Dangers of BNPL

Grumpy_chap

Brie said:

So the BNPL companies are making money from the supplier not the buyer.  Hence no need for interest.  So a £100 (or in this case $100) purchase costs just £100 and not a moving target amount that one gets with a CC.  

Are the BNPL companies really making money from the supplier not the buyer?

There seem to be an ever increasing number of times that the "pay in 3" pops up when in the check-out stage of an order.  The value of items where this is offered seems to be very low.

If retailers believe that in order to get sales then it is necessary to offer "pay in 3", that is a cost borne by the retailer (initially) and results in the costs being higher for everyone.  Without some of the purchases being under "pay in 3", the retailer would have additional funds available to either enhance their profits or offer a lower price, or offer another discount incentive.

spinningsheep

When I book flights with Jet2 I usually use the pay in 3 option, not because I can't afford it, it's just easier on my pocket over 3 months vs in one go and I pay no interest. Never considered that it would be potentially viewed negatively by other lenders. 

grumpy_codger

This is one of many absolutely nonsensical things in our financial system run by computers programmed by people with some idiots between them.

There is absolutely no reason for interest-free BNPL to look worse than a high interest credit card debt serviced by payments slightly bigger than minimum ones.

born_again

grumpy_codger said:

This is one of many absolutely nonsensical things in our financial system run by computers programmed by people with some idiots between them.

There is absolutely no reason for interest-free BNPL to look worse than a high interest credit card debt serviced by payments slightly bigger than minimum ones.

They are viewed just like Pay Day Loans. Taken by a majority that can not really afford what they are buying.
Not the few money savvy people who are getting a interest free period.

Theleak250

I think it said in the Sky News report that 95% are paid back on time. I think it should not result in a blanket ban on you getting a mortgage. Surely they are capable of looking at the bank statements. But I suspect they are worried once you have a mortgage, you are in danger and have less financial control than others. I used BNPL about a year before I got a mortgage, they only went back six months so didn't seem to impact the application. 

grumpy_codger

born_again said:

grumpy_codger said:

This is one of many absolutely nonsensical things in our financial system run by computers programmed by people with some idiots between them.

There is absolutely no reason for interest-free BNPL to look worse than a high interest credit card debt serviced by payments slightly bigger than minimum ones.

They are viewed just like Pay Day Loans.

Well, they are viewing this this incorrectly. Should have gone to Specsavers? And, to put it mildly, they aren't very clever people if they don't understand this. 

And what does BNPL have to do with pay day loans? The latter are never interest-free.

Taken by a majority that can not really afford what they are buying.
Not the few money savvy people who are getting a interest free period.

Any statistics supporting this? And regardless, instead of swiping smearing,  BNPL can be judged on case by case basis, like, say, CCs. I don't see any essential difference.

Not that I've ever used BNPL and really care about my credit rating, but recently when making a big £590 purchase on ebay I was offered (by ebay) a really big £50 discount for using Klarna. Why on earth should anybody be penalised for this? Unfortunately, the item turned out to be incomplete, I returned it and was refunded.

MyRealNameToo

Grumpy_chap said:

Brie said:

So the BNPL companies are making money from the supplier not the buyer.  Hence no need for interest.  So a £100 (or in this case $100) purchase costs just £100 and not a moving target amount that one gets with a CC.  

Are the BNPL companies really making money from the supplier not the buyer?

There seem to be an ever increasing number of times that the "pay in 3" pops up when in the check-out stage of an order.  The value of items where this is offered seems to be very low.

If retailers believe that in order to get sales then it is necessary to offer "pay in 3", that is a cost borne by the retailer (initially) and results in the costs being higher for everyone.  Without some of the purchases being under "pay in 3", the retailer would have additional funds available to either enhance their profits or offer a lower price, or offer another discount incentive.

It varies, not all BNPL are interest free. 

Clearly if they are interest free then its the retailer that covers the cost which is about 5%, on the flip side they are avoiding card payment fees though so the marginal difference is smaller plus there are certain seller protections included in the deal. 

Do they need to increase prices to cover the costs? Arguable, Klarna will point out you will make both more sales and at a higher value by offering their solution so whilst you margin per sale may go down the total sales and value of sales goes up so in principle your bottom line improves despite the higher cost. 

They're more or less just copying what AmEx used to do, though AmEx used to focus on the fact their customers were more affluent and so spent more, suspect Klarna etc has only focused on the spending more without dwelling on the why.