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Comment by SOLAR_FIELDS | Hacker News Reader

This treatise, from someone obviously in the industry, is merely another payday loan shark attempting to justify the existence of their clearly predatory products. How many of the consumers of this product are even remotely able to comprehend the piece as-is described? The article describes a "complete market". Yes, a market that is completely able to extract as much money from an exploited, uneducated populace as possible. Is that the kind of market efficiency we should be advocating for?

The part of the "free market" that these fat cats always gloss over is that a cornerstone of a free market is that the consumers of the market are able to make educated decisions about the products that are available to them. If the populace is incapable of doing so in the way the products are presented to them, is that really a free market?

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It's unhinged.

> Is financing your lunch a sign of societal decay? Maybe, maybe not.

Financing your lunch means you can't pay for your lunch. And then somebody comes to search profit in that. Yep, it's societal decay.

Ah, but he draws the line at sports bets, he doesn't like that.

> > Is financing your lunch a sign of societal decay? Maybe, maybe not.

> Financing your lunch means you can't pay for your lunch. And then somebody comes to search profit in that. Yep, it's societal decay.

Counterargument: almost always when I buy something, lunch or otherwise, I put it on a credit card, which I pay off always before the due date but essentially never on the same day I had the lunch. Viewed through the lens of a society that only paid up front in cash, what I do would be viewed as risky and irresponsible; but it is not.

BNPL as it currently exists, in the form described in this article, is exploitative. But the American credit card system, which is the same sort of thing mildly rearranged, is far less exploitative.

The credit card company still takes a 2-3% cut, which absolutely gets passed on to consumers. You get part of it back in the form of credit card rewards and services (eg. fraud protection, charge backs) but it's still a tax on everything.

BNPL is worse, they take 5% and all you get is a small loan for a few weeks. Their whole business model relies on it being "free" for middle-class people who will pay back their loans, because the fee is hidden in the purchase price. This is an area where government regulation is actually required, all transaction fees should be disclosed and charged as a surcharge on the base purchase price, whether it's a credit card or BNPL, to provide a fair and competitive market for consumers and merchants.

>This is an area where government regulation is actually required, all transaction fees should be disclosed and charged as a surcharge on the base purchase price, whether it's a credit card or BNPL

Btw. in Europe the card thing was solved differently. First, most people use debit cards, not credit cards. Second, card fees are capped at 0.2% which makes it actually a cost saving measure (cash processing is not free).

People use debit card in the USA as well

The difference is that in the States a cash discount is only rarely offered. It’s common in some areas (gasoline often costs less when you pay with debit, contractors and other similar small businesses will usually pass that 3% on to the consumer as well) but not others. Much more common is that the business charges the same for both (basically every direct to consumer retailer charges same for both debit and credit).

The indirect result is that people with debit cards and cash payers are actually indirectly subsidizing credit card holders in the States. You’re actually operating at a disadvantage if you don’t funnel most of your spend through a credit card in the States

Let's start by not calling it a "cash discount", since it's a misnomer. The real term is "card processing fee" (and lack thereof).

And yes, it would sure be nice to mandate explicit card fees for all uses. That would make debit cards that much more attractive.

> Viewed through the lens of a society that only paid up front in cash, what I do would be viewed as risky and irresponsible

Are you sure about that?

I would be surprised if a society that only paid up front in cash had ever existed. For example, "if you do something for me now, I'll do something for you later" is a much more basic form of interaction than "if you do something for me now, I'll give you this money" is.

Financing your meals isn't an exotic concept; it has normally been known as "running a tab". But running a tab involves periodic settlement of whatever the tab has run to. It isn't broken down into individual transactions each on their own detailed payment plan. This is something that doesn't make sense for small purchases.

> But the American credit card system, which is the same sort of thing mildly rearranged, is far less exploitative.

Than what? Have we actually checked what the level of fraud is by credit-card companies, or how they price various cards for various customers?

Please enlighten on "level of fraud". Whenever I hear this thing it is mostly that any fees/charge is evil and when there is no charge or fees then of course customer is the product.

Fees and charges are not fraud. Fraud is defined in the law.

Interesting, because sports betting is waaaay more voluntary than eating.

Eating is voluntary, if only for short while.

In the same sense as cigarettes. It’s a compulsive behavior.

He doesn't want to admit to being the cause of the rot, it makes him feel bad (but not bad enough to not do it lol)

Amen. It's been my experience that, for any innovation in financial technology, if you keep asking "and why is that beneficial?" for long enough, you will finally arrive (via tangents into "liquidity" and suchlike) at "it allows those with money to extract more money from those with less money".

I don't know that's quite true.

I've seen cases where it allows those with money to extract money from those with a lot of money too.

Take this situation:

Business A and business B are both doing well and competing with each other in a duopoly.

a) No credit: Each business needs to be in the black, and competition is sustainable.

b) Credit: Whichever business borrows more money to spend on buying customers is more competitive in the short term (which can lead to monopoly long-term). Both businesses run in the red are and brittle. In any downturn, tightening of credit, etc. both are liable to go under.

This competition to raise increasing amount of money to be competitive (to increasing devaluation and/or debt makes for a pretty broken economy), and makes traditional businesses (which invest in R&D from profits) increasingly unsustainable.

