My impression is that By Now Pay later schemes target people who by circumstance can't afford to "pay now"; resulting in overwhelmingly exploitative practices, constantly trying to nudge people towards BNPL who might struggle with the debt. Can someone elucidate for me the supposed benefit of the system?
For people who are half decent with money the companies that offer "12 months no interest" type plans are the best. In theory, it allows you to invest the capital up front for the 12 months and then pay it off. You essentially can reduce the cost by whatever the prevailing interest rate on a 12 month CD is.
But yes, these plans (usually deferred interest) are designed to exploit people who are bad with money. They also usually go out of the way to hide how much you're racking up in order to maximize gain. This kind of person thinks "What's another $1000" when their bill is already at $4000. Furniture stores are infamous for this.
I had bad credit (grew up poor, learned terrible habits, getting better) for a long time and Affirm has been great. I do the every 2 weeks no interest loans and I love it compared to credit cards where I’d just irresponsibly carry a balance. The default “financial hygiene” of the loan and the fact that I’m paying for a product I remember makes it great for me.
There was a heat wave and I bought an air conditioner yesterday using Affirm to smooth out the payments.
In fact I cut up all my credit cards about a week ago and plan to only use BNPL vs credit cards going forward if I’m in need of a loan.
I personally use buy now pay later whenever I can get 0% financing for a time. I get the item now, interest on my own money/investments, and they can eat the inflation. The main risk being if I get ahead of myself buying things I should just not buy. Even if I lose my income in the future my plan is simply to sell the items used, and to sell off the assets I gained in the process.
a CPI calculator says we've had about 25% inflation in the past 4 years, and my own basket of goods suggests it's closer to 50%. (For example gas in Texas has trough to peaked 300%, more like 200% on average). So I think the strategy might be a good one, albeit hard to get a ton of money behind (ie, I have yet to find a way to play it with $25k)
It would be fascinating to have a look at the finances of these schemes to see what the proportions are of people who use it to responsibly smooth out payments vs those who use irresponsibly and end up just getting deeper in debt (and all the variations between those two extremes). My hunch is the same as yours, but real-world data would be very interesting.
Well, given that there is no interest, it doesn’t seem to me that it’s particularly exploitative. It is, effectively, allowing you to buy someone you can’t yet afford, but without exploiting you. If anything, it’s a significant help.
As another example, it allows you to purchase a new laptop while selling your old one, such that you don’t hVe time without one at all.
Yeah I worked in various computer shops in the mid 90s. And one of my bosses was a genuinely good guy (the others were sleazy sales guys who'd even screw me over on my hours)
One day I saw him sighing over the credit line forms for some of the customers of that day and he explained that these things are almost always used by people who can't afford it. He'd had some people in trouble trying to bring the stuff back which of course he couldn't do. And the head office didn't care.
Better to stay away from this crap.
I guess it makes some sense because today's 1 buck is only worth 90 cents next year but nope I just buy my stuff outright, even cars.
The only thing I'd get a loan for is a house. I don't even have a credit card, the only reason I ever had one was that debit cards weren't accepted everywhere but that's long fixed.
I know this isn't really the point of the article, but to me it's mildly depressing to see so many companies jump on the Buy Now Pay Later bandwagon - you see it everywhere nowadays. Almost every "Add to Cart" button or checkout process is now adorned with "Pay in installments with <company name>".
To me, it indicates the decreasing purchasing power of the average consumer, combined with the desire to still buy all the new things. Using the screenshot from the article as an example - if you have no other option but to finance a $125 pair of shoes over the course of two months, buying them is probably not the best financial decision at the moment.
I suspect the increasing proportion of online stores offering these deals is due to the increasing proportion of payment platforms (Stripe et al.) integrating with the buy-now-pay-later operators, and stores seeing no reason not to allow customers to pay using those methods.
That said, a lot of these operators seem to be offering 0% interest: let's see how long that - and they - survive.
However, it seems to work quite well in the US, where people grow up with several credit cards in their wallet. I always wondered how far you can push that. Looks like we're about to find out.
FedNow is operational. It just turned on last month. It's run by the Fed, like ACH and FedWire. It's much faster - seconds. The Fed charges $0.043 per transaction, and the transaction size is up to $100,000. Settlement is immediate; funds are available upon receipt. It's a US bank to bank system, mostly, like ACH and FedWire.[1] Many other countries have similar systems.
As banks roll this out to consumers, there will effectively be a ceiling on how much other money transfer services can charge. As with ACH and FedWire, this is a fixed fee service, not a percentage of the amount. This makes running a "payment rail" service far less profitable.
I find the US bank situation so interesting and confusing. In Mexico you can always make inter-bank transactions that are immediate without fees through the national bank. There even is a mobile app where one can send payment requests to customers / friends and they pay directly from their bank into your account, it works as qr codes or sms. You can even integrate it on your web sites!
Here in the US I recently learn you can even over turn your DEBIT account, how does that even work?!?!
