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The Almighty Buck Businesses Technology

Missed Payments, Rising Interest Rates Put 'Buy Now, Pay Later' To the Test (wsj.com) 147

Posted by msmash from the closer-look dept.
"Buy now, pay later" companies promised a credit revolution that would change the way people pay for things. Rising delinquencies and a slowing economy are clouding that outlook. From a report: Payment plans that allow shoppers to split up the cost of things such as clothing, makeup and home appliances were all the rage last year. The companies behind the plans saw their valuations surge. Scores of retailers rushed to add them at checkout. Block in August announced a roughly $29 billion all-stock deal for Afterpay, one of the biggest companies in the business. But late payments or related losses are piling up for the industry's biggest players -- Affirm, Afterpay and Zip. Their borrowing costs, meanwhile, are rising. Buy-now-pay-later companies sometimes rely on credit lines whose rates rise and fall along with the Federal Reserve's benchmark rate, which has risen 0.75 percentage point so far this year and is poised to go up even more.

Investors, once enamored with the business, are backing away. Affirm went public in January 2021 at $49 a share and rose to more than $170 by November. The stock closed at $28.50 Tuesday. SoftBank-backed Klarna Bank is looking to raise as much as $1 billion in a deal that could value it in the low $30 billion range, far below the roughly $46 billion valuation it achieved last year. The young industry finds itself in a tricky spot at a time when the economy is slowing and, some fear, headed for a recession. Buy-now-pay-later companies boomed when consumers were flush with cash and buying goods at a feverish pace. How they fare in a downturn, when savings evaporate, spending slows and bad debts mount, is untested. To weather the storm, Afterpay and Zip are slowing their new originations.
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Missed Payments, Rising Interest Rates Put 'Buy Now, Pay Later' To the Test More

Missed Payments, Rising Interest Rates Put 'Buy Now, Pay Later' To the Test

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  • Not only are these companies generally predatory but if they fail then their assets will go on the market at fire sale rates, and maybe I can pick up a new monitor :D

    • Re: (Score:3, Insightful)

      by Asynchronously ( 7341348 )

      I’m so tired of this worthless argument. How are they predatory? Users know exactly what they are doing? Can we stop pretending that nobody has agency and is in control of their own actions? This is such a “not my fault” Gen Me mentality. This why you guys live with your parents until you are 30 or older.

      • Re:Good, I hope they all implode (Score:5, Insightful)

        by Zak3056 ( 69287 ) on Thursday June 02, 2022 @02:44PM (#62587578) Journal

        Why can't you both be right? People need to learn responsibility and the people running these outfits are usurious scum.

        Huzzah, common ground is achieved!

        • How are they scum? Is this the same argument as “It’s McDonald’s fault for making me fat. The smell of the fries was so good I couldn’t resist. It’s not my fault, I had no control!”

          • Re:Good, I hope they all implode (Score:4, Insightful)

            by spun ( 1352 ) <loverevolutionary@@@yahoo...com> on Thursday June 02, 2022 @03:15PM (#62587664) Journal

            They are predatory scum. Payday loans aren't optional for a lot of poor people. They get one unexpected expense they can't cover, and they have no options but to take out a predatory loan. It's that or be out on the street, or without a car they need for work, or without medicine they need to live.

            We have tried to pass laws to protect people from these con artists, but our current Republican and Democratic parties only pass legislation that favors the rich.

            Don't blame the poor. Blame the rich for setting up a system that depends on the poor using credit, rather than paying them a fair wage.

            • Lay off your false equivalence. The democrats WANT to enforce the consumer protection laws that these companies are trying to circumvent. The republicans seem to not want any laws enforced except the ones they choose when they choose - you see which one of these parties respects the rule of law.

              • Re: (Score:2)

                by spun ( 1352 )

                SOME democrats want that. But the majority want whatever their corporate donors want. Republicans, on the other hand, want to overthrow democracy itself and implement a religious ethnostate. So no, I am not trying to say they are the same. One party is merely corrupt, while the other is incorrigibly evil.

                The democrats have shown they do, in fact know how to fight tooth and nail to get things done. Like making sure Bernie Sanders never gets a shot at being president. Yes I am still bitter. But I still vote D

                • What? Here's an important fact you need to be aware of: Socialism is incompatible with Democracy. It must and can only be a totalitarian dictatorship. Bernie Sanders and a growing number of far-left Democrats are explicitly demanding Socialism.

