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Burrito Now, Pay Later

• coolcase 1y ago
  He brushes over ethical concerns of BNPL but draws the line at sports betting. But BNPL by design encourages you to buy things you can't afford and complicates your finances with more timed bills to pay. It makes it more likely people don't budget well and form buffers. A PNBL would be better, add 10% tithe to every purchase that goes to a checking account. Once that reaches $1k it overflows to an index fund. He says it won't be like 2008 bundling this stuff up and that might be right or wrong. To be 2008 you need 2 ingredients: combined gambling and banking operations at the banks (a legalised FTX of sorts) and some liars in the system misrepresenting the risk. Maybe a 3rd ingredient is a crazy/frenzy driving up the gambling into the bubbled asset.
  • Veedrac 1y ago
    I've suggested a different take on PNBL in the context of gambling before, to protect people against addiction without outright making it illegal as is widely done today. The idea is if you want to gamble more than some unprotected quantity, you have to first allocate the money and leave it for a month or two. People with insufficient impulse control or financial security will find that hard, but light recreational users shouldn't be inconvenienced too much. The same ideas can work for other things, though it's easiest to apply to predatory behaviour.
  • mbStavola 1y ago
    From the consumer pov, why would I opt for a PNBL option? If I have the money on hand, wouldn't I just make a regular purchase? Not trying to be snarky, genuinely curious what the sales pitch is here.
    • ldoughty 1y ago
      That's effectively any membership service where you get a discount... e.g. Amazon prime, arguably... or Membership grocery stores. Pay up front for benefits that are realized later, upon further action. I have a membership with my local craft brewery that I love to frequent that similarly could be considered a PNBL like financial thing. Arguably, it's also gift cards, though yeah, without any benefit, no one really buys gift cards for themselves.
      • roland35 1y ago
        Hey sometimes gift cards are on sale! So in effect a pay now buy later. My favorite restaurant often has a Christmas sale on gift cards (something like $10 when you buy $100) so I'll get a few for myself.
    • deleted 1y ago
      [deleted]
    • apothegm 1y ago
      The sales pitch is for people who don’t have the money on hand. But hope they will later when their next paycheck comes in.
  • TwoFerMaggie 1y ago
    PNBL was a thing at some point (https://en.wikipedia.org/wiki/Layaway https://en.wikipedia.org/wiki/Layaway) but was rendered obsolete by the advent of credit cards. Seems to me like a personal austerity measure which becomes more popular in worse economic conditions. The cynic in me believes that there's more money to be made when you encourage people to spend less responsibly and with less financial literacy.
    • int_19h 1y ago
      Layaway is still very much a thing in some niche markets, e.g.: https://www.gunbroker.com/all/search?keywords=layaway https://www.gunbroker.com/all/search?keywords=layaway
• SOLAR_FIELDS 1y ago
  This treatise, from someone obviously in the industry, is merely another payday loan shark attempting to justify the existence of their clearly predatory products. How many of the consumers of this product are even remotely able to comprehend the piece as-is described? The article describes a "complete market". Yes, a market that is completely able to extract as much money from an exploited, uneducated populace as possible. Is that the kind of market efficiency we should be advocating for? The part of the "free market" that these fat cats always gloss over is that a cornerstone of a free market is that the consumers of the market are able to make educated decisions about the products that are available to them. If the populace is incapable of doing so in the way the products are presented to them, is that really a free market?
  • tlonny 1y ago
    The product (from the perspective of the consumer) _is_ relatively straightforward IMO. What isn't straightforward is accurately modelling the credit risk of the bonds when this class of debt is securitized (the meat of this article). Thus I don't think understanding this article is a prerequisite for making educated decisions re: BNPL.
  • tecleandor 1y ago
    It's unhinged. > Is financing your lunch a sign of societal decay? Maybe, maybe not. Financing your lunch means you can't pay for your lunch. And then somebody comes to search profit in that. Yep, it's societal decay. Ah, but he draws the line at sports bets, he doesn't like that.
    • margalabargala 1y ago
      > > Is financing your lunch a sign of societal decay? Maybe, maybe not. > Financing your lunch means you can't pay for your lunch. And then somebody comes to search profit in that. Yep, it's societal decay. Counterargument: almost always when I buy something, lunch or otherwise, I put it on a credit card, which I pay off always before the due date but essentially never on the same day I had the lunch. Viewed through the lens of a society that only paid up front in cash, what I do would be viewed as risky and irresponsible; but it is not. BNPL as it currently exists, in the form described in this article, is exploitative. But the American credit card system, which is the same sort of thing mildly rearranged, is far less exploitative.
• darkwater 1y ago
  > Picture Alice, who forgets a $25 installment on her $100 DoorDash transaction. She’s hit with a $7 late fee, tacked onto her next payment. Annoying, but it probably won’t push her down a debt spiral. This is so disconnected from reality that it's not just worrisome but despicable. Why did Alice missed a 25$? Maybe, just maybe, because she struggles to make ends meet, so if she had problems paying 25$, now she will have MORE problem paying 32$. Yes, she could have not chosen to use Klarna and she could have not chosen to buy something at all, but hey, who is gonna pay that IPO now?
  • immibis 1y ago
    Alice missed the $25 payment because her balance was zero, triggering a $7 late payment fee, $30 failed payment fee and $30 overdraft protection fee. Alice used the service more than once, so she missed not just this payment, but 20 simultaneous payments, having $1340 taken from her in total, eating her whole next two paychecks. During the time of those next two paychecks, it will be time to pay the next two instalments, triggering the same fees each time.
    • zug_zug 1y ago
      Is this really how this works? Do you have a source? Also… in this situation does klarna get any of that 1340 or does Alice just delete the app?
      • alright2565 1y ago
        It is exaggerated, particularly the 2 $30 fees: a $30 "failed payment" fee sounds like a bounced check, and doesn't really apply here, and there's been a general crackdown on overdraft protection fees. But it doesn't need exaggeration! A missed payment accelerating the loan to 46% APY effective is already usury and bad enough!
        • immibis 1y ago
          The Trump regime has removed the rules preventing excessive bank fees. Prior to these rules, put in place by the Biden administration late last year, the average fee was $35.
