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?
> 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.
> 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.
BNPL is worse, they take 5% and all you get is a small loan for a few weeks. Their whole business model relies on it being "free" for middle-class people who will pay back their loans, because the fee is hidden in the purchase price. This is an area where government regulation is actually required, all transaction fees should be disclosed and charged as a surcharge on the base purchase price, whether it's a credit card or BNPL, to provide a fair and competitive market for consumers and merchants.
Btw. in Europe the card thing was solved differently. First, most people use debit cards, not credit cards. Second, card fees are capped at 0.2% which makes it actually a cost saving measure (cash processing is not free).
Are you sure about that?
I would be surprised if a society that only paid up front in cash had ever existed. For example, "if you do something for me now, I'll do something for you later" is a much more basic form of interaction than "if you do something for me now, I'll give you this money" is.
Financing your meals isn't an exotic concept; it has normally been known as "running a tab". But running a tab involves periodic settlement of whatever the tab has run to. It isn't broken down into individual transactions each on their own detailed payment plan. This is something that doesn't make sense for small purchases.
Than what? Have we actually checked what the level of fraud is by credit-card companies, or how they price various cards for various customers?
Eating is voluntary, if only for short while.
I've seen cases where it allows those with money to extract money from those with a lot of money too.
Take this situation:
Business A and business B are both doing well and competing with each other in a duopoly.
a) No credit: Each business needs to be in the black, and competition is sustainable.
b) Credit: Whichever business borrows more money to spend on buying customers is more competitive in the short term (which can lead to monopoly long-term). Both businesses run in the red are and brittle. In any downturn, tightening of credit, etc. both are liable to go under.
This competition to raise increasing amount of money to be competitive (to increasing devaluation and/or debt makes for a pretty broken economy), and makes traditional businesses (which invest in R&D from profits) increasingly unsustainable.
This even goes to government level. Historically, if e.g. two European powers were in a war, whomever could borrow more to buy weapons / hire mercenaries would have an advantage. Access to credit made for more costly, more deadly wars, and broken national economies. If neither side had access to credit, both sides would be strictly better off.
However, it’s become more and more clear that not all credit is created equal and what you spend the resulting capital on matters a lot. If one buys a house to live in or equipment to make money with - that’s generally good use of credit, assuming costs do not outweigh the benefits. I can’t think of a situation where buying lunch that one has to finance is a good thing (as different from credit card points harvesting/optimization). The implications of anything similar to payday loans going mainstream feels like a large societal risk.
Key differences:
- Houses are gaining value over time while consumer goods such as food, phones, TV, cars are loosing value over time.
- A loan for a house can be paid back very slowly so that you effectively only pay your initial share of the price (and share the profits with the loan giver via interest). A loan for consumer goods must usually be paid back almost immediately.
A car loan can be a great investment if it gets you to a job you otherwise wouldn't have, even if it is going down in value.
Debt for an expensive degree that gets you a good job is the same, and entirely devoid of resale value. Debt for an expensive degree with no job prospects, not so.
We are right back to feudalism.
Simply bring up inflation is wrong and not necessary (outside of disaster, etc) and the US government should control its own monetary policy and not the fed. You’ll get downvoted and/or fed arguments from economists (modern day priests) about how wrong you are. And yet the wealth gap keeps growing while we’re the most technologically advanced and efficient we’ve ever been.
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?
Also… in this situation does klarna get any of that 1340 or does Alice just delete the app?
But it doesn't need exaggeration! A missed payment accelerating the loan to 46% APY effective is already usury and bad enough!
Alice has $100 in burrito debt at 0%, but misses one payment, which automatically reverts to a 30% interest rate, back-tracked to the start of the "loan".
She also receives a $7 late payment fee, which is equivalent to about 90% interest for the time covered.
Her bank will often re-order operations on a given day in order to maximize the fees charge (yes, this happens, yes, this is legal), so even if she had her paycheck arriving on the same, the operations will often be sequenced with largest debits first, followed by credits, so that the overdraft hits as early as possible, and the most possible number of failed payment fees can be extracted, followed by the credit, which is now greatly reduced
(I actually had this happen to me as a student once, five late payment fees because of re-ordering, which caused me to both never let this happen again, and change banks immediately for one which wasn't as predatory).
Burrito loans are like payday loans, but even more predatory... They are neither ethical, nor moral (usury is even covered in the old testament, for christian folk).
What percent of people who miss a payment get sent into a debt spiral from a $7 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.
Agreed that this author and the industry as a whole go too far in the direction of finance for finance's sake.
