Buy Now Pay Later
Key Takeaways from “Buy Now Pay Later” Episode
- Lack of Reporting to Credit Agencies: Companies like Affirm, Klarna, and AfterPay do not report consumer debts from “buy now pay later” schemes to major credit reporting agencies like Equifax, TransUnion, and Experian. This creates a “financial blind spot” where banks and credit agencies cannot accurately assess a consumer’s financial health.
- Impact on Financial Transparency: The absence of debt reporting masks the true financial picture of consumers, potentially misleading banks, government agencies, and other financial institutions about the economic stability of households.
- Growing Popularity and Debt Concerns: The “buy now pay later” market is rapidly growing, expected to increase from $300 billion to $700 billion by 2028. Simultaneously, significant portions of consumers are falling behind on these payments, with 43% reporting they are already behind, adding to the already high levels of credit card debt.
- Consumer Financial Strain: A significant number of consumers are using “buy now pay later” options out of necessity rather than convenience, with many turning to these services after maxing out credit cards or to manage essential expenses like groceries. This indicates a broader issue of financial distress among consumers.
Buy Now Pay Later – Links
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Buy Now Pay Later – Transcript
Today’s episode: Buy Now Pay Later
Americans are racking up phantom debt with these “buy now pay later” schemes.
Bloomberg News reported that lending companies in the “buy now pay later” space are not reporting the balances to the credit reporting agencies.
What in the world is going on?
They’re borrowing money, not being reported.
We’re talking about companies like Affirm, Klarna, AfterPay, which is now a division of Block (they also own Square).
These companies are not reporting balances to Equifax, TransUnion, or Experian.
I don’t understand how this is even possible.
Apple offers a service called “Apple Pay Later.”
Maybe you’ve seen it. They (Apple) just began reporting balances to Experian just in this quarter — well, in the first quarter of 2024.
If you’re not familiar with “buy now pay later” companies – understand you’ll usually see them when you’re buying something online and you’re going to check out.
They will offer you “hey make this in four payments.”
If you make it in four payments, there’s no interest.
Or no additional cost.
Again if you make the payments… you make the four payments – it’s:
No interest.
No problem.
The problems begin when you start to fall behind. And why might this be a problem?
Well, There’s 3 different reasons.
The first is, the banks, and the credit agencies don’t really know HOW the consumer is actually doing.
The Bloomberg news article report called this a “financial blind spot.”
That’s a good analogy!
The 2nd point: this masks the complete picture of the consumer, of household finances.
So if the banks don’t know…
Do government agencies – and other places like the Federal Reserve –
Do they have an accurate picture of what the consumer is looking like financially?
Remember the consumer is 70% of the US economy.
The 3rd point that I think this might wind up being a problem is this:
Online shoppers in the first quarter of this year, 2024, spent $19 billion dollars using “buy now pay later” programs (according to Adobe Analytics).
The current market for “buy now pay later” is currently estimated around $300 billion dollars.
That’s expected to grow by more than double – to $700 billion dollars in the next few years by 2028.
Let me give you some back of the envelope numbers.
Americans already have a trillion dollars… that’s one trillion dollars … in credit card debt.
That’s — nominally — the highest balances we’ve ever seen.
You should know, though, as a percentage of income, it’s pretty normal.
Sounds crazy to say “a trillion dollars is normal.”
But as a percentage of take home pay, it’s actually pretty normal.
But when you pile on top of that another $300 billion dollars, you’re talking about adding another 30% to that trillion dollar balance.
We don’t know if the numbers are that good anymore!
What brought all the attention to this was a survey done by Harris.
And these numbers are…dreadful.
The first one I’ll share with you is forty three percent of the people that responded to this poll – that Harris put out:
43% said that they’re already behind on “buy now pay later” payments.
28% of all of the respondents to the survey are already delinquent on OTHER debts, like credit cards.
23% of the respondents — almost one in four — said “they couldn’t afford the majority of whatever they bought, without splitting up the payments.”
That’s a bad sign.
“More than 1/3rd of the people responding to the survey said they ‘turned to a “buy now pay later” arrangement because they had maxed out their credit cards.’
Now. Half of the survey respondents…
Half of them — said they started, or are at least considering using “buy now pay later” to pay some household bills.
Or to buy essentials… like groceries.
That’s terrible.
I’m not making a statement about anyone who’s using “buy now pay later.”
That’s not what this video is about.
People gotta do whatever they need to do, to make ends meet.
And we’ve all been — at points in our lives — where we need we help.
Or, we need time to figure things out.
What I AM saying with this video is: somewhere down the road — there’s likely going to be a “negative surprise,” in the “buy now pay later” scenario — in that universe.
Or in the financial sector, and everyone’s going to act astonished. Or surprised.
I can’t believe people are going to be surprised when they start to get early warning signals like this.
I’ll also close by saying if you know someone that’s in a jam, get in touch with me. I I’d be happy to talk to someone — if they need some kind of help figuring things out.
That’s the message for today’s video. Thanks again for tuning in.
