19 ms·

The 'buy now, pay later' bubble is about to burst

148 points by isaacfrond 4y ago

senttoschool 4y ago
“We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. This is always weird to me. It makes sense why Gen Z does this. But weird. I can get 2-4% back on all my purchases using my credit card, including protections against fraud, extra warranty, free lounge access at airports, and other perks. I'd lose money if I used BNPL unless I can automatically buy government bonds that can pay more than 2-4% within the pay back period. I wonder how much Gen Z is losing by using BNPL. In all my years of using credit cards, I've never paid interest. I've always paid the full amount every month. Does Gen Z lack this discipline?
- crote 4y ago
  Don't forget that there is no such thing as a free lunch, though. Credit card companies aren't charities! In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. Furthermore, their goal is to normalize the use of credit cards, in the hope that you'll eventually stumble and get screwed over by the interest fees. Also, I think you are forgetting that Gen Z are literally kids. If they have a job at all, it'll be a parttime one with a very flexible contract. Without stable income, a credit card can easily become an unacceptable risk.
  - senttoschool 4y ago
    In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. The price is the same whether you pay via BNPL or credit card. I get that merchants get charged by credit card companies. I also know that I'm not going to make a difference by boycotting credit card companies. I'd just lose out. Also, BNPL companies charge merchants the same way credit card companies do.
    - goosedragons 4y ago
      Yeah. Stores increase prices to account for the higher transaction fees required to support giving CC users 2-4% cashback. Frankly CC reward schemes should be banned. It's just another shitty way for the poor to subsidize the middle class.
      - Existenceblinks 4y ago
        And punish normie who don't over spend because they have the same discipline without in-system credit.
  - kortilla 4y ago
    > Also, I think you are forgetting that Gen Z are literally kids. You might want to check out your math on that one.
  - deleted 4y ago
    [deleted]
  - birracerveza 4y ago
    I think you are forgetting that Gen Z are not literally kids, they are just forced to live as such by the fact that being an adult with its own house and family has become prohibitively expensive.
  - cfel 4y ago
    Gen Z starts in 1997.
  - danaris 4y ago
    Ah, so now we've finally moved on from "Millennials are children" to "Gen Z are children". While it may still be true of some of them (I'm not sure exactly what the accepted bounds of "Gen Z" are these days), many are full-grown adults in their 20s with full-time jobs. And many of those full-grown adults in their 20s with full-time jobs still can't afford to even rent a place without multiple roommates to share the cost with.
- Nextgrid 4y ago
  > I've always paid the full amount every month. Does Gen Z lack this discipline? I'm not sure it's a Gen Z thing - credit cards were always subsidised by those who "lack the discipline". If everyone paid on time all the time they wouldn't give anyone an interest-free period.
  - andrewaylett 4y ago
    Banks primarily make money on interchange fees, rather than interest -- if everyone paid on time all the time then they'd be very happy.
    - Dalewyn 4y ago
      And in fact the banks (to include credit card companies) do love people who pay on time every time by giving better credit scores to the people who do. Meanwhile, people who only pay the minimum due end up carrying past due debt and get bad credit scores from the banks. A bad credit score in turn means the banks won't lend money as much or as easily to such people. The ideal debtor is one who carries debt and proceeds to pay it off on time every time. You will have a stratospheric credit score and banks will be begging to lend you money.
    - rcxdude 4y ago
      Is this true? This article suggests the opposite, banks lose money overall on everything credit-card that isn't interest payments, which make up the vast majority of their income. https://www.valuepenguin.com/how-do-credit-card-companies-make-money https://www.valuepenguin.com/how-do-credit-card-companies-ma...
      - e63f67dd-065b 4y ago
        It really depends on the card issuer, as different card issuers have different credit profiles. American express, for example, infamously have charge cards that you must pay in full every month, and generally have a prime to super-prime profile, so they make much more money in interchange than in interest. Other banks with more sub-prime profiles (Capital One, BoA?, etc) make much more in interest than interchange.
- dbbk 4y ago
  I'm 30 and never had a credit card. Always felt like an extra layer of complication I don't need. I have enough money, I'd prefer to directly spend it. With a credit card there'd always be a nagging feeling some payment would be missed or something would go wrong and all of a sudden I'd be hit with interest charges.
  - geraldwhen 4y ago
    This is wild. Have you never had a fraud charge? Reversing fraud of any size takes minutes at most with a credit card. With a debit card you might just lose the money.
    - t0mas88 4y ago
      This is a very US specific thing and even there I'm not sure it's true. In Europe credit-card usage is much lower, and card security is much higher for both types of cards. We've had chip and pin protected cards for many many years, while the US only caught on in the last few years. Is there objective data that US debit cards have more fraud impact for their users? Or is this really more a PR story from credit card companies?
      - matwood 4y ago
        > Is there objective data that US debit cards have more fraud impact for their users? Depends how tightly someones runs their bank account. A fraudulent charge could come at a bad time and trigger your mortgage payment to fail because of insufficient funds. Though, most bank accounts offer overdraft protection, which is really just an available loan that is automatically taken. For me, very few charges come directly out of my bank account. Everything else goes through a CC so I can review prior to paying each month.
      - turdprincess 4y ago
        I’m not sure about relative fraud numbers, but the fraud refund differences are real. With a credit card they will refund you basically no matter what. With a debit card it’s much more hit or miss - I recently had 3 fraudulent transactions on my debit card for about $100 each and they refunded only one of them. That’s crazy if you think about it - you give your card around to many people and any of them can write it down and use it. In the US the only sensible thing to do is to use your credit card for everything and keep your savings tucked in an account which doesn’t have a card at all, nor a checking account tied to it. Then maybe a small checking account at some other bank for rare times you need cash.
