Another percent-based set of statistics that tells us nothing.
How many Americans were using buy-now pay-later a year ago? 10,000? 50,000? (out of 200 million). A 40% increase in market share from what? A market share of 0.0001%? Did the BNPL amount stay the same, and the market shrink (and what is the market -- on-line purchases or total grocery sales?) And there are 10% more orders, but 19% less revenue. So perhaps fewer people are paying more because of inflation, or more, how can we tell?
Perhaps written by Chat-GPT with the proviso that no actual information be provided.
> everyday BNPL orders, including groceries, accounted for barely 1% of all [BNPL] purchases in 2021.
Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries. Of course, there was also the secular increase in online grocery orders:
> This trend may be partly due to the fact that Americans are simply spending more money on groceries online. Online grocery spending grew by nearly 27% year over year to $8.4 billion in February.
Percent of purchases seems like the wrong statistic. It is likely the case that most purchases are very small, people buying a single pack of cigs at a gas station and things like that. Furthermore, people with a lot of money likely make more purchases than people with little money. The percentage of the population making such everyday BNPL purchases is the interesting statistic, and I suspect it is higher than the % of all purchases.
>> everyday BNPL orders, including groceries, accounted for barely 1% of all purchases in 2021.
> Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries.
It could just mean that BNPL as a product was not much used a couple of years ago, no? It could just mean that these folks would merely then put their groceries on a revolving credit card (which in many ways is worse). It doesn't necessarily mean folks are shifting to riskier forms of debt?
The online grocery stat really surprises me. Relative to pre-pandemic? OK, seems high but I can buy it that a lot of people tried it and some liked it enough to keep it. But YoY from February, at a time when grocery prices have increased a fair bit, is almost hard to believe. "Grocery prices are up so lets make them go up even more for a bit of convenience."
I have my share of problems with big tech, but none of them compare to the rotten garbage that is sectors like payday loans and BNPL. These are industries exclusively set up during rough economic times to prey on the poor.
Just think about BNPL for 3 seconds. How do they make money? By selling people shit they can't afford, waiting for them to miss payments, and charging hefty interest and fees – sometimes totaling up to as much as the product itself.
You can argue "it is legal" "they signed the contract" "they should have known better” all you like, but just like payday loans it is a social ill that we need to deal with.
Honestly even with this reasoning I still don't understand the BNPL business model. If a person can't afford it from the start how are they going to afford it once interest and fees kick in? Seems like the BNPL providers are paying for something full price, potentially charging some fees, but overall receiving less because the debtor defaults.
Obviously I'm missing here because there is no way the BNPL industry would exist without profit, but I just don't get it.
I agree strongly. It really encourages people with poor credit and/or little experience using a credit card "the right way" to finance what should be trivial purchases you either save up for firts, or just don't buy. BNPL for groceries is the ultimate borrow from tomorrow to pay for today; modern economies have taught their citizens well!
If BNPL was the same as credit cards, then why not just use credit cards?
BNPL often ignores credit check or specifically targets groups that credit cards would deem too risky.
For me this doubles the problem with the BNPL space: not only are the predatory, but I have serious concerns about their own risk management.
I knew of a start up that was experimenting with running their own BNPL service with zero credit checks. The users that were being targeted had a 30+% default rate (because other users had credit cards) but the upper bound of interest that could be charged was around 25%... the company seriously didn't understand why they weren't able to make profit on this product. But hey, revenue did grow which is all VCs cared about so it worked for them.
Different customer base. These loans are generally more expensive and sold to people who can't qualify for credit cards. So yes, same business model but with the "Predatory" knob turned up.
AFAIK the interest rates on credit cards are nowhere near that of even regulated payday loans. The lack of interest on most cards if you repay in full each month can also make them a useful buffer if you have short term liquidity problems, ironically the problem that payday loan companies claim to solve.
Payday loan companies as they operate now belong in the class of companies that should simply be destroyed. Put betting shops in there as well.
Is there some real material different between BNPL and a regular credit line? People often seem up in arms about BNPL, and I'm not clear on what is uniquely insidious about it. Are the rates more predatory than a credit card, for instance?