Being able to bet on something isn’t inherently good, but the article seems to treat that as axiomatically true without offering an explanation about the problem financialization is solving in the BNPL burrito delivery space, like you have for airlines and farmers.
It seems like quite a racket, but doesn’t look like “preying on the poorest.”
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.
Yes, this is a true statement. Subjectivity and objectivity are two different things.
But I will grant you, there are plenty who believe in an objective framework for morality. My earlier statement is not universally agreed upon.
Do you mean that reasonably all people agree that murder, rape, pedophilia, etc. are bad? Aka if close to everyone thinks something, then that's an "objective" opinion? If so, that makes sense.
However, the parent comment may mean to say that wrong and right are qualities that humans place on things/events/communications... and I think that makes sense.
Physics/chemistry/math has nothing to say about vice and virtue.
Leaded gasoline.
This is philosophically valid, but also has the advantage of being how moral systems are actually constructed in practice.
Some kinds of mores are more cooperative, and some are more destructive, and especially self-destructive. The good is usually associated with more cooperative and mutually supportive traits, and evil, with destructive. The good usually prevails in the long term because cooperation is more efficient than destruction.
So yes, there are objective correlates in good and evil traits, even though they are rather statistical than unequivocally causal.
You can think it's all for the stupids, but I'm not seeing how it's some objective truth. Even if you're some stoic who thinks spending money on leisure is just incorrect at a fundamental level, but I think you're going to find yourself in the minority there.
I do not believe that life is measured in how many burritos I can or cannot get access to, so the idea that not using BNPL means I'll get more burritos next month falls a bit flat on me.
My implication here is not that being in a minority changes whether something is objectively true or not (it doesn't!). But I will outright say that I do not believe this, and I think that most people do not believe this.
Claiming to believe that leisure is bad objectively is, in my opinion, also a claim that you are "smarter" than the vast majority of people. After all, you have unlocked some reasoning to reach this, that other people seem to have missed. Do you believe to have unlocked some deeper truths through thought? Perhaps! I tend to assume I am far from the smartest person in the room.
Objectivity is the load bearing thing here, of course. If you merely think spending money on leisure is bad, then that's what you think. That can be one of your axioms in your belief system. Stating it as some objective fact is a much stronger claim, that I don't think really holds up to much scrutiny.
This is even before getting into the idea of "objective badness", which is a can of worms.
A lot of work to try and claim objectivity on your side, when the much easier "my belief system is like this, and from that I conclude this other thing" is a perfectly respectable argument when discussing policy preferences.
Added bonus of being honest about what part of your argument is just a belief system is you can then more quickly identify why you disagree with someone else.
Not trying to be combative, just thought it's an interesting point in this discussion of objectivity vs subjectivity.
Like if someone showed up and said "I can predict lottery numbers". Maybe I'm talking to someone who has figured it out. Maybe I'm talking to someone who is wrong. This isn't at the same level but the claim to objectivity feels pretty close to me!
I think zug_zug's claims are based in a worldview, and not derived from some objective truth. That's fine! We are allowed to inject our own preferences into these discussions! It feels intellectually dishonest to pretend that we're working off of some objective truth of how the world "should" be.
This is a pretty interesting topic on human nature. Chain of reasoning doesn't always result in proper action. For example, my cousin has been having a lot of health problems lately. Logically he knows that alcohol is contributing to them. Yet, when he's out with his friends, he can't help but drink anyway, despite knowing (and likely ignoring for the moment) the consequences of doing so.
Similarly, things like junk food and overpriced status-symbol vehicles have objective costs that prey on the weaknesses of human nature. Whether to restrict such things, and by how much, is where the subjective aspect comes in.
This also all presumes we share the same values of "let's try to reduce human suffering somewhat". A libertarian, for example, would just say "live and let live".
There has to be a point at which you pull in preferences. But at least then you can split the "objective" from the subjective, and think about the details in earnest. Even when conclusions differ.
Strawman. The topic at hand isn't about spending money on leisure but taking out a loan to pay for a fucking burrito.
- zug_zug said "we should talk about economics objectively" and claimed "bnpl is one of a dozen services that extracts money from those whose judgment we doubt" , giving examples of other services in that category
- I replied to that claim, saying that I believe their claim that, for example, junk food is a service that extracts money from whose judgement we doubt, is likely to be a subjective analysis and not an objective one.
- I further said that I think you could end up with a believe that it was an objective analysis if you are a person who has reached the conclusion that spending money on leisure is bad
- I am then claiming that I doubt that there's an objective chain of logic that gets you to "spending money on leisure is bad". My reasoning is that I believe that to not be the position held by many people, on top of my belief that generally most people are not extremely smart.