- strken 4y ago
  It's a hateful little piece of plastic. You carry it around in exchange for 2-4% cashback and fraud protection that should by rights apply to debit cards too, and the credit card company sits there hoping you give in to temptation and actually use the line of credit it represents, at which point they charge you usurious rates and distribute part of their loot to all the other poor schmucks they're conning. I have one because my bank doesn't make a debit card with a spending limit over $2000, which isn't enough to cover all foreseeable emergencies. I hate it. I hate that I'm incentivised to carry it around, I hate the temptation it represents, I hate that normal debit cards don't get the "rewards" and "benefits" that function as bait on a hook. Gen Z is an entire generation, and not one I belong to. However, I assume it's like every other generation in that it has people who are desperate, greedy, mentally incapable, or otherwise perfect victims for the bank to sink its teeth into.
  - Dalewyn 4y ago
    >at which point they charge you usurious rates If you pay the statement balance due instead of the minimum payment due on your statements, you will end up paying no interest. The sky high interest rates only apply to statement balances that go past due, and having past due debt is also strongly disincentivized because they are horrible for your credit score. If you only spend money you actually have with a credit card, you will be fine while also enjoying the many benefits of having and using a credit card.
    - strken 4y ago
      If everyone only spent money they had with a credit card, then credit cards would not try to lure you in with free stuff and there would be no reason to use one. I pay my balance on time and "enjoy" "many benefits" derived from the human suffering of the people who weren't rich or sane enough to do so.
      - vageli 4y ago
        Credit card companies make money regardless of whether or not customers carry a balance due to interchange fees.
- Dalewyn 4y ago
  I feel that an astonishing number of people simply don't understand how credit and credit cards work, don't put in any effort to learn (understanding credit and debt is a critical life skill), and consequently blacklist what is unknown from their lives (eg: the Gen Z example). People falling into financial ruin isn't a fault of credit cards or carrying debt, it's either driven by fiscal irresponsibility (which can be rectified with honest effort) or just plain bad luck (which can happen to anyone, fiscally disciplined or otherwise).
- Existenceblinks 4y ago
  You may pay more than the interest. It's hard to prove the diff of purchase rates between if you have vs haven't had the incentives.
- mym1990 4y ago
  Not only does Gen Z lack this discipline, most people with credit cards lack this discipline.
dusted 4y ago
I don't get it.. There's a childrens song in Denmark, it's lyrics go, roughly translated "and if you have money, then you can have, but have you none, then you may go!" (it's about buying bread at the bakery).. When I see how people spend money they don't have, I'm always wondering if their parents never sang for them when they were young, or if they are of a particular dim nature. Sure, I can see why some people would take out a loan for big things like a house.. But for just about everything else? No. Either you can afford it or you can't. "But I need a car!" Yes, but you don't need a car you can't save up for, you need a car you CAN save up for. "But old cars break down and are expensive to get repaired" Yes, but you don't have money to pay someone else to repair it, old cars have cheap parts and are relatively simpler to repair, learn how to do it, you're not in a position to be fussy about what skills are beneath you if you can't pay someone else to do it, stop thinking so highly of yourself and get to it! When I see the option to finance a sandwich, my brain just melts.. No! If you don't have money for fast-food, then go to the grocery store and buy the ingredients yourself, you can make a weeks worth of sandwiches for what one ready-made one cost.
- yladiz 4y ago
  I think this is a bit too simplistic of a way to look at it. Having sone debt is not necessarily bad, even outside of enormous purchases such as a house or car. First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL. Second, in general it's not as black and white as either having or not having the money right now. If you have enough regular income to afford something over time and the interest rate is low/0%, it may make sense to spread the payments out over time rather than all at once. For example if you wanted to buy a €5K camera and maybe you don't have the money all at once but can afford to make 12 payments, what's inherently wrong about doing so?
  - ivanche 4y ago
    If you can afford 12 payments with interest, you can by definition also afford to save for 12 months and then buy the camera. BNPL and credit card companies are masters of exploiting psychology and especially currently prevailing wusiness and entitlement ("But I want it now!!!1!", "I deserve to treat myself like a king").
MarkusWandel 4y ago
"BNPL providers can offer zero-percent interest rates because they charge merchants three to four times the average credit-card processing fee." Right. And the vendor can't charge a higher price to the BNPL crowd, so they average it out over everyone. And thus the BNPL app user gets an "interest free" microloan, with everyone, even the people paying cash, having to pony up for the interest. Just like credit cards with their incentive programs... the card companies are skimming 2-3% off the top anyway, might as well capture some of that for myself.
- mrjin 4y ago
  Even that was not quite right. Just take a look at those leading providers' financial reports, none would be pretty. They were virtually accumulating customers by providing heavy incentives using investors' money so that they could bump up the share price to allow early investors to exit. Making a profit was not even their secondary priorty.
  - mountainriver 4y ago
    Yup klarna is notorious for this, up to 100m dollar bribes!
- hestefisk 4y ago
  The fees to the merchant can be quite exorbitant. That’s how the BNPL operators make their money.
gizmo 4y ago
The BNPL bubble burst in 2021 and it's been rapidly downhill since. Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates. Who's surprised this blew up? Nobody hopefully.
- mschuster91 4y ago
  > Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates. It makes sense even in a world of higher interest rates, at least for high-value goods - especially cars. Most car manufacturers have their own in-house banks and with these, direct access to the capital markets. For the manufacturer, it makes more profit to sell a car immediately after it is manufactured and have the income immediately on the books as well (as the in-house bank directly wires over the funds), simply because storing a car costs money for whatever storage option is used, for transferring it in and out of storage, and not to forget cars also lose value when stored over time, as many manufacturers are finding out at the moment as they try to complete the build of all the cars that had to be stored away during the lack of chips era. Even for lower-value goods like cameras, phones and drones, this calculation applies, just without the in-house banks. When a piece of tech costs at least 600$ to manufacture and you can estimate a demand of tens of thousands of units (or hundreds of millions in the case of Samsung and Apple flagship phones), they absolutely need to push as much inventory as they can, simply because they are otherwise sitting on a very expensive time-bomb: once the next generation comes onto the market, the old generation stock will only be sellable with significant discounts.
mrjin 4y ago
It's virtually a credit card service issued without neither a foregoing credit check nor a physical card except that with a lower credit limit. For people with enough financial capacity, it provides little value in comparison with credit card as they still have to pay the same amount but have to go through much more hustle. So, it's not attractive to those unless there were considerable incentives such as cashbacks. But on the other hand, for those barely can make ends meet, it might be the only way to get something they want desperately as obviously they are highly unlikely to get a credit card or a personal loan. If something goes sideway, bad debts are most likely to occur. For the merchants, if with the extra fees they still can make a profit, then they would be pretty happy to accept it as they get some extra sales which are unlikely to happen if no BNPL available. For the BNPL providers, they can be there in the first place was because there was way too much cheap money in the market which had nowhere to go. So, if they can get enough customers and revenues quickly enough by providing considerable incentives, they can continue to get more and more investments. And if they can get to IPO stage, they can get more money by bumping up the share price by which the initial investor can exit with huge profits. Such game had been played for decades as so much money were printed from thin air. Now things changed drastically as cheap even free money is no more...
fmajid 4y ago
I'd say traditional layaway was far more risky. You'd put money away with the shop and if that shop went bankrupt before you paid your last installment, you'd be out of the money and not get the item either.
tomger 4y ago
https://archive.is/2023.01.11-224923/https://www.theatlantic.com/culture/archive/2023/01/buy-now-pay-later-affirm-afterpay-credit-card-debt/672686/ https://archive.is/2023.01.11-224923/https://www.theatlantic...
nindalf 4y ago
This entire thread is focussed not on BNPL, but whether the entire concept of consumer debt makes sense. Some folks say consumers should never take on debt for purchases, when they can save up instead. Others point out that it’s unavoidable in some cases. You may need a car to get to your job, meaning the asset you purchased creates value that helps you pay for it. And yet others point out that you shouldn’t be financing food delivery. If you can’t afford that delivery now, then you probably can’t afford it spread over 12 months. But ultimately this comes down to risk vs reward inherent in any financial transaction. The amount of leverage each is person is willing to take depends on their risk appetite. And everyone’s risk appetite is different. The folks frustrated with those who take out a lot of debt can’t fathom why others have greater risk appetite. The folks who do take that debt can’t fathom what’s wrong with doing so when it’s within their appetite. That’s it, that’s the thread.
- Existenceblinks 4y ago
  I see a lot of non-americans comments got down voted very much just because they say they won't take debt. Why is it so offensive?
  - nibbleshifter 4y ago
    Makes the Americans feel bad. I don't think Americans understand that their credit card rewards/etc simply don't exist in Europe. There is literally no reason for me to ever use a credit card, it just costs me money.
    - Existenceblinks 4y ago
      Yeah there's also non-credit card that has the same fraud protection, contactless, separated balance, plus mobile app that's very fancy that can even pay street food shop.
      - nibbleshifter 4y ago
        Its fucking amazing how backwards the US financial ecosystem is, and I don't really understand why.
jdmtheNth 4y ago
https://archive.is/csQbP https://archive.is/csQbP
Alex3917 4y ago
> they bought enough Peloton products to account for 30 percent of Affirm’s revenue Funny given the hundreds of comments on HN, reddit, and elsewhere about how Pelton is a status symbol and/or people who don't like Peloton just aren't wealthy enough to afford one or whatever. (Including on MacRumors, since Apple was rumored to be considering buying Peloton at one point.)
sbuccini 4y ago
I posted this before, will post again: This article is so weak. It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. Seriously quotes TikTokers who are probably just paid shills for the company. There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth, but realistically it's functionally no different than a credit card. People actually interested in this topic should look at the CFPB's recent report on the subject and at the quarterly reports for Affirm/Upstart/Square/etc. Also, this same piece has been posted like 5 times in the past few days and only now has it hit the front page, it's definitely weird submitters want HN to read the article so badly. Flagged.
- ceejayoz 4y ago
  > It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%. At those rates, people just put it on a credit card.
  - sbuccini 4y ago
    Your claims are not true for several reasons: - Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm. Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cause I got 0%!”) - "attractiveness" is in the eye of the beholder. You may be unwilling to pay a fee, many other people are. Plenty of people roll over their CC balances each month and pay even higher APRs. - Interest rates have little effect on BNPL financing; many can either lend out of their bank account due to their size, or they sell the loans immediately upon origination and thus pass the risk of changing interest rate environments onto another party.