                  There is no such thing as "Democratic Socialism". That's a misnomer you can see on full display by looking to the "Democratic People's Republic of Korea", yet AOC proudly declares herself to be in that same camp.

                  So, that's two elected Democrat legislators who

                  • Complete and utter horseshit. You're using the "NSDAP says they're socialists, therefore they are!" argument. It's dishonest as hell, from both the organization calling themselves "democratic" or "republic" and you arguing that their names aren't a complete fabrication of what they really are.

                  • Is it possible that you are confusing demonocracy (people ruling over others) with freedom (people ruling over themselves)?

                    Common mistake, made by a lot of well-meaning people, but very dangerous, because it's been known since classical antiquity that demonocracy basically devolves into the powerful manipulating the people into voting into whatever the powerful want, while thinking all along it was their idea.

                    If you said socialism is utterly, and inherently, incompatible with freedom then I'd agree.

            • Payday loans aren't optional for a lot of poor people. They get one unexpected expense they can't cover, and they have no options but to take out a predatory loan.

              a) these aren't payday loans.
              b) even if they were that doesn't make them scum. They provide a service people want / need. Are you expecting someone to provide something for free? Consider looking to charities rather than financial services.

              There are scummy dealers out there to be sure. Some are worse than loan sharks. But simply lending money to (as you put it) people who needed it due to an unexpected expense isn't scummy.

              Blame the rich for setting up a system that depends on the poor using credit

              I blame neither. I blame the morons who think "social security" is some kind of swear

            • "They have no options but to take out a predatory loan. It's that or be out on the street, or without a car they need for work, or without medicine they need to live."

              So the payday loan people are evil for providing them the option that keeps them "off the street, without a car they need for work, or without medicine they need to live"?

              I'm trying to understand your argument.

          • Because they're punching down, and the people they're punching are only on the first couple of rungs on the ladder. They need a hand up, not to be milked. Everyone who doesn't prey on the weakest among us suffers when it happens, because they are more likely to be successful if they aren't taken advantage of, and then they are likely to make a larger contribution to the whole, and that will help everyone right up until they get rich enough to stop paying taxes. But that's another argument, and not a reason

          • Ive been told the credit problem in europe is no where near what it is here. Loansharking is generally illegal. These practices ride that grey line between regular APR and loansharking by using poorly worded legislation as their basis for doing it.
        • Is it usury? What interest rates are they charging? Or more simply, are they allowed to operate in NY, the State that actually has a usury law on the books? If they're charging a thousand percent or more (like Western Sky), then yeah, bad. If their rates are in line with what credit cards charge or less, then we've already decided that isn't usurious.

          You're probably right, sadly, but I'd like to know for sure before making claims, and what I can see of the article doesn't say.

          • Re: (Score:2)

            by Zak3056 ( 69287 )

            Generally speaking, all of the BNPL outfits charge 0% interest. That's not usury, it's a service to the public, right?

            Well, no. Obviously, the business model "here's some free money, no credit check required" isn't a business model at all, and a negative ROI is certainly not worth a valuation of $46,000,000,000.00. The value proposition to investors is lending to people who will pay late, thus incurring high fees, which is the same business model as payday loans.

      • How are these services different than say, the common credit card?

        Or what used to be commonly called "lay-away"?

        • Re: (Score:3, Informative)

          by UMichEE ( 9815976 )

          The interest rates are a lot lower (or sometimes there is no interest) on these new systems. The business model is based on some percentage of the buyers missing a payment and then sticking them with punitive late fees. That's how the world of "no interest for 24 months" promotions works. Basically, they lose a little bit of money on most people so that they can really stick it to the 5-10% of people who forget a payment.

          I guess the problem is that if the 5-10% of people don't just forget a payment, but

          • The interest rates are a lot lower (or sometimes there is no interest) on these new systems. The business model is based on some percentage of the buyers missing a payment and then sticking them with punitive late fees. That's how the world of "no interest for 24 months" promotions works. Basically, they lose a little bit of money on most people so that they can really stick it to the 5-10% of people who forget a payment.

            Ok, thank you for the clarifications!!

