> Credit cards account for 63% of all US retail purchases but bundle all sorts of non-discretionary and discretionary purchases together. Your $30 takeout order is bundled with “financing” for a new coffee machine, Uber rides, airline tickets, gym membership, dry cleaning, a tire change, and maybe even your monthly rent. Additionally, your credit card rate is also obscured by complex fee structures, variable interest rates, reward points, hotel points, and airline miles. So it’s hard to precisely price the risk of that $30 loan. BNPL disentangles these purchases. Each loan is for a specific item, with a fixed repayment schedule over a very short term (usually 6-8 weeks).
This is a non-sequitur argument. Your credit card issuer knows who you are, your credit profile, and they know you spent $30 at Chipotle. There's nothing preventing Visa and Mastercard from taking the debts on these individual $30 purchases at Chipotle + McDonald's + Domino's etc, bucketing by FICO score of the borrower, and working with banks to securitize that "Fast Food Takeout" debt, just the same as Klarna or Affirm are doing. It's not a fundamentally different product.
What the author is really claiming is, Visa and Mastercard don't have entrepreneurial cultures so they're not really interested in or willing to internally commit to this kind of new product (i.e. debt securitization), so it took some new Fintech companies to come to market and push the gauntlet, who are trying to get a foothold in the market by marketing to underserved segments (customers who were denied credit cards) and by juicing their initial offering to consumers with unsustainable benefits (not reporting initial defaults to credit bureaus). For which, you know, fine. But at some point the credit card companies will wake up and take second-mover's advantage, which is really anyway their incumbent advantage, where they're taking less of a fee than Klarna/Affirm are.
edit: by the way, HNers who push for UBI, this is exactly how the private market would effectively create it. Consider someone with a junk credit score who never intends to make any payments whatsoever. This would allow the credit card company to issue a card (say, with a $300 limit), take the charges to that card and securitize them into a bond with a C rating, and see if there are any high-risk buyers. Why would anyone purchase a bond like that? Because bundled into the security will also be other people with junk credit ratings who do intend to make repayments so that they can start to build their credit score. But for people who never intend to make any repayments, that's effectively $300 free every month, financed by hedge funds looking for return on high-risk bonds.
This is a non-sequitur argument. Your credit card issuer knows who you are, your credit profile, and they know you spent $30 at Chipotle. There's nothing preventing Visa and Mastercard from taking the debts on these individual $30 purchases at Chipotle + McDonald's + Domino's etc, bucketing by FICO score of the borrower, and working with banks to securitize that "Fast Food Takeout" debt, just the same as Klarna or Affirm are doing. It's not a fundamentally different product.
What the author is really claiming is, Visa and Mastercard don't have entrepreneurial cultures so they're not really interested in or willing to internally commit to this kind of new product (i.e. debt securitization), so it took some new Fintech companies to come to market and push the gauntlet, who are trying to get a foothold in the market by marketing to underserved segments (customers who were denied credit cards) and by juicing their initial offering to consumers with unsustainable benefits (not reporting initial defaults to credit bureaus). For which, you know, fine. But at some point the credit card companies will wake up and take second-mover's advantage, which is really anyway their incumbent advantage, where they're taking less of a fee than Klarna/Affirm are.
edit: by the way, HNers who push for UBI, this is exactly how the private market would effectively create it. Consider someone with a junk credit score who never intends to make any payments whatsoever. This would allow the credit card company to issue a card (say, with a $300 limit), take the charges to that card and securitize them into a bond with a C rating, and see if there are any high-risk buyers. Why would anyone purchase a bond like that? Because bundled into the security will also be other people with junk credit ratings who do intend to make repayments so that they can start to build their credit score. But for people who never intend to make any repayments, that's effectively $300 free every month, financed by hedge funds looking for return on high-risk bonds.