    - 4y ago
jfghi 4y ago
It’d potentially be a hassle, but I think perhaps by putting enough of there expenses on bnpl that one could potentially make a bit of interest thanks to the current rate environment.
tarotuser 4y ago
What happens if you agree to a BNPL but you BNDP (buy now, dont pay): https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-cant-pay-back-a-buy-now-pay-later-bnpl-loan-en-2116/ https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-c... Hidden costs of BNPLs: https://slate.com/technology/2022/11/buy-now-pay-later-hidden-costs.html https://slate.com/technology/2022/11/buy-now-pay-later-hidde... "I’m sure you’ve read a ton of stories that Gen Z is using “buy now, pay later,” all the time. The most recent Consumer Financial Protection Bureau pointed out that actually the biggest age cohort for “buy now, pay later” users are people ages 34–40. They’re millennials." People with low/no credit are usually denied. NYTimes article about downsides of BNPLs: https://www.nytimes.com/2022/12/29/your-money/buy-now-pay-later-loans.html https://www.nytimes.com/2022/12/29/your-money/buy-now-pay-la...
- balozi 4y ago
  On a philosophical tangent, if you BNDP (buy now, don't pay), did you actually buy it? If you did indeed buy it, who did you buy it from - the original vendor or the party you didn't pay? We may need new language for the times we are living in.
  - tarotuser 4y ago
    Id daresay that what you asked isn't philosophical, but legal. And from what I gather, yes, it is a sale. And if you don't pay, they ding your credit. Hard. And low/no credit people can't even use these services. But to the larger point, there's a lot of things that claim to be a sale, but aren't really. I'm especially thinking of DRM music, movies, software, and generally copyrighted goods like that. Those folks are sure addicted to using the language of "sale" and then removing as they choose whatever they wish.
    - auxfil 4y ago
      Sorry to burst your bubble, but legal philosophy is real, and has a direct impact on what you are here calling "legal".
Existenceblinks 4y ago
[slightly-off-topic] Inb4: discipline, you're holding it wrong blah blah. I'm not in the country where credit score sounds like a moral, but my middle class friends already adopt this mindset .. now I'm not fun at party, it's sick! "use credit like it is debit" .. okay what's the point then.
__derek__ 4y ago
Some small companies made a bunch of bad loans, but there's still no bubble here, AFAICT.
christkv 4y ago
Repackaging BNPL loans into financial instruments (reminds me of 2008) will make it even worse when this house of cards collapses. When credit is not priced to risk is when we get distortions that lead to systemic risk as the fall of a single entity like Since companies that repackage debt and sell it off for suckers to buy there is 0% interest in doing proper credit checks. They just want to generate as much business as they can to make their return on selling the crap to other suckers. It's 2008 all over again but with consumer credit this time instead of mortgages.
yalogin 4y ago
What is the argument against BNPL? It’s like credit cards isn’t it? Instead of borrowing from credit card companies some folks are borrowing from the BNPL companies. Is the worry that these people are over extended? Is there over exuberance in n that space and no checks on who to lend money and how much?
- rgmerk 4y ago
  BNPL is basically an attempt to avoid the limits on merchant fees, cross-subsidised by everyone who isn’t using BNPL. The whole industry can get a ticket on Golgafrinchan ark C as far as I am concerned.
tinalumfoil 4y ago
https://news.ycombinator.com/item?id=34331793 https://news.ycombinator.com/item?id=34331793
elecush 4y ago
literally called a credit card
thecleaner 4y ago
One of the valid reasons for using BNPL is furniture purchases - I don't want to pay 1000 bucks upfront for shit that might be broken or not delivered on time. Although that depends on sellers integrating BNPL and being fine with it. And still doesn't justify a 46B valuation.
grishka 4y ago
What absolutely blew my mind about this article is how it considers being in debt a norm. An unspeakable rule of sorts to not even try to manage your finances and save up and all that. Like wtf? How the hell do you function in society if you can't afford groceries and have to buy them on credit? The even more perplexing thing, to me, is why it's so common among Americans to pay for things with credit cards when they have enough money in their account. I'm almost 30 and I've never had a single credit card in my life. Being constantly indebted to someone like that would be a nightmare for me.
- tail_exchange 4y ago
  I just pay my credit card balance every week. Using a credit card and paying it very often means that my credit score is excellent, which results better deals for my mortgage and also better credit cards with great rewards and no fees. Credit cards also allow you to dispute transactions in cases of fraud, which you can't do with debit cards. If you have a healthy relationship with credit, not having a credit card is actually a much worse deal.
- lotsoweiners 4y ago
  I am an American in my 40s and I pay everything on my credit card. All of my reoccurring bills: childcare, mobile phone, internet, utilities, etc are on my credit as are all purchases at stores/restaurants. I pay the balance every month. I end up with several free flights or hotel stays each year by employing this strategy. Added bonus is that if there is fraud, no money has left my bank account (this happened to me in the past year).
- RGamma 4y ago
  Americans have given up functioning. They're just doing now.
gumby 4y ago
The author is confused about credit terms that have existed for decades. "Layaway" is when the retailer puts the product aside (won't sell it to another customer), holding it in the warehouse while the customer makes payments until the product has been paid for and is then delivered. It makes (some sort of) sense for a capital purchase like furniture: furnture sells slowly; the retailer has to buy stock so there is a selection for the customer to choose from, ad is an expensive purchase for the customer. It makes no sense for a sandwich (as the article says, `Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought.'). This is simply buying on ordinary credit.
MagicMoonlight 4y ago
Oh definitely but it's also going to kill credit cards dead. Why would I use a 30% interest rate credit card with 1 month interest free when I can get 3 months interest free or spread it out for like 5%? I just wouldn't, credit cards are absolute trash in comparison. I never take the interest option but I find the 3 month options really useful for spreading payments.