• mattnewton 1y ago
  > If you think the price of oil will be $120 after a year, you can use futures or options on futures to make this bet. If you think the S&P 500 will be over 6,500 within 2 years and the yield on 10Y Treasury bonds will be 4.25%, investment bankers will help you express this view for a fee. I’m sorry but I think the either the author or I have entirely lost the plot. Finance is a game we play to make humans better off, not to “express their views” - if you think that being able to bet on everything makes society better off, that’s an argument you can make, but it is not self evidently good to me and it is not an argument the article seems to make.
  • pinkmuffinere 1y ago
    The author is writing creatively. s/express this view/bet on this
    • dankwizard 1y ago
      And remember folks creatively does not equal good.
  • andy99 1y ago
    Trading one thing for another is expressing your view that the latter is more valuable than the former.
  • fernmyth 1y ago
    It is useful for humans if a farmer can lock in the price for their crop at planting time, rather than get a nasty surprise when they harvest. In financial terms, this is "selling a futures contract". It's also useful if the farmer sees a low futures price and chooses to plant something better. Likewise every producer and consumer of every crop, metal, hydrocarbon, etc. Agreed that this author and the industry as a whole go too far in the direction of finance for finance's sake.
  • JackFr 1y ago
    In commodities and certain derivative markets, hedgers need to be matched with speculators. Hedgers are offsetting risk to speculators. Thus a farmer can insulate themselves against a drop in the price of corn and an airline can insulate themselves against a jet fuel hike. To do that someone has to take that risk. It might by to satisfy their risk appetite which will be tied to returns.
• pxndx 1y ago
  Absolutely unhinged content from someone who needs to touch grass. Payday loans are scams that prey on the poorest, most uneducated people. This industry is actively harmful to society. But hey, I'm sure writing this helps you sleep at night.
  • proof_by_vibes 1y ago
    Speak for yourself. I've got $10mil riding on put options for Jane Doe's pizza that she bought for her child's birthday party last week. People like you spreading FUD is threatening my portfolio.
  • howard941 1y ago
    The payday loan people are very nice and friendly. Seriously. Maybe the only friendly finance people those struggling talk to. Even so yes they are actively harmful.
    • 63stack 1y ago
      Of course they are, it's just a part of the job.
  • skybrian 1y ago
    This looks better than a regular payday loan since it’s zero interest. The interest expense is still there, but paid collectively, much like the cost of a store’s generous return policy or of its advertising. It seems like quite a racket, but doesn’t look like “preying on the poorest.”
• DiscourseFan 1y ago
  A well-written, if cringey and uncritical article. Obviously a “complete market” assumes that risk can be fully accounted for, and that our world is not full of inherent contingencies and things which escape our immediate perception.
• karamanolev 1y ago
  I really wish I could downvote it, but then I again I would prefer people see it, get appalled and decide that BNPL is even worse than they previously thought. Is there a "begrudgingly upvote" option?
  • ghuroo1 1y ago
    same here, it’s one of the few times I wish I could downvote an “article” on HN
• zug_zug 1y ago
  I think this would be more informative if it dropped all moral pretense and just talked about the economics objectively. If we’re gonna call a spade a spade, bnpl is one of a dozen services that extracts money from those whose judgment we doubt (like gambling, lottery, junk food?, drugs, overpriced status-symbol vehicles, or even “digital goods”).
  • ToucanLoucan 1y ago
    Why do we have to discard the morals of a business to judge it "objectively?"
    • Retr0id 1y ago
      Because morality is inherently subjective
      • ToucanLoucan 1y ago
        Then the judgement will vary based upon the person. That doesn't make it inherently less credible.
        • Retr0id 1y ago
          Sure, but it absolutely stops it from being objective.
      • pc86 1y ago
        You state this as if it's a fact but I think most people would disagree. If morality is subjective, then that means there is nothing objectively wrong with murder, rape, pedophilia, chattel slavery, or any number of things that most civilized people would find abhorrent. I'm not even trying to make a religious argument about the source of some objective morality, I don't think it's necessary to solve that to answer the "objective v. subjective" question.
        • Retr0id 1y ago
• narrator 1y ago
  Pffft... loans to buy burritos? Wake me up when I can make a burrito and take out a burrito equity loan using it as collateral. I will gladly start making burritos.
  • deleted 1y ago
    [deleted]
• an0malous 1y ago
  > Is financing your lunch a sign of societal decay? Maybe, maybe not. But it’s definitely an evolution in Market Completion. As a financial engineering and market completion enjoyer, I think this is great. A Complete Market is one where every risk can be priced, traded, or hedged. i.e. every risk has a price, every future has a counterparty. This is a great example of how sociopathy is useful for building businesses. The tech version of this is: "Will it destroy society and the job market? Maybe, maybe not. But it's definitely going to get us AGI." People just openly admit that their business will hurt a lot of people but that it's great for some abstract goal that has vague-at-best upside.
• ary 1y ago
  > Despite skepticism from Volcker and Buffet, financial innovation has been and will continue to be a massive net positive for humanity. Juxtaposing yourself with Warren Buffet and then hand-waving away his wisdom is probably the reddest of flags when discussing finance (not that Buffet is always right). "Innovation" in payday loans is akin to inventing new ways to feed living, breathing things into a meat grinder. In this case it's the poorest among us. The author goes on to say: > Is financing your lunch a sign of societal decay? Maybe, maybe not. But it’s definitely an evolution in Market Completion. This is undiagnosed sociopathy. There is a point when making a thing that you must ask "what affect will this have on the world?" or you risk destroying far more than you create. Finance types have learned absolutely nothing since Buffet laid down his "newspaper test": "I want them to not only do what’s legal obviously, but I want them to judge every action by how it would appear on the front page of their local paper written by a smart but semi-unfriendly reporter who really understood it to be read by their family, their neighbors, their friends."
  • xg15 1y ago
    This. Also, I like the term "net positive" in articles like this. If you lose everything, but I win even more, it's technically still a "net positive". Even if only one person would be happy about it.
    • Tyr42 1y ago
      Yeah you want Pareto Optimal or whatever. Which means everyone is better off, rather than surplus utility generated.
