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In Australia millennials, are allergic to credit cards. Credit card usage in that demographic is really low. Instead they prefer BNPL services as a credit mechanism. Banks have also responded and offer credit cards that don’t act like normal credit cards[1]

[1] https://www.commbank.com.au/credit-cards/commbank-neo.html

I'm an early 20s Kiwi zoomer, so somewhat similar demographic.

I don't have a credit card and see no point in it. I use a debit card for everything. I don't think most of my friends have credit cards either, but maybe they do and I don't notice.

I've received roughly $3000 in rewards from my credit card usage over the past six years. Not a life-changing amount, but not completely insignificant, either. I think the biggest thing that I've lost is data privacy, but I would think that debit cards incur the same cost. I've never used any of the benefits like extra insurance/warranty, but it's nice to know they exist.

Chargebacks on debit cards are also much more painful than on credit.

Assuming NZ is like Europe, the are no rewards thanks to fees being low due to regulation. Chargebacks exist but are not as strongly defaulting on consumer side; to succeed, you need real proof of merchant not holding up their side.

You do realise that you have paid that $3000 in higher prices, right? The credit card companies and banks are not giving you free money.

Interested to hear you elaborate.

It might be different in different countries, but in the US you do not pay additional to use a credit card. As long as you pay on time each month many credit cards have zero fees or interest. Rewards can range from 1-5 percent cash back, which does add up.

Now if you are making a larger point about credit cards increasing the general cost of goods across the board as merchants incur the cost and pass along to the consumer to maintain margin, sure, but that ship sailed a long time ago. The only reasonable reaction from the consumer is to leverage the convenience, protections, and float afforded by credit cards, while maximizing any rewards afforded by said cards.

> I don’t have a credit card and see no point in it.

If you use a credit card like a debit card (pay it off in full every month) it can be rewarding depending on the card. I make $75-$100 cash back every month on my credit card.

I assume you’re in the US given $ amounts. Outside the US credit cards are far less developed. A few offer some kind of points or perhaps promotional cash back for some period of time but there’s nothing like the level of competition between cards in the US.

Where does the $75-$100 come from? Is it that prices are generally more expensive, or is it a transfer from people who get into terrible debt?

It's mostly from merchant fees. This means that it's being paid by consumers who use other payment methods - but then, those come with their own costs.

It's a 1-3% tax on the merchants. This effectively makes doing business more expensive. You would think that prices in the US would be 1-3% higher than elsewhere in the world, but the "buy first decide later" carefree spending attitude makes for quite a different consumption landscape.

Credit cards in the US offer all kinds of perks. My card covers my purchase for damages or theft/loss for 120 days. This reduces the friction in consumption.

US card transaction processing fees are higher than in most peer nations. That creates a nice profit stream in the credit card industry in the US, which largely doesn't exist eg in Europe. It funds the points & benefits systems that cards offer here.

It's how Visa ($540 billion market cap) can be worth more than the world's most valuable banks (eg JPMorgan $453 billion), and has an almost unbelievable 64% operating income margin ($14.6b operating income on $22.6b sales). Visa has one of the greatest businesses ever conceived, it's almost nothing more than an intangible floating brand toll bridge (they do operate an enormous global processing network, their primary cost center).

And then there's Mastercard, worth $380 billion. And American Express, worth $135 billion.

It's how Capital One - a credit card issuing company in the US - can be worth more than Barclays and Deutsche Bank combined.

HSBC is a giant for example, the second largest bank by assets in Europe, and is worth $113 billion.

And although some might jump to the conclusion that Americans must be drowning in credit card debt, that's not the case. US household finances are in decent shape and have been for most of the past decade. The ratios of household debt and debt service payments vs disposable income remains at historic lows (lower than 50 years ago). US household debt as a total sum hasn't increased in the past 20 years inflation adjusted. It's the processing fees that keep the card industry thriving. The switch from cash to cards for everything here was a bonanza for the industry.

I don't even see the issue with debt, tbh. It's not like people aren't riddled with it in the form of taxes for their whole lives.

Some private debt on top isn't changing much in the end.

Barring extreme cases where people go on a spending spree, usually for mental health reasons.

Besides, rich people in Europe always leverage credit/loans/debt.

> US card transaction processing fees are higher than in most peer nations. … It's how Visa ($540 billion market cap) can be worth more than the world's most valuable banks

I’m sorry you are just wrong. Classic HN Dunning–Kruger.

Visa and MasterCard make their money two ways — network and cross-border transaction fees. For ordinary (non-cross-border) transactions, V/MC have a very small take, on the order of .1-.2%. The vast majority of the fees go to interchange collected by the issuing bank and then to transaction fees to the merchant acquirer (eg Square). Interchange is paid back out to customers in the form of rewards at very low (or zero) margin; issuing banks make their money when customers revolve on their lines of credit.

To me, the greatest benefit of a credit card is that I’m doing business with JPMorgan Chase’s money and not my own. When I got an alert for an $1100 charge at a home improvement store hundreds of miles from where I was currently located, the representative happily issued me a new card number and voided the transaction.

Meanwhile, when someone had stolen my Schwab checks from the mail and written themself fraudulent rent checks for several thousand, it took nearly 3 months to get the money back. And the account was empty at the time, but Schwab’s (unknown to me) overdraft protection helpfully pulled liquid from my investment account. A debit card like using checks. The bank cares way less about your money than they do their own.

This is obviously country specific and I don't know anything about the banking/payment environment in NZ, but here in the US credit cards offer a ton of benefit to consumers, so much so that it's almost always stupid to not use one.

None of the cards my bank offers seem that enticing: https://www.kiwibank.co.nz/personal-banking/credit-cards/rat...

It’s a shame the NZ market hates credit cards so much. In the UK they are widely accepted - as in I struggle to think of a shop that didn’t accept them. Including dairies and food trucks (thanks Square!).

Btw I find it weird that EFTPOS cards have no annual fee, but debit cards do, but some credit cards don’t (eg ASB Visa Light has no ongoing fees).

I sometimes have to pay £1 via card when in a shop activating a service like a monthly phone plan. The £1 is just to validate the card details I gave. They then give me a £1 coin back. I always pay with the credit card, even for such a small amount- because it’s the banks money, not mine, and the bank will always take care of their money more carefully than your own.

In New Zealand, the local EFTPOS network is basically a home-grown network that the major NZ banks established in the 1980s's and have continued operating on a shoe-string budget ever since. For the most part merchants only have to pay a low fixed cost to access the network, whereas customers usually don't pay a fee (as most banks either bundle free EFTPOS transactions in a fixed monthly fee package or even offer it for free entirely for certain account products).

Visa/Mastercard on the other hand has Merchants paying 1-3% of all transactions as well as customers paying an annual fee (usually around $25 or so for standard non-reward cards but can go up to hundreds of dollars for higher end cards) for many card products (so a tidy profit from the merchants as well as some annual top-up from the customers).

From a typical New Zealand merchant's perspective it doesn't always make sense to offer Visa/Mastercard if they can decide to only accept EFTPOS cards (which almost everyone in New Zealand has) and keep the 1-3% that they would otherwise lose to Visa/Mastercard.

Visa/Mastercard offer more modern benefits (e.g. Paywave) which is not offered by EFTPOS which I suspect is partly due to the fact New Zealand's EFTPOS network does not generate much of its own income (just the small fees merchants pay to access the network I believe) so they just continue with the minimum amount of investment.

Personally I have an zero-fee American Express card that earns Air New Zealand Airpoints. As a fallback at merchants that don't accept Amex, I have a Wise (ex TransferWise) Mastercard on my phone (for NFC payments) as well as a physical Kiwibank Visa card. When none of these are accepted I fall back on to my EFTPOS card which is more or less on par with cash in New Zealand. I estimate around 50% of my expenses are on Amex, 10% on Visa/Mastercard and the balance through EFTPOS with the occasional cash for markets and the like.

Kiwi here too, just one of the many in the UK. EFTPOS was great for its time, and yes the low fees are great, but I can’t but wonder about the security of a magstripe compared to a chip. Magstripes are long gone in Europe. Which reminds me- Revolut has great security controls, can enable/disable magstripe, so can disable until until you are in a shop that needs it still, like many places in the US.

That’s why I love Apple Pay (I’ve got UK & NZ bank cards on it, Wise & Revolut too). Now when going out for a local shop I often only take my phone and keys, no need for a bulky (or slim) wallet. Drivers license only if I expect to buy alcohol (and 90% of the time I could have left it at home).

Edit: Also to add, if the pandemic ended up hitting NZ the way it did in the UK/Europe/US, you would see a far higher uptake in contactless payments methods. I dislike touching pin pads now unless I absolutely have to!

>In New Zealand, the local EFTPOS network is basically a home-grown network that the major NZ banks established in the 1980s's and have continued operating on a shoe-string budget ever since. For the most part merchants only have to pay a low fixed cost to access the network, whereas customers usually don't pay a fee (as most banks either bundle free EFTPOS transactions in a fixed monthly fee package or even offer it for free entirely for certain account products).

Sounds exactly like Interac in Canada. Although nowadays I believe most if not all Interac debit cards are also co-branded as MasterCard/Visa debit. Which makes em usable online as well. (There is a Interac online but only a small small small handful of sites even support it.)

In Australia (Afterpay's home market), credit card merchant fees are tightly regulated (<1% for most transactions AFAIK), so 'cash-back' offers like the US don't exist.

Airline/Frequent Flyer point conversions similarly got nerfed, so much so it's better to cycle cards (credit worthiness permitting) every year to get a point bonus up front (e.g 200K points for spending $X000 in the first 3 months) than trying to earn that amount.

That's not the main benefit of using a credit card. The primary benefit of a CC is decoupling it from your bank account - if there is an issue, CC company will fight the charge for you and almost always side on your side.

I bought a pair of speakers costing $2500. I tried to reach to the company for a return but no one would answer. No phone, no email, nada. 1 month return deadline was coming up and I called American Express. Within literally 10 mins (no wait at all), I filed a claim and was done with it. 60 days later, I got the money back. Turns out that they couldn't reach them either.

Credit cards are more consumer centric than merchant centric and they're a huge boon to otherwise rampant asshole behavior from merchants. I also run an online shop and its a pain in the neck when someome files a charge-back, we just consider it as part of the cost of doing business.

In last 20 or so years of using an AMEX card, I've filed half a dozen charge backs. It's an amazing company, it's better than any other CC company in my opinion. They also have one of the highest fees and it shows why - their customer service is absolutely top notch - red carpet, the works.

That customer service is also paid for by the credit card fees they charge merchants in the United States.

Then why not us debit card? Chargebacks are also available and risk of ending with spiral of debt is removed.

(Yes, it is a real risk. Yes I know that you and me are not going to e so stupid. But I am not trusting this belief.)

Because at least if it goes wrong, the money being used isn't actually your money until you pay the CC bill. That $2500 is still sat in your account.

Spiral of debt is only a risk if you have no discipline.

For those of us that do have discipline, CC's are great.

In the US debit cards have terrible charge back, and even then, if the merchant doesn't follow through, you're the one who needs to fight for it, where as with a CC it'll be them doing the fighting.

