Affirm CEO Says Next Recession Will Silence Fintech Lender’s Doubters
wsj.com
wsj.com
It has never been attractive to me. If I can't afford something, I won't buy it. The only loans I will take out is a mortgage or a car but that's only because I need a roof over my head and a vehicle to get to work. My credit card debt gets paid in full every month. The only reason I use credit cards is because of the protections and the cash back, not to borrow money.
I don't know. It feels like financially responsible people get screwed all the time. Maybe BNPL will get too big to fail. And the government will bail companies/people out again, causing people like me to once again, lose.
For better or for worse consumer credit fuels the economy. There’s $1T in outstanding revolving consumer debt. If that went to $0 tomorrow the economy would crumble, not the opposite.
I think the parent is saying that they lose because it’s their tax dollars going to clean up semi purposeful financial irresponsibility. However, such a bailout would essentially be a wealth transfer to people who used BNPL services which is decidedly not rich people or businesses so I wouldn’t be all that angry.
I’m sure it’s broken out somewhere in quarterly earnings but it’s not going to be a small minority of consumers paying credit card interest.
FWIW, there is an argument that cash users "get screwed" because merchants set prices with enough margin to cover credit card transaction costs. Those costs are what pay for your protections and cash back. Merchants may offer cash discounts, but they're not obligated to.
If the government has to do a bail out of the BNPL industry or derivatives of it, they're going to use my tax dollars. They could also lower interest rates again, which may or may not hurt me. They could also raise tax rates to pay for the bail out.
2008 was a transfer of wealth from the poor to the rich.
You are extremely fortunate, and in the minority.
You only borrow money for big-ticket items like a house and car, which you need. Millions, sorry, billions, of people need hot water and when their hot water heater breaks, they can't afford a new one so they put it on a credit card. Parents with $250 in their checking account need new clothes for back-to-school, so, credit card.
Thirty years ago I had a credit card with a $500 limit decline while buying a new bowl to eat out of after I broke my only bowl with ~$2 in my checking account.
So instead of getting a bowl I, and this is not a joke, ate cereal out of an empty plastic bologna container until payday.
Today I am by no means rich (rich to me is "I can buy my way out of any legal trouble"-- if I kill anyone my lawyers will bankrupt me and I'll still end up in prison) but I am wealthier than 96% of Americans, and probably 99% of all human beings but it wasn't always like that.
That means that every 1st of the month I am able to take every penny in my checking account in excess of $10,000 and put it towards my retirement. I have auto payments enabled to pay off my credit card statement balances every month and have multiple savings accounts for things like a trip to Tulum next year and a new BMW R Nine T motorcycle.
Oh, and I'm not worried about back-to-school anymore.
Last year, my grandmother died. Her estate and the checking accounts of her three sons combined weren't enough to pay for the funeral and burial so I paid for it and it didn't even register as an expense to me until after my Amex auto-pay'd itself off and I noticed that my checking account was very slightly under $9,000.
That's only a slight taste of the difference in scale between the haves and have-nots, and it is very important to understand what the have-nots are going through.
When I borrow money, people leap at the chance to lend it to me. For the vast, overwhelming majority of people the situation is the opposite.
Two months ago, with ~$50k in available credit, $10k in my checking account, and a healthy emergency fund, I purchased a dresser from Joybird because my niece was coming to visit for the summer and the dresser in my guest bedroom wasn't big enough to store what I thought a teenaged girl would bring in clothing (I was wrong she packs light).
And I used Affirm. Why? Because 0.00% interest meant that for June instead of funding my retirement accounts with $x-$1500, I could fund them with $x-$87.30.
By the end of the 12-month term, the amount I spent will have been the same, but the additional opportunity from having invested an additional $1412.70 12 months ago will have, hopefully, made the time spent clicking on a website worth it.
I think that for many people Affirm charges interest but I have never been offered credit from them at >0.00%.
If you're like me and used to eat ramen 7x nights a week, and not by choice, and are now making decent money and are catching up on retirement, Affirm is great!
If Affirm offers a lower APR than whatever credit card you have then they're great!
If you spend irresponsibly, they're not great, but neither are credit cards.
But most people don't spend irresponsibly. I assert that the "poor people are wasting their money on frivolities" trope is actually just upper-middle class internalization of their own issues.
Most low-income people aren't keeping up with the Joneses, they're just trying to keep up and their credit card debt is gasoline, furniture, children's clothing and toys, and food.
Googling around it seems that Affirm's interest rates for <800 credit scores are very good. If you need new tires and only have $200 to your name they're probably a good option.
And no, washing the bologna container DOES NOT get the bologna taste out of the plastic.
> “In a recession,” he said, “0% is very attractive.”
I'm really curious to see what happens when merchants balk at the fees required to offer those rates. A combination of late payments (disqualifying some existing customers) and higher rates (turning off new customers) seems dangerous for companies like Affirm.