BNPL doesn't make much sense if you have access to typical quality credit lines. The x% cash back on groceries, plus a month of interest on deferred payment, is probably a better deal than the extra duration on the credit line you might get from BBPL.
The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. So, y'know, there's a certain segment of the market they are targeting.
I think the ethics are fairly mixed -- access to capital is important and capital is expensive to some people for a really good reason. Of course there are fairness issues and predatory lenders, but there's a balance between the two concerns.
But the risk modeling for CCs and BNPL are quite different. I expect there to be a BNPL blow-up at some point.
> The major difference between some BNPL apps and credit cards is that the apps don't require a credit check.
But why would they extend a one-off unsecured line of credit without a check of creditworthiness? It’s not like they can repo the groceries if you don’t pay.
The offers I see are always 0% over 4 months. Napkin math for my credit card (22% APR) is 7.3% for that duration. I'm sure I did that wrong but I literally never carry a balance.
The way this makes money is that they charge the merchant, and the hook for the merchant is that they are opening up their target demographics to include people that cannot otherwise afford the product. In that sense, I think BNPL competes with Layaway rather than with creditcards. More broadly, it's kind of a known factor that the middle class is shrinking and BNPL helps keep consumerism accessible to people that would otherwise be downgrading their lifestyle.
The risk is that if you do not manage your finances very well you can get tricked into thinking you can afford things that you cannot and end up underwater to payments. It's like R-A-C but they won't send the sheriff to repossess your sofa.
This. It doesn't seem materially different from a credit card: if you pay within a certain window, no interest charges. It's just that BNPL is associated with being unable to afford it at the moment.
And, not surprisingly, comedians used to make exactly that joke! When fast food chains like McDonald's started accepting credit cards, they would joke that if you pay with one, it's like you're saying you can't afford the meal all at once.
* advertised as "no interest unlike credit cards" ("free") but if you are struggling, you will get hit with fees
* less strict credit checks, so more struggling people can get it
* attracts struggling people because if your credit is good and you are paying off, you will get much better deal with CCs in terms of cash back, miles, etc - nothing like that here
* merchants actively promoting bnpl to entice struggling people to buy things they can't afford (merchants typically don't promote one-click-pay with specific credit cards)
all these add up to heavily incentivizing broke people to become even more broke, more so than credit cards
I think the difference is their target market. Credit card companies usually target people who they think can make payments without too much stress.
BNPL companies target people who are unlikely to afford the purchase and they will be in far worse position afterwards. Since these are high risk loans, so they come with even higher interest rates and fees too.
Some, not all, BNPL lenders can get predatory with interest and fees if you don't pay the entire balance in 4 payments. For instance, Affirm strikes deals with retail partners that determine the interest rate (if any) on longer payment plans, which can go up to 30% APR vs. a 25% APR mean credit card rate for 650-700 credit scores. That variability also isn't always transparent to the buyer, who might not expect any interest if they used Affirm with another business that didn't require it. Zip, which is compatible with any payment that accepts Visa, charges a flat $1 payment fee per transaction and then a variable late-payment fee that depends on your state. Since more than a third of BNPL users in 2021 missed at least one payment - more than half of those under 40 did, and age demos make up a majority of BNPL users - these fees and rates are lucrative to the lenders.[1]
BNPL lenders don't tend to check a buyer's credit, and those that do don't pull a full report, so it's more accessible than a credit card. But successful payments to a BNPL also don't get reported up to credit agencies, and missed payments can be (at least a third and up to three-quarters of those who missed a payment took a subsequent credit score hit), so paying down a BNPL plan exposes the buyer's credit score to risks with no potential benefit. Since the lack of credit check makes BNPLs attractive to demographics with poor credit scores - young, poor, and underbanked - even responsible usage of BNPLs do nothing to improve those scores.[1][2]
Like with many low- or no-friction payment tools, BNPLs can facilitate overspending by people who already have poor credit, and the consequences of doing so can be dire to the overspender with few or no consequences to the BNPL lender. Planning a BNPL purchase isn't a problem, but point-of-sale BNPL options and BNPL instruments in debit-card form factors make debt an impulse buy in ways that credit cards can't do in some jurisdictions because they face regulations that BNPL lenders don't (yet[3]). People under the most pressure are buying necessities with BNPL and paying the BNPL debt down with credit card debt, a sort of worst-of-all-worlds scenario.[2]
BNPL usage has only increased with inflation and spread to necessities, which in the long run benefits only BNPL lenders. BNPL users are juggling a mean BNPL balance of $665.[2]
Another thing that raises hackles about BNPL lenders is how often they promote their services as a social good by pointing out how they avoid the predatory practices of credit cards. As for-profit institutions this can ring as dissonant to people who've experienced stress from debt, because it can suggest that providing low-friction debt to people who can't afford higher-friction debt is a moral imperative. The cringe of it expands when such platitudes are in the company's report to shareholders about its financial successes.[4]
And on top of everything, the business model for BNPLs existed only with low/near-zero interest rates. Their value as businesses is evaporating as they face actually having to pay for the money that the lenders themselves are borrowing to fund BNPL transactions.[5]
On the topic of being able to afford food, Pizza Pizza in Canada sent a flyer to my door about "Fixed Rate Pizza."