If someone fraudulently or mistakenly charges my debit card $5,000, that's $5,000 gone from my bank account until I get it fixed.

If someone charges $5,000 to my credit card in error, I've got 30+ days plus to resolve with zero financial impact to me. If it doesn't get resolved in that time, I have the option to not pay the bill (or that portion of the bill), knowing that if the error is fixed, the penalties and interest will be waived.

Have you experienced that? There's limits on charges on debit cards, usually ~2000 Euros. Credit cards are higher but then again they also have the credit limit and won't go beyond that in most cases.

I haven’t experienced it personally, but I know someone who used a debit card for their utilities on auto-pay. Gas company said they damage their meter so they replaced it and auto-debited their account for $2,500. They had to borrow money from friends until it got fixed and the money refunded.

> If someone fraudulently or mistakenly charges my debit card $5,000

in my case payment will fail due to spending limits (though repeated small charges would go through)

In my experience, chargebacks with a debit card (in Europe) are a pain in the ass.

The banks themselves seem to be against it so they made me write emails explaining the situation, give the seller more time (1 month not enough) and then wait another few weeks for processing.

With a credit card (British), they just did it -_-

And let me mention how a SEPA payment means your money is gone unless the seller themselves agrees to refund.

Insurance, points, cashback, chargebacks. It's also a one month interest free float of your funds if you pay in full each month, meaning you earn some interest.

I know some debit cards are getting closer to credit cards in these areas but at least when I first got one, they were just plastic cash. You spend it you lose it, the bank won't support you with clawing it back.

> Insurance, points, cashback, chargebacks

The first 3 don't really seem to exist in relation to CCs in NZ, and wanting/needing to do a chargeback seems unlikely.

There are probably mild benefits to me having a CC over a debit card in NZ, but it doesn't seem to be anything like the US.

They do, although it's not a common feature for a basic credit card - for example, the BNZ Platinum Visa card comes with travel insurance, and you can either earn points or get a 1% cashback, depending on which reward scheme you choose.

Your comment inspired me to check out a bunch of other banks to see what the deal is.

It seems like a few of them have some perks like travel insurance, cashback or airpoints/reward points, but most of them have no or very tiny perks on their cards. A lot of the airpoints are also locked behind a minimum spend in the first 3 months.

For me personally even the "good" cards aren't that great because I just don't spend that much money. Though travel insurance would be nice once the world opens back up.

The better ones do have an annual fee, so also take that into account. But for us while we were travelling more frequently, the flyer points and insurance made it very worthwhile.

Chargebacks are useful depending on consumer protection laws. I'd guess in NZ they're less useful like here in Aus, but if you buy from foreign companies it can be a useful stick to wield as otherwise you'd have little legal recourse.

https://www.consumer.org.nz/articles/credit-card-chargebacks

Chargebacks atleast exist in NZ - this is what I mainly use credit cards for - if the company goes bust before delivering (or before you take a holiday etc), or the product isn't as described, or the company starts quibling about their unconditional money-back guarantee - the credit card company will pay (by law)

Protection with a credit card is so much better than a debit card. If you prepay for a service that is not delivered, then the credit card company will refund you.

You should check what's the difference if you get frauded. In Canada, with a debit, it's mostly your loss, but credit cards you can make a fraud claim and they will reimburse you.

That's my main reason for never using my debit and always using a credit card, to offset the risk of fraud.

In NZ there are some solid benefits to paying with a CC - I generally toss a direct-debit authority to pay it off automatically monthly.

I've got reasonable travel insurance protections when I pay with the CC, I get airpoints, and some chargeback options, as well as fraud detection. Additionally, it's been easier and more reliable to set up online payments with a credit card.

What's so easier about a cc for online payments vs a regular VISA debit card?

Sure do, I've got those on my NZ CC. Worth it for the travel insurance if you are travelling overseas etc. The points are hand too, usually cash them in for vouchers each christmas.

I read about this online, but it seems to be mainly a US only feature. Credit cards in my country have very very little benefits of using them apart from the usual feature of paying a lot and paying it back later. There is very little incentive to get one. Our banks are probably more risk-averse or don't want to bother with partnering with airlines, insurances, etc for points.

The principle is also using the bank's money, not your money. So you make a purchase and now you owe the bank. Unless I am very strapped for money or there is an incentive program, I see little use in using one.

> Insurance, points, cashback, chargebacks

Dutch here. We don't have points or cashback. Purchases are insured with standard bank debit payments as well, as are chargebacks. I do own a credit card but that is purely for the occasional (usually US) webshop that doesn't accept European debit cards, or as a backup payment method on vacation (my debit card once broke on vacation and my family had to send me money through Western Union)

Also you are paying for that insurance. People don't really dig into just how expensive creditcards really are because in many countries it's really the only way to pay for things online.

The only time I ever use a CC is when I'm dealing with an American company- because it's either CC or PayPal with them.

What kind of store doesn't accept "European" debit cards, but accepts credit cards?

Visa and MasterCard debit should work anywhere online regardless of origin.

Not sure about online stores, but renting a car in the US with a debit card is a pain from experience.

European (or at least Dutch) debit cards are not Visa or Mastercard. They are either Maestro or V Pay.

These cards don't have a 16 digit card number and CVV that you can in online shops and pay with those. This has the advantage that these numbers also cannot be "stolen" and then used by criminals to buy things.

Debit cards are really just for physical payment, where you either use contactless payment or by using a PIN. For online shopping, the shops talk to the banks by using an OAuth-like API that can be used to either pay once or set up a monthly payment. There's a few different of these APIs throughout Europe, in each country usually only 1 or 2 are used. Some examples of these APIs are: Bancontact, iDeal, Giropay and Sofort

European webshops usually only support the ones in the country that they are located in, and for all others they either support credit card or bank transfers (which are free and standardized within Europe). American webshops usually only support credit cards, so that's the most common reason for people to have one.

Ah, I see. Well, just get Visa or MasterCard, even in Germany it's very easy these days.

Errr depends on the area. Sometimes they have EC but not VISA and then you look like a cashless moron (I literally only ever have minimal 'not a vagrant' cash in France, and never use it, especially since they added touch-pay for <20EUR and increased it to <50EUR during first lockdown).

Points for most people are a zero sum or losing game.

I worked for a points loyalty program, and the customer always pays. The bank knows their market well, they know the redemption rate of points for different demographics and they set the annual fees on points earning cards appropriately.

For a small number of very diligent points hack customers, the bank loses money on this and the customer wins. For a larger proportion customers get back roughly what they paid in fees.

Then for the remainder the points eventually get written off or redeemed for value that is far lower than the fees they paid.

It’s so painless on the Apple Card. Automatic x% back into an Apple Cash account depending on the specifics of the purchase (phone vs card, Apple store vs other store).

When you pay off the card, it can automatically debit the Apple Cash account first. Basically all my purchases are 1% cheaper on that card than my other ones. Sure, spending $9,900 instead of $10,000 doesn’t sound like much, but it’s painless free money.

That "free" money comes from fees paid by the seller to the credit card company, and is passed along to you in the form of higher prices. Unfortunately, paying cash seldom lets you opt out of these credit card driven price increases.

That last part is what makes "free" vs. "well not actually free" functionally identical.

Are you talking about credit card loyalty programs? Because those are definitely not zero sum for consumers as merchants for pay them.

In the US at least, no annual fee credit cards offering cash back or points are plentiful.

You can do chargebacks on debitcards and you've been able to for at least 20 years.

Some banks might ask you to contact a merchant before trying a chargeback, but if you don't get your money back the bank will either do a chargeback or cover the cost (as they do with fraud).

Most of those things are US only as in most other places the fees are much lower so there is less money to give back. Free float is worth very little when interest rates are about zero. Insurance is a benefit in most places still.

When I lived in Singapore, I got an American Express cashback card with 3% cashback on the first $5000 and 1.5% unlimited cashback for everything > $5000. They waived the annual fee and there was no minimum spend.

Another card(the annual fee got waived too) gave me free access to the airport lounge in Dubai, which was great, because I could get a free meal, free drinks, and take a shower during my layover.

I'm in the UK, and use one (IMO) sensibly. If there's a larger purchase I'll often find a 0% credit card and use that, then pay back. I only do this for stuff I could afford to pay back immediately if required.

Secondly, I'm not sure outside the UK, but we have something called Section 75, if I buy something and spend just £1 on a credit card, they are jointly liable for compensating me if something happens. If I'm buying a car, or large purchase I'll often pay £100 on a credit card just for the extra protection.

Using a debit card online is not wise. If there is an issue you could end up with an empty bank account temporarily. Much better to be able to deal with such issues when you get an invoice at the end of the month.

And the merchant get fleeced even more

Interesting product from CBA. Doesn't afterpay act more like a loan? From looking at this it looks like CBA is trying to get people to splash their money and manage the payback themselves. Those management fee's are also based on the idea you can get the card paid off in the month (CBA also use a rolling bill day. so they have a 30 day month and a 25 day payment period for that month. And those details are pretty opaque to newbies with cards. ).

You're effectively paying a somewhat high interest rate. From the looks of it CBA's low interest card would be comparable or cheaper if you were young and held a bit of rolling debt. And right now they have 15 months interest free on their 'low' rate card.

I think the difference that's better for afterpay customers is being able to have your purchase chunked into installments, effectively making it more like lay by.

Also, cba should have made it black so it didn't look you were holding a learners plate credit card.

Our Australian banks are lazy.

Black is reserved for their premium card. NAB have a similar product https://www.nab.com.au/personal/credit-cards/nab-straightup-...

Yes the chunking into 4 payments, is the primary benefit of BNPL. It allows you to buy something significant (i.e. a laptop) and spread the payments over time.

The downside is its very easy to overspend and get stuck in a debt spiral

If someones cashflow is pushed to the edge with BNPL purchases it's so easy to get toppled over by an unexpected emergency. It really is quite scary thinking about it. Is it financial irresponsibility causing people to overextend themselves and their cashflow on frivolous purchases, or is it out of necessity and a wider issue such as poor economy / job market / wealth distribution causing people to turn to these services? - Either way, they feel rather predatory to me...

> Doesn't afterpay act more like a loan?

Yep. Buy-now-pay-later services are just short term loan providers. Part of what they're selling to merchants is the fact they are regulated as lenders. We use Klarna in the UK to offer BNPL for exactly this reason, even though we could likely offer it ourselves.

Maybe I’m wrong but I have the feeling that credit cards as a norm is really just an American thing. In Europe where I live, I know nobody who buys anything with a credit card or barely if there is a 0% rate promotion. Credit cards do exists here but they are the card some shop gave you for whatever reason that you’d better never use.

What is interesting is that we use the term « credit card » to speak about our debit cards so I needed a long time to acknowledge that in America, Credit cards really meant that you paid your coffee with a real credit and not with your money.

> In Europe where I live, I know nobody who buys anything with a credit card or barely if there is a 0% rate promotion.

Do you live in Germany? Here in Norway credit cards are quite common for various reasons (safer to use online, pay later, bonus points).

I use one in Germany, but only for the cashback and other promotions, I pay 100% off every month (automatically).

