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Comment by _fat_santa | Hacker News Reader

I see BNPL companies as having two types of customers: those that can't afford the full price and want to pay over time, those that read the terms closely and realized the deal is too good not to take.

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.

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Maybe I just haven't had the opportunity to buy any big ticket items with BNPL, but the few times I tried it (trying to do the "free money" thing, getting a bit more interest in my HYSA by amortizing the total payment out over time), it just created kind of a financial tracking nightmare. I'd get flurries of emails about how my "pay in 4" payment was about to process....for $13. Trying to keep track of all that for a few pennies became too difficult (matching up which purchase each micropayment was from), although those pennies add up for larger purchases indeed!

But for a floor rate of 10%, BNPL is just a less terrible credit card, not a good deal :(

This is my take too. A $10,000 purchase on 0% interest for a year earns you ~$400 in interesting from a money market fund or whatever. I'm in a high tax bracket so $160 of that goes to the government. So even for a large purchase I net $240 in a year. Hooray.

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

When you phrase it this way, it sounds very comparable in terms of return to a credit card rewards program

The nice thing about a credit card rewards program is that it requires zero mental effort. Some people like spending more effort to do churning or whatever, but I make the same computation in that case and conclude that the extra money isn't worth my time.

Paying without a credit card is just supporting the credit card fees of those who do pay with one. The price is the same, but you often get 2 or even 3% cash back (depending on offers).

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).

How does the floor rate make it a less terrible credit card?

Because you're paying interest. My credit union offers an 8% APR; a 10% BNPL gives me no benefit over that.

The BNPL schemes are targeting low income customers who either can't or won't use credit cards.

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.

Similarly I've used BNPL products to buy things like car tyres because they don't cost me anything (well - okay, the cost is borne by the seller, so presumably they bump the prices up a bit across the board, but you know what I mean), not because I didn't have the money. Generally it was things like "half now half next month".

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.

Did that actually work? I just assumed they would find a way to charge me 'interest' by having processing fees or some other scam, so I never used them.

I imagine there are a number of those out there, but I've taken many BNPL deals that were zero fee, zero interest. It truly worked out to be the exact same cost whether I paid upfront or took the BNPL.

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.

I always imagined that the companies using the service at checkout would give the BNPL company a percentage of the sale if the customer used the service. Even if the price is the same for the consumer, BNPL companies could argue that they generated sales that might've backed out had they not been available.

This is exactly how they work. I work for an ecommerce company that offers one of these services. We pay them a small percentage and they take on the liability to collect payment and handle disputes. We already pay another percentage to try and detect fraud for a certain amount of our transactions. By letting the BNPL company act as the purchaser on behalf of the customer, we can offer them a cut of what we would have paid for fraud detection.

Exactly. The retailer pays the interest (a small marketing cost to increase customer spend), which is made into an offering to financiers of a low risk loan trenches, with absurdly high interest rate (20%+ APR).

I never used one, but I'd assume they're as good at following the plan as you are (I had read some articles that said some of these lenders operate on voluntary repayment, no fees, no collections, but I don't know how widespread that was), but interest rate arbitrage has to be considered against the effort.

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%.

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