  • neilv 1y ago
    I'm happy someone else also had the same thoughts, and put it better than I could. Incidentally, regarding Buffet's sensibilities, I once felt it worthwhile to write to Berkshire Hathaway's little office, about a new shady thing one of their holdings was rumored to be doing towards employees, and whether that fit BRK's standard of good management. My note almost certainly got tossed into the crazy-people round-file, but it'd be nice if Warren Buffet called up a CEO or Chair, and said, "Hi, Bob. This is Warren. What kind of shop are you running over there?"
• cyrnel 1y ago
  BNPL is only "good" if your definition of "good" is about GDP, market flexibility, high-performance index funds, and other things that have nothing to do with human happiness. I'll believe that BNPL is good when all the companies become non-profits that use excess funds to cancel debts rather than lining the pockets of rich investors.
• lordnacho 1y ago
  I have a background in options trading and fixed income markets, basically the kind of professional education one gets while participating in the "financialization of everything". I'm not sure it's great. It's definitely useful for people to be able to unbundle risks. Or rather, it's useful to someone who knows what they are doing. Something like what's described in the article, for instance, where there's a mutual benefit to executing the financial transaction. But what I really worry about is that where there's a game to be played, there are chips to be lost. Financializing everything creates a million little games, and the games favor people who know the rules. If you're living in the old world, and someone offers you a university place, you just take it if you can afford it. What happens? Kids who can afford it will take it. If they do well, they make the surplus. If they can't afford it, that's tough, but they also aren't out of pocket. If you take a degree and things don't go as planned, you lost the capital, but you aren't in massive debt as well. In the new world, what happens? Well, you can now take a loan. That's you taking a bet on your future income being sufficient to pay off the interest on your loan, and hopefully also the principal. You are basically mortgaging your education. More people can go in this model, but the extra people are also more likely to be the marginal people. They get a roll of the dice that they didn't have, but even though as a group they are going to roughly break even, some will end up in trouble that they could not ever have ended in without the loans. People who win in this game are still paying out part of their winnings: you're a doctor, but you still gotta pay your loans. People who lose are in deep trouble. Both the winner and the loser are paying the financial market. Now throw in a non-bankruptcy law for these loans and watch the whole market eat itself as lenders figure out that they can really be quite casual about who to lend the money to. The same thing happens with actual mortgages. If you lived in a world where nobody lent money for a house, a house would cost a lot less. Instead, you get to compete with other borrowers to bid up prices. You're taking a bigger risk for the same house that someone a hundred years ago might have considered to be for the poorer people in the city. (Look at restrictions on building for an underlying reason why the market flies.) The same happens with cars. The same is happening with BNPL. Who wins with these games? Financial intermediaries. The vast economy of marketing the loans, turning them into derivatives, trading those derivatives, administrating them, all sorts of ancillary functions. Also, deeper pockets. Much like insurance, if you can bag together a bunch of risks, some of them will offset each other. The individual who is taking a degree cannot normally derisk it by some portfolio effect, and he certainly can't just offload it with a phone call. It's like everybody has to ante up to sit at the poker table of life. You can't just let the button come to you, you have to play all the time. You can't just be a doctor or a lawyer, everyone needs to be a trader.
• brudgers 1y ago
  <I am not an economist> The arguments sound like the rationals commonly ascribed to subprime mortgage burritos twenty years ago. So if the ultimate results for wealth and the unwealthy wind up being similar, I won’t be terribly surprised. </I am not an economist>
• programjames 1y ago
  Why do finance bros like to call allocating all the resources to the maximal-dollar extracting process "efficient". It's not. All they're doing is turning the economy's entropy into dollar bills now, which stunts future growth.
  • jerf 1y ago
    In economics, "efficient" doesn't mean "produces maximal dollars". It means something much more like "an efficient economy has no arbitrage opportunities", because they've already been squeezed out. An efficient economy is one in which all the prices are correct, not one in which wealth-creation is maximized. Correct prices may help wealth-creation, but that would be a downstream effect.
    • programjames 1y ago
      I feel like the math term closest to that would be "consistent" not "efficient".
• janosch_123 1y ago
  I didn't understand this section, why would they pay $73 for $75 and where do the $25 come from? "Investor Economics: Assume a $100 BNPL loan. $25 is paid upfront by the Consumer, so an Investor pays $73 for a $75 loan, discounted for risk, fees, and return expectations. The Investor receives $75 from customer repayments over 6 weeks minus servicing fees of $0.25. A $1.75 profit on $73 investment over 6 weeks is a 2.4% return, or 22.8% annualized (52 weeks/6 weeks = 8.67 periods each year; annualized return = (1+0.024)8.67 - 1)."
  • dustincoates 1y ago
    For why the investor pays $73, it's right there in your quote: > an Investor pays $73 for a $75 loan, discounted for risk, fees, and return expectations The investor doesn't expect to get 100% of that $75 back on average. The $25 is the first payment, which is made immediately.
    • janosch_123 1y ago
      Oh of course the investor buys $75 of debt for $73, I get it now. I somehow had it in my head the other way around that he can borrow $75 for $73 which wouldn't make sense. Thank you.
• cousin_it 1y ago
  I'm beginning to think that consumer debt simply shouldn't exist. If you don't have money to buy something, don't buy it. If you don't have money for necessities (food/housing/healthcare), putting you into debt isn't the right answer anyway. A safety net is the right answer.
  • victorp13 1y ago
    Also Google the "Sin of riba". Islam was really on to something if you ask me (disclaimer: not a religious person).
    • int_19h 1y ago
      Treating rent-seeking as a sin is common theme across many religions, including - at least historically - Judaism (within the community) and Christianity. Indeed, for several centuries in Europe, usury would get you excommunicated.
  • b59831 1y ago
    [dead]
  • msm_ 1y ago
    I agree, with exception of housing. Most people can't buy home with cash, and for many this is a necessity. But homes are an appreciating asset, which cannot be said about cars or food - this is an investment, actually. But for everything else - cars, phones, electronics, food, subscriptions, jewelry - I 100% agree. Consider two people: * One person has $10k saved, invested into something safe and liquid. Then buys something for $10k, earns and invests that $10k back, and because of investing is a bit up (let's say now they own $10.3k) * The other person borrows $10k, and repays $11k over time. This buy-and-earn cycle will repeat, and each time the person that fronted $10k is $1.3k up (and due to interest, this is only growing with time). The difference quickly becomes staggering. Tragic, and a classic rich-get-richer situation. And the only difference is the starting $10k and some discipline.