> In Europe where I live, I know nobody who buys anything with a credit card

Renting a car or making a hotel reservation without a credit card can be quite painful, even in Europe.

With a credit card the deposit is held on your card but the money never moves, with debit the money is gone from your account.

Renting a car or making a hotel reservation without a credit card can be quite painful, even in Europe.

I have lived in Europe basically my entire adult life and have never had a problem doing either of these with a debit card.

Myself and most people I know (early twenties) use what the banks give by default which is a "Debit Mastercard/Visa" which lets you shop online like a credit card, perform chargebacks, or pay in-store, but the money just comes out of your savings account like a debit card - not on credit (they get declined if your account is empty too AFAIK but haven't tested it ;P). Are these common overseas? I rarely see reference to it on here or Reddit which is presumably predominantly people from the US or Europe.

This is very common in the UK.

Those are what the vast majority of people in Germany use (mainly our own girocard network, but MC/Visa debit are big as well)

Well yeah, most cards in Europe aren't 'credit' who would want that. If you want a credit, take a loan... Or use the store-financed 'free payment plan' for a fridge or a dishwasher...

One thing we have is deferred payment (usually 1 month). And looooooads of credit companies...

Some payment cards here (usually with 'store points') are with 'revolving loans' which is considered quite predatory... Wouldn't want to touch this with a space-elevator-sized pole.

Uncommon in the US as most major credit cards give you "rewards" for using them which amount to 1-5% off every purchase.

Debit cards are used almost exclusively when credit cards are unavailable.

> they get declined if your account is empty too AFAIK but haven't tested it ;P

Not always, at least some banks will allow you to go into overdraft and then charge a fee (e.g. $15 for Commbank) - so it's worth being cautious about running out.

I remember miscalculating and going into overdraft by a very small amount (e.g. a dollar or two) and then being slugged the overdraft fee - I would've much preferred the transaction to be declined, but that isn't/wasn't the default behaviour.

For example: https://www.commbank.com.au/support.banking.explain-account-... -> `CommBank may allow you to overdraw transaction accounts for the following payment types... Spend using your linked CommBank card`

(It used to be enabled by default with Commbank, not sure if that's still the case; but I'd kinda guess "yes"...)

Thanks for the info. I'll keep that in mind

As a foreigner in Australia, I can't help but to think that Australians really don't know how to handle finances and are too irresponsible to use a credit card, so Afterpay and Zip stepped in.

Maybe it's because I grew up in Europe, but "Don't buy it if you can't afford it" has served me well. The majority of people I know just use credit cards for the perks but never miss a full payment.

Actually, the biggest afterpay's market is in US.

Oh wow, I didn't know that :)

I’ve lived in Australia for 10 years and still cannot believe how flippant people here seem to about getting into debt. Tens of thousands of dollars of credit card debt, a mortgage covering 60% of a salary, and a leased car seem to be fairly standard for a lot of my peers. It feels like they’re all 3 missed months of salary away from having absolutely nothing. Obviously all anecdotal but still astounding and probably not too uncommon here in Sydney.

Other than mortgage (and HECS) nobody I know uses debt - Australians love second hand cars

So basically it's 90+% of debt for housing (scroll down to the pie chart):

https://www.finder.com.au/australias-personal-debt-reported-...

I'm including 'Investment debt' cause who are we kidding? It's all investment properties.

Feels like that chart is slightly misleading - it’s easy for credit card debt to appear to be low when there are so many high value mortgages. $20k CC debt is only 2% of the value of a $1m mortgage.

huh? plenty of brokers offer margin trading at decent interest rates.

Compared to what?? Canada?? The us?? Uk???

Sounds 100% like America. :-/

I'm not American, so I have less insight than you perhaps, but I'd say America is much more affordable than Australia. In Australia most jobs are in Sydney and Melbourne. Perth is mostly for mining and Brisbane doesn't have many tech jobs.

Real estate prices in Sydney and Melbourne are in the million(s), but incomes are ~100+k AUD. Some people earn 200k+ as a principal engineer, but that's pretty much it.

In America you have much more cities where you can find a decent job and different lifestyle. If New York is too expensive, you can move to Raleigh, NC. I don't think that exists in Australia.

There is also a very low degree of innovation in Australia, it's all related to real estate and mining.

Personally I just feel like it's not worth building a life here unless you get a large inheritance, but for an immigrant, America is a much better place to build a future.

I think you're underselling Sydney a bit there - there is a google campus, Atlassian, and a lot of finance companies offering high salaries. Not SV level, but pretty close.

Melbourne is pretty decent for high end tech jobs, but not as good as Sydney.

Certainly real estate is extremely expensive and broken, but it's not like New Zealand where the real estate is almost as expensive but the pay is much lower. I had to leave for this reason - New Zealand's housing crisis is much worse in real terms.

> a lot of finance companies offering high salaries. Not SV level, but pretty close.

How close? let's say AUD 300k (I'm honestly curious, does Optiver/Atlassian/Google even pay that much here?) which is a mind-blowing salary in Australia, tops all kinds of taxes, it converts to USD 220K give or take, adjusted for higher taxes and cost of living, down to about 200k.

So a top earner 0.1% in Sydney makes as much as a strong 3 yoe engineer in America.

SRE's in Sydney are on $250,000K for Google, + equity.

I’m not overly familiar with US salaries but it looks to me like you’re comparing net salary for a high paid job in Sydney, to gross salary for a FAANG role in SF.

Presumably they have to pay taxes and have a high cost of living as well :)

I don’t know how accurate it is but the 2020 SO developer survey puts the median salary for an engineering manager in the US at $152k and an SRE at $140K.

In my experience that’s maybe slightly higher than going rates in Melbourne and probably about the same as Sydney.

200k is like a low base for FAANG, and there are other great companies that pays well not just them. It is a good salary in America but not that impresive, as you can get that by just being an individual contributor.

On the other hand, AUD300k is a C-level salary here in Australia and way past the start of top tax bracket (AUD180k)

SO numbers are way off comparing to levels'. They're heavily skewed toward the low end. Think about it, who even bothers reporting salary there? I don't even find SO useful in general, these days when I look up an issue I usually end up on github, not SO.

Senior engineers at Google Australia can make AUD 300k total comp. You don't have to be C-level.

doesn't seem to be ordinary level though, on levels > Australia, the number of entry points above 300k fits in the first page (10 people).

The point is, in AU, making 300k is a really big deal (high rank in FAANG), while it's far from a big deal in the US.

I dunno looking at the SO developer survey most respondents were reporting 5+ years experience.

Out of interest I had a look at roles advertised on indeed.com in Atlanta and SF for SREs and data scientists. Estimated ranges seemed to match SO survey results reasonably well.

Maybe both just have bad data.

I don’t doubt that there’s some great tech salaries on offer in the US but I do suspect the massive salaries reported here aren’t necessarily representative. Nor of course is 250k/year in Australia.

Is it possible you don't like living in Australia and that may be making you a bit myopic? You are talking about Australian's cavalier attitude towards debt and issues with housing affordability in the two most expensive cities in the country whilst imagining other anglophone countries being better.

Look at property prices in Vancouver and Toronto, New York and San Francisco or London. You're going to find them just as unaffordable relative to the median salary. The difference is that for you personally - a worker in tech, the US will likely pay you a better salary relative to the median than you receive in Australia.

Brisbane has plenty of tech jobs. I'm netting $250,000 inc bonuses as an SRE and the markets rife for oppertunity.

Not FAANG either.

woah, you guys have any openings?

What sector are you in? According to linkedin and glassdoor senior engineers in Melbourne earn between 110k-160k. 250k is very high.

SREs are usually higher, up to about 180k last I checked, with the market getting really hot in the past 12 months, I would not be surprised if that number's passed the 200k mark now.

250k for non-contracting is indeed impressive. I'm guessing a trading firm, in that case, they are outliers, curious if they have presence in Brissie though.

We're not a trading firm. Relatively small company, 7 software engineers including myself. Around 60~ staff between the Continental US and AU/NZ.

We're in Brisbane.

props for your employer to build a lean bussiness that can sustain paying bank to engineers, and for sharing the profit. This is a reminder for myself not to overlook companies like yours

I was as shocked as you are when we started talking salaries.

Thought I'd interview because I was getting sick of the old job. Wasn't intending to start actively looking.

External recruiter approached me on LinkedIn, had an interview with her, another 3 interviews with the company. No leet code nonsense. Did do a personality and IQ test though. And a problem solving excercise which involved troubleshooting Python and SQL. The final interview followed by a group chat with the whole engineering team.

Honestly the whole interview process was really enjoyable. I'm stoked to be here.

That said, I've worked for small companies in the past. Two in fact. And they both hold the rungs for second worst and actual worst companies I've worked for. With this new company though they also hold the top! But it's early days. So far so well.

This was all in March/April too. Quite recent.

250k net means ~230k + super? Is this contracting? And may I ask your rank in org?

$150k salary, 10% super and the rest I get in bonuses.

The bonus break down is:

10% of my salary paid quarterly if I hit my targets and I get around 0.9% profit sharing.

My position title is just SRE. Same rank as the other engineers.

CEO > VP of Engineering > All the SWE/SREs sit here

Are you SRE in a tech company or a non tech company (e.g. Bank) ? Are your targets financial or technical (e.g. RTO,MTTR, SLO etc.)

Yeah, tech company.

Targets change quarter to quarter and are what ever I and my Manager/VP decide.

Typically the targets are technically focused. E.g. product needs in the next 12 months require specific SLO/SLI's being met, in addition to some future customers who we're looking to onboard require us to be compliant in certain security standards. Those are my goals for this quarter.

Except that Australia doesn't have a broken migration system so actually getting a visa is much easier. Also no broken healthcare system, gun laws or student loan crisis. I'd rather raise a family in Australia than America.

Ding ding ding. Much easier to get family migration visas too. Multiculturalism is a lot better than other comparable nations.

Think of house prices as reflecting the "price of living in Australia".

Ironically, Australians have access to a special kind of visa that allows them to migrate very easily to the US, with work rights for your spouse and everything!

https://en.m.wikipedia.org/wiki/E-3_visa

E3 is not for migration purpose, does make the jump easier at the start

The flip side of this is that:

1. As long as your LVR isn’t too high your interest payments on a home loan will probably come in well below what renting an equivalent house would cost. Further rent will generally rise over time with inflation, whereas your interest will decrease to zero over time as you pay down the loan.

2. If you’ve got a home loan with a 100% offset account (very, very common in Australia) then a credit card makes financial sense. I purchase everything on credit and pay the full balance each month. I pay no interest, earn points and this maximises the amount of money in my offset account at any one time.

3. Depending on your usage and tax situation a noveated lease (car lease) can make good financial sense.

These are all entirely correct.

The thing worth pointing out that explains how both this, and the person you are replying to are correct is that in Australia we haven't had an unemployment crises since the 1990s.

If you have never seen unemployment, and can't imagine not having a job then arranging your affairs for tax efficiency makes perfect sense, even if it means you are carrying more debt.

