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The 'buy now, pay later' bubble is about to burst

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Re: The 'buy now, pay later' bubble is about to burst

#91

Post by sbuccini »

onlyrealcuzzo wrote: post #89
sbuccini wrote: post #71

I posted this before, will post again: This article is so weak. It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. Seriously quotes TikTokers who are probably just paid shills for the company. There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth, but realistically it's functionally no different than a credit card. P…

> realistically it's functionally no different than a credit card. > There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth. It's a cc with bad underwriting... You don't see this as a fundamental problem? This doesn't seem much different to me than other sub-prime bubbles...

When done correctly, the underwriting is actually significantly better as it's done on a per-transaction basis, incorporating the item itself (ring purchases are significantly more risky to finance than sneaker purchases). You can also incrementally dole out a credit limit, rather than giving someone a $10k threshold upfront without any veto power over how they use that amount.

That being said, there are a ton of hucksters in the industry and I suspect we'll see most of them wash out in the next few years :)

Re: The 'buy now, pay later' bubble is about to burst

#92

Post by epolanski »

dusted wrote: post #3

I don't get it.. There's a childrens song in Denmark, it's lyrics go, roughly translated "and if you have money, then you can have, but have you none, then you may go!" (it's about buying bread at the bakery).. When I see how people spend money they don't have, I'm always wondering if their parents never sang for them when they were young, or if they are of a particular dim nature. Sure, I can see why some people wou…

In the last decade credit rampage has spread in Europe too, I still remember not long ago where the idea of buying things in installments seemed crazy to the average Italian. The only thing that gets a pass is a mortgage.

But buying a phone or computer in installments? How does that make sense?

You can't afford it, end of story.

I'm also not used to pay interests on my credit card, if I spend 1000 euros, at the end of the month takes away 1000 from my account and that's the end of story. Why would I pay interests on my daily finances, sounds crazy and a recipe for always having to worry about money.

Re: The 'buy now, pay later' bubble is about to burst

#93

Post by _fat_santa »

ceejayoz wrote: post #76
sbuccini wrote: post #71

I posted this before, will post again: This article is so weak. It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. Seriously quotes TikTokers who are probably just paid shills for the company. There are real issues with BNPL, mostly extremely loose underwriting in the pursuit of growth, but realistically it's functionally no different than a credit card. P…

> It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%. At those rates, people just put it o…

I see BNPL companies as having two types of customers: those that can't afford the full price and want to pay over time, those that read the terms closely and realized the deal is too good not to take.

I took out a number of BNPL loans last year and it was never because I couldn't pay the full price but rather if I was getting the money at 0%, "free money". But I was never the target customer of these places, I was just taking advantage of very good terms.

Now that Affirm (and I assume most other places) are charging a floor rate of 10%, that second group of customers are no longer customers. I'm not sure how significant this group is but I'm sure it's not an insignificant number. Since these places make most of their money on transaction fees rather than rate premiums and fees on the back end, this could really put a dent in their business.

Re: The 'buy now, pay later' bubble is about to burst

#94

Post by ceejayoz »

sbuccini wrote: post #86
ceejayoz wrote: post #76

Earlier quoted context omitted.

> It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%. At those rates, people just put it o…

Your claims are not true for several reasons: - Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm. Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cau…

> Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer.

Yes. We consumers appreciate that.

> You may be unwilling to pay a fee, many other people are.

Sure. I think a lot fewer people will be willing to pay $X than $0.

> Interest rates have little effect on BNPL financing

0% APRs are only really feasible in a low-interest environment. There's a reason that Fed rate hikes are immediately followed up by APRs.

Re: The 'buy now, pay later' bubble is about to burst

#95

Post by epolanski »

yladiz wrote: post #11
ivanche wrote: post #10

Earlier quoted context omitted.

If you can afford 12 payments with interest, you can by definition also afford to save for 12 months and then buy the camera. BNPL and credit card companies are masters of exploiting psychology and especially currently prevailing wusiness and entitlement ("But I want it now!!!1!", "I deserve to treat myself like a king").

Okay, I repeat my question above: if you can afford to pay over 12 months (meaning, you don't go into debt to do so), what's inherently wrong with doing it instead of waiting 12 months and paying all at once, besides ideological reasons?

Paying in installments requires you to have a secure stable income.

You may not have one tomorrow.

You may lose your job.

You may go through a divorce.

Maybe you have to move for months because your house has been flooded.

You don't know what your tomorrow's financials look like.

The only time that it may makes sense to pay installments if if the interests are really 0% and you have lots saved anyway. At that point..why not improve one's credit score anyway.

Re: The 'buy now, pay later' bubble is about to burst

#96

Post by matwood »

dbbk wrote: post #17
senttoschool wrote: post #2

“We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. This is always weird to me. It makes sense why Gen Z does this. But weird. I can get 2-4% back on all my purchases using my credit card, incl…

I'm 30 and never had a credit card. Always felt like an extra layer of complication I don't need. I have enough money, I'd prefer to directly spend it. With a credit card there'd always be a nagging feeling some payment would be missed or something would go wrong and all of a sudden I'd be hit with interest charges.