The entire thing is a tongue-in-cheek take on "we won't change the price of our pizza for a year" but they make it sound like a mortgage. You can even go online and get pre-approval for your pizza.[1]
To me, this smells of some marketing people thinking they're really really clever. It's fairly well-executed. But just completely tone deaf. Some people are losing their homes. They're trying to feed their children[2]. This is not the time to goof about the absolute fucking dystopic idea of food mortgages.
[2] My wife volunteers at our kids public school's snack program (Canadian schools generally don't provide lunches). The school has a very wide range of income levels, so you get everything from kids who ignore the snacks (fruit, veggies, sometimes cereal bars), to kids who are sent to school with an empty container to bring food home. Luckily there are some really good social systems in place to try to remove this responsibility from a child, but it's soul crushing to see. This footnote is tangential but I'm having a very raw moment of anger, sadness, and hope.
The webpage linked above includes "How do I apply?" and "get pre-approved." There's even a graphic of a home with a balloon when talking about inflation and literally mentioning mortgage rates.
Perhaps I'm feeling sensitive to this and it is a funny joke. Naturally the audience can decide for themselves. =)
For some reason the narrative seems to be that BNPL is bad for you, but I would argue they are objectively better than credit cards. Or in the worst case as bad as credit cards. The fees on BNPL tends to be capped in most cases while you could carry cc debt for infinite amount of time at high interest rates with no cap on how much you pay.
If you get offered BNPL with no interest or extra fees, isn't it a no-brainer to take it, even when you could afford to just pay the whole cost up front?
Not sure about the US but in the UK it's now supposed to show up on your credit report.
You also need to be the type of person that keeps on top of your finances. The main trap for inexperienced/impulsive people is getting locked into paying for more than they can afford. Without BNPL they might look at their balance and decide not to buy the item. BNPL introduces a different type of calculation where you now "it's only $5/mo", and need the experience to consider "how many more $5/mo payments do I have".
The other problem is people with a volatile monthly income. They might be fine paying $50/month for a few months but due to their industry or changes in their financial situation they're now stuck with a commitment they can't afford and otherwise wouldn't have had without BNPL.
You are missing out on credit card rewards. You don't get the consumer protections (disputes, extended warranties and more) offered by credit cards. It doesn't help build your credit history. And even if you think you can make all payments on time, if you happen to miss a single one then you are going to be hit by like 30% interest and other fees.
Do we have data on what products are being financed? Online grocery orders can include a variety of things, not all of which we’d conventionally call groceries. It's problematic if BNPL is financing daily meals; another if it's a luxurious dinner or pots and pans.
Readit News
How many Americans were using buy-now pay-later a year ago? 10,000? 50,000? (out of 200 million). A 40% increase in market share from what? A market share of 0.0001%? Did the BNPL amount stay the same, and the market shrink (and what is the market -- on-line purchases or total grocery sales?) And there are 10% more orders, but 19% less revenue. So perhaps fewer people are paying more because of inflation, or more, how can we tell?