Australia has gone 20+ years without a recession, meaning many people have grown up without ever seeing anything except full employment and house prices going up up up. It's thus been a "safe bet" to leverage yourself up to your eyeballs to get on that "property ladder", and while many (including myself) thought this would finally pop last year with COVID, nope, after the briefest hiccup the property market has gone even more nuts this year.

That's likely a combination of extra money being printed, maybe people doing more remotes and looking for better houses, government schemes to prop the house prices up (eg. by slashing taxes on property).

There is still time for a pop once governments decide things are normal again after covid.

> There is still time for a pop once governments decide things are normal again after covid.

While thats true on its face, in practice trying to make that bet is a fools errand at this point. People have been telling me that for a decade plus, now. It still hasn't happened, and the Australian economy (and household wealth) is inextricable intertwined with real estate -- I can't see any government deciding to let it "pop", personally.

If you were to use one word to describe governance in Australia, it would be reactive.

They won't let it pop, but that doesn't mean it won't. Of course, timing it is the big bet, not predicting if it will happen.

As a naturally risk averse Australian it's been incredibly frustrating. Even 15-20 years ago I was thinking this can't keep going. Turns out I just should've invested everything I own.

People need to be much stricter on what they mean my "pop".

Australian property prices are cyclic with an upward trend. There are (substantial) cyclic decreases in prices, especially in Sydney[1].

But people who talk about "popping" property prices seem to believe there will be a massive (50%+?) fall in prices.

But there are fundamental reasons why this is unlikely. The 2008 GFC causes a 16% decrease in prices in Australia[2], and it's hard to imagine something being worse. Prices recovered 10% the next year, because Australia avoided a recession and there is fundamental demand for living areas in out major cities.

The GFC caused a 18% decreases in prices in the US[3]. Given that Australian mortgage rules are different (there is no ability to walk way from a mortgage in Australia, unlike the US) it's unlikely a bubble in Australia will "pop" worse than that.

But 10% decreases occur relatively often. For some reason these are ignored, but the truth is these are the "pops" that take the froth out of the market.

[1] https://cdn.propertyupdate.com.au/wp-content/uploads/2021/03...

[2] https://www.theguardian.com/money/2009/jan/06/house-prices-f...

[3] https://money.cnn.com/2008/12/30/real_estate/October_Case_Sh...

By "pop", people mean something like the impact of the GFC on many parts of the US, where houses were underwater on their mortgages and getting repossessed left and right.

There's also reason to believe that the Australian property market has decoupled from the rest of the economy, and that's because tax breaks like negative gearing incentivize buying properties even when it makes no financial sense otherwise. This could change overnight with the stroke of a pen, but it would take an awfully bold politician to do it.

If you look at interest rates from 1990 to now, and average household debt, it's easy to see why the economy has been up up up up. People have been spending way more money than they make for 30 years in Australia. That will make any economy boom.

The difficult thing is... when does it stop? The above could have been said 10 years ago, just replace the 3 with a 2. Should it have stopped then? Now? In 10 more years?

That type of economy (powered by extreme consumerism beyond the customers’ means) isn’t unique to Australia. It’s only sustainable so long as the target population continues to increase (kind of like social security). The forecasted global population drop that will hit home in the next 15-20 years is going to completely destroy economies propped-up by fake money.

It's not unique, but in the first world Australia has gone from being ranked one of the lowest in average household debt in 1990 to one of the very highest in 2021.

It's not fake money. It's likely not even "beyond means". The debts can likely be paid back. But it seems quite unlikely the level of spending can continue to grow.

It’s fake money in the sense that, assuming people aren’t in over their heads with loans they shouldn’t have been approved for, everyone is fully leveraged at some multiple of their monthly salary. In that regard, the present is fully leveraged taking a debt that the future will have to pay back, and it can only be pushed out indefinitely so long as the economy continues to grow. That’s regardless of GDP: it can be - and this is what people futilely speculate when it’ll hit - because the economy took a turn south (GDP looking only at the working-aged population drops) or, as mentioned above, even if the economy is doing spectacular on a micro level and GDP (again calculated only against working-age population) is up, but there simply aren’t enough cogs in the machine to keep it spinning at the same rate it was before.

I agree that Australia's economy is propped up by continued ion growth, a giant pyramid scheme if you'll excuse the hyperbole.

However Australia has such a large amount of land, and such a small population that forecasted worldwide population drop won't affect Australia so much. It's such a desirable place to live that immigration at the current rates will be sustainable regardless of the rest of the world's population growth rate. Whether or not our cities can keep up with the growth and maintain their high levels of livability is another question.

I'd also question your statement about population drop on the next 15-20 years. All forecasts I have seen are that the world's population will continue to grow until the end of the century. If the world's population were set to start shrinking in such a short timeframe, I'd think it would be a huge talking point in any discussion about sustainability and global warming.

15-20 to start feeling it in the most developed nations, end of the century worldwide. Immigration can stall the former but current policies are not promising. Germany will sing songs of praise in Merkel’s name.

Well the sooner countries can start to transition to an economy that is not reliant on perpetual population growth the better.

I am always amazed at news reports from Japan about how the sky is falling because their population is shrinking. For some reason no one ever says "on the plus side, Japan is one of the most densely populated places on the planet, a slow decrease in population will help improve quality of life measures and sustainability".

In other words, aging society is the problem, and shrinking makes the problem much worse. Fixing the problem in ethical way is difficult.

Ironically, Klarna, a Swedish-founded company, is pretty big in the BNPL market

according to https://www.marketwatch.com/story/the-buy-now-pay-later-wave...

"In Sweden, home to BNPL provider Klarna, installments accounted for 23% of e-commerce transactions last year."

Sorry, I should have said Germany instead of Europe since the European market is pretty diverse.

The German word for debt is schuld(Schulden), which has the same meaning as guilt and is associated with something bad.

Unsurprisingly, the same word in Swedish is skuld, with the same double meaning.

As an Australian living in Germany I've got to point out that finances in Germany are just as dysfunctional as Australia. Just in completely opposing ways. Both are a burden on sustainable growth and development.

For some examples of Germany's issues it's worth looking at the weak state of retail banking (Deutsche Bank / Commerzbank proposed merger), and the financial scandals.

The Germans are so spooked by debt they rather hand the debt to weaker countries even though the German economy can sustain much higher debt levels than their neighbors. It's completely backwards.

Klarna is huge in the UK too.

I'm inclined to believe another commenter who suggested that millennials and younger don't really like credit cards, and this is a different way to get a similar thing – better cash flow.

Being responsible is a tough call give that institutions in Australia charge enormous interest rates on credit cards, typically 20%+. I find it staggering that they can get away with it actually. Regardless, many (less ‘responsible’) consumers get burnt by this and spend years paying down debts, so I’m not surprised these BNPL players have seen such success. Also they’ve done well appealing with younger consumers. How though I’m not sure exactly, is it a mix of attributes like mobile first product and the simplicity of accessing credit compared to traditional banks or is there something more overarching?

>institutions in Australia charge enormous interest rates on credit cards, typically 20%+.

I think that is the case as well in the US. Credit card interest rates are atrociously high. Which makes it difficult for people who get caught in the CC debt-loop to get out.

For the first couple years of operation afterpay had no credit checks and no identity checks.

I've just come to accept that I'll never understand corporate finance. Based on the data I could find, this works out to a sales price of about 76 times revenue for Afterpay. Even for a fast growing company, how can they ever grow into that valuation? Of course, it's an all stock deal, so perhaps it's better to just consider what percentage of Square they're giving to Afterpay stockholders, but I still just can't wrap my head around these prices given the revenue numbers.

Acquisitions are priced on speculated future potential after acquisition, and thinking about the potential cost of acquisition by someone else, not revenue today.

We're in a gigantic bubble

There have been tens of trillions of dollars and other currencies created from thin air the last year and a half. And more is being created currently. This isn’t just the US government. It’s basically all governments in the world.

EDIT:

Fed has been purchasing 120b of assets per month https://cheddar.com/media/federal-reserve-to-keep-up-asset-p...

Federal government has spent at least 3.5 trillion on COVID-19.

EDIT2: More like 8.6 trillion. 2 trillion added by the bills passed early 2021.

https://datalab.usaspending.gov/federal-covid-funding/

That is the US. Then add all the other countries in the world.

That much extra money chasing the same amount of the goods and services, investments, etc…

So either we are in a bubble or currency has been devalued.

EDIT3: Fed spending is about 25k per person in the US.

> So either we are in a bubble or currency has been devalued.

¿Por qué no los dos? Seriously, to me it looks like we were in a bubble even before COVID, and that has now been juiced up by all the newly printed money sloshing around.

Yeah, possibly. There are most likely multiple, overlapping things happening at once… some inflationary, some deflationary, etc…

You can see some of this in the prices of things like real estate.

I said that the other day and someone just replied snarkly "Trickle up economics".

That's like saying Thermodynamics is trickle up Chemistry. There is value in looking at macro-ecomonic concepts especially when it comes to government spending, federal reserve interest rates and inflation.

One of the weird things about trickle down economics is that the rich's favorite past time is earning more than they spend. Basically the entire thing is built around the idea that dumping money into a portion of the economy that doesn't have to pay taxes is good while ignoring that this money was created through debt which eventually is converted to government debt through various means. When the debt burden grows, tax revenue has to go up as well but you are sending all the money into a no tax black hole meaning the tax revenue vs debt payment ratio gets out of whack.

How is this supposed to work again?

I'd consider "Trickle up" anything that creates full employment. If employees are earning more money they pay more taxes. It kind of does work precisely because the tax burden is so high.

You're right it doesn't make sense, this isn't normal corporate finance. Its dotcom funny money.

Hopefully they don’t intend to let Afterpay’s market stagnate in complete isolation, otherwise acquiring would make less sense.

If they can take Afterpay’s product and scale it to their customer base and beyond, that should be worth it.

Other potential reasons for high multiple:

- Acquirer sees huge growth and thus a reasonable PEG ratio

- Acquirer wants some key market they have been unable to win themselves

- Acquirer wants some key technology, patent, or engineering know-how

- Acquirer wants team that has achieved something impressive to apply to acquiring company's own product

- Acquirer wants to absorb client base with higher growth than they have internally

- Acquirer has M&A execs who cant get promoted without deals

- Acquirer has inflated stock, so the cost is only relative to this inflated stock while the stock remains inflated

The acquisition is entirely in stock, so very little actual cash is changing hands.

According to the Afterpay investor relations site, Afterpay's gross revenue for FY21 (ended June 30, 2021), assuming constant currency exchanges rates, was $978 million AUD [0]. If you subtract out the first half of FY21's revenue ($385.2 million AUD) [1], we arrive at an implied revenue of $592.8 million AUD for the second half of FY21. Convert that to USD (USD$1 = AUD$1.36) and we arrive at an annualized revenue run rate of ~$871 million USD.

Which implies an acquisition price of ~33.3x gross revenue. Which is certainly a lot better than 76x ratio. Moreover, that growth rate is ~53.9% ($592.8 million / $385.2 million) over the prior half-year which is truly astounding growth.

[0]: On https://corporate.afterpay.com/investors/asx-announcements, go to 'ASX Announcements', then find the 'FY21 trading update' dated 2 Aug 2021, $978 million is on the second data column of the second table on the first page.

