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Comment by paxys | Hacker News Reader

I have my share of problems with big tech, but none of them compare to the rotten garbage that is sectors like payday loans and BNPL. These are industries exclusively set up during rough economic times to prey on the poor.

Just think about BNPL for 3 seconds. How do they make money? By selling people shit they can't afford, waiting for them to miss payments, and charging hefty interest and fees – sometimes totaling up to as much as the product itself.

You can argue "it is legal" "they signed the contract" "they should have known better” all you like, but just like payday loans it is a social ill that we need to deal with.

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Honestly even with this reasoning I still don't understand the BNPL business model. If a person can't afford it from the start how are they going to afford it once interest and fees kick in? Seems like the BNPL providers are paying for something full price, potentially charging some fees, but overall receiving less because the debtor defaults.

Obviously I'm missing here because there is no way the BNPL industry would exist without profit, but I just don't get it.

It's like squeezing juice harder. They know how to squeeze the last drop of money out of poor people.

I agree strongly. It really encourages people with poor credit and/or little experience using a credit card "the right way" to finance what should be trivial purchases you either save up for firts, or just don't buy. BNPL for groceries is the ultimate borrow from tomorrow to pay for today; modern economies have taught their citizens well!

So... same business model as credit cards?

Credit cards also make substantial money on transaction fees, but yes you are correct.

Huge caveat is that some BNPL services don't require credit checks.

Don’t they work under very different regulatory frameworks though? (As in: banks have some regulation)

Different customer base. These loans are generally more expensive and sold to people who can't qualify for credit cards. So yes, same business model but with the "Predatory" knob turned up.

AFAIK the interest rates on credit cards are nowhere near that of even regulated payday loans. The lack of interest on most cards if you repay in full each month can also make them a useful buffer if you have short term liquidity problems, ironically the problem that payday loan companies claim to solve.

Payday loan companies as they operate now belong in the class of companies that should simply be destroyed. Put betting shops in there as well.

If BNPL was the same as credit cards, then why not just use credit cards?

BNPL often ignores credit check or specifically targets groups that credit cards would deem too risky.

For me this doubles the problem with the BNPL space: not only are the predatory, but I have serious concerns about their own risk management.

I knew of a start up that was experimenting with running their own BNPL service with zero credit checks. The users that were being targeted had a 30+% default rate (because other users had credit cards) but the upper bound of interest that could be charged was around 25%... the company seriously didn't understand why they weren't able to make profit on this product. But hey, revenue did grow which is all VCs cared about so it worked for them.

BNPL targets people who wouldn't otherwise qualify for a credit card or personal loan.

Here's a simple test – if everyone paid their balances on time and in full, credit card companies would still survive. BNPL would not.

> if everyone paid their balances in full and on time, credit card companies would still survive.

That goes against my understanding. Do you have a source for that?

I'm pretty sure credit cards make their money off of interest. It's not from the interchange fees from people who pay their balance each month, as those often go straight back to consumers through rewards programs, and just administration costs generally. The card I use most has no annual fee but 2% cash back on everything.

The ratio depends on the credit card issuer, but often times the rewards are just a fraction of the fees charged.

American Express in particular makes more of their money from transaction fees and membership fees than interest. https://www.investopedia.com/articles/markets/012715/how-ame...

Yes, but American Express is very much an outlier and always has been. It's also why many shops don't accept Amex, because it charges higher transaction fees.

AMEX allows you to have a rotating credit line now on those cards.

Cashback is not really a thing around me (Switzerland) and other rewards are just practical jokes - like overpriced black socks subscriptions offered slightly less overpriced. Yet credit cards thrive.

Yes but interchange fees are far lower in Europe.

In the US they're around 2%. In Europe they're more like 0.3%, which is why cashback/rewards aren't a thing.

My point is that interchange fees aren't where credit cards make money, it's on the interest of people who don't pay in full.

Some cards like AMEX Gold/Platinum don't allow you to carry a balance at all, and make most of their money via interchange fees.

There is a spread between rewards provided and actual fees (fees are closer to 2.5-4%, rewards usually top out around ~2%)

I'm by no means a BNPL advocate, but this isn't true. BNPL providers have proliferated because they offer the merchant a new avenue to win new businesses (aka get consumers who wouldn't buy to buy) and in exchange receive a heft % commission of the purchase, much higher than card interchange. They also are fighting to reposition themselves as marketplaces in their own right, and earn associated merchant marketing fees, rather than be just a button a check out.

According to the BNPL industry, fees and interest make up a small portion of their overall revenues. Whether that's wholly accurate is another story.

In sum, they would indeed exist. Its more a question of how large and profitable they would be.

Check out Klarna's financial reporting to get a sense of this: https://www.klarna.com/international/press/klarna-reports-fo...

> According to the BNPL industry, fees and interest make up a small portion of their overall revenues. Whether that's wholly accurate is another story.

It may also be irrelevant; I'm more interested in their forward-looking forecasts than their current revenue sources.

So you don't know abt Gambling nd sports betting then.

How did you miss to learn about those at your University, Man?

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