148 points by isaacfrond 4y ago

“We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. This is always weird to me. It makes sense why Gen Z does this. But weird. I can get 2-4% back on all my purchases using my credit card, including protections against fraud, extra warranty, free lounge access at airports, and other perks. I'd lose money if I used BNPL unless I can automatically buy government bonds that can pay more than 2-4% within the pay back period. I wonder how much Gen Z is losing by using BNPL. In all my years of using credit cards, I've never paid interest. I've always paid the full amount every month. Does Gen Z lack this discipline?

crote 4y ago
Don't forget that there is no such thing as a free lunch, though. Credit card companies aren't charities! In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. Furthermore, their goal is to normalize the use of credit cards, in the hope that you'll eventually stumble and get screwed over by the interest fees. Also, I think you are forgetting that Gen Z are literally kids. If they have a job at all, it'll be a parttime one with a very flexible contract. Without stable income, a credit card can easily become an unacceptable risk.
- senttoschool 4y ago
  In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. The price is the same whether you pay via BNPL or credit card. I get that merchants get charged by credit card companies. I also know that I'm not going to make a difference by boycotting credit card companies. I'd just lose out. Also, BNPL companies charge merchants the same way credit card companies do.
  - goosedragons 4y ago
    Yeah. Stores increase prices to account for the higher transaction fees required to support giving CC users 2-4% cashback. Frankly CC reward schemes should be banned. It's just another shitty way for the poor to subsidize the middle class.
    - Existenceblinks 4y ago
      And punish normie who don't over spend because they have the same discipline without in-system credit.
- kortilla 4y ago
  > Also, I think you are forgetting that Gen Z are literally kids. You might want to check out your math on that one.
- deleted 4y ago
  [deleted]
- birracerveza 4y ago
  I think you are forgetting that Gen Z are not literally kids, they are just forced to live as such by the fact that being an adult with its own house and family has become prohibitively expensive.
- cfel 4y ago
  Gen Z starts in 1997.
- danaris 4y ago
  Ah, so now we've finally moved on from "Millennials are children" to "Gen Z are children". While it may still be true of some of them (I'm not sure exactly what the accepted bounds of "Gen Z" are these days), many are full-grown adults in their 20s with full-time jobs. And many of those full-grown adults in their 20s with full-time jobs still can't afford to even rent a place without multiple roommates to share the cost with.
Nextgrid 4y ago
> I've always paid the full amount every month. Does Gen Z lack this discipline? I'm not sure it's a Gen Z thing - credit cards were always subsidised by those who "lack the discipline". If everyone paid on time all the time they wouldn't give anyone an interest-free period.
- andrewaylett 4y ago
  Banks primarily make money on interchange fees, rather than interest -- if everyone paid on time all the time then they'd be very happy.
  - Dalewyn 4y ago
    And in fact the banks (to include credit card companies) do love people who pay on time every time by giving better credit scores to the people who do. Meanwhile, people who only pay the minimum due end up carrying past due debt and get bad credit scores from the banks. A bad credit score in turn means the banks won't lend money as much or as easily to such people. The ideal debtor is one who carries debt and proceeds to pay it off on time every time. You will have a stratospheric credit score and banks will be begging to lend you money.
  - rcxdude 4y ago
    Is this true? This article suggests the opposite, banks lose money overall on everything credit-card that isn't interest payments, which make up the vast majority of their income. https://www.valuepenguin.com/how-do-credit-card-companies-make-money https://www.valuepenguin.com/how-do-credit-card-companies-ma...
    - e63f67dd-065b 4y ago
      It really depends on the card issuer, as different card issuers have different credit profiles. American express, for example, infamously have charge cards that you must pay in full every month, and generally have a prime to super-prime profile, so they make much more money in interchange than in interest. Other banks with more sub-prime profiles (Capital One, BoA?, etc) make much more in interest than interchange.
dbbk 4y ago
I'm 30 and never had a credit card. Always felt like an extra layer of complication I don't need. I have enough money, I'd prefer to directly spend it. With a credit card there'd always be a nagging feeling some payment would be missed or something would go wrong and all of a sudden I'd be hit with interest charges.
- geraldwhen 4y ago
  This is wild. Have you never had a fraud charge? Reversing fraud of any size takes minutes at most with a credit card. With a debit card you might just lose the money.
  - t0mas88 4y ago
    This is a very US specific thing and even there I'm not sure it's true. In Europe credit-card usage is much lower, and card security is much higher for both types of cards. We've had chip and pin protected cards for many many years, while the US only caught on in the last few years. Is there objective data that US debit cards have more fraud impact for their users? Or is this really more a PR story from credit card companies?
    - matwood 4y ago
      > Is there objective data that US debit cards have more fraud impact for their users? Depends how tightly someones runs their bank account. A fraudulent charge could come at a bad time and trigger your mortgage payment to fail because of insufficient funds. Though, most bank accounts offer overdraft protection, which is really just an available loan that is automatically taken. For me, very few charges come directly out of my bank account. Everything else goes through a CC so I can review prior to paying each month.
    - turdprincess 4y ago
      I’m not sure about relative fraud numbers, but the fraud refund differences are real. With a credit card they will refund you basically no matter what. With a debit card it’s much more hit or miss - I recently had 3 fraudulent transactions on my debit card for about $100 each and they refunded only one of them. That’s crazy if you think about it - you give your card around to many people and any of them can write it down and use it. In the US the only sensible thing to do is to use your credit card for everything and keep your savings tucked in an account which doesn’t have a card at all, nor a checking account tied to it. Then maybe a small checking account at some other bank for rare times you need cash.
strken 4y ago
It's a hateful little piece of plastic. You carry it around in exchange for 2-4% cashback and fraud protection that should by rights apply to debit cards too, and the credit card company sits there hoping you give in to temptation and actually use the line of credit it represents, at which point they charge you usurious rates and distribute part of their loot to all the other poor schmucks they're conning. I have one because my bank doesn't make a debit card with a spending limit over $2000, which isn't enough to cover all foreseeable emergencies. I hate it. I hate that I'm incentivised to carry it around, I hate the temptation it represents, I hate that normal debit cards don't get the "rewards" and "benefits" that function as bait on a hook. Gen Z is an entire generation, and not one I belong to. However, I assume it's like every other generation in that it has people who are desperate, greedy, mentally incapable, or otherwise perfect victims for the bank to sink its teeth into.
- Dalewyn 4y ago
  >at which point they charge you usurious rates If you pay the statement balance due instead of the minimum payment due on your statements, you will end up paying no interest. The sky high interest rates only apply to statement balances that go past due, and having past due debt is also strongly disincentivized because they are horrible for your credit score. If you only spend money you actually have with a credit card, you will be fine while also enjoying the many benefits of having and using a credit card.
  - strken 4y ago
    If everyone only spent money they had with a credit card, then credit cards would not try to lure you in with free stuff and there would be no reason to use one. I pay my balance on time and "enjoy" "many benefits" derived from the human suffering of the people who weren't rich or sane enough to do so.
    - vageli 4y ago
      Credit card companies make money regardless of whether or not customers carry a balance due to interchange fees.
Dalewyn 4y ago
I feel that an astonishing number of people simply don't understand how credit and credit cards work, don't put in any effort to learn (understanding credit and debt is a critical life skill), and consequently blacklist what is unknown from their lives (eg: the Gen Z example). People falling into financial ruin isn't a fault of credit cards or carrying debt, it's either driven by fiscal irresponsibility (which can be rectified with honest effort) or just plain bad luck (which can happen to anyone, fiscally disciplined or otherwise).
Existenceblinks 4y ago
You may pay more than the interest. It's hard to prove the diff of purchase rates between if you have vs haven't had the incentives.
mym1990 4y ago
Not only does Gen Z lack this discipline, most people with credit cards lack this discipline.