[1]: On https://corporate.afterpay.com/investors/asx-announcements, go to 'ASX Announcements', then find the 'H1 FY21 Results Announcement' dated 25 Feb 2021, $385.2 million is on the fourth data row of the first page's table.

The profit margin per "Revenue" dollar is so small for a payment processor it always seemed like a strange metric to value a payments company on for me, as they are essentially just a middle man for this "Revenue" taking it from the customer and giving it to the merchant. Afterpay does typically have higher merchant fees than a regular CC gateway tho

Afterpay aren't really a payments processor in the typical sense though, their business model is nothing short of genius tbh. They've set up a non-traditional 2-sided market connecting consumers + merchants, allow consumers to pay the MERCHANTS back over 4 installments and collect a 5% fee on the way through as well as any late fees (remember they're not taking on the risk here either)

This feels similar to the United States credit card market where there’s a 3% fee paid for by the merchant and thus a lot of opportunities to “reward” customers, and an incentive to keep things status quo.

Afterpay bears the credit risk, not the merchants. Search for the keyword "net transaction loss": https://afterpay-corporate.yourcreative.com.au/wp-content/up...

They take like 5% of the money. That's pretty dang significant.

Even in the Release I was shaking my head. They have 100,000 merchants that seems tiny? I could understand buying market share but at some point don’t you think Someone could tell Jack “hey we can probably build this feature for a few bucks less than $1B. Might take a year or so but we can save a few bucks maybe”

I mean at some point don’t you have t

I don't think building the feature/product is the challenge here. Signing up all those merchants and convincing them to on-board is going to be time and resource intensive. That is what they are buying.

Every time I see one of these announcements, the valuations go up and up and up and up. I remember not long ago being wowed by a 1B acquisition. That was called a unicorn because of how incredible it was. And now we're at 29B. Is this just because money is all a joke?

Kind of? If you follow monetary policy circles, you would know that we are only close to the predicted level of fantastic market distortions that should be expected.

It is fantastic to see it play out, such as valuations much larger than before, as well as the unexpected areas of speculation and shifts in market tolerances for worse deals.

But we aren't even done yet! And this comes with a pretty clear agreement on the limitations of monetary policy, like we know massive central bank balance sheet increases don't accomplish their [stated] goals well. But we also expect central bank balance sheets to increase by further distorting the market. When central banks purchase things, whoever they bought it from now has money that didn't exist before the transaction. This money doesn't "trickle down" into the economy, instead it more so pools with these people that are active in the capital markets, and they are trying to figure out how to make more of that money faster than the central bank buys and creates more. So the only way to do that is to attempt greater and greater deals. Because there is nothing else to buy - the central bank already bought the "good investments" (bundles of mortgages, treasuries, investment grade corporate bonds, even some junk bonds) and is also looking for more just like you are! So now you have to take greater risks, maybe this $29 Billion deal that the central bank won't try to get in on!

The conundrum is that now the capital markets are expecting the central bank to buy everything, especially the dips. (most central banks don't buy stocks, but when they buy fairly illiquid bonds from people those people often buy stocks. in US a lot of the stimulus money came directly from the central bank after Congress modified its charter to give currency directly to people in exchange for nothing, and the recipients also bought stocks. the same sentiment is distributed in all socioeconomic classes even the top 0.01%.). So if the central bank gives a hint at reducing purchases (called "tapering"), the markets crash, and the central bank is strongly advised to continue!

The stated purpose is to get people to invest in "main street", instead of just the same small collection of assets. Turns out, it doesn't matter and nobody wants to invest in random entrepreneurs. The market is signaling that it would rather pay to not invest in randoms (in many parts of the world, government bonds have a negative yield, which means people are paying to own a bond while also further losing on inflation). So if you do have access to the capital markets due to your pedigree or network or net worth, the stuff you sell - your company's shares that you typed up on a sheet of paper, or whatever - will have a much higher valuation because other people have nothing else [eligible] to buy and need to put their money somewhere!

The US is the strongest hold out on negative interest rates, and is the largest market too, so the anticipation of the "season finale" is that the US gets to that territory as well, and then we really get to see some fireworks in the market as it is a major psychology barrier as well. Watch the 2 year and the 10 year treasury rates, as they are seen as having the most liquidity and trading activity.

https://www.treasury.gov/resource-center/data-chart-center/i...

As you can see they are really close to 0% right now, for a prolongued period of time. Getting to this negative stage requires SOOOOooooo much infathomable amounts of money, hoarding government bonds. But the central bank is the main purchaser of these bonds, from both the treasury and private owners on the secondary market, as they buy they push the yields closer to zero. (bond price increase = lowers yield)

fun times ahead! expect greater valuations and quick!

+1. This is the real comment about the situation, because the valuation is so 'ridiculous', it almost makes the nature of the business activity secondary.

For non-financial folks, dust off the little equation you may have learned in high school, where you value something that goes out forever, but where the rate of growth is higher than that of inflation and the risk-free cost of capital. It goes to infinity. So as interest rates go down, valuations grow. But as interest rates really get low ... the valuations vault into the stratosphere.

Only in a weird universe can we really expect these companies to grow at those rates for very long periods of time ahead of absolutely everything else without much risk.

So the discussion is really about markets, less so local types of consumer payments.

What would you recommend to read/watch to understand better this kind of things?

hmmm, not sure, at this point I think you would be better off using what I wrote as a summary and hopping in to current events

Matt Levine’s writings on Bloomberg occasionally go into macroeconomic territory, he has a facetious and satirical approach to current events in capital markets

There are a few other sensational editorial publications about macroeconomics and credit markets, but I wouldn't recommend them for actually learning

Sadly, I think this leaves a void between dry material, and sensational disinformation sites

That's part of it, but it's concentrated around certain sectors (technology and startups) There is x5 ~ x10 premium being put on these companies compared to others.

Valuations in other sectors are still somewhat reasonable.

Yeah, I think the "unicorn" bar needs to be pushed up to $10B at least, because of inflation. It's very rare though, but fintech seems to hit it frequently.

Perhaps finance people have less money raising money. Or perhaps people are more willing to pay for things that save/make money.

Back when 1B acquisitions were considered incredible most of the world did not know what the internet was. If the size of the pie grows 30X the amount of money in it will as well.

Just several years ago, Facebook IPO-ed at ~$90B valuation, before sliding all the way down to ~$45B. Facebook was already a giant global corporation with close to a billion active users, nearly all of them from western countries.

AfterPay's valuation puts it at two thirds of mid-2012 Facebook. Up until now, I've never heard of them

'several years' in this case being almost a decade

Yes money is all a joke right now.

https://fred.stlouisfed.org/series/M1SL

Is that the amount of cash circulating right now ? That is terrifying...

Is that massive jump covid related?

I watch this every 6 months or so https://www.youtube.com/watch?v=PTUY16CkS-k

I don't understand the difference but the text below particularly points out a change in measurement in May, 2020. I suppose that's the reason.

money printer goes brrr

No, it's a change in methodology. The "money printer goes brr"-crowd is just unable to digest information.

No, that "crowd" is talking about the 30% increase in a year of M2 money supply, which is unprecedented in US history. The gymnastics going on with the M1 curve don't change that underlying fact, although it does provide a convenient strawman deflection in arguments so less informed people stop at this rebuttal and believe the whole "huge money supply increase" narrative is a hoax.

Yawn, any reason you did not link to the M2 graph at FRED? Maybe, because the bump is also a change in methodology? The money printer has been running for decades, but all of a sudden there is a problem? All that money is stuffed into equities and has no impact on inflation. But who gives a shit if one can talk about Bitcoin instead.

1. It has been linked many times in this thread.

2. No.

3. Not at a comparable rate as is evident from the graph.

4. Are equities and other assets completely disconnected from the consumer economy? Many of the new rich and retirees will cash out or take loans against their assets.

5. Economically speaking Bitcoin is inconsequential in this story. Careful using its proponents as another strawman.

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

The new thinking is money supply/debt vs GDP doesn't necessarily equate to inflation.

The banking cartel controls where the newly printed money (debt) goes first by controlling interest rates (governments, big banks, stocks, bonds and houses get the best rates near 0%, and Aftermarket and credit card customers get 30%

Because the money supply didn't increase 4x. They changed the definition of M1 to include savings.

What matters is the amount of money in active circulation. If salaries all went up 4x then you’d see significant inflation across the board. The fed provides extra liquidity to banks which trickles down to the financial system, which makes stocks go up, and real estate to some extent, but it doesn’t boost the entire economy. Doing 1tn of QE and borrowing 1tn for shovel ready infrastructure spending are not equivalent.

Inflation always lags behind, though, and it’s pretty likely at this point that rising inflation indicators in the coming quarters force the fed to tighten. Opinions are very much divided on this, where many are convinced the fed needs to take drastic action to keep inflation from getting out of control with another financial crisis as a result. The other mainstream view is that we’re only seeing transitory inflation right now and as long as the real economy is healthy we shouldn’t expect inflation to persist and cause carnage.

I believe that's partially because that money is a liability on someone's balance sheet - the fed, the banks, the treasury, companies, consumers etc. As long as the Fed can use its levers to mop up excess liquidity sometime in the future, the excess money supply is not too much of a concern.

Imagine everyone gets 1000 USD loan, freshly printed USD from the government. Money supply just increased by 300billion (assuming it's for US citizens). Does it mean inflation follows? Probably not because people know they have to pay the money back. The price of assets people really need/want or those that are undervalued is going to go up though.

I believe the situation is the same with stocks. They were criminally undervalued for decades (imo still are somewhat undervalued) so additional money supply causes the prices to increase (it's profitable to buy into great opportunity and pay back cheap loan later) but it's only because the assets were very cheap. If they weren't it wouldn't make sense to buy them no matter how much money is around (as you need to pay it back).

What may cause inflation though are programs when you just hand money to people (not as loans but as handouts) as then you just diluted everyone's else money.

What's your reasoning for concluding that stocks were substantially undervalued?

Because another way to read the situation is that stocks are simply the asset of last resort. In a world with no interest, you can't park money in bonds (or CD's etc.) so you've basically got stocks, real-estate and commodities left as options.

Large-scale asset managers are not going to park billions of dollars under the mattress, so basically it has to go to stocks.

No deep analysis on this one. I just think it's a crazy good deal to be able to buy stock of the biggest corporations which lead humanity technological progress, have huge political influence and even at today profit levels return 3-4% per year (in reality much more as a lot of money is invested in research/new projects which are going to be profitable in the future). I think Apple/Amazon/Alphabet/MSFT etc are going make even more in the future and current price is a steal, especially considering those are highly liquid assets with 0 cost of maintenance.

The steep increase at the end mostly does not reflect a change in economic fundamentals but rather banks relabeling savings accounts as transaction accounts in response to regulatory changes. If you look at M2 instead of M1, the increase disappears.

More info: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

(Edit: Updated link to a more recent blog post)

Still a huge jump in M2 in Feb 2020: https://fred.stlouisfed.org/series/M2NS

Yes, but this 32% increase was not initially new money in anyone's pocket. The Fed simply replaced some treasuries and other debt on banks' balance sheets with reserves, which don't have to be backed by equity.

