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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 r

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
  - jonfw 4y ago
    When you phrase it this way, it sounds very comparable in terms of return to a credit card rewards program
    - UncleMeat 4y ago
      The nice thing about a credit card rewards program is that it requires zero mental effort. Some people like spending more effort to do churning or whatever, but I make the same computation in that case and conclude that the extra money isn't worth my time.
      - _huayra_ 4y ago
        Paying without a credit card is just supporting the credit card fees of those who do pay with one. The price is the same, but you often get 2 or even 3% cash back (depending on offers). Anyone financially responsible (i.e. that won't get enticed into carrying a balance by the opportunity to get cash back) is leaving money on the table by not using a credit card (with good rewards).
- whoisburbansky 4y ago
  How does the floor rate make it a less terrible credit card?
  - ceejayoz 4y ago
    Because you're paying interest. My credit union offers an 8% APR; a 10% BNPL gives me no benefit over that.
    - deleted 4y ago
      [deleted]
- vorpalhex 4y ago
  The BNPL schemes are targeting low income customers who either can't or won't use credit cards. The frequent little payments is a "feature". If you can't handle a $200/mo credit card bill, getting emails for $8 here or $11 there is probably easier.
Gordonjcp 4y ago
Similarly I've used BNPL products to buy things like car tyres because they don't cost me anything (well - okay, the cost is borne by the seller, so presumably they bump the prices up a bit across the board, but you know what I mean), not because I didn't have the money. Generally it was things like "half now half next month". The thing is, doing stuff like that - taking on debt and paying it - builds up your credit score. My credit score was awful after some youthful indiscretions with bank loans and credit cards, but after borrowing (and paying back) a total of about ten grand over as many years I've got a credit rating like a Swiss bank.
sebzim4500 4y ago
Did that actually work? I just assumed they would find a way to charge me 'interest' by having processing fees or some other scam, so I never used them.
- vel0city 4y ago
  I imagine there are a number of those out there, but I've taken many BNPL deals that were zero fee, zero interest. It truly worked out to be the exact same cost whether I paid upfront or took the BNPL. I imagine the BNPL people made their money from the same kind of CC fee models and from customers who ended up not being able to stay within the 0% timeline. From my memory it usually had some big fines or interest rates if you couldn't make the payments.
  - customname 4y ago
    I always imagined that the companies using the service at checkout would give the BNPL company a percentage of the sale if the customer used the service. Even if the price is the same for the consumer, BNPL companies could argue that they generated sales that might've backed out had they not been available.
    - yurishimo 4y ago
      This is exactly how they work. I work for an ecommerce company that offers one of these services. We pay them a small percentage and they take on the liability to collect payment and handle disputes. We already pay another percentage to try and detect fraud for a certain amount of our transactions. By letting the BNPL company act as the purchaser on behalf of the customer, we can offer them a cut of what we would have paid for fraud detection.
    - snotrockets 4y ago
      Exactly. The retailer pays the interest (a small marketing cost to increase customer spend), which is made into an offering to financiers of a low risk loan trenches, with absurdly high interest rate (20%+ APR).
- 4y ago
deleted 4y ago
[deleted]

_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
- jonfw 4y ago
  When you phrase it this way, it sounds very comparable in terms of return to a credit card rewards program
  - UncleMeat 4y ago
    The nice thing about a credit card rewards program is that it requires zero mental effort. Some people like spending more effort to do churning or whatever, but I make the same computation in that case and conclude that the extra money isn't worth my time.
    - _huayra_ 4y ago
      Paying without a credit card is just supporting the credit card fees of those who do pay with one. The price is the same, but you often get 2 or even 3% cash back (depending on offers). Anyone financially responsible (i.e. that won't get enticed into carrying a balance by the opportunity to get cash back) is leaving money on the table by not using a credit card (with good rewards).
whoisburbansky 4y ago
How does the floor rate make it a less terrible credit card?
- ceejayoz 4y ago
  Because you're paying interest. My credit union offers an 8% APR; a 10% BNPL gives me no benefit over that.
  - deleted 4y ago
    [deleted]
vorpalhex 4y ago
The BNPL schemes are targeting low income customers who either can't or won't use credit cards. The frequent little payments is a "feature". If you can't handle a $200/mo credit card bill, getting emails for $8 here or $11 there is probably easier.

Gordonjcp 4y ago

Similarly I've used BNPL products to buy things like car tyres because they don't cost me anything (well - okay, the cost is borne by the seller, so presumably they bump the prices up a bit across the board, but you know what I mean), not because I didn't have the money. Generally it was things like "half now half next month". The thing is, doing stuff like that - taking on debt and paying it - builds up your credit score. My credit score was awful after some youthful indiscretions with bank loans and credit cards, but after borrowing (and paying back) a total of about ten grand over as many years I've got a credit rating like a Swiss bank.

sebzim4500 4y ago

Did that actually work? I just assumed they would find a way to charge me 'interest' by having processing fees or some other scam, so I never used them.

vel0city 4y ago
I imagine there are a number of those out there, but I've taken many BNPL deals that were zero fee, zero interest. It truly worked out to be the exact same cost whether I paid upfront or took the BNPL. I imagine the BNPL people made their money from the same kind of CC fee models and from customers who ended up not being able to stay within the 0% timeline. From my memory it usually had some big fines or interest rates if you couldn't make the payments.
- customname 4y ago
  I always imagined that the companies using the service at checkout would give the BNPL company a percentage of the sale if the customer used the service. Even if the price is the same for the consumer, BNPL companies could argue that they generated sales that might've backed out had they not been available.
  - yurishimo 4y ago
    This is exactly how they work. I work for an ecommerce company that offers one of these services. We pay them a small percentage and they take on the liability to collect payment and handle disputes. We already pay another percentage to try and detect fraud for a certain amount of our transactions. By letting the BNPL company act as the purchaser on behalf of the customer, we can offer them a cut of what we would have paid for fraud detection.
  - snotrockets 4y ago
    Exactly. The retailer pays the interest (a small marketing cost to increase customer spend), which is made into an offering to financiers of a low risk loan trenches, with absurdly high interest rate (20%+ APR).
4y ago

deleted 4y ago

[deleted]