dusted 4y ago

I don't get it.. There's a childrens song in Denmark, it's lyrics go, roughly translated "and if you have money, then you can have, but have you none, then you may go!" (it's about buying bread at the bakery).. When I see how people spend money they don't have, I'm always wondering if their parents never sang for them when they were young, or if they are of a particular dim nature. Sure, I can see why some people would take out a loan for big things like a house.. But for just about everything else? No. Either you can afford it or you can't. "But I need a car!" Yes, but you don't need a car you can't save up for, you need a car you CAN save up for. "But old cars break down and are expensive to get repaired" Yes, but you don't have money to pay someone else to repair it, old cars have cheap parts and are relatively simpler to repair, learn how to do it, you're not in a position to be fussy about what skills are beneath you if you can't pay someone else to do it, stop thinking so highly of yourself and get to it! When I see the option to finance a sandwich, my brain just melts.. No! If you don't have money for fast-food, then go to the grocery store and buy the ingredients yourself, you can make a weeks worth of sandwiches for what one ready-made one cost.

yladiz 4y ago
I think this is a bit too simplistic of a way to look at it. Having sone debt is not necessarily bad, even outside of enormous purchases such as a house or car. First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL. Second, in general it's not as black and white as either having or not having the money right now. If you have enough regular income to afford something over time and the interest rate is low/0%, it may make sense to spread the payments out over time rather than all at once. For example if you wanted to buy a €5K camera and maybe you don't have the money all at once but can afford to make 12 payments, what's inherently wrong about doing so?
- ivanche 4y ago
  If you can afford 12 payments with interest, you can by definition also afford to save for 12 months and then buy the camera. BNPL and credit card companies are masters of exploiting psychology and especially currently prevailing wusiness and entitlement ("But I want it now!!!1!", "I deserve to treat myself like a king").

MarkusWandel 4y ago

"BNPL providers can offer zero-percent interest rates because they charge merchants three to four times the average credit-card processing fee." Right. And the vendor can't charge a higher price to the BNPL crowd, so they average it out over everyone. And thus the BNPL app user gets an "interest free" microloan, with everyone, even the people paying cash, having to pony up for the interest. Just like credit cards with their incentive programs... the card companies are skimming 2-3% off the top anyway, might as well capture some of that for myself.

mrjin 4y ago
Even that was not quite right. Just take a look at those leading providers' financial reports, none would be pretty. They were virtually accumulating customers by providing heavy incentives using investors' money so that they could bump up the share price to allow early investors to exit. Making a profit was not even their secondary priorty.
- mountainriver 4y ago
  Yup klarna is notorious for this, up to 100m dollar bribes!
hestefisk 4y ago
The fees to the merchant can be quite exorbitant. That’s how the BNPL operators make their money.

gizmo 4y ago

The BNPL bubble burst in 2021 and it's been rapidly downhill since. Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates. Who's surprised this blew up? Nobody hopefully.

