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They’re free but there’s an opportunity cost - by using BNPL you forego 2% or whatever in credit card rewards, so you’re effectively paying ~8% annualized for a

They’re free but there’s an opportunity cost - by using BNPL you forego 2% or whatever in credit card rewards, so you’re effectively paying ~8% annualized for a 3-month term. My understanding is that the BNPL providers are effectively paying interest out of their merchant fees (in that they securitize and sell the debt for less than face value and rely on fees to make up the difference), so as interest rates go up I’d expect the terms to become less consumer-friendly.

freemint 4y ago
You get credit card rewards? Greetings from Europe.
- kristofferR 4y ago
  Credit card rewards are quite stupid, though, as it obviously requires way higher credit card fees than if they weren't a thing. Customers just end up buying higher priced products and potentially getting the higher price difference back as rewards. In Norway a card transaction with the national system BankAxept costs 0,06% + ~$1 cent per transaction [1], in the US the fees are usually at least a percentage point or two. [1] https://vipps.no/alle-priser/bedrift/bankaxept-priser/ https://vipps.no/alle-priser/bedrift/bankaxept-priser/
  - josephcsible 4y ago
    But we do have some credit cards that don't offer rewards, and they don't charge any lower fees to merchants than ones that do offer rewards do.
    - bigjimmyk3 4y ago
      As a former merchant, this was not my experience -- I recall seeing a notable difference between fees on similar transactions, and the tracing those differences back to rewards cards.
      - josephcsible 4y ago
        Do you remember the brand of any of the credit cards with the lower-than-usual fees?
    - kristofferR 4y ago
      It's not about the card per se, it's about the network. Visa/Mastercard in Norway is about as expensive as in the US. The US doesn't have a widespread miniscule fee/no rewards card network option however, like BankAxept is in Norway.
- tempusr 4y ago
  Yup, I don't know how credit cards are in Europe, but, here in America a lot of credit card usage is decided on what rewards the user gets for using it. Some are better for groceries, air fares, or hotel bookings and pay out in different ways(cash, or an abstract token system that is formulaically tied to redeemable goods and their USD worth.) This whole system is financed through credit card transaction fees that are applied to the business owner's expenses during the transaction. Note, the customer is not meant to pay for this fee and business that tac this fee onto the customer's bill can have their license taken away by the company that provides in the interface(VISA, MasterCard, etc.). The whole system is really interesting and worth a read on Wikipedia.
  - josephcsible 4y ago
    > This whole system is financed through credit card transaction fees that are applied to the business owner's expenses during the transaction. That's part of it, but isn't another big piece of it financed by interest payments from people who don't realize that you're supposed to pay off your entire balance every month?
    - tempusr 4y ago
      I am not an expert on this topic tbh, but here is a VOX video about the topic more. https://youtu.be/ySH5SudRwak https://youtu.be/ySH5SudRwak
RC_ITR 4y ago
> by using BNPL you forego 2% or whatever in credit card rewards, so you’re effectively paying ~8% annualized for a 3-month term. I love your chutzpah, but you don’t get to do that math that way. The 2% doesn’t compound, it’s a one-time thing (unless you’re continually rolling over your BNPL purchases)
- tobyjsullivan 4y ago
  Where did the parent suggest there was compounding? I read it as 2% of the purchase price, on a 3-month term. 2% * 4 = 8% annually, without compounding.
  - RC_ITR 4y ago
    Yes. But let’s break this into first principles. You get $200 rewards on a $10k purchase. In no world do you get $800 on $10k. You only get $800 on $40k because the 2% isn’t a rate in principle so 8% literally never happens.
- tfehring 4y ago
  It’s still useful to convert to an annualized interest rate even if your “investment” period is less than a year, because annualized returns are the standard unit of measurement for investment returns. For example, if you’re debating whether to use a 2% rewards credit card or to use BNPL and keep the difference in a savings or money market account for 90 days, the latter strategy only wins if that account is yielding more than ~8%. Or if you’re deciding whether to use BNPL to let you pay down other debt a little faster, it’s only worth it if the interest rate on that debt is above ~8%.
  - RC_ITR 4y ago
    Yes. But let’s break this into first principles. You get $200 rewards on a $10k purchase. In no world do you get $800 on $10k. You only get $800 on $40k because the 2% isn’t a rate in principle so 8% literally never happens.
    - 4y ago

freemint 4y ago

You get credit card rewards? Greetings from Europe.

