business news in context, analysis with attitude

The Atlantic has a piece about the growth of “buy now, pay later” programs - "from 2019 to 2021, the total value of buy-now, pay-later (or BNPL) loans originated in the United States grew more than 1,000 percent, from $2 billion to $24.2 billion. That’s still a small fraction of the amount charged to credit cards, but the fast adoption of BNPL points to its mainstream appeal. The widespread embrace of this kind of lending system says a lot about Americans’ relationship to debt - particularly among the younger borrowers who made BNPL popular (about half of BNPL users are 33 or under)."

Many of the young people who have embraced BNPL, the story says, do not have credit cards and do not want to accumulate credit card debt.  Marco Di Maggio, an economist at Harvard, tells The Atlantic that "Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt. Following the ’08 financial crisis, personal debt became a public bogeyman."

BNPL, the story says, has become popular in part because of social media - Instagram and TikTok have become major sources of promotion of various BNPL programs.  "John Liang, a TikTok influencer with 2.1 million followers, presents the decision to use BNPL as one of pure reason. Standing in front of a green-screened Apple Store, Liang explains that by not paying the total price for a product upfront, he can invest the remainder of his money."

Di Maggio, on the other hand, suggests this argument is specious:   "He said it made little sense economically and psychologically. He pointed out that investments don’t typically yield appreciable returns over just six weeks. And even if they did, most consumers who find an extra $20 or so in their pocket don’t think to buy stocks or bonds with it - they spend it on something else. A recent study he co-wrote supports this notion, finding that BNPL use causes a permanent increase in total spending of about $60 a week, stretching the average household retail budget 30 percent. Another study found that, on paper, people who borrow from these financial-technology firms look as creditworthy as their conventional-banking counterparts, but 'after they get the loan, they are much more likely to be delinquent'."

According to the story, "Many financial-technology firms frame their mission as one of inclusion - they say they’re building a bigger tent for America’s un- and underbanked, which include gig workers and young people with poor credit histories. Klarna, for instance, recently launched a 'creator platform' to match merchants with influencers who have access to their target audiences. But because BNPL providers aren’t subject to the same scrutiny as banks (most of them engage in forms of lending not explicitly covered by the Truth in Lending or Dodd-Frank Acts), consumer protections are scant. BNPL programs increase the likelihood of borrowers dipping into their savings and incurring overdraft and other fees."

KC's View:

At least at this level, debt is debt.  The Atlantic argues, "As familiar as Americans are with the concept of credit, many of us, upon encountering a sandwich that can be financed in four easy payments of $3.49, might think: Yikes, we’re in trouble."

I'd agree.  Going down this road just means that eventually you're going to owe your soul to the company store.  

I wonder if it makes sense for retailers to provide access to financial literacy classes for shoppers, maybe by working with local community colleges.  Consumers kept out of debt may end up being better and more prosperous long-term shoppers.