This gave banks more wiggle room to sit out the pandemic without reducing lending at the exact wrong time.

So the Fed has done its job on the way down. Now they just have to do their job on the way up as well, or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation.

Potentially? Seems to me that potential is already being realized.

I don't know how we can possibly know that. There are just too many confounding factors right now.

We had this unprecedented crash that clogged up global supply chains and caused a huge shift in what people are buying. We have massive government spending increases. I don't think it's possible to work out what impact QE is having on inflation right now or whether it will indeed be transitory as the Fed believes.

>>"or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation. "

For that to happen you need enough credit demand in the economy.

It could happen, and, as you say, the Fed would increase the interest rate making reserves less available (credit more expensive), but the number of reserves in the system doesn't cause directly more money in the economy. It depends of the type of recovery.

Agreed, but the difficulty is that the Fed cannot easily distinguish between different kinds of credit demand.

They may justifiably want to keep interest rates low and loans easily available to help businesses and governments roll their pandemic induced debt until they can grow out of it.

But then some other credit worthy borrower comes along and snaps up those cheap loans to buy into some asset market that doesn't need any support.

And where they do have the tools to make that distinction they don't appear to be using them. I don't understand why they keep buying mortgage debt while house prices are already looking dangerously inflated.

I still see a curve blasting off at an unprecedented accelerated rate after the jump. And after 2009 doesn't look great either.

The market value of a company or person is determined by the market value of whatever they're shoveling around every day. Shoveling around software is valuable, but shoveling around money even more so. It just doesn't get more pure than that - it's literally the thing we use to measure the value of everything else.

Facebook acquired Instagram for 1bn. Ridiculous by today's standards.

I remember the jokes about how FB purchased a photo filter app and how easy it was to make photo effects. Sometimes it feels like techies not always get what is valuable and what is not as much.

I want to share my recent fractal renderings, that I think are valuable, here's a fun example:

https://drive.google.com/file/d/1AT9bcRZygdcCiMs5TvRXK50iik5...

Despite it being where-everyone presumably-is I do not want to use Instagram, so I am not sure what's best to do.. is there a good-enough 'open'/decentralised alternative now?

Maybe a simple rss feed would do it?

Imgur.

What's the reason you don't want to use Instagram?

It's not part of the public internet, that's probably the main problem, but I also have quite a strong aversion to things run by large corporations. At the moment I let google in, but that's it. (and they completely ruined my previous picasa-album sharing of my galleries of fractals, so I'm not hugely happy here either!)

I am more interested to find a passionate niche of ppl that really love the journey than getting general exposure, I guess that's another side of things: 2d fractals don't really have much mass-market appeal, but if you know what's going on there, it's a lot more interesting to follow!

you can search for things on instagram on google and they appear in the results. you can browse instagram without an account, some of it.

Pixelfed

Sure, I've heard the name around HN a fair bit and had a brief look into it in the past, loved the idea but didn't get very far yet. (Gentoo linux user here, not helpless) Do you have any recommendations for docs about getting started with sharing images on pixelFed?

I made an account on shared.graphics:

https://shared.graphics/danwills

When Microsoft bought LinkedIn for $26B, my tech lead said to me "why did they buy it for so much? It's just a website, I can code a website".

This is so ridiculous, I don't know what to say...

Notice that it’s all stock - no real money is changing hands here.

All assets are at all time highs - bubble levels for most. Hence those « valuations » - but if history repeats itself, things can change quickly.

Dogecoin is literally a joke, and is promoted by some billionaires, who are allegedly smart.

Lack of regulation means that there is no penalty for trading on non-public (insider) information or for stock manipulation. Lack of regulation is what everyone wants, right? Except regulation is there to prevent all sorts of fraud that ultimately leaves someone's granny holding the bag. The said billionaires are not so dumb. They know what they can get away with and their close friends may know what they're going to tweet before they do it.

if you've got one of these frothy valuations and can find another company that will take an all-stock deal you're basically buying a company that hopefully has some real assets underneath all the foam, but if not you're paying with waht is essentially self-minted fiat currency. In the meantime you better believe the insiders are quietly converting to something more concrete.

$29B is a pretty significant, even for an all-stock acquisition and a company of Square's size.

It would be interesting to see the motivation for this beyond a "shared mission" or "economic empowerment."

Afterpay's business model relies on high merchant fees which merchants, under their merchant agreement, are not allowed to pass onto their customers. So from customers point of view, afterpay often appears to be cheaper than other payment channels such as credit card / paypal.

Afterpay roll into a new merchant, cannibalise existing payment systems and at leat for the low margin merchants I work with, who are not savvy enough to look at their own sales data, their business becomes less profitable.

Their whole business model is deeply unethical IMO, harms merchants and harms customers who do not use Afterpay as merchants have to amortize cost of business across all their customers. The Australian regulator dropper the ball last year when considering legislation to align Afterpay with credit card instruments on this issue. Eventually regulators will realise this is harmful behaviour and align things correctly.

> which merchants, under their merchant agreement, are not allowed to pass onto their customers.

Is this audited by Afterpay perhaps? A company might just increase prices due to quarterly losses and not specifically because of this fee, even if it does contribute to a large amount of margin loss.

Merchants are not allowed to add a surcharge line item for using Afterpay. Instead they have to increase base pricing across the board to cover their increased costs. Afterpay are quite happy for merchants to do this, what they don't like, and what they actively police, is merchants adding a line item passing Afterpay costs onto the consumer.

The macroeconomic impact is potentially enormous. Your mission is to capture an entire generation of consumers (millennials) to use your payment mechanism, and embedded in that is a hidden cost which is comparable to consumer VAT (called GST in Australia) that the sovereign nation also levies. Eventually regulators will take notice of this massive some of money.

A comment I once read of HN as while back resonates deeply with me, that is how broken and unsolved the problem of paying for things electronically remains, in terms of costs, reliability, security and ease of access. Inspite of all the incredible transformation that has occurred over the past 30 years. You think about all the money that moves around for electronic payments, in an ideal world, the net levy should be a fraction of a %, not the 1.5%-3.0% that is charged by credit cards or the 6-8% that BNPL charge.

BNPL is a seemingly a separate situation since it requires the company to front money to merchants with the risk of the person not making a payment and defaulting on the loan, but the merchant fee is indeed where it seems deceptive, even if it might mean more sales due to said customer deception of "0% APR".

What if you do something like a “cash discount?”

It means that can't price discriminate specifically against Afterpay as a payment form. The merchant is free to set prices to whatever they want (as OP notes: the cost of the expensive Afterpay service will be borne by all customers), but Afterpay can't cost the customer more.

I worked on some of Spotlight's rollout of Zip. I can see why they would prefer that. Spotlight go to a lot of effort to make sure every expense is accounted for. Also given their enthusiasm for it they definitely negotiated a good deal for it. (interest rates on Zip can get higher than most CC's, its only worth it if you pay off in the interest free period).

Jack is banking on the low-wages and IQ of the majority of CashApp users

Afterpay has been a godsend for my girlfriend's (brick-and-mortar) business, which is in niche luxury items (keeping it vague).

Customers love using Afterpay, they search on Afterpay for products they want, and are redirected to her store. Online sales went from being essentially no part of her business to being 75% of her sales, and are probably the only reason her business survived the pandemic.

She has no problem with the fact that she needs to pay commission fees to Afterpay - it's a tiny fraction of the (unprofitable) amount that she would have to spend on advertising to achieve the same amount of sales.

Actually the fee is not far higher than Amex. Depends on the business, it can be a blessing or a curse.

Pitching in from Switzerland - Amex is the one card issuer that is constantly going through the cycle of (being delisted from stores because they're fees are too high) => (Customers stop using Amex) => (Amex dropping their fees a tiny bit) => (Stores relist Amex) => (Amex raise their fees).

So "fees not far higher than Amex" sound really quite terrible.

I would also presume they're harvesting data on how you spend your money, so it can later be sold or used for other targeting. I haven't looked into this in any depth, but IIRC credit cards are not allowed to do this, but other services aren't held to the same standards.

I definitely see the overspending argument, but BNPL is actually way better than the alternatives in the current market. Credit card companies make an overwhelming majority of their revenue (up to 90%) from consumer penalties, while Afterpay makes the majority from merchants. It's a fundamentally different business model and lines up the incentives with consumers, where as CC companies want actively look to abuse people with poor credit.

IMO we all have engrained in our brains the horror of the credit card death spiral and it's warping our perception of any innovation in the space of consumer credit. I think we will see a bnpl takeover of traditional credit and generally healthier consumer finances.

I have noticed that there isn't a lot of chatter on HN about Square. But on closer inspection it is a fascinating success story. They are building and cornering a whole ecosystem there. And their valuation is remarkable. Not just hype, but execution. Kudos to them.

Between them and Stripe, it's nice to have something in payments to admire and be excited about.

I remember a time when we had to deal directly with Authorize.net, wow that was a mess!

My merchant account is cheap (interchange plus 0.1% or so) and the gateway they set me up on is Authorize.net. Still using it after 17 years or so, although indirectly via Spreedly.

If you go to a craft show or popup market or anything like that, every vendor has a Square reader to take cards. They're super successful with "offline solopreneurs" -- the independent one-person small businesses.

One of my many side gigs is selling laser-cut wood stuff of all sorts, and I make a set of Square Reader docks that sell really well. I just made several this weekend.

https://www.etsy.com/shop/ligninandlight?section_id=26787311

How much are the delivery fees for this sort of products?

> My merchant account is cheap (interchange plus 0.1% or so) and the gateway they set me up on is Authorize.net

It's crazy most people don't know you can get this. Seems like every popular merchant account provider is a bad deal in comparison.

For those curious, you get it from banks. Open a company account at a major conventional bank then ask them for a merchant account. The default they offer you is interchange + 0.2% or so. Many debit cards have an interchange rate of about 1%. When you pay 30 cents + 3% or 2.9% or whatever you're sortof being screwed.

What’s the high end of the range?

The high end will be around 3.5% for amex.

I have never been able to get interchange plus just 0.1 or 0.2%.

Is anyone getting this for SaaS? It seems many processors consider digital goods or services like software to be more risky.

We get interchange +0.1% but we are in travel and because of the various card types used (gold, platinum, etc) sometimes it’s just a tiny bit cheaper than 2.9%. For example 2.7%. It all depends on card types people use.

As one of the people who doesn't know about this, what does the merchant account do? For an online retailer, does the merchant account replace Stripe/PayPal?

You need a merchant account to accept card payments.

> For an online retailer, does the merchant account replace Stripe/PayPal?

It's the other way around. Each retailer needs a merchant account to accept card payments. Without Stripe etc, you'd need to go through the (often tedious) route of getting a merchant account (paperwork, proof of business health, etc) and negotiating rates before you can start integration (using traditionally quite horrible APIs) using it. Stripe is just the middleman which provides their own merchant account with a nice API to accept payments through it.

The question is interesting, not because you don't know, but because it reflects how much things and perception changed so that we think:

> does the merchant account replace Stripe/PayPal?

