[ivanbalepin]

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.

[aaaaaaabbbbbb]

Assuming one has access to a credit card and is financially literate, I agree that using BNPL is a hard sell (never having used it myself). But there is a large population--the unbanked--that lacks access to credit cards. For that population, the choice is not between credit card and BNPL, but BNPL and cash.

I found the article's description of how BNPL structurally differs from credit cards interesting, as it is a reasonable explanation for how BNPL can serve the unbanked and still have functioning credit risk models:

> Even with adverse selection for BNPL, the underwriting is for each transaction, not for all monthly spending like that in credit cards; so if a consumer misses a payment, the BNPL provider can stop lending immediately, as opposed to the credit card company which has to underwrite the person’s full ability and willingness to repay their debts. This tech-enabled granularity allows for legibility and hence greater precision and predictability.

[margalabargala]

> But there is a large population--the unbanked--that lacks access to credit cards. For that population, the choice is not between credit card and BNPL, but BNPL and cash.

Which is an indication that the status quo will not last.

The median person who cannot get a bank account and a credit card, is in that state due to a history of either fraud or nonpayment.

Sooner or later, that preponderance of risk will catch up to BNPL and it will either become less accessible, like credit cards, or it will become more like services that already service that population segment, like check cashing locations and payday loans.

Them having better technology and granularity like you say won't save them. At best it can delay the inevitable.

[ivanbalepin]

Yes, that's a good point. However, how much of this finer-grain lending flexibility translates into more favorable underwriting (to help cover the unbanked) is not clear. The author did not mention any data to that effect.

[immibis]

How does a person without a bank account repay their Klarna debt?

[aianus]

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]

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]

I don't see how the BNPL interest free period helps you here. It basically just delays your withdrawal so you get 6wk (or whatever) more return on the few grand financed. And if you maintain a constant balance the effect is going to stay the same, not increase or decrease, so it's basically the same overall effect as a one time contribution of the financed amount, which is probably very small relative to portfolio size for anyone who ought to be doing this.

The way you can use CC points is well documented but it stands on it's own separately and I don't think it adds anything but confusion to this example.