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Comment by jonnycat | Hacker News Reader

I can understand the value prop to the consumer - but I have a harder time understanding why it's an actual business, and why existing credit card companies or other lenders can't eat their lunch with the flip of a switch.

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Here's patio11's write-up of the value to the business side:

https://bam.kalzumeus.com/archive/buy-now-pay-later/

Also discussion thread for aforementioned piece: https://news.ycombinator.com/item?id=29841940

Affirm doesn't list their B2B pricing on their website, but credit cards typically charge up to 5% of the total purchase price in processing fees. It wouldn't be hard for a challenging upstart to make a solid business that just charges less. That's probably not the primary revenue driver for most BNPL companies though.

You've also seen credit card companies change their offerings to compete with the BNPL model. One of my credit cards has a "plan it" feature for large purchases, which allows you pay it of in a shorter period of time for a lower interest rate and without incurring interest charges on your month-to-month purchases.

> credit cards typically charge up to 5% of the total purchase price in processing fees

Source? I thought it’s 2 to 3%.

Sure, 2-3% if you're WalMart. If you're (small respectable retailer) you'll be paying three times that and if you're a tiny retailer you'll be paying five times that.

Nobody is paying 10-15% in credit card fees regardless of their size. This is just blatantly wrong.

I wouldn't say nobody. High-risk payment processors can have rates that high.

there's also a flat fee per transaction (eg, 3.25% + $0.10). this can make the effective rate pretty high for small purchases.

https://www.valuepenguin.com/credit-card-processing/intercha...

Credit Cards are 2-4% + 0.1-0.3/transaction depending on your volume. Small businesses would pay the max on the flat and near it on the percentage.

Affirm and similar were 6% last time I talked to them (admittedly 3-4 years ago), and represented a far superior value proposition for a lot of customers because it gives them a longer period of time and forces them onto a payment schedule.

Hi! Affirms scores (evaluates the risk) of each transaction in real time, which allows then to have reasonably low bad rates. Very few lenders can do it.

Until there's a credit crunch or a recession, in which case all that "real-time" risk management will be moot and losses will be massive.

I am curious why you think 'real-time' risk modelling in particular might be deficient? For the record I agree, but my issues are with fintech lenders desire to lend out money too freely (models that are designed to pump lending #'s, not repayment).

Banks have been saying that about online lenders for over decade now…and yet LendingClub, Upstart and SoFi loan books are still fine (and this three companies are taking 1/3 of all personal loan originations in the US)

We haven’t had a real recession in over 10 years, so that makes sense. Unless you count the very brief one back in mid 2020, which was mitigated by a flood of federal and state dollars, mortgage and student loan moratoriums, etc.

Why is this an advantage? The factors in assessing the risk are the creditworthiness of the customer and the amount. Also, I find it hard to believe that the creditworthiness of a customer actually fluctuates fast enough for Affirm to be able to do some arbitrage on it.

Time of purchase, purchased goods, user behavior during the purchase, etc are additional inputs into a scoring model

The ol’ Algorithm-as-Patsy strategy. CFPB continues to sleep at the wheel, as designed.

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