About this video

• Video Title: The Buy Now, Broke Later Crisis (This is Bad)
• Channel: Andrei Jikh
• Speakers: Andrei Jikh
• Duration: 15:53

Overview

This video explains the "buy now, pay later" (BNPL) financial model, detailing its rapid growth, how companies make money, and the potential pitfalls for consumers. The speaker argues that BNPL services, despite appearing free and convenient, can lead to significant debt and negatively impact credit scores for many users.

Key takeaways

• BNPL's rapid growth: BNPL services have exploded in popularity, with transaction volume increasing 20-fold since 2019, and a significant portion of consumers, especially Gen Z, using these services.
• Merchant fees are the primary revenue: BNPL companies primarily make money by charging merchants fees (2-8% of the purchase price), which are higher than typical credit card fees, to cover the upfront cost of the purchase and the risk of consumer default.
• Late fees and interest as secondary revenue: While some BNPL plans offer 0% interest for short periods, late payments incur fees, and longer-term installment plans can come with high-interest rates, similar to personal loans.
• Psychological trap of affordability: BNPL breaks down purchases into smaller, seemingly manageable payments, making items feel more affordable and encouraging impulse buying, even for essentials like groceries.
• Risk to credit scores: A significant percentage of BNPL users miss payments, which can result in late fees, account freezes, and negative reporting to credit bureaus, damaging credit scores. Crucially, on-time payments often do not benefit credit scores, unlike with traditional credit cards.
• Targeting vulnerable consumers: Data suggests that a majority of BNPL users have subprime credit scores, indicating they are precisely the individuals least able to afford additional debt, contradicting claims that the services are mainly used by financially strong consumers.
• BNPL as a debt trap: The speaker concludes that BNPL, for most consumers, is not a budgeting tool but a disguised debt trap that exacerbates existing consumer debt issues.