Absent the "spending money on leisure is bad" claim, I don't see a claim to saying that, _objectively_, junk food, sports cars etc is an indicator of people applying bad judgement. And so saying "well BNPL is objectively just yet another stupid tax" is not a well founded argument in my opinion!
"I think Burrito Now Pay Later is bad" is a fine statement, and doesn't try to apply a layer of objectivity that, in my view, crumbles pretty quickly.
(Unstated in the article is that richer people with better credit have regular access to no-interest/negative fee consumer loans on the order of 6-18 mos., so they have no reason to use BNPL)
I think food is easy to buy impulsively ("I'm hangover and hungry - let's order some pizza delivery"), and removing barriers like "I don't have money right now" may cause - hypothetically - some people to spend more on food delivery and (by necessity) less on other things. I'm not sure how sound this model is, but I think it can't be ruled out.
Needles to say, I'm not sure if such change would be a good thing.
Restaurant food is a low to very low profit margin business that takes years to break even – with a good strategy and management.
Charging the merchant, i.e. the burrito service provider, means that they will inevitably have to pass costs onto the burrito consumer at the consumer's disadvantage.
One would assume that it would increase sales, which makes it worthwhile. It's not caused by increase outreach though: from what I've seen, BNPL is usually an additional payment option when you're already on the product page.
Then the question becomes: who are the extra customers that a BNPL scheme would bring, that wouldn't have made the purchase if such a scheme was not available?
BNPL just encourages overspending by the most precarious consumers, ensuring that they will never get ahead.
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.
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."
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?"
Yeah this is a fucking crazy statement, as if the “but” justifies the former statement because it touches a Proper Noun.
“Is getting beaten to death in broad daylight a sign of societal decay? Maybe, maybe not. But it’s definitely an evolution in Practical Fitness.”
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.
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.
The numbers coming out of these companies are simply implausible, especially their claimed delinquincy rates; unsecured debt agains subprime borrowers that up until recently wasn't reported to any credit agency, basically a perfect storm of debt that won't be paid off, but it was doing far, far better delinquincy numbers than credit card debt? Implausible. But the market, in its current mood, believes it enough for them to get away with it.
What I do notice and do agree on is the fact that our society has become too financialized, there are too many people working in the financial sector that spend their days studying and trading financial products that oftentimes stem from debt.
But I also can't imagine our society without debt, how will we give the chance for people to attempt to create enterprises and businesses without it? Where would you draw the middle ground here?
I'm more skeptical. I think housing would be radically different in such a world. More people would be renters, more housing would be hereditary, and more would be corporate owned. Houses that were owned would be much smaller and more affordable.
Keep in mind there is a vast amount of areas where new housing can be built controlling the prices.
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>
"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)."
> 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.
* 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.
This is true unless wages are also always going up, which is not the case unless it’s all just inflation in which case nothing is really appreciating.
Land, like in China, should be available only under a 99-year lease (perhaps with a modest homestead exemption). The government should own radio airwaves, natural resources, and banking. This doesn't mean that it couldn't hire private contractors to do the work (e.g. bidding on oil extraction), but Chevron and Exxon shouldn't own the oil field.
And I think the government should provide very basic, minimal, Soviet-grade housing free to everyone.
If you'd like your kids to have their own bedrooms, you pay. If you're happy with a 2-bedroom for a family of four (kids room, adults room), or dorm-style housing for adults, you can live there for free.
Having a free option would, in fact, drive costs down for everyone.
More broadly, we should rationalize what's nationalized. For example, a lot of parts of education make sense with a lot more open competition.
Which doesn't mean you get rid of mortgages entirely, but maybe don't have the main policy intervention in the market be like that.
Rents not covering most of amortization would make lot more reasonable system to live in.
There is actually a fantastic sci-fi novel I highly recommend written by a professor of enlightenment philosophy that uses the as part of the premise. too like the lightning by Ada palmer. [1]
Except it's even worse. A car crash is terrible, but at least nobody profits from it. With debt you create a market for manipulating as many people into debt as possible.
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
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.
All are versions of this ‘shuffling of risk’ from debtors to “investors”. The middlemen take their cut along the way. Then if and when the bubble bursts debtors default and investors take a bath. Or the slow case, the debt inflates away and investors pay for it in lack of returns, ultimately losing money in real terms despite balances going up.
While BNPL by itself may not be large enough to do the economy in, some of those other examples mentioned are. And I imagine there’s probably some joint risk from running so many instances of this scheme at once (i.e. one goes out they all go out).
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.
>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.
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.
