StockOpine's avatar
$21.5m follower assets
Buy now, pay later. Is this a bubble?
We came across the article on the link below and we wonder what could be the impact on firms like $AFRM $SQ $PYPL $AFTPY, if any.
Few notable extracts from the article:
“4 in 5 U.S. consumers use BNPL on everything from clothing to cleaning supplies, according to Experian, and most shoppers said buy now, pay later could replace their traditional payment method”
“When people start buying household goods on credit, that signals a problem.” Marshall Lux
“BNPL’s rapid growth is driven primarily by younger consumers, with two-thirds of BNPL borrowers considered subprime” Lux noted
“42% of consumers who’ve taken out a buy now, pay later loan have made a late payment on one of those loans, LendingTree found.”
“The financial watchdog said it is particularly concerned about how these programs impact consumer debt accumulation, as well as what consumer protection laws apply and how the payment providers harvest data”
Paul Cerro's avatar
Total bubble
StockOpine's avatar
@paulcerro you seem to be certain about it. Don’t you believe that there could be winners as well?
Of course, the extensive use could blow this up.
Paul Cerro's avatar
@stockopine there could be winners in everything good or bad. My problem with BNPL is it's just another way for consumers to spend beyond their means while being camouflaged as another way to incur debt. Big ticket purchases can usually deter someone from going beyond their means but when you're allowed to keep splitting payments, it drives reckless spending
StockOpine's avatar
@paulcerro indeed!
Alex Biestek's avatar
So instead of going into consumer debt with a single credit card, consumers are going into debt with different individual companies? Am I understanding this correctly?
Eric Messenger's avatar
@acb123 if they’re using multiple products; yes, most likely. They’re going to continue spending the same way that got them into the mess. I used one, to help repair credit. But I won’t use traditional credit cards so the one Sezzle card is all the credit I use for consumption.
StockOpine's avatar
@acb123 it seems to be the case. This could be scary unless there are limits and credit checks. Looking forward to see what could be the regulators reaction.
Alex Biestek's avatar
@acb123 Interesting...so essentially they're an alternative to credit cards? Seems like this will increase consumer debt even more so.
StockOpine's avatar
@acb123 it can definitely be considered as an alternative to credit cards.
Joey Hirendernath's avatar
I think so. Credit Cards are great businesses, and there is often a reason why there are barriers to getting one.

Loaning money to lower credit(fico) scores, or young people, sounds like a recipe for destruction.
StockOpine's avatar
@joeyhirendernath indeed. Unless, regulation comes in, to somehow mitigate risks. Of course regulation could hinder innovation of fintech companies.

To be fair some apps may charge late fees or restrict the use of the app if installments are missed and most apps have minimum and maximum spending limits, decided by factors such as creditworthiness, payment history and outstanding balances.
Alan's avatar
All BNPL is not the same. As I understand it, it is not possible to accumulate debt with Afterpay. They will cut people from their service if they cannot pay.

Also, I use AmEx and technically pay for nearly everything in ‘credit.’ When the bill comes at the end of the month, I pay it off. I don’t really see much of a difference, except that if I didn’t pay my credit card bill AmEx would charge me high interest on my increasing principal whereas Afterpay would just cut me off.
StockOpine's avatar
@prinzmyschkin we agree that not all of them are the same. Per our understanding, one drawback compared to credit cards is that not all of them report to credit bureaus, thus you can accumulate debt from using multiple BNPL providers irrespective if one cuts you off or not.
Alan's avatar
@stockopine understood. But I don’t know if it is right to say that you can accumulate debt at all on Afterpay. You can not yet have completed all four payments for various purchases but I don’t think this is debt exactly. Or if it is it is not the rolling principal and interest kind that really gets people in trouble. In that sense it is a good financial tool for people who are otherwise cut off from credit.
StockOpine's avatar
@prinzmyschkin true. it is not the rolling principal and interest but you can still get a 25% late fees. on the other hand, as you mentioned, it is a good financial tool provided that mechanisms are in place to minimise excessive spending and defaults.
Eric Messenger's avatar
I actually had to start using Sezzle (a BNPL brand that’s not public) because I didn’t want traditional credit cards. It’s not just that they help sub-prime credit risks; they help people like me who refuse to use credit cards.
StockOpine's avatar
@wall_street_deebo what’s your experience with Sezzle? Do you prefer their product vs the public brands?
StockOpine's avatar
@wall_street_deebo effectively you prefer to minimize overdraft interest, correct?
Eric Messenger's avatar
@stockopine honestly I was looking for ways to start repairing my credit a year or so ago and Sezzle offered a virtual BNPL card with a limit, 4 easy payments on purchases, and reported to credit agencies. I didn’t even know Affirm was public until like 2 weeks ago. Never even tried the others because I didn’t want more than one and Sezzle 100% satisfied my needs. And to answer the question above, it blew my mind seeing what people pay for Affirm. Was a total bubble at previous prices of $100+, that’s insane to me. Not sure why people pay higher multiple for relatively unproven companies that aren’t even profitable when juggernauts like Google are so cheap. Guess that’s why I’m never down in the dumps about the market. Not far to fall when ya roll like I do.
StockOpine's avatar
Thanks @wall_street_deebo . On a side note, Sezzle was acquired by Zip (Australian listed stock).
Eric Messenger's avatar
@stockopine 🤣🤣cool with me, I only used it to get the limit maxed. Haven’t used it since. Just need more “available credit”

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