Buy Now, Pay Later: Echoes of the 2008 Recession

Affirm, Klarna, and Afterpay - in just 5 years, these 3 companies have popularized a new form of consumer spending called Buy Now Pay Later. BNPL is a type of short-term unsecured personal loan where instead of paying the full price upfront at checkout, you can defer the cost of any item by splitting the payment into smaller installments over time. If you want to spread payments out over a longer period of time to make the installments even smaller, you’ll have to pay interest. And if you miss a payment using BNPL, there are penalties with late fees, collections, and lowered credit score.

What Klarna, Affirm, and Afterpay have done is they’ve broadened the purpose of short-term unsecured personal loans from large one-time essentials into everyday, impulse, and splurge purchases. They’ve made it easy for anyone to borrow money, simplifying a historically opaque, time-consuming process of applications and manual underwriting into a scalable UX that provides instant credit in just a few taps. Most of all, there’s instant gratification. With Affirm, Klarna, or Afterpay, you get your order delivered right away on or before your first payment.

Putting aside fundamentals, BNPL itself is controversial. To critics and regulators around the world, it promotes irresponsible spending and enables overconsumption. In this episode, we’ll explore the business model of BNPL, its eerie similarities to the 2008 subprime mortgage crisis, and why that matters now more than ever in the coming recession.

[thomasjardine]

Just FYI Masterworks is not registered, licensed, or supervised as a broker dealer or investment advisor by the SEC, FIRNA, or any other financial regulatory authority according to their website

[AaronMDubya]

Man that Masterworks ad pivot was horrible.
I hope that in future you're more careful to separate your normal analysis content from paid advertisements, because that felt a bit manipulative.
Your content is great! I wouldn't want to see it jeopardized by a few ad spots

[medo]

as someone who works customer support for klarna, pretty much everything you said regarding how they work was accurate and well researched. i just wish you covered the issue how streamlining and simplifying loans can be a malicious way of attracting people who don't really understand how loans work. i've had multiple people with issues regarding their payments/refunds who said they'll just uninstall the app and not pay; not realizing that will end up sending them to debt collection agencies which affects their credit score for like 7 years.

[sonicblare]

"America itself was founded on buy now pay later" priceless words

[lateformyownbirth]

That segue into the sponsor was so smooth, it was straight up manipulative.

[boofriggityhoo]

I remember seeing "buy now, pay later" options for pizza and groceries a few years back and that's about when I decided that we're ultimately screwed and there's no way the real economy is doing very well.

[Honourcreed]

Love the video. Found the advert disingenuous. You're smart enough to know art is the definition of speculative.

[thewondersock]

That masterworks seguay was integrated in such a manipulative way. Do not do that again. The irony is lost on you.

[holleelifestyles]

Pleaseeee- - Never sneak an Ad or Sponsorship in the video with no Disclaimer — other wise great video ❣️

[schnitzelsemmel]

I'm very disappointed in how the ad was framed. By integrating it into the narrative of the video like this, the trustworthiness of the entire video is diminished.

[NeuroEverything]

I'm kind of disappointed you didn't mention (anywhere in the video) BNPL companies' one path to profitability.... SELLING USER DATA. As unethical as it sounds, BNPL businesses have a ton of valuable user data that they can probably sell and make a ton of money from. What's more valuable to companies and advertisers than knowing precisely what someone is willing to take out loans/a line of credit for...

[stereomaster]

Please don't anyone fall for that Masterworks ad garbage at around the 18:00 mark. No, investing in artwork is not a good idea

[magimon]

The demand for such impulse buys is interesting. Usually after major economic downturns consumers will become more frugal, but it feels like we never hit that mindset after 2008

[blakeizaguirre]

That ad for Masterwork was pivoted into in a really covert manner. This blurs the line between the informative content the ads that sponsor the channel.

It put a rough blot on a thoughtful, interesting video.

[shaun]

That was the smoothest, but also sneakiest, segway into an ad that I have seen in a YouTube video... Not a fan of that.

[MikkyMilkshake]

I took a temporary job over the Christmas period last year in retail and the thing that ended up surprising me the most was just how many people were paying with these services for very very small purchases. $20 of Christmas decorations? BNPL it, $15 worth of chocolates? BNPL it. Even with zero interest or whatever marketing spin they give it, it seems weird to me to even bother taking out a loan for such a small amount.

[samirfd]

Honestly the commission aspect of the scheme is the the most terrifying part as it cuts into the margins of the merchant. This means responsible buyers who can afford the things they are purchasing will have to compete with irresponsible consumers backed by financial institutions. This will give merchants the false notion that consumers have a higher purchasing power, thereby raising prices, where all the consumers suffer

[walkieer]

This channel is honestly gold. A godsend that it is maintained free and an open source of knowledge for ppl. Also, that was the smoothest ad read ever.

[ohwhatworld]

The truth is a lot of younger people have a sense of hopelessness about their future for lots of reasons. They are trying to fill the void with material things which gives them a short-term boost of dopamine but also saddles them with potentially unpayable debt, thus making their mood and situation worse. It is a sad situation.

[jaioxung]

There's essentially two mindsets when it comes to non-essential purchases: "I saved 30% because the store was having a sale" OR "I lost 70% because the store was having a sale". The danger in BNPL, as with credit cards, is that it conditions you toward the irresponsible spending habits of the former. I know because I do it. I buy plenty of things with my credit card that I CAN afford within the next 30 days that I CAN'T afford right now with the cash I have on hand (considering other obligations). I know I wouldn't make some of those purchases if that money had to leave my account today. I can make the justification "I'l pay it off and get some points so I'm really coming out ahead" but that is false because I'm not considering the opportunity cost (savings/investment) had I not spent the money in the first place. It's up to each person to decide on what works for them. I just wish everyone was equipped with enough financial knowledge to consider their choices fully. Services that provide short-term, unsecured credit have an incentive to prevent that from happening because they profit big when consumers spend irresponsibly.