Perhaps written by Chat-GPT with the proviso that no actual information be provided.
> everyday BNPL orders, including groceries, accounted for barely 1% of all [BNPL] purchases in 2021.
Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries. Of course, there was also the secular increase in online grocery orders:
> This trend may be partly due to the fact that Americans are simply spending more money on groceries online. Online grocery spending grew by nearly 27% year over year to $8.4 billion in February.
Percent of purchases seems like the wrong statistic. It is likely the case that most purchases are very small, people buying a single pack of cigs at a gas station and things like that. Furthermore, people with a lot of money likely make more purchases than people with little money. The percentage of the population making such everyday BNPL purchases is the interesting statistic, and I suspect it is higher than the % of all purchases.
> Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries.
It could just mean that BNPL as a product was not much used a couple of years ago, no? It could just mean that these folks would merely then put their groceries on a revolving credit card (which in many ways is worse). It doesn't necessarily mean folks are shifting to riskier forms of debt?
Just think about BNPL for 3 seconds. How do they make money? By selling people shit they can't afford, waiting for them to miss payments, and charging hefty interest and fees – sometimes totaling up to as much as the product itself.
You can argue "it is legal" "they signed the contract" "they should have known better” all you like, but just like payday loans it is a social ill that we need to deal with.
Obviously I'm missing here because there is no way the BNPL industry would exist without profit, but I just don't get it.
Here's a simple test – if everyone paid their balances on time and in full, credit card companies would still survive. BNPL would not.
BNPL often ignores credit check or specifically targets groups that credit cards would deem too risky.
For me this doubles the problem with the BNPL space: not only are the predatory, but I have serious concerns about their own risk management.
I knew of a start up that was experimenting with running their own BNPL service with zero credit checks. The users that were being targeted had a 30+% default rate (because other users had credit cards) but the upper bound of interest that could be charged was around 25%... the company seriously didn't understand why they weren't able to make profit on this product. But hey, revenue did grow which is all VCs cared about so it worked for them.
Payday loan companies as they operate now belong in the class of companies that should simply be destroyed. Put betting shops in there as well.
How did you miss to learn about those at your University, Man?
The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. So, y'know, there's a certain segment of the market they are targeting.
I think the ethics are fairly mixed -- access to capital is important and capital is expensive to some people for a really good reason. Of course there are fairness issues and predatory lenders, but there's a balance between the two concerns.
But the risk modeling for CCs and BNPL are quite different. I expect there to be a BNPL blow-up at some point.
But why would they extend a one-off unsecured line of credit without a check of creditworthiness? It’s not like they can repo the groceries if you don’t pay.
The way this makes money is that they charge the merchant, and the hook for the merchant is that they are opening up their target demographics to include people that cannot otherwise afford the product. In that sense, I think BNPL competes with Layaway rather than with creditcards. More broadly, it's kind of a known factor that the middle class is shrinking and BNPL helps keep consumerism accessible to people that would otherwise be downgrading their lifestyle.
The risk is that if you do not manage your finances very well you can get tricked into thinking you can afford things that you cannot and end up underwater to payments. It's like R-A-C but they won't send the sheriff to repossess your sofa.
And, not surprisingly, comedians used to make exactly that joke! When fast food chains like McDonald's started accepting credit cards, they would joke that if you pay with one, it's like you're saying you can't afford the meal all at once.
* advertised as "no interest unlike credit cards" ("free") but if you are struggling, you will get hit with fees
* less strict credit checks, so more struggling people can get it
* attracts struggling people because if your credit is good and you are paying off, you will get much better deal with CCs in terms of cash back, miles, etc - nothing like that here
* merchants actively promoting bnpl to entice struggling people to buy things they can't afford (merchants typically don't promote one-click-pay with specific credit cards)
all these add up to heavily incentivizing broke people to become even more broke, more so than credit cards
I have absolutely no idea if that is true or how I’d even ascertain the veracity, so don’t quote me.
BNPL companies target people who are unlikely to afford the purchase and they will be in far worse position afterwards. Since these are high risk loans, so they come with even higher interest rates and fees too.
