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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 i

• 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.
    • emptysongglass 4y ago
      I don't think you make a convincing argument. Anecdotally, I've only ever used Affirm when they offer me 0% interest. Paying 26% or more for a soundbar over six months is not attractive.
    • ceejayoz 4y ago
      > Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. Yes. We consumers appreciate that. > You may be unwilling to pay a fee, many other people are. Sure. I think a lot fewer people will be willing to pay $X than $0. > Interest rates have little effect on BNPL financing 0% APRs are only really feasible in a low-interest environment. There's a reason that Fed rate hikes are immediately followed up by APRs.
    • _fat_santa 4y ago
      I disagree and I think interest rates have a huge impact on these places. Just look at Affirm that used to offer 0% and is now offering 10% at minimum. As far as "attractiveness", I really see two groups here. You have one that legit cannot afford the full price and are taking out this loan as a traditional loan, within that group "attractiveness" is in the eye of the beholder. However the other group is people that can very much afford the product but see the magic "0%" rate, for this group the only "attractive" rate is 0, any higher and they will not use the service.
    • lozenge 4y ago
      Merchants pay the interest because they see larger basket amounts and therefore more revenue. If the cost to them increases then it can reach a point where it's no longer attractive.
    • jerf 4y ago
      "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." I get the sense you're not thinking in the margin. This isn't a question of whether "some people" will pay the fee, it's about the fact that as soon as the fee is greater than zero, "some people" won't, and the rate of that will go up as the fee goes up. This isn't a binary thing where suddenly the rate goes from 0% to 100%. 1% or 2% doesn't mean much to me and my household budget, but for these businesses such percentage differences are generally the difference between profit or loss.
  • _fat_santa 4y ago
    I see BNPL companies as having two types of customers: those that can't afford the full price and want to pay over time, those that read the terms closely and realized the deal is too good not to take. I took out a number of BNPL loans last year and it was never because I couldn't pay the full price but rather if I was getting the money at 0%, "free money". But I was never the target customer of these places, I was just taking advantage of very good terms. Now that Affirm (and I assume most other places) are charging a floor rate of 10%, that second group of customers are no longer customers. I'm not sure how significant this group is but I'm sure it's not an insignificant number. Since these places make most of their money on transaction fees rather than rate premiums and fees on the back end, this could really put a dent in their business.
    • _huayra_ 4y ago
      Maybe I just haven't had the opportunity to buy any big ticket items with BNPL, but the few times I tried it (trying to do the "free money" thing, getting a bit more interest in my HYSA by amortizing the total payment out over time), it just created kind of a financial tracking nightmare. I'd get flurries of emails about how my "pay in 4" payment was about to process....for $13. Trying to keep track of all that for a few pennies became too difficult (matching up which purchase each micropayment was from), although those pennies add up for larger purchases indeed! But for a floor rate of 10%, BNPL is just a less terrible credit card, not a good deal :(
      • UncleMeat 4y ago
        This is my take too. A $10,000 purchase on 0% interest for a year earns you ~$400 in interesting from a money market fund or whatever. I'm in a high tax bracket so $160 of that goes to the government. So even for a large purchase I net $240 in a year. Hooray. Decrease the total cost of things purchased in this manner or increase the number of different things to track (or both) and suddenly I'm paying quite a bit more in additional mental energy than I benefit in cash. The only place where this makes sense (IMO) is when you buy a new car and can get 0% and no payments for more than a year
        • 4y ago
  • pharmakom 4y ago
    Market for lemons? How many BNPL customers don’t qualify for a good credit card?
  • gnicholas 4y ago
    I never used one of these, partly because it seemed like it would create significant friction if I needed to return the item. What is the return/refund process like with these services? I assume they get the refund from the merchant and then disburse your part of it to you? Does it go smoothly, or do you have to chase things down?
