I'll provide one: it only made any significant sense in the near-zero interest rate levels we had last year. "Split it into four payments for $0 fee" is attractive. Much less so when there's a fee; Amazon's BNPL via Affirm is now up to 10-30% APR from the previous 0%.
At those rates, people just put it on a credit card.
I took out a number of BNPL loans last year and it was never because I couldn't pay the full price but rather if I was getting the money at 0%, "free money". But I was never the target customer of these places, I was just taking advantage of very good terms.
Now that Affirm (and I assume most other places) are charging a floor rate of 10%, that second group of customers are no longer customers. I'm not sure how significant this group is but I'm sure it's not an insignificant number. Since these places make most of their money on transaction fees rather than rate premiums and fees on the back end, this could really put a dent in their business.
But for a floor rate of 10%, BNPL is just a less terrible credit card, not a good deal :(
Decrease the total cost of things purchased in this manner or increase the number of different things to track (or both) and suddenly I'm paying quite a bit more in additional mental energy than I benefit in cash.
The only place where this makes sense (IMO) is when you buy a new car and can get 0% and no payments for more than a year
Anyone financially responsible (i.e. that won't get enticed into carrying a balance by the opportunity to get cash back) is leaving money on the table by not using a credit card (with good rewards).
The frequent little payments is a "feature". If you can't handle a $200/mo credit card bill, getting emails for $8 here or $11 there is probably easier.
The thing is, doing stuff like that - taking on debt and paying it - builds up your credit score. My credit score was awful after some youthful indiscretions with bank loans and credit cards, but after borrowing (and paying back) a total of about ten grand over as many years I've got a credit rating like a Swiss bank.
It's much less effort to use my everything credit card and get my 2% discount than to do a 0% apr over four months (or whatever), setup a new account, setup payment at that new account, remember to make the payments, etc and for what? Short term bank interest on most of my purchases would be peanuts, especially since I wasn't getting 2% bank interest when BNPL was at 0%.
I imagine the BNPL people made their money from the same kind of CC fee models and from customers who ended up not being able to stay within the 0% timeline. From my memory it usually had some big fines or interest rates if you couldn't make the payments.
- Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer. The merchants are in charge of making that decision, not Affirm. Affirm earns interest on every loan. Many merchants choose to assume that cost because it greatly increases conversion rates. Replies to my comment only confirm this fact (“I only ever used BNPL cause I got 0%!”)
- "attractiveness" is in the eye of the beholder. You may be unwilling to pay a fee, many other people are. Plenty of people roll over their CC balances each month and pay even higher APRs.
- Interest rates have little effect on BNPL financing; many can either lend out of their bank account due to their size, or they sell the loans immediately upon origination and thus pass the risk of changing interest rate environments onto another party.
I get the sense you're not thinking in the margin. This isn't a question of whether "some people" will pay the fee, it's about the fact that as soon as the fee is greater than zero, "some people" won't, and the rate of that will go up as the fee goes up. This isn't a binary thing where suddenly the rate goes from 0% to 100%.
1% or 2% doesn't mean much to me and my household budget, but for these businesses such percentage differences are generally the difference between profit or loss.
Yes. We consumers appreciate that.
> You may be unwilling to pay a fee, many other people are.
Sure. I think a lot fewer people will be willing to pay $X than $0.
> Interest rates have little effect on BNPL financing
0% APRs are only really feasible in a low-interest environment. There's a reason that Fed rate hikes are immediately followed up by APRs.
I don’t think this is true - the merchant pays a transaction fee (around 3-5%) with companies like Affirm or Klarna, which is not much different than typical credit card fees. The merchant is not paying an interest rate or liable to pay more if the customer fails to pay on time.
A merchant accepting card payments might pay “sticker rate” for processing, 3%, at the outset; but, they eventually get IC+ pricing as their volume increases. This might be closer to 1-2%.
If they pay 5% to a BNPL, that extra 2-4% is meant to cover the interest of the “loan” if the customer doesn’t pay back on schedule.
Average MDR is actually closer to 5-7%, 0% is closer to 12.5%
As far as "attractiveness", I really see two groups here. You have one that legit cannot afford the full price and are taking out this loan as a traditional loan, within that group "attractiveness" is in the eye of the beholder. However the other group is people that can very much afford the product but see the magic "0%" rate, for this group the only "attractive" rate is 0, any higher and they will not use the service.
What is the return/refund process like with these services? I assume they get the refund from the merchant and then disburse your part of it to you? Does it go smoothly, or do you have to chase things down?