According to Google it's about half.
If there was a thing that worked like a credit card, but without the credit part, I'd probably be using that instead.
American Express has since expanded its brand into credit cards, but the original lineup has been charge cards which work as you describe for almost 70 years.
Among those who like credit cards (of which I am one), the “credit” part is basically irrelevant. Paying for my stuff a few weeks later is nice, but it’s not why I use credit cards. If there was a card that offered an extra 0.5% cash back but purchases had to be paid immediately, I’d jump on it.
I'm not saying you're wrong, but I want to highlight that this is US specific. I'm in Europe, in my 30s and I never owned a credit card. The same goes for all my friends. Even ones who had to get a credit card for a trip to US, or got one from their bank without asking, don't use them.
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.”
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.
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.
https://www.complexsystemspodcast.com/episodes/credit-card-r...
A tax is a deadweight loss in one sector that (hopefully) funds something else in a (hopefully) net-worthwhile way.
Calling a facilitating cost like marketing or finance or customer support a "tax" is like calling the need to pay to clean the bathrooms at your business a "tax", if you squint and look at it from far away it's kind of similar but it’s also totally uninformative.
In some abstract way, the social obligation for small businesses owners to send their kids to pricey afterschool classes is a "tax" paid by their customers, but that's probably not a useful way of analyzing a complex system
Then act surprised when the elections turn out the way they turned.
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.
How do you imagine this would work for a company using normal fiat payment rails?
Hackers use this to make many orders using fake personal information. In BNPL, all losses are covered by the BNPL provider - so merchants get their money, criminals get random stuff for resale, and BNPL have to foot the bill.
That is quite ungrateful to money lenders.
They could, like, not lend money to begin with.
One reason is that someone’s or a company’s income doesn’t always align perfectly with when they want to buy things.
This logic doesn’t change just because the thing being financed is a burrito.
The deployment of Econ-degree lingo doesn’t help the case.
The bigger problem with BNPL, in my view, is that a lot of people are not able to understand the concept of credit. I knew people in my hometown who got a credit card, and their reaction to having a $3k credit limit was the exact same as if they had gotten $3k deposited into their bank account. I’m honestly not sure whether they understood that they didn’t just randomly get given $3k. I saw this happen multiple times. But it sounds very patronizing to say the “there’s a lot of poor people who don’t understand credit, so we need to prevent them from having access to any so they don’t get the chance to screw themselves”, so I understand why no one does.
I think the underlying reason is that being patronised is very antagonising, and the poor generally outnumber the rich, who must ultimately depend on them in a variety of ways.
To me the justifiability of these two imperatives seem to be reversed. But to the extent that "protecting stupid people from loan sharks" is unjustified, we also think that we should "protect weak people from robbers and bandits", and protect people from frauds.
I meant the opposite.
Do some googling about what is a "food desert", plenty of lower income people in the USA live somewhere that the grocery store options and fresh, nutritious ingredient shopping options are VERY poor. Or a costly distance away to drive on a regular basis.
I am not saying this excuses ordering $25 burritos on doordash or uber eats but it is an influencing factor.
Cooking — as in being able to make any set of common ingredients tasty, quickly, with few dishes to wash, and without looking up recipes each time — is the skill you need before you can “unlock” supermarkets. If I was still 19 and a new supermarket showed up, I would know f— all to do except browse the frozen section.
Personally, I think the government should be investigating ways to raise income levels for the poorest. I don’t know what form this should take - UBI? negative income tax? - but fix that and the rest would follow for many people.
It’s not just that people don’t understand debt, it’s that the vast majority of people live in precarious situations which make debt a temptation. A little debt to grease transactions and buy assets is good, a lot of debt is a burning crises.
There are places where they didn't own anything. Decades ago I read that at some point each feudal lord coined his own currency for his peasants. If a peasant escaped, he wouldn't have means to take anything with him.
Same in Russia. A couple centuries ago, serfs came with the land. They could be liberated if the owner decided it. However, being a free man is quite difficult without a job.
OTOH, the article literally says that "data [shows] that those with lower incomes, lower education, and worse credit (redundancies here) are more likely to use BNPL."
Most consumer protection laws are somewhat patronizing, but since you can't be an expert in everything, we need them.
During the 2008 recession, I remember a woman who called in to one of the financial advice radio shows (Dave Ramsey?). She was talking about how her husband has been laid off and they were eating beans, tortillas and rice, and how i simply thought, "so you're eating....mexican food?"
That said, it's crazy how a burrito is $12 now and a two taco, beans/rice dinner at the generic Mexican restaurants in town is $16. This is peasant food that should be dirt cheap. Even the gray-market facebook food sellers want $12.