It shows how successful Stripe has been.

Are there any resources you looked at for this stuff?

This is like some kind of hidden gem I just found out about.

Is this ~1.2% total rate only for processing debit cards or credit cards as well?

As a customer are there any downsides to using these BNPL platforms when I'm buying something? I generally never buy anything online that I can't afford to pay for it outright so I have never used them before.

You might miss out on some credit card rewards or protections (chargebacks, extended warranties, extended return periods, etc).

Trickily, BNPL is pushed as 'not credit', which I find deeply disingenuous. The product they push is utilised by compulsive spenders, or poorer people. These people have always used credit, much to their collective disadvantage. Branding it as 'like lay-by, free up your cashflow' is in my opinion a dangerous option for many people.

It's rather paternalistic to assume poor people can't handle credit.

They would definitely be less poor if they could

Are you kidding? Poor people of course cannot handle credit, because they don't have the cashflow or savings to prevent the use of credit in disadvantageous situations. I am not saying poor people shouldn't have credit, I am saying credit is most destructive for poorer people, and so any service that targets that market is exploitative of their misfortune.

> Poor people of course cannot handle credit

That starts you down a very slippery slope of what other things poor people supposedly can't handle, because of course you know what's best for them.

No, not really. I don't use it either. They do have late fees but even those are quite low and stop increasing once you hit a cap.

> I generally never buy anything online that I can't afford to pay for it outright so I have never used them before.

They are designed to let people buy impulsively without annoying restrictions like not having enough money. Who would have though this was either an addressable market or a good idea.

I don't get why they are so popular either, or worth this much. They also don't have any moat - any payment provider can offer to do the same thing they do with less hassle for the customer (PayPal has started doing this for example). There are many direct competitors in addition (eg Zip).

Isn't that what a credit card is for? Or is it somehow different?

It is interest free, and also has a repayment plan baked in. The credit card user is incentivized to pay it off each month, but the Afterpay user is incentivized to buy more stuff now.

The rent-to-own storefronts moved online.

Yes. Sometimes a store will offer free returns when paying directly, but not when the item was bought through BNPL.

Pay it outright, if you can. It's usually the best way.

The main one in the UK is that you lose Section 75 protection, which is what forces credit card companies to protect your purchases. The obvious others are if you buy something you wouldn't buy without BNPL (their business model is charging retailers on the basis that people in aggregate will), or you miss payments and get late charges/a worse credit score.

I might have misunderstood, but when I looked into this a while back the main downside is the loan amount shows up on your credit report. Even after you pay it off you now have this “credit” with the provider. This could affect, for example, a future mortgage application.

Very sad to see this. I seriously expected Afterpay to become Australia's first $1t tech company.

Uh a payments company having Apple level value??

Apple has a vastly bigger market cap than $1t.

Is Afterpay a tech company in a way that any other bank, or Qantas, isn't a tech company?

How many installments are they splitting paying the acquisition over?

Square is buying a loan shark service.

"The Australian Securities and Investments Commission found one in five buy now, pay later users is missing payments, half of users aged between 18 to 29 cut back on essential items to make repayments, and more than 1.1 million transactions in 2019 incurred multiple missed payment fees.

It also warned 15 per cent of users, and half under 29, had taken out an additional loan to pay for the services, while 55 per cent of consumers paying late had used at least two different buy now, pay later providers in the past six months."

https://www.afr.com/companies/financial-services/one-in-five...

Are Afterpay really to blame for this? Credit cards have been around since the 80s and are far more predatory. Pawnbrokers have been around for centuries.

Even without debt, so many people have an impulse to spend as much as they can and put themselves in a financially precarious situation where one emergency bowls them over.

I'm not saying Afterpay are ethical, but I'm sure you'd find a similar amount of people foregoing necessities to make dumb impulse purchases regardless of payment method.

The problem is their target market is people who don't have (or can't get) a credit card.

If you already have a credit card, whats the point of Afterpay?

> The problem is their target market is people who don't have (or can't get) a credit card.

Are you sure? Pretty much anyone with a job can get a ridiculously high credit limit.

>If you already have a credit card, whats the point of Afterpay?

Capped late fees, for one. Afterpay lets you impulse purchase things you can't afford but doesn't trap you on a neverending treadmill of servicing debt.

From "Margin Call (2011)" - context is a subprime investment banker explaining how he justifies doing what he does:

> People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have no idea where it came from.

This is fulfilling a demand, it's one I don't agree with either, and think we'd be better off without, but people are asking for it. At least it's a legit company doing it and not a mobster or money launderer.

Don't beat yourself too much about this stuff, all right? Some people like driving the long way home.

Yes, these new POS financing companies are not good. I briefly worked for one before fully understanding what kind of businesses they are and how they make their money. They may put a pretty face on things but their financials look nothing like a "regular" startup, it's rebranded high APR loans.

Anyone know the difference between Afterpay and Clearpay? Two brands for the same thing? Why?

Trademark issues in Europe

That confused me as well (I’ve previously worked a little on Arvato’s AfterPay) but it was cleared up by https://www.smh.com.au/business/companies/afterpay-forced-to...

I've seen the afterpay button when shopping online. Hate to say it, but this is absolutely taking advantage of people with poor spending & saving habits. I see it mostly at overpriced/luxury/hype online stores, where the desire to own a product doesn't come from a place of need, but from society & marketing. I buy some of this stuff, so I'm not hating on that. But some people are truly addicted to shopping, and enabling that is morally wrong.

How is it different than credit cards?

You can get afterpay without having credit. You can get afterpay even if you owe $7k on your maxed-out credit cards. Bank of America doesn't have a shiny button turning those $200 dollar pants into '4 payments of $50' on a website.

It's like asking 'hows flavored vape juice different from cigarettes'. Both bad, but they appeal to different markets and one takes advantage in a more sinister manner. No doubt there are people that can use it in a healthy manner, but overall it's a net negative. Credit cards can be just as predatory in my view though.

Just easier. I use credit cards, but also have a Klarna account. If the shop uses Klarna, I will often use that because it is to well integrated, and then pay off Klarna with my CC, which in turn is paid a month later. Essentially I don't pay for something for over 2 months.

Interesting that square is making this kind of large purchase. I’ve not been following them too closely but what I have noticed recently is a ton of local (SF) merchants switching from square to Toast.

Kinda amazed at how different the leadership is between Square and Twitter under Dorsey. You can tell which company he is spending most of his time with and which one is getting neglected.

You can?

... Which is which? Because I genuinely can't.

It’s Twitter

Care to elaborate?

Oh man, I would have honestly said Square. Product development at Square seems to be way way better than Twitter, compare the last 3-years between the two.

Twitter hasn't really done much with it's platform, they never really done much with monetization and other platforms are eating into their space (patreon, onlyfans, substack). I mean they literally invented tiktok before tiktok with Vine and that acquisition just floundered into dust.

Juxtaposed to Square, that has done really interesting purchases like Tidal, Crew, Kredit Karma, Weebly. They are definitely moving in a directed one-stop finance and collaboration shop. I think they're one of the more innovative fintech companies that have been making tremendous ground over the last decade.

Credit Karma ? It was acquired by Intuit, not Square

As part of the Intuit purchase Credit Karma had to sell off their tax service, which Square bought. I'm guessing that's what OP is referring to.

Seems like a simple value proposition here: BNPL is growing like crazy. Square doesn't have a strong product in BNPL space. Add to that it will get a presence in AUS/NZ and it becomes a good value to Square expanding product and global footprint. Paying about 20-25% of it's market cap to acquire a company at appx 20X multiple of it's revenue with a growth rate of 1X. Seems like a fair deal in today's hot market. Is there anything else to it ?

Does Square have anywhere near this kind of cash or stock value, for a 29B acquisition? I just don’t really get this stuff..

They seem to have a market cap of 112B, so 29B seems like a big chunk. But I'm not an expert in this finance stuff.

Now square has access to basically a checkout page for a good proportion to the online web out there.

If anyone was following the news about PayPal working with ADL to stop wrong thinkers having accessing payments/receipts, erm “Fight Extremism” (great until your views are considered extreme, and if you don’t think that’s possible consider a talk with your 10 year ago self about vaccine passports or forced vaccination or trans athletes or border/immigration or canceling comedians or ending the filibuster, etc)… I don’t think I can support anyone having even remotely strong market dominance anywhere for payments. [0]

Maybe Stripe can just process payments, but who knows because “silence is violence” now. They did ban the Trump Store after the 11/6 fiasco [1] despite nothing on the store breaking any TOS or referencing the capital riot, just a broader “This guy is bad news!” condition they could/would/should have used at any time.

[0] https://thefederalist.com/2021/07/26/paypal-is-conspiring-wi...

[1] https://www.wsj.com/articles/stripe-stops-processing-payment...

This story is about Square, not Stripe.

This is crazy - 10% of Mastercard for a lame service! The existence and success of Afterpay and Quadpay (now Zip) prove one thing - people don't have money enough cash or credit and this is sad!

How does Afterpay make money if they do not charge interest?

Merchant fee (same as paid by a merchant when accepting a CC) which subsidizes the zero percent financing payment plan to the consumer.

thanks!

Just to expand upon what the parent said, their fee is significantly higher than the companies that just process credit cards (around 6% compared to the industry standard rate of 2.9%).

I believe they eat the loss when the customer defaults, though.

Oh boy...so this 6% fee is then indirectly passed onto consumers.

Yep. To be fair, so are the (lower, but non-zero) fees from Visa/MasterCard/Amex/PayPal.

It's a textbook example of an externality.

The fee is paid by the customer. It isn't an externality. An externality is when the cost is paid by someone who isn't party to the transaction.

>The fee is paid by the customer.

No it isn't. It's literally against their TOS for merchants to add on a surcharge for using Afterpay.

And yet, magically and by the power of the market, the fee will still be paid for by customers. It isn't like the merchant has a non-customer source of income. The money has to be coming from them.

If you don't want to pay the surcharge, shop somewhere that doesn't offer Afterpay. Or somewhere that doesn't honour the TOS, I once got an extra egg in my soup for paying cash.

>And yet, magically and by the power of the market, the fee will still be paid for by customers.

Yes, by all the customers, including those that don't use Afterpay.

Which doesn't make it an externality, because they are still choosing to use the vendor. My favourite take-out place for a solid 2 years was the cheapest on the street and probably because they didn't support Afterpay or credit cards. The customer has all the power to avoid the cost if they want to.

They pay the Afterpay surcharge because they want a standard shopping experience that supports lots of different ways of paying. If they want to shop on price Afterpay will vanish from their view.

To play devil’s advocate though, if a 6% payment fee allows a merchant to make a sale they wouldn’t have otherwise made, then that might be a net win from their perspective. I.E. eating some decrease in profit is better than making nothing at all.

It’s basically the app version of offering interest free payments on a purchase.

Totally agree - I was just poiting out that just like 2.9% credit card fees that get ammortized over the total sales by the means of higher prices (meaning even if you use cash, you don't get a discount[1]), the 6% has to come from somewhere.