BNPL lenders don't tend to check a buyer's credit, and those that do don't pull a full report, so it's more accessible than a credit card. But successful payments to a BNPL also don't get reported up to credit agencies, and missed payments can be (at least a third and up to three-quarters of those who missed a payment took a subsequent credit score hit), so paying down a BNPL plan exposes the buyer's credit score to risks with no potential benefit. Since the lack of credit check makes BNPLs attractive to demographics with poor credit scores - young, poor, and underbanked - even responsible usage of BNPLs do nothing to improve those scores.[1][2]
Like with many low- or no-friction payment tools, BNPLs can facilitate overspending by people who already have poor credit, and the consequences of doing so can be dire to the overspender with few or no consequences to the BNPL lender. Planning a BNPL purchase isn't a problem, but point-of-sale BNPL options and BNPL instruments in debit-card form factors make debt an impulse buy in ways that credit cards can't do in some jurisdictions because they face regulations that BNPL lenders don't (yet[3]). People under the most pressure are buying necessities with BNPL and paying the BNPL debt down with credit card debt, a sort of worst-of-all-worlds scenario.[2]
BNPL usage has only increased with inflation and spread to necessities, which in the long run benefits only BNPL lenders. BNPL users are juggling a mean BNPL balance of $665.[2]
Another thing that raises hackles about BNPL lenders is how often they promote their services as a social good by pointing out how they avoid the predatory practices of credit cards. As for-profit institutions this can ring as dissonant to people who've experienced stress from debt, because it can suggest that providing low-friction debt to people who can't afford higher-friction debt is a moral imperative. The cringe of it expands when such platitudes are in the company's report to shareholders about its financial successes.[4]
And on top of everything, the business model for BNPLs existed only with low/near-zero interest rates. Their value as businesses is evaporating as they face actually having to pay for the money that the lenders themselves are borrowing to fund BNPL transactions.[5]
1: https://www.creditkarma.com/about/commentary/buy-now-pay-lat...
2: https://www.creditkarma.com/about/commentary/consumers-rely-...
3: https://www.reuters.com/business/finance/us-consumer-watchdo...
4: https://www.klarna.com/assets/sites/15/2022/02/27195201/Klar...
5: https://www.reuters.com/technology/buy-now-pay-later-busines...
The entire thing is a tongue-in-cheek take on "we won't change the price of our pizza for a year" but they make it sound like a mortgage. You can even go online and get pre-approval for your pizza.[1]
To me, this smells of some marketing people thinking they're really really clever. It's fairly well-executed. But just completely tone deaf. Some people are losing their homes. They're trying to feed their children[2]. This is not the time to goof about the absolute fucking dystopic idea of food mortgages.
[1] https://www.pizzapizza.ca/fixed-rate-pizza/
[2] My wife volunteers at our kids public school's snack program (Canadian schools generally don't provide lunches). The school has a very wide range of income levels, so you get everything from kids who ignore the snacks (fruit, veggies, sometimes cereal bars), to kids who are sent to school with an empty container to bring food home. Luckily there are some really good social systems in place to try to remove this responsibility from a child, but it's soul crushing to see. This footnote is tangential but I'm having a very raw moment of anger, sadness, and hope.
It looks more like a joke about inflation than mortgages.
Perhaps I'm feeling sensitive to this and it is a funny joke. Naturally the audience can decide for themselves. =)
https://ibb.co/JnpnCr4
https://ibb.co/dQF85hN
You also need to be the type of person that keeps on top of your finances. The main trap for inexperienced/impulsive people is getting locked into paying for more than they can afford. Without BNPL they might look at their balance and decide not to buy the item. BNPL introduces a different type of calculation where you now "it's only $5/mo", and need the experience to consider "how many more $5/mo payments do I have".
The other problem is people with a volatile monthly income. They might be fine paying $50/month for a few months but due to their industry or changes in their financial situation they're now stuck with a commitment they can't afford and otherwise wouldn't have had without BNPL.
Will missing payments of it hurt your credit history? If so, why is such one-sided credit reporting legal?
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