Financing My Klarna Doritos Locos Taco

An interesting thing to understand about Klarna and other buy-now-pay-later products is that a major part of their profit is the very high merchant fees they charge; retailers have to pay ~2-4x what they do for credit cards if they want to offer Klarna. 57% of Klarna's profit comes from these merchant fees compared to just 24% from loan interest [1].

It turns out it's worth it to merchants because when you're not paying now, you end up buying more than you would otherwise. Order sizes are ~15% higher [2]. Probably similar to how it hurts more to pay with cash than debit because it's so tangible.

I view it kinda similar to gambling apps with their endlessly optimized special offers designed to exploit the human monkey brain.

[1] https://www.fool.com/investing/how-to-invest/stocks/how-does... [2] https://www.uschamber.com/co/good-company/the-leap/klarna-se...

> convince everyone that this is beeblebrox and therefore the previous rules don’t apply.

This reminds me of how services like Realpage have been described as "algorithmic price-fixing." There's something traditionally illegal (but profitable), and people try to get away with it by slapping on "but with a computer" as some kind of twist that's supposed to make it OK.

Sometimes there's a POSIWID [0] aspect to it, where the excuse is "no human explicitly designed the system to do X from the ground up"... which is a distraction from "we kept shopping around and tweaking until it started to do X and then we decided to make that a core part of our business."

That might be a defense against mens rea, but once someone points out that you created a crime-machine by accident, you still gotta fix it or turn it off.

[0] https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...

I cannot for the life of me find the article that explains this succinctly and with a hint of salience, but I recall reading sometime this year about how Klarna (a Swedish company) created the concept, in part, because the Swedish (culturally) tend to pay back their loans. It was a hit in its motherland, with little fraud and generally-responsible users. Then they went worldwide, in particular in America where we are a pack of jokers and heathens who are happy to finance a Crave Case and a vape with no intention of paying it back ever.

It apparently never occurred to them that we are like this.

That was a fun read, but the author never actually buys a taco with Klarna from what I can tell.

The article doesn’t mention it directly but as they alluded to, all these buy now pay later companies are bleeding money, which is kind of impressive in itself.

Delinquency rates are very high, and there isn’t much recourse for them when someone decides not to pay.

What is the upside to Klarna when they let you pay in installments with 0% interest ?

Klarna and other companies like it will reject the temp credit card situation. But nothing they can do if you cancel your debit card and close your bank account. Given the trouble that takes, they probably figure the risk is low

The description of the whole "copy something, but ignore the regulation" scheme is missing the most important part: Make sure that the extra risk you are undertaking be eaten by someone else, while you get most of the upside of the bet.

It's not even tech related at that point: It's also how synthetic CDOs were supposed to work for those issuing them in the financial crisis. If your innovation is only to eat the risk that before was illegal, then you are taking a gamble with is unlikely to pay off. It's also why private equity is using loans from third parties as part of their purchases: if the company they bought goes under because the fees were too high, or the intervention was too aggressive, the loan goes into default, and they didn't make the loan, so it's someone else's problem. Most crypto schemes end up like that too: The issuer offloads much of the risk. What is the real wonder of tokenized shares in a startup, if not for the venture capitalist to be able to offload risks into unsophisticated investors well before an IPO? Any place that is creating bonus risk is sticking most of it to someone else, capturing just the upside.

If Klarna wants to have a chance, it has to charge a whole lot more fees to the merchant, and then find a way to offload as much of the credit risk as possible, probably doing some kind of complicated scheme to make others underestimate the risk. Otherwise they are just WeWork, grabbing pennies in front of a steam roller until a bad recession destroys them.

I stopped reading after "regulations cause more harm than good"

The point of crypto is not "breaking the rules." Bitcoin might be inefficient but its mostly used as a reserve currency these days. Crypto in general, however, is the first currency that is backed neither by its cult value (gold) nor the military and economic strength of the country that prints it (USD), but entirely by technological foundations itself. It is revolutionary, if also very power inefficient. It is effectively reducing the role of the state to an intermediary regulatory body as technology continues to advance to the point where such civil laws are not required. Of course the corporation, as an entity, will come to dominate the world, but that is the natural progression of history and can also be overcome through social and political movements. But not before the state itself, as a political entity, is effectively dissolved.

To OP: This is not a crypto issue, and many of us not obsessed with the subject like me will get annoyed to see it being brought up.

You speak true of the subject matter, however. Except for Klarna, I had good credit (the last time I applied, score FICO was 720 with strong payment history (no negatives, a decade of history of good credit, near and/or zero balances, and a quarter million of personal income) and they wouldn't lend me a dime (I asked for like $100 or something...literally could not be bothered to find my wallet, get my card out, and find the 3 digit number on the back...I also figured it'd be neat to have a new line of credit). I suspect they have some other odd model for tracking you, and if they can't, they reject, so it is likely not as bad as you think.

It's probably much worse. ;)