So I was driving today and I listened to a random podcast that surprisingly mentioned the BNPL space and cited a report that was shocking on several dimensions with respect to the relationship Americans are having with BNPL usage.
- BNPL caused 57% of users to spend above their means
- 41% have multiple BNPL accounts
- 45% used BNPL because of "having a poor credit history and usually not being eligible for a credit card"
- 62% expect to use more BNPL services in 2022
"One possible reason according to our data? Opening multiple BNPL accounts at once. Sometimes, BNPL companies won't check if an applicant has other BNPL accounts open."
The report also states: Amongst BNPL users, $500 was the median price point where they prefer to start using BNPL but
$2,030 was the average price point.
"The key takeaway here?
Because there's often not a vigorous credit check for a BNPL account, consumers can quickly overextend past a comfortable financial situation, especially if they are opening multiple BNPL accounts at once. This makes it
more likely to miss or make late payments, which can damage credit and cause late fees. Moreover, 45% of BNPL users said one of the main reasons they use BNPL is due to having poor credit history and usually not being eligible for a credit card.
Once again, this was very correlated to having multiple accounts open at the same time and possibly suggests BNPL is distributing too much-unwarranted credit."The
report was published by an insurer in the US, the most important market for BNPL users.
Now I'm not posting this because I'm some down-ramper. I traded and made good money on Afterpay simply because it was a momentum stock, but as someone who lives in North America and understands how "ingrained" the need to spend and buy things is in the American psyche, this stock is going to blow up faster than Freddie Mac if ever there is a broad and sustained recession in the U.S.
Unlike what you're used to, many of these people in middle/low-income America have never seen more than $2,000 in their bank accounts and generally live paycheck-to-paycheck on minimum wages of usually below $10/hr (before taxes). This also raises ESG issues in that companies like Z1P and Sezzle, APT etc. are relying and perhaps exploiting "sub-prime" borrowers to feed their business model, no?
Can you just imagine what would happen to the sector once all these small loans default due to high unemployment? Not only are these BNPL companies facing more competition, but they have no moat. Their fate is linked to an economy that's humming and creating/sustaining jobs.
I would much rather own Visa or Mastercard than this - my bank won't even increase my credit limit past $1,000 despite my significant surplus savings and employment history.
(20min delay)