            I've long been of the mind, that I don't buy an

          • Also apparently the vendor pays the service a small percentage to effectively make it easier for the customer to buy. So it's like "free shipping", its really just built into the price. I don't see how the system is legal because it seems to depend on putting only the first payment on a credit card without telling the credit card company about the rest of the loan. That seems a lot like facilitating fraud against the credit card company by using a loophole to disguise a loan. But really this seems like

        • Re: (Score:3)

          by bws111 ( 1216812 )

          It is the opposite of lay-away. With lay-away, you pay a deposit and the seller holds the product for you. When you pay the full amount, you get the product. This does not create debt - if you fail to make the payments you just don't get the product. Depending on the terms, you may forfeit none, some or all of the money you have already paid, but you don't owe MORE money as a result of being unable to pay.

        • No APR in lay-away. Pay $99 now or 4 payments of $35. You do the math. Whats worse is paying $35 over 4 payments results in 3 more purchases of similar commitments. I want it all and I want it now. Or to quite the grinch, I want a pony so i can ride it for 6 days, get tired of it, and turn it into glue.

      • Because they're taking advantage (Score:5, Interesting)

        by rsilvergun ( 571051 ) on Thursday June 02, 2022 @03:25PM (#62587688)
        of decades of shrinking wages for working Americans. These aren't people buying TVs. TVs are cheap. I can go to Walmart right now and buy a 42" flatscreen for $300 bucks. Back in the 1967 when minimum wage peaked that would be about 22 hours of work or half a week's pay. In minimum wage kept up with productivity it'd be $24 -$28/hr (depending on who's numbers you use).

        So you're 18, parents kick you out because they didn't want to have you in the 1st place but the condom broke and the women couldn't afford the pill (none of that socialized medicine for us, we're 'Merican) and suddenly you need a table and some chairs for that studio apartment you're renting for 70% of your monthly pay (there's those declining wages again). Parents are no help, they kicked you out. Goodwill is useless, they're a for profit company after all. And even if you could buy something how would you get it home?

        So you go to one of these dodgy places and a slick salesmen talks you into it. Sure, the stuff falls apart before the last payment's made, but hey, I got mine, fuck you.

        That's how they're being taken advantage of. And the best part? they're trying to Unionize for better pay and getting blocked by Baby Boomers and right wing Gen Xers putting anti-Union psychos in charge. We're baking Gen M & Z into a corner. In America. In a country that heavily encourages people to solve their problems with violence.

        Buckle up, it's gonna be a bumpy ride. Maybe you'll kill the 1st wave with your AR-15. By the 5th or 6th it's gonna stop being fun.
        • Oh and for the record I'm older than dirt. I'll be one of the ones that gets their head stomped in by an angry Gen M/Zer. At least if all the other old coots who don't know their history get their way.

          I mean Christ, it's like none of us remember what happened to the Soviet Union...

          • I mean Christ, it's like none of us remember what happened to the Soviet Union...

            It pulled an AT&T and got the old band back together?

            • I was talking more about how there were violent gangs that congregated into a large-scale mafia that was running the country until Putin was put in charge and while he did get the mafioso under control he replaced it with a brutal dictatorship of the " get the trains running on time" variety that eventually destroyed the country by involving it in a pointless War on a whim of a sad, dying old man...
        • Mod parent up.

          Very well put.

        • Minimum wage is 0, not whatever gov't sets it to. That is the real minimum wage, it is 0 dollars and 0 cents.

          There shouldn't be any legislation stating that work cannot be done for 1cent/day or 1$/hour or whatever. Of-course governments shouldn't be in the business of printing money, handing out services, like education, medical care, housing, food, energy, entertainment, communications, transportation, child care or anything else at all. Government isn't there to hand out services or money to people, if

        • Is that like Soylent Green but with baked goods?

          Sorry, could not resist; That typo made me giggle :)

        • Wow, what world is it that you see around you? It doesn't much resemble the one I see.

        • Dude, you were nailing it up until:

          they're trying to Unionize for better pay and getting blocked by Baby Boomers and right wing Gen Xers putting anti-Union psychos in charge

          That is when I realized you are either a useful idiot or you are actively working against fixing things.

          It is people who "have theirs" that you are fighting against, but they are not the cause of your/our misery. So you waste your energy fighting essentially "internally" while "they" get away with looting an entire society.

