Payday loan companies as they operate now belong in the class of companies that should simply be destroyed. Put betting shops in there as well.
BNPL often ignores credit check or specifically targets groups that credit cards would deem too risky.
For me this doubles the problem with the BNPL space: not only are the predatory, but I have serious concerns about their own risk management.
I knew of a start up that was experimenting with running their own BNPL service with zero credit checks. The users that were being targeted had a 30+% default rate (because other users had credit cards) but the upper bound of interest that could be charged was around 25%... the company seriously didn't understand why they weren't able to make profit on this product. But hey, revenue did grow which is all VCs cared about so it worked for them.
Here's a simple test – if everyone paid their balances on time and in full, credit card companies would still survive. BNPL would not.
That goes against my understanding. Do you have a source for that?
I'm pretty sure credit cards make their money off of interest. It's not from the interchange fees from people who pay their balance each month, as those often go straight back to consumers through rewards programs, and just administration costs generally. The card I use most has no annual fee but 2% cash back on everything.
American Express in particular makes more of their money from transaction fees and membership fees than interest. https://www.investopedia.com/articles/markets/012715/how-ame...
In the US they're around 2%. In Europe they're more like 0.3%, which is why cashback/rewards aren't a thing.
My point is that interchange fees aren't where credit cards make money, it's on the interest of people who don't pay in full.
There is a spread between rewards provided and actual fees (fees are closer to 2.5-4%, rewards usually top out around ~2%)
According to the BNPL industry, fees and interest make up a small portion of their overall revenues. Whether that's wholly accurate is another story.
In sum, they would indeed exist. Its more a question of how large and profitable they would be.
Check out Klarna's financial reporting to get a sense of this: https://www.klarna.com/international/press/klarna-reports-fo...
It may also be irrelevant; I'm more interested in their forward-looking forecasts than their current revenue sources.
How did you miss to learn about those at your University, Man?
Obviously I'm missing here because there is no way the BNPL industry would exist without profit, but I just don't get it.
Just think about BNPL for 3 seconds. How do they make money? By selling people shit they can't afford, waiting for them to miss payments, and charging hefty interest and fees – sometimes totaling up to as much as the product itself.
You can argue "it is legal" "they signed the contract" "they should have known better” all you like, but just like payday loans it is a social ill that we need to deal with.