Wow. I know HN hates Amazon, but as an example, the Amazon Prime cards give 5% back on everything bought on Amazon and at WholeFoods. That's not insignificant.

Also, if you did happen to miss payment because you forgot, 1 mos. of interest really isn't very much and certainly isn't the end of the world. The problem with CCs is when people don't pay them off and continue to put more and more charges on them. That's when things really add up.

Finally, that extra layer of separation between my money and the merchant/card thief is a good thing. CC gets stolen and I never lose possession of my money. Debit card gets stolen, and no matter how fast they reverse the charges, there's still a point where I lost possession.

Re: The 'buy now, pay later' bubble is about to burst

#97

Post by _fat_santa »

sbuccini wrote: post #86
ceejayoz wrote: post #76

Earlier quoted context omitted.

> It doesn't provide any actual reasons for why BNPL is a bubble nor why such a supposed bubble is about to burst. I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%. At those rates, people just put it o…

Your claims are not true for several reasons: - Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm. Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cau…

I disagree and I think interest rates have a huge impact on these places. Just look at Affirm that used to offer 0% and is now offering 10% at minimum.

As far as "attractiveness", I really see two groups here. You have one that legit cannot afford the full price and are taking out this loan as a traditional loan, within that group "attractiveness" is in the eye of the beholder. However the other group is people that can very much afford the product but see the magic "0%" rate, for this group the only "attractive" rate is 0, any higher and they will not use the service.

Re: The 'buy now, pay later' bubble is about to burst

#98

Post by lotsofpulp »

dusted wrote: post #63
mschuster91 wrote: post #24

Earlier quoted context omitted.

> "But old cars break down and are expensive to get repaired" Yes, but you don't have money to pay someone else to repair it, old cars have cheap parts and are relatively simpler to repair, learn how to do it, you're not in a position to be fussy about what skills are beneath you if you can't pay someone else to do it, stop thinking so highly of yourself and get to it! You're ignoring the "boots theory" [1]. A new or…

I'm not entirely ignoring it, but I don't believe it holds true for things like cars. I've driven bangers my whole life, I mean really driven them to death, some to the point where they die on the highway, and I will do a quick inspection to decide whether I want to fix that or just have it towed direct to junk. Now, cars are insanely taxes in Denmark, near 300%, and they lose about half their value the first year of…

> but I bear zero risk

You might be subject to lesser risks, especially in a country like Denmark, but many people have at least some of the following risks of a car breaking down in the middle of the road:

1) collision. Simply being on a high speed road outside of your vehicle is one of the riskier things you can do in many parts of the world.

2) not being able to work and/or getting terminated from job

3) being stranded with young children

4) needing to be somewhere to take care of your dependents

5) woman being stranded by herself

6) being stranded in too hot or too cold weather

Re: The 'buy now, pay later' bubble is about to burst

#99

Post by toss1 »

sidewndr46 wrote: post #77
yladiz wrote: post #7

Earlier quoted context omitted.

I think this is a bit too simplistic of a way to look at it. Having sone debt is not necessarily bad, even outside of enormous purchases such as a house or car. First, c'mon, people don't (directly) finance sandwiches. Have you ever seen a sandwich shop accept Klarna? If you're talking about a credit card that's something but that's not what this article is talking about, which is BNPL. Second, in general it's not as…

Invariably people who use that service plan to spend 100% of their monthly income. Whenever you have an unexpected expense in that 12 month time frame and have to pay for that, then you can't make the payment on that loan.

Yup, debt is purposely setting you up to put you in exactly that bind, and then you owe the serious interest. Kind of a reverse lottery where you lose. It doesn't happen to everyone, but at scale, Life Happens, and a certain percentage of people will get behind and wind up paying huge interest, and there's the profit model.

Also, people are chronically up in arms about taxes, but here, they are signing up for voluntary taxes on everything. At least taxes buy something real, like roads, mostly reliably safe food supply, education, police, fire defense, etc., while interest just buys indulgence today then headaches tomorrow.

Interest is fine if you are creating an asset that create greater future value (e.g., building a business), or where the asset itself is a security (e.g., a house). But for transitory consumption, debt is a losing game. (I'm distinguishing debt from credit cards as a payment convenience paid every month - don't let them slide)

Re: The 'buy now, pay later' bubble is about to burst

#100

Post by birracerveza »

crote wrote: post #4
senttoschool wrote: post #2

“We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. This is always weird to me. It makes sense why Gen Z does this. But weird. I can get 2-4% back on all my purchases using my credit card, incl…

Don't forget that there is no such thing as a free lunch, though. Credit card companies aren't charities! In general all those perks are paid for by rather significant credit card processing fees, which you pay for yourself via increased product prices. Furthermore, their goal is to normalize the use of credit cards, in the hope that you'll eventually stumble and get screwed over by the interest fees. Also, I think y…

I think you are forgetting that Gen Z are not literally kids, they are just forced to live as such by the fact that being an adult with its own house and family has become prohibitively expensive.
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