mschuster91 4y ago
> Turns out that giving people free payment plans for everything only makes sense in a world with 0% interest rates. It makes sense even in a world of higher interest rates, at least for high-value goods - especially cars. Most car manufacturers have their own in-house banks and with these, direct access to the capital markets. For the manufacturer, it makes more profit to sell a car immediately after it is manufactured and have the income immediately on the books as well (as the in-house bank directly wires over the funds), simply because storing a car costs money for whatever storage option is used, for transferring it in and out of storage, and not to forget cars also lose value when stored over time, as many manufacturers are finding out at the moment as they try to complete the build of all the cars that had to be stored away during the lack of chips era. Even for lower-value goods like cameras, phones and drones, this calculation applies, just without the in-house banks. When a piece of tech costs at least 600$ to manufacture and you can estimate a demand of tens of thousands of units (or hundreds of millions in the case of Samsung and Apple flagship phones), they absolutely need to push as much inventory as they can, simply because they are otherwise sitting on a very expensive time-bomb: once the next generation comes onto the market, the old generation stock will only be sellable with significant discounts.

mrjin 4y ago

It's virtually a credit card service issued without neither a foregoing credit check nor a physical card except that with a lower credit limit. For people with enough financial capacity, it provides little value in comparison with credit card as they still have to pay the same amount but have to go through much more hustle. So, it's not attractive to those unless there were considerable incentives such as cashbacks. But on the other hand, for those barely can make ends meet, it might be the only way to get something they want desperately as obviously they are highly unlikely to get a credit card or a personal loan. If something goes sideway, bad debts are most likely to occur. For the merchants, if with the extra fees they still can make a profit, then they would be pretty happy to accept it as they get some extra sales which are unlikely to happen if no BNPL available. For the BNPL providers, they can be there in the first place was because there was way too much cheap money in the market which had nowhere to go. So, if they can get enough customers and revenues quickly enough by providing considerable incentives, they can continue to get more and more investments. And if they can get to IPO stage, they can get more money by bumping up the share price by which the initial investor can exit with huge profits. Such game had been played for decades as so much money were printed from thin air. Now things changed drastically as cheap even free money is no more...

fmajid 4y ago

I'd say traditional layaway was far more risky. You'd put money away with the shop and if that shop went bankrupt before you paid your last installment, you'd be out of the money and not get the item either.

tomger 4y ago

https://archive.is/2023.01.11-224923/https://www.theatlantic.com/culture/archive/2023/01/buy-now-pay-later-affirm-afterpay-credit-card-debt/672686/ https://archive.is/2023.01.11-224923/https://www.theatlantic...

nindalf 4y ago

This entire thread is focussed not on BNPL, but whether the entire concept of consumer debt makes sense. Some folks say consumers should never take on debt for purchases, when they can save up instead. Others point out that it’s unavoidable in some cases. You may need a car to get to your job, meaning the asset you purchased creates value that helps you pay for it. And yet others point out that you shouldn’t be financing food delivery. If you can’t afford that delivery now, then you probably can’t afford it spread over 12 months. But ultimately this comes down to risk vs reward inherent in any financial transaction. The amount of leverage each is person is willing to take depends on their risk appetite. And everyone’s risk appetite is different. The folks frustrated with those who take out a lot of debt can’t fathom why others have greater risk appetite. The folks who do take that debt can’t fathom what’s wrong with doing so when it’s within their appetite. That’s it, that’s the thread.

Existenceblinks 4y ago
I see a lot of non-americans comments got down voted very much just because they say they won't take debt. Why is it so offensive?
- nibbleshifter 4y ago
  Makes the Americans feel bad. I don't think Americans understand that their credit card rewards/etc simply don't exist in Europe. There is literally no reason for me to ever use a credit card, it just costs me money.
  - Existenceblinks 4y ago
    Yeah there's also non-credit card that has the same fraud protection, contactless, separated balance, plus mobile app that's very fancy that can even pay street food shop.
    - nibbleshifter 4y ago
      Its fucking amazing how backwards the US financial ecosystem is, and I don't really understand why.

jdmtheNth 4y ago

https://archive.is/csQbP https://archive.is/csQbP

Alex3917 4y ago

> they bought enough Peloton products to account for 30 percent of Affirm’s revenue Funny given the hundreds of comments on HN, reddit, and elsewhere about how Pelton is a status symbol and/or people who don't like Peloton just aren't wealthy enough to afford one or whatever. (Including on MacRumors, since Apple was rumored to be considering buying Peloton at one point.)

sbuccini 4y ago

I posted this before, will post again: This article is so weak. It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. Seriously quotes TikTokers who are probably just paid shills for the company. There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth, but realistically it's functionally no different than a credit card. People actually interested in this topic should look at the CFPB's recent report on the subject and at the quarterly reports for Affirm/Upstart/Square/etc. Also, this same piece has been posted like 5 times in the past few days and only now has it hit the front page, it's definitely weird submitters want HN to read the article so badly. Flagged.

ceejayoz 4y ago
> It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%. At those rates, people just put it on a credit card.
- sbuccini 4y ago
  Your claims are not true for several reasons: - Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm. Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cause I got 0%!”) - "attractiveness" is in the eye of the beholder. You may be unwilling to pay a fee, many other people are. Plenty of people roll over their CC balances each month and pay even higher APRs. - Interest rates have little effect on BNPL financing; many can either lend out of their bank account due to their size, or they sell the loans immediately upon origination and thus pass the risk of changing interest rate environments onto another party.
  - 4y ago

jfghi 4y ago

It’d potentially be a hassle, but I think perhaps by putting enough of there expenses on bnpl that one could potentially make a bit of interest thanks to the current rate environment.