          When the time comes, you will be throwing the wrong people against the wall while the people who should have been up against the wall will move on to a

      • They are predatory because they know their customers do not know what they're doing. Intelligence is on a bell curve and 15% of all people are in a category called "borderline intellectual functioning" or worse, and that isn't going to change. Thinking that all people should be able to see that someone is trying to take advantage of them, and that trying to take advantage is therefore OK, is a morally bankrupt attitude towards other people. We need to make laws to protect the weak because the strong don't n

      • Re:Good, I hope they all implode (Score:5, Insightful)

        by torkus ( 1133985 ) on Thursday June 02, 2022 @04:13PM (#62587816)

        How about this: They are predatory because they exist to make money off people who literally don't have any to begin with.

        Worse, these companies intentionally prey on people who either don't know better or don't have other options. They hide behind complex contracts that virtually *no one* reads much less understands without a relevant law degree. They do this 100% on purpose knowing the vast majority of their clients - who, again, have no money to begin with - also have no means to fight them or negotiate with any kind of parity.

        I'm /not/ saying people should be stupid with their money and then just forgiven but IMO that's a different and largely separate conversation. Debating someone's "need" to purchase is tangential to the point of irrelevance.

        These companies should not be permitted to exist. They literally profit by making the already poor even more poor.

      • Re: (Score:3)

        by Nugoo ( 1794744 )

        How are they predatory?

        I don't know much about the specific companies that this article is about, but there's a whole Wikipedia article about the concept of predatory lending [wikipedia.org] if you're interested in learning more about it.

        It shouldn't be that strange a concept; loan sharks and usury have been illegal in many (most?) cultures for a very long time. I don't find the suggestion that these particular companies are predatory to be particularly far-fetched.

      • Predatory organizations target the poor, uneducated, mentally disabled, and/or physically disabled. Usually some combination of those and in varying degrees. Those people are literally unable to understand, comprehend, and/or deal with the complexities of financial management but are tossed into the same world as those who can. They are the vulnerable of society and they are preyed upon by those without ethics, morality, and/or legality. Any legal punishments are usually just a slap on the wrist and the

      • Re: (Score:2)

        by khchung ( 462899 )

        I’m so tired of this worthless argument. How are they predatory? Users know exactly what they are doing? Can we stop pretending that nobody has agency and is in control of their own actions? This is such a “not my fault” Gen Me mentality. This why you guys live with your parents until you are 30 or older.

        BNLP is predatory in the same way gambling and payday loans are predatory. They all exploits human weakness for profit.

        Human, including adults, is not a rational machine, we all have human weaknesses. BNLP offers instant gratification at the cost of long term suffering, most humans cannot correctly assess such a tradeoff*, and many would choose instant gratification even though rationally the long term suffering costs them much more overall.

        BNLP induce people to buy things they should not have bought at t

      • If I were to agree with the term "predatory", I would apply it a little differently.

        It's not that they prey on the consumer, in terms of taking advantage of the consumer's ignorance. Instead, I'd argue that they take advantage of the consumer's lack-of-borrowing power compared to their own. And I think that's exactly what this article winds up describing by accident.

        Last year, interest rates were very very low. So these companies could easily borrow money at 2% annual interest. In quantity, very close t

      • Re: (Score:2)

        by rastos1 ( 601318 )

        Living on the other side of the pond I'm not familiar with the companies from TFA. But generally when entering into a contract with a company (be that phone company, ISP, bank, insurance, loan, leasing, whatever ....) the odds are stacked against the individual. The contract is full of legalese that was crafted by a well paid team of lawyers who studied the law for years and have years of experience under the belt. It is not realistic to expect that the individual has matching expertise and is also not rea

        • Re: (Score:2)

          by pjt33 ( 739471 )

          And as an indication of how much they expect you to understand what you're signing, the last time I opened a bank account the banker passed me 10 pages of contract to sign and was visibly annoyed when I started reading it. It's taken for granted that you sign without reading, but somehow the courts assume that you understood and accepted all of the fine detail anyway.

    • In that we completely agree. The idea of saving up and just buying something is just lost. So now people split up payments and buy 3 more things the same way. 1 credit card for emergency repairs on vacation spending for consumer protection, and a mortgage are the only type debts I have. If i get a car I pay as much as i can to pay it off early. Currently I owe nothing on a car. Debt free is a freedom lost on a lot of people. Sometimes thats not by choice, but often its by bad choices. Cash advances, chime t

    • Re: (Score:2)

      by vlad30 ( 44644 )
      If you can't afford it now, don't buy it, what makes you think you can pay for it later, you probably can't

      General rules with money only major assets should be allowed to have a loan against it i.e. House/property, cars should have minimal loans i.e. don't borrow to buy a sports car only for one that will get you to and from work if absolutely necessary look at all options and loans, never borrow for wants.