This even goes to government level. Historically, if e.g. two European powers were in a war, whomever could borrow more to buy weapons / hire mercenaries would have an advantage. Access to credit made for more costly, more deadly wars, and broken national economies. If neither side had access to credit, both sides would be strictly better off.

For the same reason, I’d argue mortgages are a bad thing for consumers by creating this prisoners dilemma around debt.

It depends on the format of mortgages.

There are parts of the US where home ownership is bottlenecked by land prices, where this is absolutely the case.

And there are parts where it's bottlenecked by construction costs, where this is not the case.

"Are a bad thing" is also complex. I would agree they WERE a bad thing when introduced.

Today, there is a complex problem of how you unwind this phenomenon. If you invested your life savings plus $800k of debt into a $1M home, and it's worth $500k, you have a serious problem. Simply eliminating access to debt would cause all sorts of economic disruption for consumers, almost certainly outweighing the benefits in lower housing costs.

And the other piece of the puzzle are zoning and codes. 100 years ago, if you had a plot of land, you could cut the wood and build a log cabin. Today, construction is $$$$$$$ because of inspections, licenses, insurance, and a crew of bonded / licensed workers. A log cabin would be illegal and result in fines.

In general, the availability of credit has been a positive economic factor that helps enable capital expenditures that otherwise would only be available to the wealthiest. Lack of such credit leads to capture of means of production and rent seeking behaviors in economic terms.

However, it’s become more and more clear that not all credit is created equal and what you spend the resulting capital on matters a lot. If one buys a house to live in or equipment to make money with - that’s generally good use of credit, assuming costs do not outweigh the benefits. I can’t think of a situation where buying lunch that one has to finance is a good thing (as different from credit card points harvesting/optimization). The implications of anything similar to payday loans going mainstream feels like a large societal risk.

Exactly.

Key differences:

- Houses are gaining value over time while consumer goods such as food, phones, TV, cars are loosing value over time.

- A loan for a house can be paid back very slowly so that you effectively only pay your initial share of the price (and share the profits with the loan giver via interest). A loan for consumer goods must usually be paid back almost immediately.

It isn't just about appreciation. It is about utility and production.

A car loan can be a great investment if it gets you to a job you otherwise wouldn't have, even if it is going down in value.

Debt for an expensive degree that gets you a good job is the same, and entirely devoid of resale value. Debt for an expensive degree with no job prospects, not so.

This - utilization of credit in a way that helps the borrower pay back the debt can be okay (e.g. cost-effective, productivity raising tractor purchase), while allowing non-productive credit use (e.g. smart tv solely for entertainment or financial asset purchase) leads to individual's debt bondage and in the large, inflationary financial market crises and asset price bubbles

https://youtube.com/watch?v=8FT-zyTX2nE

Both can lead to those bad outcomes. Many crises have been centered around assets that have some sort productive or utilitarian use.

Housing bubbles obviously come to mind, where there is obvious income and utility potential. Bubbles are about the balance of these return factors with pricing, not a result of their entire absence.

Either way, there is a fundamental question about whose moral authority it is too allow or not allow certain behaviors of others, and what that threshold is.

If I want to buy a smart TV, flashy car, or a case of beer on credit because I value pleasure today over cost tomorrow, who are you to tell me it is illegal?

I have no idea what I think about BNPL products, but those "tangents into liquidity" basically eliminated most of the costs of trading. You can't negatively polarize me into thinking there's a social good to paying $50 to place a simple buy order; not having to do that is part of what "liquidity" means.

You can't positively polarize me into thinking there's a social good to placing a simple buy order. That's precisely my point.

Explain? If you don't think there's any good in the markets at all, how is the status quo ante of the 1990s, where everyone transacting paid a cut to corrupt middlemen, any better? It seems like it must obviously be worse.

It is true to say that "a bad thing with an extra bad thing is worse than just the original bad thing", yes. If there exists a market for imaginary trading cards whose value is loosely predicated on how well a company markets itself (rather than on how much value it actually creates in the world), then I agree that it's desirable for that market to exist with as few capitalist hoarders as possible. So, yes, the absence of "corrupt middlemen" is a good thing, and a market without them is better than a market with them.

But an even better outcome is for the whole damn edifice to cease to be.

Yes. That’s literally the economic system we have agreed upon in the United States States and continue to vote for.

The product (from the perspective of the consumer) _is_ relatively straightforward IMO. What isn't straightforward is accurately modelling the credit risk of the bonds when this class of debt is securitized (the meat of this article). Thus I don't think understanding this article is a prerequisite for making educated decisions re: BNPL.

An industry of parasites, extracting money from people already down on their luck. Rats.

Because the easiest person to extract money from is someone with no other option.

We are right back to feudalism.

Usury is outlawed in many religions for good reason. This is a known problem with a known solution, but our society is run by billionaires who can put substantial capital to convincing the proles otherwise.

Simply bring up inflation is wrong and not necessary (outside of disaster, etc) and the US government should control its own monetary policy and not the fed. You’ll get downvoted and/or fed arguments from economists (modern day priests) about how wrong you are. And yet the wealth gap keeps growing while we’re the most technologically advanced and efficient we’ve ever been.

Deflation is objectively pro-usurer.

Why did I have to scroll so far down in the comments to find someone revolted by this?

I feel like all the comments about this (at least currently) are buying into the premise, taking these arguments at face value, and agreeing that BNPL is a _good_ thing, just insane.

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