[1] Some gas stations have a different cash rate to pass the savings on to the customer

They are in a regulatory blackhole, in Australia merchant fees are tightly regulated, cannot be more than actual processing cost. Many companies here charge more to pay bills by credit card or shops have minimum amount before credit cads are accepted. Moreover since Afterpay technically doesn't give consumer credit they are not bound by national credit rules as well. They don't and can't do credit checks

Presumably this extends beyond Australia though, right? As Square paying $1,000 per Australian would be a bit high.

Merchant Fees + Late payment fees on accounts is where most their money comes from.

A very generous merchant fee 2-3x what is usually charged. > 4%

~25% of their revenue comes from late fees to consumers. 75% from merchants.

They're your standard loan shark predator disguised with flashy marketing and bankrolled by VCs.

Given that:

- their late fees are capped - there is zero interest charge - they have a policy of never taking legal action to pursue payment - non-payments don't affect your credit rating

On what is your argument based? There is literally nothing in common.

> they have a policy of never taking legal action to pursue payment - non-payments don't affect your credit rating

Wait a minute, what incentive do we have to ever pay them back?

Capital recycling: Here's how Afterpay earns its margin.

How Afterpay makes money

BNPL companies like Afterpay earns their revenue in two ways: Merchant fees from retailers: the company takes a percentage fee of every dollar that is transacted via its platform. This commission rate, referred to as “Afterpay Income” varies is between 3% and 6%, varying depending on the size of its is retail partners; and Late fees from consumers: the company charges late payment fees of $7-$10 per late payment.

Breaking down Afterpay income

Merchants pay Afterpay a commission, referred to as Afterpay Income. This commission ranges between 3% to 6%. The more volume you do with them, the lower the rate I gather. In FY20, the income as a percentage of underlying sales, or Gross Merchandise Value (GMV) transacted through the platform was 3.9%. This indicates that there is a portion of retail partners that pay less than 4% of fees to Afterpay. Hot Tip: If your retail business offers Afterpay and you’re paying more than 4%, then perhaps it’s time to get a price check.

There are costs of sales associated with earning Afterpay income.

Afterpay’s cost of sales include: - Provision for bad debts (customers that are at risk of not paying); - Other variable transaction costs (processing fees); and - Financing costs (cost of working capital).

After deducting these variable cost of sales, Afterpay’s gross profit was 2.25%, referred to as Net Transaction Margin (NTM).

In other words, for every $100 that you spend using Afterpay, the company collects $2.25 of gross profit.

Finance costs

Like most businesses, a constraint to Afterpay’s growth is working capital. Afterpay needs cash to fund the gap from when funds are paid to its retailers to when it eventually receives the cash from consumers in six weeks.

Let’s break this down. Say you buy a $1,000 pair of Yeezys via Afterpay. The retailer will get paid $940 upfront, being $1,000 less a 6% commission. On the same day, Afterpay collects its first installment from the consumer of $250. Afterpay is out of pocket by a total of $690. Aftepay will collect the remaining $750 from the consumer over six weeks.

Afterpay needs capital to fund this $690 gap. It does so by borrowing from several Tier 1 lenders: Goldman Sachs, CitiBank, Bank of New Zealand and NAB. The average interest rates on these facilities ranged from 1.65% to 3.2% in FY20.

How it really makes money: Capital recycling

So summing up, after starting with a 4% merchant fee, Afterpay’s Net Transaction Margin drops to a mere 2.25% after paying transaction fees, interest and bad debts.

Doesn’t sound that special, does it?

Well yeah, it doesn’t.

But here comes the big reveal that gets investors salivating about the BNPL business model.

It boils down to the company’s velocity of recycling capital.

Traditional banks make money by earning the difference of interest between what they charge to borrowers (mortgage holders), versus what they pay to depositors (savers). Most banks make a net interest margin of ~2% per annum.

But what the banks earn in a year, Afterpay makes in six weeks. Customers are required to repay Afterpay over 42 days (six weeks), and Afterpay makes the same amount of commission even if they decide to pay it earlier.

In fact, it’s better for Afterpay if customers pay off their debt faster, because it means that Afterpay can redeploy the capital faster.

To put this in practical terms, let’s assume that a consumer spends on average $100 per transaction via Afterpay.

If this consumer only uses Afterpay once per year, Afterpay makes $2.25 per year of transaction margin and a 2.25% Return on Capital (ROC) before operating expenses.

But if the consumer uses it 10 times per year, Afterpay makes $22.50 per year. The initial $100 of capital that Afterpay borrowed is redeployed every time a new transaction is made. The return on capital is now 22.50% because the same $100 is now generating $22.50 of annual net transaction dollars.

In its FY20 report, Afterpay reported that its longest cohort of users are transacting up to 25x per annum — which implies that Afterpay could be generating a whopping 56% of ROC per annum on its oldest users.

Source: Jason Andrew

For a brief moment, I thought: "Damn, what a game company wants to do absorbing a payment company?' ... heh it was the other Square.

Why couldn't they roll out their own competitior? Wouldn't that be a lot cheaper? I guess much more difficult to expand in the Aus market?

definitely cheaper to build the tech, but possibly more expensive by the time they've convinced all the stores include a "pay later with square" button. as always with these things, they're buying the market not the product.

Easy for them to build something technically equivalent, impossible to guarantee that it will get the same usage. There's a reason why companies like Google, Amazon, Apple do hundreds of acquisitions every year despite having enough money and talent to build it all on their own.

Given the relative sizes of the businesses and the all stock transaction, this should really be termed a merger instead of an acquisition.

I guess this is one of the move by Afterpay higher up to fight the competition after knowing Apple and Paypal going into BNPL game as well

“Shop now. Pay over 6 weeks.”

How is this technically different from a credit card? Just a longer timer period?

No interest, no credit check, late fees are capped, and it won't ever ding your interest rate or credit history if you do miss a payment.

At least in the UK they do reserve the right to file missed/late payments with credit reference agencies FWIW.

Curious about the Scheme Implementation Deed. What are the benefits of this arrangement?

Horrible. People ought to know enough to not use these products in the first place, but people will use it anyway. They should be required to show the long term effects before being used, much like the gore packaging used on cigarettes in some places. What’s the financial equivalent of lung cancer or having a stoma?

The long-term effects of a zero-interest loan? What are those?

The OP is onviously using hyperbole, but there are certainly long term effects from encouraging people to spend beyond their means. For example, it makes people's financial position more precarious: if your income is mostly committed to monthly payments, you are in more danger of getting into trouble from a layoff, illness, etc. If a big portion of society is in this position (and they are) this is a concern.

I think people should be allowed to make their own choices, but I don't believe it's harmless to promote living beyond one's means.

Right. Afterpay, Affirm, Klarna, etc. are generally not used by well off and financially literate/prudent people. Just like gambling and lotteries. They are generally used by people that don’t need help screwing up their finances. While I do agree that people should be free to do what they want I think it should be presented with some realistic and frankly harsh warnings.

You sound like a BNPL marketer. The loan has late fees, the app is branded as a easy POS way to buy things with money you don't have. There is no credit check. You can sign up to a dozen of the services at once. It is credit, it has the same negative effects as credit.

BNPL is as bad for people as 20% apy credit cards are.

Being more charitable, I think it's marketed as a way for people who budget monthly to spread their charges.

The point is that if they're stretching payments over multiple weeks/months then they can't afford it.

Would you say the same about a house? A car?

You might say that buying a house on credit isn't frivolous but a pair of shoes on credit is, but where do you draw the line in the middle?

(Disclaimer: I work at Square, but I am otherwise completely uninvolved with this acquisition or product area.)

Great question and made me think. I think the difference may be that people that need to stretch payments for smaller purchases tend to build up credit card debt and fall into 18% APR for years and never get out of it.

Car loans and Houses have a very controlled lending market. Even more so with business loans.

I think there is big difference between monthly payments for a Go Pro camera and debt financing your new restaurant.

What is your logic behind that?

Right. They are giving out interest free loans to people out of the goodness of their heart. What a swell company. Wait what? They make more profit when people fuck up? Well I am shocked.

the business model is that BNPL will eat the risk, they won't sent a debt colector after you, they simply won't loan you more money. It's much more humane than credit score which is a form of social credit.

What do you mean by this?

Like the payment networks, payment gateways will soon be dominated by a few big players: Stripe, Square

I really wish digital currency (ETH, BTC) would take off in the main stream world. The amount of silent middlemen involved in paying a merchant with a credit/debit card is nauseating to say the least.

https://www.pymnts.com/news/faster-payments/2021/five-banks-...

https://corpgov.law.harvard.edu/2020/08/31/fednow-the-federa...

There is room for far more than 2 large players.

https://2c2p.com/

https://adyen.com/

https://checkout.com/

https://braintreepayments.com/

I don't like Jack Dorsey.

Ok so Square has opted to engage in predatory practices. Noted.

I'm completely out of the loop here but plan to integrate Stripe into a new product. Can you elaborate?

I think he’s saying that these big entrenched players immediately buy up any competition or threats.

Meaning this isn’t really any sort of free market, if you are so large you can absorb or destroy smaller entities ensuring that you will always be the leader in your market. And because governments have no teeth when it comes to monopolies or anti-competition this skates by world wide.

That was my read, could be wrong.

Afterpay is a buy now, pay later scheme. It's literally a loan shark service. 25% of their revenue comes from late fees.

https://www.afr.com/companies/financial-services/one-in-five...

How is a zero-interest payment plan loan shark-esque? Total late fees appear to be capped at the lesser of 25% or $68, which also seems less predatory than any credit card.

Because it is integrated POS, and is even more frictionless than credit. You don't need a credit check, you can sign up to many BNPL providers at once, and you are presented with options in store and online to buy with 'x' right now and not pay a cent. It drives impulsive spending behaviours. It is all bad.

Stripe or Square? Visually similar words and in similar lines of business but definitely different companies.

Other people have replied to the predatory practices thing, but additionally I'm not sure if it's a misread, typo, etc., but Stripe != Square.

Oh right, seems I've been bitten by this yet again. Thank you.

I see you have a few posts on this thread and are obviously not a fan. I had not heard of afterpay before this thread, but I checked them out and I agree they are a predatory lender. Some people obviously feel differently, but I don't see (other than a bit of nice branding) how they are different than Money Mart or Easy Home or anyone else that gives you money you don't have, but makes sure to collect it one way or another.

Like I said elsewhere, people should be free to make their own choices, but this is certainly not a business model to be applauded.

Does this also apply to Visa, Mastercard, Apple Pay? Giving out a loan is by itself not predatory. It's the interest rate and other collection practices which make it so. Afterpay looks to have basically the most consumer friendly terms in the industry right now, so I'm not sure what exactly classifies them as predatory?

I got hopeful when I read "Scheme Implementation," but unfortunately lisp for financial services doesn't seem to be the goal. Maybe someday.

Brazil’s Nubank is all-in on clojure:

https://www.finextra.com/newsarticle/36297/nubank-buys-firm-...

Sweden’s Klarna seems to be using Clojure along with other FP languages:

https://news.ycombinator.com/item?id=23379264

This is awesome! Thank you for pointing out some cool finance-related companies that use lisp.

Reply on news.ycombinator.com