat their lunch with the flip of a switch.

cbhl 5y ago
Here's patio11's write-up of the value to the business side: https://bam.kalzumeus.com/archive/buy-now-pay-later/ https://bam.kalzumeus.com/archive/buy-now-pay-later/ Also discussion thread for aforementioned piece: https://news.ycombinator.com/item?id=29841940 https://news.ycombinator.com/item?id=29841940
kazanins 5y ago
Hi! Affirms scores (evaluates the risk) of each transaction in real time, which allows then to have reasonably low bad rates. Very few lenders can do it.
- radicaldreamer 5y ago
  Until there's a credit crunch or a recession, in which case all that "real-time" risk management will be moot and losses will be massive.
  - notsureaboutpg 5y ago
  - acomms 5y ago
    I am curious why you think 'real-time' risk modelling in particular might be deficient? For the record I agree, but my issues are with fintech lenders desire to lend out money too freely (models that are designed to pump lending #'s, not repayment).
  - kazanins 5y ago
    Banks have been saying that about online lenders for over decade now…and yet LendingClub, Upstart and SoFi loan books are still fine (and this three companies are taking 1/3 of all personal loan originations in the US)
    - sgerenser 5y ago
      We haven’t had a real recession in over 10 years, so that makes sense. Unless you count the very brief one back in mid 2020, which was mitigated by a flood of federal and state dollars, mortgage and student loan moratoriums, etc.
- deleted 5y ago
  [deleted]
- sidr 5y ago
  Why is this an advantage? The factors in assessing the risk are the creditworthiness of the customer and the amount. Also, I find it hard to believe that the creditworthiness of a customer actually fluctuates fast enough for Affirm to be able to do some arbitrage on it.
  - kazanins 5y ago
    Time of purchase, purchased goods, user behavior during the purchase, etc are additional inputs into a scoring model
    - pueblito 5y ago
      The ol’ Algorithm-as-Patsy strategy. CFPB continues to sleep at the wheel, as designed.
andjd 5y ago
Affirm doesn't list their B2B pricing on their website, but credit cards typically charge up to 5% of the total purchase price in processing fees. It wouldn't be hard for a challenging upstart to make a solid business that just charges less. That's probably not the primary revenue driver for most BNPL companies though. You've also seen credit card companies change their offerings to compete with the BNPL model. One of my credit cards has a "plan it" feature for large purchases, which allows you pay it of in a shorter period of time for a lower interest rate and without incurring interest charges on your month-to-month purchases.
- JumpCrisscross 5y ago
  > credit cards typically charge up to 5% of the total purchase price in processing fees Source? I thought it’s 2 to 3%.
  - jjoonathan 5y ago
    Sure, 2-3% if you're WalMart. If you're (small respectable retailer) you'll be paying three times that and if you're a tiny retailer you'll be paying five times that.
    - pc86 5y ago
      Nobody is paying 10-15% in credit card fees regardless of their size. This is just blatantly wrong.
      - kube-system 5y ago
        I wouldn't say nobody. High-risk payment processors can have rates that high.
  - leetcrew 5y ago
    there's also a flat fee per transaction (eg, 3.25% + $0.10). this can make the effective rate pretty high for small purchases. https://www.valuepenguin.com/credit-card-processing/interchange-fees https://www.valuepenguin.com/credit-card-processing/intercha...

cbhl 5y ago

Here's patio11's write-up of the value to the business side: https://bam.kalzumeus.com/archive/buy-now-pay-later/ https://bam.kalzumeus.com/archive/buy-now-pay-later/ Also discussion thread for aforementioned piece: https://news.ycombinator.com/item?id=29841940 https://news.ycombinator.com/item?id=29841940

kazanins 5y ago

Hi! Affirms scores (evaluates the risk) of each transaction in real time, which allows then to have reasonably low bad rates. Very few lenders can do it.

radicaldreamer 5y ago
Until there's a credit crunch or a recession, in which case all that "real-time" risk management will be moot and losses will be massive.
- notsureaboutpg 5y ago
- acomms 5y ago
  I am curious why you think 'real-time' risk modelling in particular might be deficient? For the record I agree, but my issues are with fintech lenders desire to lend out money too freely (models that are designed to pump lending #'s, not repayment).
- kazanins 5y ago
  Banks have been saying that about online lenders for over decade now…and yet LendingClub, Upstart and SoFi loan books are still fine (and this three companies are taking 1/3 of all personal loan originations in the US)
  - sgerenser 5y ago
    We haven’t had a real recession in over 10 years, so that makes sense. Unless you count the very brief one back in mid 2020, which was mitigated by a flood of federal and state dollars, mortgage and student loan moratoriums, etc.
deleted 5y ago
[deleted]
sidr 5y ago
Why is this an advantage? The factors in assessing the risk are the creditworthiness of the customer and the amount. Also, I find it hard to believe that the creditworthiness of a customer actually fluctuates fast enough for Affirm to be able to do some arbitrage on it.
- kazanins 5y ago
  Time of purchase, purchased goods, user behavior during the purchase, etc are additional inputs into a scoring model
  - pueblito 5y ago
    The ol’ Algorithm-as-Patsy strategy. CFPB continues to sleep at the wheel, as designed.

andjd 5y ago

Affirm doesn't list their B2B pricing on their website, but credit cards typically charge up to 5% of the total purchase price in processing fees. It wouldn't be hard for a challenging upstart to make a solid business that just charges less. That's probably not the primary revenue driver for most BNPL companies though. You've also seen credit card companies change their offerings to compete with the BNPL model. One of my credit cards has a "plan it" feature for large purchases, which allows you pay it of in a shorter period of time for a lower interest rate and without incurring interest charges on your month-to-month purchases.

JumpCrisscross 5y ago
> credit cards typically charge up to 5% of the total purchase price in processing fees Source? I thought it’s 2 to 3%.
- jjoonathan 5y ago
  Sure, 2-3% if you're WalMart. If you're (small respectable retailer) you'll be paying three times that and if you're a tiny retailer you'll be paying five times that.
  - pc86 5y ago
    Nobody is paying 10-15% in credit card fees regardless of their size. This is just blatantly wrong.
    - kube-system 5y ago
      I wouldn't say nobody. High-risk payment processors can have rates that high.
- leetcrew 5y ago
  there's also a flat fee per transaction (eg, 3.25% + $0.10). this can make the effective rate pretty high for small purchases. https://www.valuepenguin.com/credit-card-processing/interchange-fees https://www.valuepenguin.com/credit-card-processing/intercha...