    • api 1y ago
• nighthawk454 1y ago
  This is blatantly just increasing debt load. What does a business do if they need forever growth, but can’t increase their prices further without losing net revenue? Raise prices anyway and push people to finance it. This is broadly not good for people. Financing things like your food or your rent (seriously - that’s a thing here) doesn’t help if they’re recurring. It’s not like people are gonna need to just finance one month’s rent payment and then they’re solvent and paying off the next 4 months normally plus installments. Really, what could structurally change in someone’s personal finances over a 6-8 week term? If you couldn’t afford a burrito or rent this week, what possible belief is there that next month you can afford that plus debt service. The loans are just gonna stack and stack. Which will drive people into more debt, and more need for continued financing. This isn’t a multi billion dollar business because people just need a temporary boost once every year or two because their paycheck timing is off. It’s a flywheel money extraction machine. Securitizing these debts doesn’t make them a good idea for the consumers. It makes it good for the industry so it can scale it up larger. Which means more people in more debt more of the time with “investors” extracting wealth from it. Plus then there’s the whole systemic risk of people not paying back. They bake into the rates some percentage of defaults, and the larger the pool size the safer that gets. This systemically is a bet that no more than X% of loans will default at once. Basically shorting loan defaults. Which is cute and all until any economic situation hits where a bunch more people suddenly can’t pay at the same time. In which case the whole thing unwinds brutally. And given that the play is to literally sell financial products that increase pressure on people’s ability to pay… this is probably super unwise. Combine that with any of the major structural economic issues we have ongoing and you’re poking a sleeping pressure cooker. The only real questions are how much can be extracted before it explodes, and who is the ultimate bag holder at the end? “If you thought 2008 was fun, well hold my beer…” - finance, probably
  • rybosome 1y ago
    Thank you for clearly and concisely articulating why this is dangerous from the securities aspect. I think the immorality of it for consumers is obvious on the surface, but the backend financial stupidity of it is slightly less obvious. At least to me, I felt that it was risky but couldn’t clearly articulate why until reading this. The only difference may be how many people buy into these. I don’t imagine BNPL securities to have the reach of 2008 for a few reasons, but perhaps I’m being naive.
• throwaway7783 1y ago
  The article says "one" reason of why credit exists is to bridge the timing of money. But assumes fully later that that's the only reason, with no regards to how extractive credit can become, fueling bad habit. You can of course blame the individual for this, but ultimately it becomes societal.
• _QrE 1y ago
  > "Despite skepticism from Volcker and Buffet, financial innovation has been and will continue to be a massive net positive for humanity." I'm not an economist by any means, but most 'financial innovation' I've seen has resulted in new regulations to rein it in and/or block it, which is not a good look for the entire sector. Strong start. > "To free up capital, the provider bundles many $100 loans and sells them to investors for 95 cents on the dollar through securitization. This allows the provider to recycle funds into new loans, continuing to earn fees." > "In exchange for fees, banks structure these loans and quickly move them off their balance sheets and to investors." Even if we ignore the morality of providing predatory loans to people who can't afford to pay for groceries up front, you would think that someone making a good-faith argument would realize, upon writing stuff like the above, that no, this is not a good financial product actually. If the author actually read some of the stuff they've linked, they'd come across stuff like this: > "A larger proportion of interest-bearing loans will put the BNPL platforms under tighter regulatory scrutiny, since there are rules and regulations to cap interest rates and to ensure sufficient disclosures to consumers, said Stephen Biggar, director of financial services research at Argus Research." > "Warehouse facilities tend to have the highest cost compared to other funding sources, while selling the receivables as asset-backed securities is generally cheaper but more volatile and risky, depending on investors' sentiment, Lucas said." I'm sure the author would say that the fact that there's an appetite for this justifies the offering existing, and I'm looking forward to their next article about all the positive value that loan sharks provide, or why all the failures derived from high-risk assets falling through are perfectly fine. > "Non-Systemic Risk (possibly famous last words but we’ll see)" > "Do I want to see a Sports Betting BBS Index? No. Will it happen? Definitely. Sports betting does a lot of damage to the finances of American households but when the loans backing them are securitized, they will make for a great fixed income product because because gambling is a somewhat recession-resilient industry, much like other ‘sin sectors’ like alcohol and tobacco (BBS indexes for alcohol and tobacco will also happen, and around here is where I may get tired of winning)." I hope that this entire article is a joke that flew over my head. > "Late Fees: Miss a payment, and you’ll likely face a modest fee, often capped to keep things reasonable. Picture Alice, who forgets a $25 installment on her $100 DoorDash transaction. She’s hit with a $7 late fee, tacked onto her next payment. Annoying, but it probably won’t push her down a debt spiral." Yes, I'm sure that tacking on a 30% late fee to a person who can't pay $25 is reasonable. > "In Design, the principle of Universal Design focuses on creating inclusive systems and tools that improve usability for all. Autocorrect, text-to-speech readers, dark mode, and subtitles all came from Universal Design. Similarly, lending that makes credit more affordable and accessible for lower-income individuals will reduce credit costs for all borrowers." This is such a bad-faith argument, I'm frankly surprised to see it written. The _least_ I can say about the article is that I am unconvinced, and that I'd be happy if I never got the chance to meet the author.
• Igrom 1y ago
  How is everyone so sure this is not satire? Consider the subscription prompt: >To receive new posts and support my grift, please become a subscriber. The article reads straight, but this line and the highly generic and corporate name of the blog ("Enterprise Value") make me question that.
  • _QrE 1y ago
    Props to the author if it is. I'd have a link to donate to a food bank after the article so that people can do something more productive than write angry comments.
• kweingar 1y ago
  I keep hearing people express dismay that people are financing their lunch, sneakers, or concert tickets. But this has been the norm for a while, no? I can't remember the last time I didn't utilize credit at a restaurant or retail store. If you use credit cards, it doesn't make sense to reflexively admonish people for using BNPL for everyday purchases. To be sure, BNPL is in many ways a predatory innovation. But it isn't totally novel. It seems like a natural consequence of what came before.