      There are many businesses that are predatory sadly there are many stupid people to let those busine

  • Again? (Score:3, Insightful)

    by RobinH ( 124750 ) on Thursday June 02, 2022 @02:10PM (#62587472) Homepage
    It's as if every generation needs to learn the same lessons again and again. Taking on debt to increase your earning potential is one thing, but taking on debt to buy consumer goods? Never a good idea. It leads to this.

    • Re: (Score:2)

      by Osgeld ( 1900440 )

      its almost like the previous generation failed

    • History will be repeated until we finally learn from it.

    • And past generations had the exact same schemes: personal loans, payment plans, credit cards with monthly payments and interest. What exactly did these companies innovate, to warrant those ridiculous valuations? Where's the credit revolution? Let me guess, they "plugged in" at the merchant rather than the customer, and bypasses credit checks and such.

    • It depends, though.

      I know someone who was going through a tough financial patch, and bought a refrigerator on credit as his refrigerator died and he didn't have the liquid cash to buy a new one. A refrigerator is pretty important, especially if you are hard up for cash and need to cook at home a lot. He paid it all off on time and didn't incur any penalties, and is doing fine financially now.

      That's not the problem, of course. The problem is someone remodeling a whole kitchen on credit because they really re

      • The problem is that they should of bought a refrigerator second hand much cheaper, but you can't because people don't lend you money for that as easily as they will a new fridge. I have seen this several times where people by the expensive item because of the ease of getting credit. There are ethical lenders(if people even know about them) but you have to apply it takes time, it is far easier to go into a shop and them to give you credit immediately.

        • Delta (Score:2)

          by JBMcB ( 73720 )

          The difference in price between a used and new cheap refrigerator at the time was only a couple of hundred dollars. If it was half the price it would have been worth it. He got a fantastic deal (I think at Best Buy) on a cheapo over/under fridge/freezer and got free delivery thrown in as well.

          But yeah, you're right, he wouldn't have been able to afford either one all in one go. Credit is great when used in a pinch. It's not great to live beyond your means.

    • Re: (Score:2)

      by kackle ( 910159 )
      It's as if infants are born with no knowledge of the world. :)

    • It's as if every generation needs to learn the same lessons again and again. Taking on debt to increase your earning potential is one thing, but taking on debt to buy consumer goods? Never a good idea. It leads to this.

      How many generations has Fingerhut served? It's continuous.

  • This will be the end of "Buy Now, Pay Later", until the next period of economic growth. Businesses that take advantage of "loose" credit terms always follow the business cycle closest. They pop up when the economy is booming, and interest rates are low. They get taken out at the knees the moment a recession hits.

  • The appearance of financing for everything from pizzas to $5 trinkets on Amazon should be a big warning sign to everyone that something is deeply wrong with not only our financial system but our culture.

  • It basically is to get people more money to spend that they can afford, get them into debt that way and get rich of the more-or-less excessive interest. The only way this can fail is if it gets outlawed or if those doing this despicable thing get too greedy.

  • Thanks Mom and Dad (Score:4, Interesting)

    by RitchCraft ( 6454710 ) on Thursday June 02, 2022 @05:23PM (#62588076)
    Something my parents taught me early on, "If you don't have the cash for something, you don't need it." The only time I broke that rule is when I bought a house. Got a 30 year mortgage, paid it off in 13. I've always been debt free otherwise. The one credit card I have gets fully paid off at the end of each month, no exceptions. The only reason I use the card is for convenience and I get cash back on purchase. Purchasing on credit is a disaster waiting to happen.
  • These loans are pretty dangerous. They allow all classes of people, but especially lower income, to believe that they're better off because they can 'afford' things. It wouldn't hurt some people to actually try saving for things and cut their cloth accordingly

  • Going into a period of high inflation, which one may equate with reduced income for most people, is a financial disaster for people who are barely getting by, and borrowed up to the hilt. I know this, because a few years ago, I lost my income while having bank and credit card debts, and trying to service those on welfare benefits is near impossible. I am pretty sure poverty will be considerably worse as a result of so much consumer debt. If you go late on servicing buy-now-pay-later, or payday loans, the de

    • > That is, corporations are sponging off the state.

      And that is due to all the laws that the rich have bought.

      "Privatise the profits, socialise the debts".

      Same as it ever was...

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