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Comment by dathery | Hacker News Reader

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...

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It's interesting psychology. You can do buy now, pay later + get it later without Klarna. Just go to checkout, divide the sum by how many instalments you want to pay. Then open your banking app, setup a monthly transfer for that instalment to savings account, setup reminder in 3-6 months, then in 3-6 months just buy it. Just few more steps, but for a human it's more attractive to get item now and feel the pain later, rather than the other way around. That's how they make money.

If you do have money, it also means that you get item now and keep your money invested. If it’s the sort of BNPL that has no fees as long as you pay on time (not sure if Klarna does that, but I’ve seen a lot of those), technically it’s better to always use that.

Technically, yeah, but the overall benefit is pretty small. If you average $x/BNPL period, you're dealing with the cognitive/time overhead of buying everything with BNPL for the reward of whatever investment return you can get on $x. For an average household, that might be like a hundred bucks per year on average?

That’s the complete opposite of “buy now, pay later”, it’s “buy later, pay now”!

That's a big problem we have right now. It's just way too easy to buy shit you don't need with money you don't have. And the trap of paying over time completely warps your perception of how much you're spending. Even if you're responsible and make all the payments on time and don't pay a massive amount of interest.

> That's a big problem we have right now.

The problem isn't new.

https://www.youtube.com/watch?v=R3ZJKN_5M44

Yeah, you're right.

The difference is today it's far easier then it's ever been to make cripplingly bad financial decisions.

We’ve perfected it - you used to have to do a lot of work to sell yourself into debt slavery, now you can do it incrementally, over time!

They’re exploiting the economically and financially illiterate who have self control issues. Let’s just call it what it is

Sure, but so do credit cards in largely the same degree. But there's a lot less moral outrage about credit cards

Oh really? Not in my neighborhood.

Having a credit card allowed me to cancel my non-savings account and not pay bank fees. I use my credit card to pay for everything and then pay the credit card from my savings account. They are so dumb lol.

If you had a decent enough credit rating, there would be no need to use klarna as you’d already have credit on better terms.

You clearly don’t get it pal.

Predatory lending is a specific kind of targeted, exploitative lending. The form it takes is irrelevant (See below). And 2 wrongs don't make a right, but 3 lefts do.

- Credit cards with absurd fees and rates

- Payday lending

- Point-of-purchase loans

If it were truly as exploitative as you're suggesting, wouldn't the aggregate consumer fees/interest be more than the merchant fees?

You have to clear credit checks to get a credit card. Theres also generally a more involved application process (at least a little bit). The added barriers helped prevent the most financially unstable people from getting them.

There's plenty of problems with the system, but at least it's more difficult for people to get preyed on by credit card companies.

I see these companies like Klarna as not any better then payday loan places.

Yep.

> They’re exploiting the economically and financially illiterate who have self control issues. Let’s just call it what it is

As the post to which you replied did, without needless judgement:

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

You mean adult humans who can make their own choices?

Lets not infantilize people.

Usury is wrong even if it should be obvious to the debtor

Society has to come down especially hard on usury specifically because the victim wants to do it.

You sound like the type of guy who condones businesses like payday loans.

I accept that people can make their own choices free of coercion. Were talking Taco Bell here, dont be dramatic.

> 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.

This applies to credit cards too. And Klarna offers 6 week interest free loans (with partial payments along the way), not really that different from the 30 day loans from credit cards. So why is Klarna worth the extra merchant fees to the merchant?

Because the terms are way friendlier. Merchants get the money right away, and there is no risk of chargebacks. The article doesn't mention this specifically though the overall confusion is the same: Klarna is a slightly different form of credit card.

I honestly feel like it's getting to the point that we should just disallow credit offers at the point of sale.

Considering who benefits (even just as a customer) from them, and who is harmed, they should completely be outlawed if we really cared about the poor.

So: supply-colluding predatory lending in most cases with a shinny distraction of democratization of personal microfinancing.

And yet, Klarna cannot figure out a way to make a decent profit, even with less than 40% of the employees (from the VC funded glory years) and dozens of acquisitions of actually profitable companies.

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