  • claytonjy 1y ago
    That’s one of the arguments in the substack post. BNPL is like credit cards, but more specific, and that specificity allows for more accurate pricing of the loan risk.
  • DonsDiscountGas 1y ago
    Most people pay off a credit card in full every month so it's really just about the convenience. BNPL is similar in fact, most purchases are paid off in installments over 30 days with no interest or late fees charged. As the article covers the merchant pays a slightly higher fee in exchange for slightly better terms than a CC, and customers buy slightly more then they would have otherwise.
    • bluedino 1y ago
      > Most people pay off a credit card in full every month According to Google it's about half.
  • recursive 1y ago
    A lot of people use a credit card like a debit card with fraud protection. You can pay off the balance every month and still get a benefit. The UX of paying is so smooth. Maybe that's possible with BNPL too (learned a new acronym today) but I haven't heard of it. If there was a thing that worked like a credit card, but without the credit part, I'd probably be using that instead.
    • 1y ago
• skybrian 1y ago
  When the interest is paid out of a store’s marketing expenses, it’s pretty ambiguous who specifically pays it, but the money ultimately comes from the store’s revenue. If it results in higher prices, the people who actually use “buy now pay later” aren’t going to be the only ones paying more, since they pay the same price as everyone else. The costs are spread across all customers. Depending on demographics, this could work as either a progressive or regressive “tax.”
  • benlivengood 1y ago
    Credit in general is an incredibly regressive tax; only the poorest end up paying much interest and it's a much larger fraction of their total cash flow. I can get between 2% and 4% cash back on all purchases on a credit card that I pay off monthly with a zero-fee ACH transfer, paying no interest or yearly fees. I literally take poorer or less financially secure people's money that they spend on credit card interest. While the prices I pay likely reflect an overhead of 1.5%-3.5% to cover merchant credit processing fees I potentially come out net positive. Finally, if I had substantial investments, I would be earning returns for the ~month before having to liquidate assets to pay the credit card. The bank financing my car loan is still paying me to have it because inflation is still so high and I got lucky with origination date. In general I am skeptical of the overall societal benefit of new financial instruments for the above reasons. E.g. I can't imagine BNPL loans existing in a strong economy of mostly secure and economically savvy middle-class earners.
    • skybrian 1y ago
      Yes, regular credit cards work that way, but this is different. In the “buy now, pay later” scheme, the person getting the loan doesn’t pay the interest, or at least no more than any other customer. They’re getting subsidized by other customers.
    • kweingar 1y ago
      Highly recommend this podcast by patio11 explaining that poor people are not funding credit card rewards programs. https://www.complexsystemspodcast.com/episodes/credit-card-rewards-interchange/ https://www.complexsystemspodcast.com/episodes/credit-card-r...
• shusaku 1y ago
  It blows my mind that people use these food delivery services at all. The prices are wild. You hear people complain about how hard it is to make ends meet these days, yet they waste their money on these kind of luxuries. At least before you could wave it off as “well people buying Uber eats and complaining about the economy are separate groups”, but the existence of loans specifically for this blows up that argument.
  • kmnc 1y ago
    This is pretty standard. Poor people end up paying more for worse. Poor people buy poor quality which needs to be replaced more often. They go into debt and pay interest paying far more than the original price. They spend money on convienent options like fast food and food delivery because they have no time for other options. Or they are actually depressed and taking efforts to save money and be healthier just are not chosen.
    • lm28469 1y ago
      > They spend money on convienent options like fast food and food delivery because they have no time for other options. Utter and complete bullshit. If you're truly struggling you eat 50ct cans of cold baked beans and cheap ham, not $20 shitty pizza delivered 97 minutes after you placed the order. Even if your only cooking apparatus is a microwave you have no fucking excuse for spending hundreds per month on food delivery and fast food. Cheap ass ham, a can of beans and some pastas go a long way and take at most 15 minutes to prepare, you can even boil them in a fucking kettle if that's all you have.
• idontwantthis 1y ago
  Why do people use these instead of a credit card?
  • yesfitz 1y ago
    They use BNPL and credit cards. BNPL is a way to get more credit when your credit score is low and/or your utilization is high. According to the Boston Fed[1] BNPL users "tend to have low credit scores, minimal liquid assets, high incidences of past bankruptcy filing, and revolving debt on their credit cards." 1: https://www.bostonfed.org/publications/current-policy-perspectives/2024/buy-now-pay-later-who-uses-it-why.aspx https://www.bostonfed.org/publications/current-policy-perspe...
• morelandjs 1y ago
  Being fully leveraged is great for capitalism and horrible for your mental health and general well being. Ever live under crushing debt? It’s awful. Step back for a minute and look at the big picture. People are taking on debt to eat lunch. That’s insane. The author acts like it’s zero sum and if BNPL isn’t the one offering the short term loan someone else will at worse terms. That’s just not true and hand waves over the fact that people who are uneducated are unwittingly being coaxed into making bad decisions with glittery UX and one click checkout.
• whatever1 1y ago
  Let’s permanently destroy the credit scores of those in need and send AI collections their way and drive them to suicide. It’s good for the completion of the market. Then act surprised when the elections turn out the way they turned.
• hnthrow90348765 1y ago
  >Is financing your lunch a sign of societal decay? Maybe, maybe not. I'd have no problems with BNPL if wages kept up with necessities like housing, tuition, and healthcare, or if those services were provided to citizens for free in exchange for higher taxes. Or even if minimum wage would move, like, at all. What I think this is a better sign of is this: a very lopsided finance industry against workers and borrowers due to the fact that paychecks only arrive on a two-week schedule but burrito debt is freely available at any time. And when they stack fees on top of a burst of interest, it is really, really looking like they are becoming an enemy. I hope they fuck up the implementation and end up losing money to hackers.
  • snvzz 1y ago
    >I hope they fuck up the implementation and end up losing money to hackers. That is quite ungrateful to money lenders. They could, like, not lend money to begin with.
    • deadbolt 1y ago
      Please, won't somebody think of the money lenders?
      • snvzz 1y ago
        [flagged]
  • wyager 1y ago
    > end up losing money to hackers. How do you imagine this would work for a company using normal fiat payment rails?