• onlyrealcuzzo 4y ago
  > realistically it's functionally no different than a credit card. > There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth. It's a cc with bad underwriting... You don't see this as a fundamental problem? This doesn't seem much different to me than other sub-prime bubbles...
  • sbuccini 4y ago
    When done correctly, the underwriting is actually significantly better as it's done on a per-transaction basis, incorporating the item itself (ring purchases are significantly more risky to finance than sneaker purchases). You can also incrementally dole out a credit limit, rather than giving someone a $10k threshold upfront without any veto power over how they use that amount. That being said, there are a ton of hucksters in the industry and I suspect we'll see most of them wash out in the next few years :)
  • mountainriver 4y ago
    I’ve worked in this industry and the underwriting is actually significantly better than most cc companies
• CyanLite2 4y ago
  BNPL is just a non-asset-backed sub-prime loan. We've seen this movie before and how it ends. BNPL firms can't survive a recession or higher consumer delinquencies.
  • mountainriver 4y ago
    Funny credit cards survive when it’s the same thing
    • e63f67dd-065b 4y ago
      The difference is that credit cards are not almost exclusively sub-prime loans and are reported on the consumer's credit. Many companies have largely prime or super-prime credit portfolios, and the industry is well-developed to serve these customers (Amex makes much more money from interchange than from interest, for example, and even sub-prime borrowers have tight control over their credit portfolio).
  • snotrockets 4y ago
    LoanS. And most are small and very short term (4 payments). The risk from defaults isn't as worse as for a auto-loan lender, or a mortgage lender, or even a CC lender (as underwriting is done on a per-purchase base, the total amount underwritten per user is much smaller than a typical CC)
• phphphphp 4y ago
  Functionally it is substantially different to a credit card. The value of BNPL to businesses is the way that it changes the basis for a customer’s purchase decision, a credit card does not have that same dynamic. The underlying credit mechanism might be a lot like a credit card but the way borrowers interact with it, which is what matters, is very different. The mechanics of a mortgage and a car loan are very similar but that doesn’t make a mortgage a car loan and vice versa. BNPL is a bubble. BNPL is just like ride-sharing circa 2016, as soon as cheap money stops and regulation arrives, the bottom falls out and people realise that BNPL is just new paint on an old idea and should be valued as such. BNPL will not die because it has existed for decades, and it is a valuable service to a subset of consumers but when you set aside all of the tech-boom hype… it’s just a boring financial service with healthy-but-unremarkable profit opportunities.
  • KineticLensman 4y ago
    > the way borrowers interact with it, which is what matters, is very different And the differences are?
    • beisner 4y ago
      BNPL usually breaks purchases up into discrete monthly payments up-front at checkout. Whereas your credit card lumps it together into one balance, which you can pay over time.
    • phphphphp 4y ago
      A credit card is a long term commitment that integrates into your personal finance life, it’s a big decision you make once and can benefit from the broader finance system — e.g: you can refinance, you have legal rights (jurisdiction dependent). A credit card is a tool for the buyer. BNPL is a product that merchants pay for because it increases their conversion rate: customers who wouldn’t otherwise buy something, will buy it, by clicking a button and entering into a financial agreement at checkout. BNPL has been around for decades, the innovation of digital BNPL is in making it so easy for someone to walk into a financial commitment. For example, BNPL is very effective for fashion e-commerce, a market where it’s normal for a customer to fill their basket with products and then whittle it down to stay within their budget at checkout: BNPL is an antidote to that, it tells the consumer, “you don’t need to stay in budget! Just pay for it in future!”.
• up2isomorphism 4y ago
  Weak or not this article does present a simple and valid fact, BNPL is abused in US, just like subprime mortgages. BTW,the same question can also be asked that you seems to be quite mad about many people seeing this article.
  • paxys 4y ago
    Credit cards are abused in the US as well, yet it is a solid industry worth hundreds of billions.
• r00fus 4y ago
  I mean, yeah the article should have prefaced it all with the raise in interest rates that signaled the end of QE/ZIRP aka "free money".