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Comment by sbuccini | Hacker News Reader

Your claims are not true for several reasons:

- 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.

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"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."

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.

> Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer.

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.

> Whenever you see a BNPL offer for 0% it means the merchant is paying the interest on behalf of the consumer.

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.

You’re on the right track, but have the wrong specifics.

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.

Sure but the merchant isn’t literally paying interest - yes they get charged a fee which helps subsidize an interest-free loan, but that fee is not interest nor is the merchant party to any loans that the consumer enters. The merchant gets paid more or less immediately minus a fee - similar to how a credit card transaction works.

I am 1000% correct. Go look at Affirm’s Q1 2023 earnings supplement, slide 14.

Average MDR is actually closer to 5-7%, 0% is closer to 12.5%

Merchants pay the interest because they see larger basket amounts and therefore more revenue. If the cost to them increases then it can reach a point where it's no longer attractive.

I disagree and I think interest rates have a huge impact on these places. Just look at Affirm that used to offer 0% and is now offering 10% at minimum.

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.

I don't think you make a convincing argument. Anecdotally, I've only ever used Affirm when they offer me 0% interest. Paying 26% or more for a soundbar over six months is not attractive.

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