If you think that 2% are going to that service, it's you who doesn't understand the math/economics.
Out of, let's call it 3% of blended-rate merchant fees for simplicity, about 2% goes directly to the issuing bank, who (at least in the US) passes on 1-2% to the cardholder in the form of "rewards". The fact that issuers can do this shows that card payments are priced extremely inefficiently.
That alone is quite ridiculous and has no bearing on the overall efficiency of Visa and Mastercard as global payment systems.
In the EU, interchange was recently capped at 0.3% for credit cards (i.e. at 1/10th of the US value), and most stakeholders have come out alive – the only thing that went away were these ridiculous rewards schemes, which effectively constitute a tax on people with poor credit and/or financial literacy.
The marginal cost of providing secure online payments probably lies somewhere well in the sub-1% region for domestic payments and a bit more when foreign exchange is involved.
Left unsaid is the implicit threat that an Apply Pay Later scheme could utilize to enforce repayment, namely the control of your digital life in their walled garden.
Don't pay a BNPL scheme, maybe they start shaming you to your iMessage contacts or progressively disabling the apps that you can use on your phone.
I kinda love the idea of 1% interchange and someone shaking up the market. I really hate the idea of using my phone patterns as the new FICO. It just brings us down a 1984-style rabbit hole and a lot of abuse / lack of access to credit based on bunk patterns. It’s possible this actually expands credit markets to formerly unbanked folks but the downsides seem higher to me because of the surveillance.
Cut down on fraud, yes. Evaluate credit-worthiness from my phone metadata? No thanks - I’d advocate banning that wholesale.
I'm not sure the requirement of "can purchase Apple products at retail" quite aligns with "expanding credit to the unbanked". Premium luxury goods as a barrier to entry (especially when one is ineligible for carrier subsidies because they are unbanked) is a pretty high bar to clear.
> Cathie Wood’s Ark ETF seems to find the payments margin opportunity, and the gang to get it there. In its Big Ideas 2023 paper, Ark points out that there are 9 steps between Buyer and Seller in a consumer payment transaction, sucking intermediary fees of roughly 2.8% of the value of the purchase. Ark believes enormous money is to be made if the steps between Buyer and Seller would be reduced from 9 to 3 (removing card networks, issuers, and acquirers, for the most part), thereby reducing the expense from 1.64% to 0.21% of the value of the transaction (leaving a massive 2.60% ‘take rate’ for its horse). If you’re looking for crazy, Cathie Wood’s group is a hot mess full of them.
Most of that "take rate" goes to the issuing bank, which returns it to the customer in the form of rewards, which can often be redeemed for cash, and a number of issuers now offer generic 2% cashback cards. There's also the added benefit of fraud protection (and the ability to charge-back, as a last resort). Anyone using Cash App or similar in lieu of a credit card, I just assume is financially illiterate.
I know they can have benefits but all these debt devices, to me, are depressing. Overall I’m sure they do more harm than good. I can’t believe how many sites I see now accepting PayPal Pay Later, Klarna and Affirm all at once — often ahead of standard credit card payments. Seems like debt is the preference.
I can never understand why there is a general cheer around large and powerful corporations (e.g. Apple) becoming even more large and powerful by acquiring other companies.
I heard the idea that Apple should buy Discover and thought there was no way…
Apparently Discover has a market cap of “only” $22 billion. $30 billion or so would definitely do the job; and that’s only, what, less than a quarter of Apple’s cash reserves?
Seems almost… cheap for buying an entire freaking payment network.
Buying an operation like Discover doesn't seem radical enough. IMHO they need to do something like buy Flexa (https://flexa.network/) and do a complete end run around the entire TradFi payment space. If they do that, then the margins will be much better and they will be well positioned for the future. Although Apple has so much money, they could take both approaches at the same time.
[+] [-] have_faith|2 years ago|reply
[+] [-] zer8k|2 years ago|reply
But yes, these plans (usually deferred interest) are designed to exploit people who are bad with money. They also usually go out of the way to hide how much you're racking up in order to maximize gain. This kind of person thinks "What's another $1000" when their bill is already at $4000. Furniture stores are infamous for this.
[+] [-] wincy|2 years ago|reply
There was a heat wave and I bought an air conditioner yesterday using Affirm to smooth out the payments.
In fact I cut up all my credit cards about a week ago and plan to only use BNPL vs credit cards going forward if I’m in need of a loan.
[+] [-] maerF0x0|2 years ago|reply
a CPI calculator says we've had about 25% inflation in the past 4 years, and my own basket of goods suggests it's closer to 50%. (For example gas in Texas has trough to peaked 300%, more like 200% on average). So I think the strategy might be a good one, albeit hard to get a ton of money behind (ie, I have yet to find a way to play it with $25k)
[+] [-] frereubu|2 years ago|reply
[+] [-] borski|2 years ago|reply
As another example, it allows you to purchase a new laptop while selling your old one, such that you don’t hVe time without one at all.