    • hnthrow90348765 1y ago
      Quite a lot of security problems are someone fucking up something they shouldn't have. But honestly I haven't a clue.
    • 1y ago
• spicyusername 1y ago
  One reason is that someone’s or a company’s income doesn’t always align perfectly with when they want to buy things. When we're talking about financing the construction of a new downtown office tower, a new apartment complex, or the unexpected maintenance of your business's whole auto fleet, I can absolutely see the argument that credit is a mechanism of greasing the wheels of the economy and allowing things to happen that otherwise would not be able to happen if everyone had to wait until they were table to save all of the cash and pay upfront. This logic doesn’t change just because the thing being financed is a burrito. When we're talking about food, the absolute most basic human need, I start to question whether or not this is actually a good thing and is instead just a temporary band-aid over a much more serious economic problem that would be better off getting solved more permanently with a different economic or political tool.
  • wyager 1y ago
    Expected debt levels are more a function of personal time preference/utility nonlinearity w.r.t. wealth than they are a function of ambient economic conditions. When broke people win the lottery, they usually end up broke again.
  • sweeter 1y ago
    I think that is about the most gentle way you can put it. This is an echo of 2008 and the notion that this is normal is so absurd to me. It comes off as super out of touch. Financing groceries is dystopian.
    • calmbonsai 1y ago
      I agree. Just because you can price, trade, and provide liquidity for "a thing" doesn't mean "that thing" can, or should, be financialized.
      • shermantanktop 1y ago
        But but but “complete market”! The deployment of Econ-degree lingo doesn’t help the case.
• elliotto 1y ago
  Terrible post, seemingly chatgpt generated for large sections (see chapter What Happens When Borrowers Miss Payments) and disappointing to see on the front page of HN. This is the quality and calibre of analysis I would expect to find on a LinkedIn feed post.
• qq66 1y ago
  > One reason is that someone’s or a company’s income doesn’t always align perfectly with when they want to buy things. Financing should be used for things that provide value over the time horizon it takes to earn the money to fully pay for them. If you finance things for less than that time horizon, you just end up getting more and more underwater. If you finance something that delivers value for ~6 hours then you probably shouldn't be buying that thing or your fiscal solvency is really headed for the cliff.
  • twoodfin 1y ago
    What’s the source of this “should”, and why doesn’t it apply to the majority of businesses that finance the cash flow to sustain short-term operations?
    • UncleEntity 1y ago
      Maybe because the virtual zero-interest rate policy from the Federal Reserve skewed the market in ways is "should" have not gone? Would a business to this if they were paying more interest than the revenue generated from the time of the loan period? Or would they take a deep and hard look at their operations and decide that maybe the CEO doesn't get as big a bonus this year? Sure, it makes sense to finance business expansion or whatever but if they are/were just floating some capital which has nothing to do with their core business of making widgets then this clearly falls into the "should" category.
• calmbonsai 1y ago
  "This logic doesn’t change just because the thing being financed is a burrito." Yes, it absolutely _does_ change. One might as well go all the way and start offering Oxygen or Water bonds. The immorality masking as morality here is insulting--not related, mortgage-backed CDOs during the financial crisis and "Pay Day" loans. There are many, many fundamental individual needs and items (economic "utility") that, while financialization of them makes sense at the large scale (flood insurance, natural commodities trading, municipal infrastructure), makes zero sense (and is even amoral) on the individual and small scales. Put another way, many bulk-health statistics (BMI, Blood Lipids, Heart-Rate) are useful to track for populations, but make little sense (and is wrong-headed) to extrapolate-down to the individual. Just because you can, doesn't mean you should.
  • dalmo3 1y ago
    You're right, financing a burrito is amoral. So what?
    • yard2010 1y ago
      So we have enough immorality right now, please try again in the future.
  • trillic 1y ago
    Water bonds have been a thing for centuries. https://news.yale.edu/2015/09/22/living-artifact-dutch-golden-age-yale-s-367-year-old-water-bond-still-pays-interest https://news.yale.edu/2015/09/22/living-artifact-dutch-golde...
    • calmbonsai 1y ago
      These are municipal water bonds not individual water bonds. I wholeheartedly agree for the use of finance for municipal infrastructure.
  • dani__german 1y ago
    BMI is an excellent metric for measuring your own body. Its fantastic. Its not perfect, but considering its two numbers, its amazingly useful and a super easy way to quantify how unhealthy you are. If you are not currently using Body fat percentage, and know what yours is at this exact instant, you should use BMI instead. Here's a perfectly correct general statement: Any effort spent telling average people to not use BMI makes society less healthy. Average people are not getting BF% measured when you tell them not to use BMI. They are just ignoring all metrics and eating potato chips instead.
• eli_gottlieb 1y ago
  Debt makes sense for building assets, not for purchasing consumable commodities.
• deleted 1y ago
  [deleted]
• guywithahat 1y ago
  I feel like the comments are misunderstanding what's happening. Historically luxury food has been nice ingredients but now that's everywhere, and what consumers really want is delivered food. They want the thing they want, only made 6 miles away, hand delivered to them and still warm. This is a luxury good, and like many luxury goods may now be financed. Cheap food is not going away; my lunch every day costs ~55 cents to make. In this context of luxury goods, the article makes more sense and isn't some dystopian nightmare like people are implying, it's just another luxury good you may buy.
  • titanomachy 1y ago
    I don’t totally disagree, but it’s a little different because continuous access to food is necessary in more so than any other good. If you obscure the fact that someone can’t actually afford to eat hand-delivered burritos for every meal, they may do so to their detriment. Easy access to credit obscures the unaffordability of luxury goods, especially for those with low financial literacy. If I _can_ press the burrito button any time I want, it’s tempting to do it every time instead of eating cheap buttered noodles. If I get an error saying “you have no money left”, I will make the damn noodles.
  • bagels 1y ago
    What are you eating for 55 cents per meal?
    • bluedino 1y ago
      https://youtu.be/sWoqj-JxwXo?si=IbC-MdVvmS9qpmch https://youtu.be/sWoqj-JxwXo?si=IbC-MdVvmS9qpmch Quite a few YouTubers out there show you how to do it
      • bagels 1y ago
        The answer appears to be beans and rice with a very small amount of vegetables and an American biscuit. If you buy at Walmart.