Now our world is all about maximum profit extraction. Interest.
How about no more public education, you get a loan for it. What, that's what your taxes pay for? Well, it's not enough, too bad. The masters say that you can't possibly pay enough tax to give your child an education. But they'll give you a loan for it, with interest.
Coming very soon to a reality near you. And I thought we were done with being peasants.
Also, in my personal experience, a new job often brings various costs (food, clothes, transportation, relocation, etc) long before the paychecks show up. There was a time in the early 2000s where being able to klarna a tank or two of gas until my paycheck landed would have been extremely useful to me
Credit is legitimate if you use it for an investment (or expense) which will get you higher returns than the interest payments. Not for luxury goods.
Whether a delivery burrito is a luxury good or a basic necessity is apparently up for debate.
I get the argument for pricing risk. That’s a genuine improvement on the state of the art.
I dont get NINJA loans, because they represent an unfair fight - a sophisticated loan originator and sales team against people without the background and skills to judge that risk
In the Western world, if you have a job but no savings buffer, it’s usually not due to extreme poverty—it’s often a lack of basic financial literacy.
Klarna, et al. market in direct opposition to that education.
The article makes the point that BNPL packages up almost the same product into a bite-sized, low-risk (for both the borrower and the lender) package, making it available to everyone. Indeed, that does sound like a good thing.
Most BNPL plans are not reported to credit agencies and therefore don’t build credit. But “financing” by paying with a credit card and paying the balance in full would build your credit, still with no interest.
They don’t because it would be a worse use of their $$.
Do you have any friends that earn minimum wage? Do you understand the societal incentives that discourages saving anything? Have you seen what happens to minimum wage earners when they try to save?
Our society enables a few different niches before retirement age:
#0: out of work. Discussing this niche be dragons.
#1: $0 balance - spend money as you get it. Discourage savings by training people that saving doesn't help them (fines, thresholds, societal expectations). Can spend ~2 hours wages on pleasure for your 40 hours work. If you care for kids or elderly parents then expect to spend most of your spare money or time on them. Make sure that society blames the $0 workers for their state by saying "if they only did action Z then all their problems would be solved!". Society doesn't really encourage action Z.
#2: working to pay off mortgage. Requires tenacity, skills and often luck. Society makes the jump from #1 to #2 very difficult. A mortgage is one of societies ways to force savings. Those savings often taken away later in western societies (through different ways, including demographics, illness and means testing).
Need to avoid: https://www.astralcodexten.com/p/come-on-obviously-the-purpo...
My two examples are:
A) a friend working 40 hours, gets 1 hour wages (~$20) to spend on themselves after their bills (they don't buy tobacco or gamble, they might spend their $20 on beer). Not academically smart, spends any windfall money on unnecessary stuff. No car. Now retired. I'm not sure what society could have done to encourage them to become financially savvy?
B) single friend on benefit to bring up kids. Missing partner little help. Government applies thresholds to income or savings that heavily discourage both. They were good with money before kids. Most spare money spent on kids. Also spent some money on unnecessary stuff like new carpet or societaly encouraged addictions (smoking and wine). Couldn't spend money on many necessities (didn't find much time or $ spare). Old crappy car. Now kids are grown, they are working and much better with their money again.
As a financially sensible person, I'm unsure how I could have taught either to be better off financially. Their societal incentives were not aligned with that goal. Others might say they lacked the skills or lacked the drive. I suspect they both have ended up being better off by not chasing financial savings.
The weirdest part is that I have wealthy friends that are not making better decisions.
I'm not sure what the root cause of wealth differences actually are.
Context: I live in New Zealand, and I am a financially well off middle aged guy.
But more to your point, your examples are absurd. You set the bar ridiculously high.
Of course it is okay to buy a single car or a single apartment on credit, as a normal consumer. Getting finance is not the exclusive domain of large, corporate investments.
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.
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.
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.
Quite a few YouTubers out there show you how to do it
I don't know what to think anymore
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.
Yes it absolutely is, and everyone involved is a piece of shit.
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.
> 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.
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.
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.
If you are seriously thinking about financing a burrito u should rethink some aspects of ur life
> 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.
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…
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.
"It's a win that I can extract money from people with lower incomes and lower education."
coolcase•14h ago
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•13h ago
The same ideas can work for other things, though it's easiest to apply to predatory behaviour.
mbStavola•11h ago
Not trying to be snarky, genuinely curious what the sales pitch is here.
ldoughty•10h ago
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.
apothegm•9h ago
TwoFerMaggie•2h ago