tarotuser 4y ago

What happens if you agree to a BNPL but you BNDP (buy now, dont pay): https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-cant-pay-back-a-buy-now-pay-later-bnpl-loan-en-2116/ https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-c... Hidden costs of BNPLs: https://slate.com/technology/2022/11/buy-now-pay-later-hidden-costs.html https://slate.com/technology/2022/11/buy-now-pay-later-hidde... "I’m sure you’ve read a ton of stories that Gen Z is using “buy now, pay later,” all the time. The most recent Consumer Financial Protection Bureau pointed out that actually the biggest age cohort for “buy now, pay later” users are people ages 34–40. They’re millennials." People with low/no credit are usually denied. NYTimes article about downsides of BNPLs: https://www.nytimes.com/2022/12/29/your-money/buy-now-pay-later-loans.html https://www.nytimes.com/2022/12/29/your-money/buy-now-pay-la...

balozi 4y ago
On a philosophical tangent, if you BNDP (buy now, don't pay), did you actually buy it? If you did indeed buy it, who did you buy it from - the original vendor or the party you didn't pay? We may need new language for the times we are living in.
- tarotuser 4y ago
  Id daresay that what you asked isn't philosophical, but legal. And from what I gather, yes, it is a sale. And if you don't pay, they ding your credit. Hard. And low/no credit people can't even use these services. But to the larger point, there's a lot of things that claim to be a sale, but aren't really. I'm especially thinking of DRM music, movies, software, and generally copyrighted goods like that. Those folks are sure addicted to using the language of "sale" and then removing as they choose whatever they wish.
  - auxfil 4y ago
    Sorry to burst your bubble, but legal philosophy is real, and has a direct impact on what you are here calling "legal".

Existenceblinks 4y ago

[slightly-off-topic] Inb4: discipline, you're holding it wrong blah blah. I'm not in the country where credit score sounds like a moral, but my middle class friends already adopt this mindset .. now I'm not fun at party, it's sick! "use credit like it is debit" .. okay what's the point then.

__derek__ 4y ago

Some small companies made a bunch of bad loans, but there's still no bubble here, AFAICT.

christkv 4y ago

Repackaging BNPL loans into financial instruments (reminds me of 2008) will make it even worse when this house of cards collapses. When credit is not priced to risk is when we get distortions that lead to systemic risk as the fall of a single entity like Since companies that repackage debt and sell it off for suckers to buy there is 0% interest in doing proper credit checks. They just want to generate as much business as they can to make their return on selling the crap to other suckers. It's 2008 all over again but with consumer credit this time instead of mortgages.

yalogin 4y ago

What is the argument against BNPL? It’s like credit cards isn’t it? Instead of borrowing from credit card companies some folks are borrowing from the BNPL companies. Is the worry that these people are over extended? Is there over exuberance in n that space and no checks on who to lend money and how much?

rgmerk 4y ago
BNPL is basically an attempt to avoid the limits on merchant fees, cross-subsidised by everyone who isn’t using BNPL. The whole industry can get a ticket on Golgafrinchan ark C as far as I am concerned.

tinalumfoil 4y ago

https://news.ycombinator.com/item?id=34331793 https://news.ycombinator.com/item?id=34331793

elecush 4y ago

literally called a credit card

thecleaner 4y ago

One of the valid reasons for using BNPL is furniture purchases - I don't want to pay 1000 bucks upfront for shit that might be broken or not delivered on time. Although that depends on sellers integrating BNPL and being fine with it. And still doesn't justify a 46B valuation.

grishka 4y ago

What absolutely blew my mind about this article is how it considers being in debt a norm. An unspeakable rule of sorts to not even try to manage your finances and save up and all that. Like wtf? How the hell do you function in society if you can't afford groceries and have to buy them on credit? The even more perplexing thing, to me, is why it's so common among Americans to pay for things with credit cards when they have enough money in their account. I'm almost 30 and I've never had a single credit card in my life. Being constantly indebted to someone like that would be a nightmare for me.

tail_exchange 4y ago
I just pay my credit card balance every week. Using a credit card and paying it very often means that my credit score is excellent, which results better deals for my mortgage and also better credit cards with great rewards and no fees. Credit cards also allow you to dispute transactions in cases of fraud, which you can't do with debit cards. If you have a healthy relationship with credit, not having a credit card is actually a much worse deal.
lotsoweiners 4y ago
I am an American in my 40s and I pay everything on my credit card. All of my reoccurring bills: childcare, mobile phone, internet, utilities, etc are on my credit as are all purchases at stores/restaurants. I pay the balance every month. I end up with several free flights or hotel stays each year by employing this strategy. Added bonus is that if there is fraud, no money has left my bank account (this happened to me in the past year).
RGamma 4y ago
Americans have given up functioning. They're just doing now.

gumby 4y ago

The author is confused about credit terms that have existed for decades. "Layaway" is when the retailer puts the product aside (won't sell it to another customer), holding it in the warehouse while the customer makes payments until the product has been paid for and is then delivered. It makes (some sort of) sense for a capital purchase like furniture: furnture sells slowly; the retailer has to buy stock so there is a selection for the customer to choose from, ad is an expensive purchase for the customer. It makes no sense for a sandwich (as the article says, `Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought.'). This is simply buying on ordinary credit.

MagicMoonlight 4y ago

Oh definitely but it's also going to kill credit cards dead. Why would I use a 30% interest rate credit card with 1 month interest free when I can get 3 months interest free or spread it out for like 5%? I just wouldn't, credit cards are absolute trash in comparison. I never take the interest option but I find the 3 month options really useful for spreading payments.