    • guywithahat 1y ago
• ljouhet 1y ago
  It is a satire, right? I don't know what to think anymore
• usefulcat 1y ago
  It sounds like a big part of the target market for this is people who are living paycheck to paycheck, but those are exactly the people who should not use it. The less disposable income you have, the more careful you need to be about not exceeding it, because if you do it can be very difficult (not merely inconvenient) to dig yourself out of that hole.
• Spastche 1y ago
  "I'll gladly pay you Tuesday for a hamburger today" from Popeye came to mind
• thuanao 1y ago
  > Is financing your lunch a sign of societal decay? Maybe, maybe not. Yes it absolutely is, and everyone involved is a piece of shit.
• RainyDayTmrw 1y ago
  A lot of financial schemes sound like they could be above-board on paper, but in practice degenerate out of control. Securitization is a classic here. It's not that securitization is inherently bad or wrong, but it creates a lot more surface area for incentive misalignment and outright abuse. Consider the United States subprime mortgage crisis of 2008. I'm actually willing to accept that broadening the borrower base had the potential to be a social good. In particular, throughout the 1990s and 2000s, home equity was a very real way for middle-class Americans to accumulate family wealth, and expanding access to that at least had potential for positive impact. But the actual way that the mortgage industry went about it was maximally wrong. Every layer was incentivized to finagle the numbers to work out, despite that the fundamentals never did. Every layer, from the loan officers to the underwriters, all the way on up, were incentivized to look the other way while they took their own cut. Loan officers fudged numbers, underwriters fudged numbers, and so on. At the core of this conflux was the mortgage-backed securities (MBS) machine. A lot of the financial engineering involved may have been valid on paper, with some set of constants. But it was clear, at least in hindsight, that the banks, ratings agencies, and brokers worked together to stack too many bad assumptions on top of each other, until the whole thing burst. We all know how that story ended. Is BNPL, and the securitization thereof, the next big trap? It's too early to say with confidence, but certainly the signs are there. I only hope that, if it's going to blow up, it does so early, before regular people's pensions start buying into BNPL-derived securities.
  • thfuran 1y ago
    >In particular, throughout the 1990s and 2000s, home equity was a very real way for middle-class Americans to accumulate family wealth I think that is fundamentally bad. If owning a house is a way to accumulate wealth, having shelter is becoming increasingly unaffordable.
    • RainyDayTmrw 1y ago
      Oh, I 100% agree that this was, and is, a bad system. But given the system that exists, all else being equal, I think it's better that access to the system was more widespread.
  • 1y ago
• ivanbalepin 1y ago
  Enjoyed the article, but the author was correctly questioned in the substack comments how is this any different than a credit card for the borrower and what justifies the "interest-free" myth here, since the BNPL payoff period largely overlaps with the CC grace period. To which the author responds: > Credit card float only lasts if you pay the full statement balance by the due date but that is identical to BNPL, it's only interest free if you pay it off, just like a credit card past grace period. So why repeat the "interest free" marketing slogan? yes, initially it is, and so is the CC grace period. > consumers have to only forecast the next six weeks of their life yeah, good luck managing timing on the payments if you have 12+ of these, and it's not uncommon to have that many! Especially if, as author mentioned, you are living paycheck-to-paycheck. I guess a marginal benefit for consumer is soft-forcing them to pay it off instead of revolving. Another one, correctly, was less hit to the credit score unless and until the bureaus get their hands on all BNPL data at some point in the future. But there is really no magic here for the consumer.
  • aianus 1y ago
    You can pay the BNPL with a credit card to take advantage of both interest-free periods and get credit card points. There is really no reason not to use BNPL, even if you can pay cash.
    • flakeoil 1y ago
      Yes, there is. You take on a risk of forgetting to pay or that there is missing cash on your account so that the payment does not get done. Now you all of a sudden have to pay interest. And for what benefit, just to lend the cash for free for a month? What would you do with that cash for one month which is so profitable and risk free to compensate for the quite high risk of missing one of those BNPL invoices?
      • potato3732842 1y ago
        That's just a fancy way of saying you take on record keeping overhead. If you're not willing to do that then you probably shouldn't even have credit cards so the discussion of pairing CCs and BNPL is irrelevant.
• ipv6ipv4 1y ago
  The biggest problem with burrito loans is that they are selecting for sub-prime borrowers. Someone who needs to explicitly finance a burrito is much more likely to be a sub-prime borrower. Just like with the sub-prime mortgage implosion, the product of securitized junk is junk. At least it won't be a systemic risk this time.
• solatic 1y ago
  > Credit cards account for 63% of all US retail purchases but bundle all sorts of non-discretionary and discretionary purchases together. Your $30 takeout order is bundled with “financing” for a new coffee machine, Uber rides, airline tickets, gym membership, dry cleaning, a tire change, and maybe even your monthly rent. Additionally, your credit card rate is also obscured by complex fee structures, variable interest rates, reward points, hotel points, and airline miles. So it’s hard to precisely price the risk of that $30 loan. BNPL disentangles these purchases. Each loan is for a specific item, with a fixed repayment schedule over a very short term (usually 6-8 weeks). This is a non-sequitur argument. Your credit card issuer knows who you are, your credit profile, and they know you spent $30 at Chipotle. There's nothing preventing Visa and Mastercard from taking the debts on these individual $30 purchases at Chipotle + McDonald's + Domino's etc, bucketing by FICO score of the borrower, and working with banks to securitize that "Fast Food Takeout" debt, just the same as Klarna or Affirm are doing. It's not a fundamentally different product. What the author is really claiming is, Visa and Mastercard don't have entrepreneurial cultures so they're not really interested in or willing to internally commit to this kind of new product (i.e. debt securitization), so it took some new Fintech companies to come to market and push the gauntlet, who are trying to get a foothold in the market by marketing to underserved segments (customers who were denied credit cards) and by juicing their initial offering to consumers with unsustainable benefits (not reporting initial defaults to credit bureaus). For which, you know, fine. But at some point the credit card companies will wake up and take second-mover's advantage, which is really anyway their incumbent advantage, where they're taking less of a fee than Klarna/Affirm are. edit: by the way, HNers who push for UBI, this is exactly how the private market would effectively create it. Consider someone with a junk credit score who never intends to make any payments whatsoever. This would allow the credit card company to issue a card (say, with a $300 limit), take the charges to that card and securitize them into a bond with a C rating, and see if there are any high-risk buyers. Why would anyone purchase a bond like that? Because bundled into the security will also be other people with junk credit ratings who do intend to make repayments so that they can start to build their credit score. But for people who never intend to make any repayments, that's effectively $300 free every month, financed by hedge funds looking for return on high-risk bonds.