kristofferR 4y ago
Credit card rewards are quite stupid, though, as it obviously requires way higher credit card fees than if they weren't a thing. Customers just end up buying higher priced products and potentially getting the higher price difference back as rewards. In Norway a card transaction with the national system BankAxept costs 0,06% + ~$1 cent per transaction [1], in the US the fees are usually at least a percentage point or two. [1] https://vipps.no/alle-priser/bedrift/bankaxept-priser/ https://vipps.no/alle-priser/bedrift/bankaxept-priser/
- josephcsible 4y ago
  But we do have some credit cards that don't offer rewards, and they don't charge any lower fees to merchants than ones that do offer rewards do.
  - bigjimmyk3 4y ago
    As a former merchant, this was not my experience -- I recall seeing a notable difference between fees on similar transactions, and the tracing those differences back to rewards cards.
    - josephcsible 4y ago
      Do you remember the brand of any of the credit cards with the lower-than-usual fees?
  - kristofferR 4y ago
    It's not about the card per se, it's about the network. Visa/Mastercard in Norway is about as expensive as in the US. The US doesn't have a widespread miniscule fee/no rewards card network option however, like BankAxept is in Norway.
tempusr 4y ago
Yup, I don't know how credit cards are in Europe, but, here in America a lot of credit card usage is decided on what rewards the user gets for using it. Some are better for groceries, air fares, or hotel bookings and pay out in different ways(cash, or an abstract token system that is formulaically tied to redeemable goods and their USD worth.) This whole system is financed through credit card transaction fees that are applied to the business owner's expenses during the transaction. Note, the customer is not meant to pay for this fee and business that tac this fee onto the customer's bill can have their license taken away by the company that provides in the interface(VISA, MasterCard, etc.). The whole system is really interesting and worth a read on Wikipedia.
- josephcsible 4y ago
  > This whole system is financed through credit card transaction fees that are applied to the business owner's expenses during the transaction. That's part of it, but isn't another big piece of it financed by interest payments from people who don't realize that you're supposed to pay off your entire balance every month?
  - tempusr 4y ago
    I am not an expert on this topic tbh, but here is a VOX video about the topic more. https://youtu.be/ySH5SudRwak https://youtu.be/ySH5SudRwak

RC_ITR 4y ago

> by using BNPL you forego 2% or whatever in credit card rewards, so you’re effectively paying ~8% annualized for a 3-month term. I love your chutzpah, but you don’t get to do that math that way. The 2% doesn’t compound, it’s a one-time thing (unless you’re continually rolling over your BNPL purchases)

tobyjsullivan 4y ago
Where did the parent suggest there was compounding? I read it as 2% of the purchase price, on a 3-month term. 2% * 4 = 8% annually, without compounding.
- RC_ITR 4y ago
  Yes. But let’s break this into first principles. You get $200 rewards on a $10k purchase. In no world do you get $800 on $10k. You only get $800 on $40k because the 2% isn’t a rate in principle so 8% literally never happens.
tfehring 4y ago
It’s still useful to convert to an annualized interest rate even if your “investment” period is less than a year, because annualized returns are the standard unit of measurement for investment returns. For example, if you’re debating whether to use a 2% rewards credit card or to use BNPL and keep the difference in a savings or money market account for 90 days, the latter strategy only wins if that account is yielding more than ~8%. Or if you’re deciding whether to use BNPL to let you pay down other debt a little faster, it’s only worth it if the interest rate on that debt is above ~8%.
- RC_ITR 4y ago
  Yes. But let’s break this into first principles. You get $200 rewards on a $10k purchase. In no world do you get $800 on $10k. You only get $800 on $40k because the 2% isn’t a rate in principle so 8% literally never happens.
  - 4y ago