[+] [-] wkat4242|2 years ago|reply
One day I saw him sighing over the credit line forms for some of the customers of that day and he explained that these things are almost always used by people who can't afford it. He'd had some people in trouble trying to bring the stuff back which of course he couldn't do. And the head office didn't care.
Better to stay away from this crap.
I guess it makes some sense because today's 1 buck is only worth 90 cents next year but nope I just buy my stuff outright, even cars.
The only thing I'd get a loan for is a house. I don't even have a credit card, the only reason I ever had one was that debit cards weren't accepted everywhere but that's long fixed.
[+] [-] tavavex|2 years ago|reply
To me, it indicates the decreasing purchasing power of the average consumer, combined with the desire to still buy all the new things. Using the screenshot from the article as an example - if you have no other option but to finance a $125 pair of shoes over the course of two months, buying them is probably not the best financial decision at the moment.
[+] [-] cjs_ac|2 years ago|reply
That said, a lot of these operators seem to be offering 0% interest: let's see how long that - and they - survive.
[+] [-] Krasnol|2 years ago|reply
However, it seems to work quite well in the US, where people grow up with several credit cards in their wallet. I always wondered how far you can push that. Looks like we're about to find out.
[+] [-] Animats|2 years ago|reply
FedNow is operational. It just turned on last month. It's run by the Fed, like ACH and FedWire. It's much faster - seconds. The Fed charges $0.043 per transaction, and the transaction size is up to $100,000. Settlement is immediate; funds are available upon receipt. It's a US bank to bank system, mostly, like ACH and FedWire.[1] Many other countries have similar systems.
As banks roll this out to consumers, there will effectively be a ceiling on how much other money transfer services can charge. As with ACH and FedWire, this is a fixed fee service, not a percentage of the amount. This makes running a "payment rail" service far less profitable.
[1] https://www.frbservices.org/financial-services/fednow
[+] [-] eddd-ddde|2 years ago|reply
Here in the US I recently learn you can even over turn your DEBIT account, how does that even work?!?!
[+] [-] Guvante|2 years ago|reply
2% for that service is worth it 100% and anyone who disagrees doesn't understand the math. 3% is probably too.
The problem is Visa et Al don't provide that. They provide it to consumers my demanding it from companies.
Hell even when the companies don't fit the bill sometimes the banks do instead.
But never does Visa pay.
[+] [-] lxgr|2 years ago|reply
Out of, let's call it 3% of blended-rate merchant fees for simplicity, about 2% goes directly to the issuing bank, who (at least in the US) passes on 1-2% to the cardholder in the form of "rewards". The fact that issuers can do this shows that card payments are priced extremely inefficiently.
That alone is quite ridiculous and has no bearing on the overall efficiency of Visa and Mastercard as global payment systems.
In the EU, interchange was recently capped at 0.3% for credit cards (i.e. at 1/10th of the US value), and most stakeholders have come out alive – the only thing that went away were these ridiculous rewards schemes, which effectively constitute a tax on people with poor credit and/or financial literacy.
The marginal cost of providing secure online payments probably lies somewhere well in the sub-1% region for domestic payments and a bit more when foreign exchange is involved.
[+] [-] htrp|2 years ago|reply
Don't pay a BNPL scheme, maybe they start shaming you to your iMessage contacts or progressively disabling the apps that you can use on your phone.
[+] [-] gruez|2 years ago|reply
thats illegal
>Social media and other electronic communications. A debt collector may not use social media to publicly post about a debt that they claim you owe.
https://www.consumerfinance.gov/ask-cfpb/what-laws-limit-wha...
[+] [-] sailfast|2 years ago|reply
Cut down on fraud, yes. Evaluate credit-worthiness from my phone metadata? No thanks - I’d advocate banning that wholesale.
[+] [-] calciphus|2 years ago|reply
[+] [-] houseatrielah|2 years ago|reply
[+] [-] scarface_74|2 years ago|reply
[+] [-] devmor|2 years ago|reply
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] 634636346|2 years ago|reply
Most of that "take rate" goes to the issuing bank, which returns it to the customer in the form of rewards, which can often be redeemed for cash, and a number of issuers now offer generic 2% cashback cards. There's also the added benefit of fraud protection (and the ability to charge-back, as a last resort). Anyone using Cash App or similar in lieu of a credit card, I just assume is financially illiterate.
[+] [-] mantra2|2 years ago|reply
[+] [-] biogene|2 years ago|reply
[+] [-] gjsman-1000|2 years ago|reply
Apparently Discover has a market cap of “only” $22 billion. $30 billion or so would definitely do the job; and that’s only, what, less than a quarter of Apple’s cash reserves?
Seems almost… cheap for buying an entire freaking payment network.
[+] [-] tristor|2 years ago|reply
[+] [-] ahnick|2 years ago|reply
[+] [-] WutWatWot|2 years ago|reply