• yapyap 1y ago
  Is this article high level financial sarcasm? If you are seriously thinking about financing a burrito u should rethink some aspects of ur life
• littlestymaar 1y ago
  > Burrito bonds represent finance doing what it does best: unbundling risk, pricing it granularly, and allocating capital more efficiently. What finance does best is “creating financial crisis” actually and that's exactly with that kind of tools that it happens. It looks like 2008 is now far enough (17 years, wow tome flies!) in the past that finance people now feel comfortable acting as if it didn't happen…
• BrenBarn 1y ago
  Rarely does an article make me think it's horse manure so early on. > let the market decide who should hold the risk Subprime mortgage crisis. . . (This is leaving aside the idea that letting markets decide any given thing is even a good idea in general.) > financial innovation has been and will continue to be a massive net positive for humanity Anyone who gets starry-eyed about "innovation" instantly makes me suspicious. Innovation in itself is neither good nor bad. The idea that "financial innovation" will be a positive independent of specific proposals is highly suspect. The rest of the article looks like a bunch of economics mumbo jumbo that can easily explain why something looks good on paper and just as easily lead us into all kinds of trouble.
• anshumankmr 1y ago
  BNPL is okay for those who don't have a source of income. In my country we have something called Lazypay which I had used quite a bit during college when pocket money was a bit tough to come by. I still use it (sort of) to get discounts on instant delivery apps (if there are any ). So by existing it does offer some value, though whether it is long term sustainable to dole out small cash loans to people without credit scores (like i was in college) is a good idea or not, that I cannot comment.
• InsideOutSanta 1y ago
  I can summarize this article in one sentence: "It's a win that I can extract money from people with lower incomes and lower education."
• jazzcomputer 1y ago
  As someone who has no interest in using this facility, I find it interesting that the author 'enjoys' BNPL, when they are not the main customer (unless I'm mistaken, it's people with limited cash flow). Enjoy in what way? - I guess the economic mechanism being something that wasn't previously applied to a basic human need? - I think the answer there for me is that this is emblematic of late-stage capitalism (which may perhaps last 100s of years), but it's a fine example in my mind because there are much more serious problems that could be solved with getting food to people.
• flakeoil 1y ago
  In the text there are no benefits for the borrower/consumer outlined. BNPL is basically just a scam to lure in people to use this easy option to pay and then charge them late fees and interest once they forget one of their bills. It's not even convenient (except at checkout) because you will get a bill to pay down the line and that's not convenient to pay.
  • roland35 1y ago
    I do not think it's quite this nefarious... They make most of their money from the merchants. The argument being, hey customers who use our BNPL spend more money. Now, that also doesn't sound great honestly!
• totetsu 1y ago
  If people can’t afford to eat then profitable business are not sharing enough of their profits with the people working for them, and unprofitable essential work is not getting funded enough. We should be ensuring people have an income that is enough to live off through minimum wages and job guarantees and when it comes to it a UBI, instead of letting people sell themselves into servitude with survival debt.
• hbsbsbsndk 1y ago
  BNPL seems primarily like a regulatory arbitrage because of increasing scrutiny of payday loans and limits on credit card interest rates. Do we really think securitization of burrito loans is unlocking new liquidity in the market that Visa and Mastercard couldn't provide?
• joshstrange 1y ago
  I found this article pretty disgusting to be honest. The glee around BNPL and, frankly, the level of smelling their own farts rubs me the wrong way. BNPL is just a short-term credit card good for one purchase. A debt product by any other name would smell as sweet. There is nothing special about BNPL, it’s not safer, it’s not easier, it’s incredibly destructive IMHO. It just encourages people to spend money they don’t have. The author’s comments about how “oh look, now you have 6 weeks to pay this off, easy to understand” are either incredibly native or just straight up evil (knowing they are full of shit but still pushing that narrative). People don’t often have 1 BNPL, they have many. That slope is very slippery. “I’ll just BNPL this 1 purchase, only this once, I get paid next week anyway” “Crap, my paycheck isn’t enough to pay for X and this debt, I’ll just BNPL X to get me through this but it’s the last one!” …. “Now I have 10 BNPL that are impossible to track and eat into my paychecks such that I’m forced to continue BNPL. Also I’ve gotten hit with late fees all over the place but I haven’t run the numbers of the effective interest I’m paying because that’s hidden from me” Also I’m _so glad_ the author draws the line at sports betting. Really shows how upstanding they are /s
• nitwit005 1y ago
  This seems to be trying to convince you it's fundamentally different than credit cards. I'm not really convinced. A credit card is a way to make getting a lot of small loans easier. This is also a way to make getting a lot of small loans easier. Many of the differences it's pointing to, like underwriting happening at point of sale, seem more conceptual than practical. They'll almost certainly have pre-approved you up to some amount, just like a credit card company would have done.
• insane_dreamer 1y ago
  > In 1983, people lamented that one had to use a “credit” card at Burger King. On some level, payments and credit are on the same spectrum of value transfer. The key difference is that for the vast majority of people who pay with a credit card at BK it's for the sake of convenience and sometimes the incentive of credit card points, rather than because they have no money in their account to buy a burger. There is nothing "convenient" about paying for a $12 meal in $4 installments, plus you don't have the points incentive of a credit card, so it's highly unlikely that people who do have a CC and can afford to pay for a burger now will go that route. That leaves only those people who have so little money that they cannot afford a burger now but they hope to afford it in X time (presumably after their next paycheck). And from that perspective Door Dash x Klarna is preying on the poorest and must vulnerable in society who probably shouldn't be using Door Dash in the first place (more expensive than the food itself), or risk accruing interest if they don't make those 4 payments (Klarna is not a charity).