The Buy Now Pay Later Tax

cloudy on 14/07/2019 - 21:57

This has long been on my mind that we are in a world with ever more middle men trying to skim a cut for no real utility. Buy Now Pay Later pretty much acts like a Goods Tax, skimming a few percent off every purchases. It claims to have be responsible for some large amount of online purchases, something like 30% of all online purchases IIRC.

BNPL for those that know allow you to buy a product now and pay for it later. Not too different to a credit card, here's a simplified comparison.

Credit cards

  • 45-90 days interest free
  • Interest and fees payable after interest free period
  • Regulation restricts store payment fees to 1-3% (from memory)
  • Conduct credit checks
  • Used to restrict stores from passing on costs to customers (IE: credit fees for using amex), but no longer can due to regulation

BNPL

  • Pay over instalment period
  • Fees and charges for missing instalment periods
  • No Regulation 4-6% average store cost, up to 10%
  • Conducts whatever checks they want (or not want)
  • Restricts stores from passing on costs to customers

Why I have beef with BNPL is it's just add costs to stores and forces prices up for everyone, and why I posted this is I can finally point to it to everyone.
https://www.theage.com.au/business/small-business/buy-now-pa…

It does this by, appealing to a segment of the market, making it their default way of paying for things.

Telling stores, if they don't accept their way of payment they will lose sales to the store next door. Forcing all stores (if possible) to accept them. Charging all stores fees, up to double, for doing what can be by existing methods of payments, but not letting the stores charge their users, so their users don't feel like they are paying extra for the service. The stores in turn have to raise prices of their goods thereby charging extra to everyone.

I was thinking, but what can we do about it.
I found this interesting suggestion.
https://foragerfunds.com/news/pay-now-save-now/

Financial

Comments

  • [Deactivated] on 14/07/2019 - 22:12

    BNPL don't seem too bad, better than the banks as (I believe) once your behind you don't can't purchase any more until you are caught up, banks don't care if your in trouble they will let you keep racking up debt until your maxed out.

    I don't use either of these services though (haven't had a credit card in 15 years)

    If you think you are being charged extra when not using it, you could ask for a discount for cash.

    • cloudy on 15/07/2019 - 21:24

      Yea, that's exactly what Forager suggested. It's likely to work, the ideal solution, I'd like to see is just the right to apply surcharge unlike many places have for Amex.

      Its fairer for everyone. Ofcourse BNPL don't want this, as it deters their usage and hence their commissions

  • burningrage on 14/07/2019 - 22:20

    I don't use BNPL scheme but 3 things to note:

    1. Pay Over Instalment system has been around for long. It's a glorified version of Lay By with the exception you get the goods now. Why is BNPL an issue now but not an issue with Lay By then, continues to confound me.

    2. If the stores are restricted to pass costs, then great. I hate credit card surcharge to death which is what Afterpay is preventing stores to do if I am not mistaken. If they are passing costs, then there will be others which will sell cheaper.

    3. Quicker turnover is the expectation of participating in this scheme which is completely at stores discretion. Sometimes it costs to produce quicker turnover and as a consumer, what I detest most is charging customers for that quicker turnover. Credit Card surcharge is an example. For having multiple method of payments (which does cost them), it should encourage higher turnover (otherwise, let it deal with just cash and see how well would a retailer go) but thanks to RBA, they pass this cost to consumers in the name of "convenience" when it really should be worn by retailers as a price for faster turnover. So BNPL = Faster Turnover so that's a benefit itself to retailer so they shouldn't pass cost (see point 2).

    So in summary, I think BNPL is great. I don't use them though for simply because I don't need them but as a business model, I think they're great.

    • kulprit on 15/07/2019 - 07:33
      +1

      1. Layby poses no risk to the business, so doesn't require a third party to track customer repayments.

      2. They should definitely pass on costs. As stated if I am paying more for items that i can afford, because people who really can't afford them want them right now rather than saving up then that's a problem.

      3. I sort of agree with this. The problem is they are passing on the costs, just in a hidden manner.

      • redforever on 15/07/2019 - 08:52

        I don't think there is any risk for businesses using after pay. They get paid the full amount straight away but less the fees.

        If a customer defaults, I think it has got nothing to do with the seller.

        • kulprit on 15/07/2019 - 09:05
          +1

          I totally agree, which is why the retailer has to pay a fee to afterpay to accept the risk, and then somehow pass that cost onto the customer, even though they can't charge the customer directly for their payment method.

        • cloudy on 15/07/2019 - 21:29

          The same can be said for credit card payments, its paid in full almost straight away.

          Why BNPL is more middle men like is, people use BNPL then use credit card to pay off BNPL, involving two sets of middle men to do the job of one (or none if cash is used). My point is more and more middle men, taking a cut just so you and I can buy that XXX, How is it good for you and I if more hands continue to take a slice of this limited pie which is our income.

    • cloudy on 15/07/2019 - 21:26
      +1

      |Why is BNPL an issue now but not an issue with Lay By then, continues to confound me.

      BNPL is a problem now because they charge retailers up to 8% of the sale, culling retail margins and forcing some of them to increase prices for everyone to make up for it. Lay by was often administered by the retailer, not often costing more than staff time (which is often done during down time so little expense.)

      Also, you point 2 is seems completely silly to me. Those who incur costs should pay for it, I don't see how it is fair to spread it? If a thief steals from your favourite store every single day, your fav store will have to raise prices or spend some form of expense catching the theif. Surely would hope the thief ( the person casuing the expense) to pay up.

      • burningrage on 16/07/2019 - 07:25

        Losing retail margin is not equal to unavoidable cost that it requires all items to be jacked up.

        If I want to make a profit of $100 and now it's become $92, it's still a profit just lesser and the question is whether or not I should wear the extra $8 or spread that $8 to all.

        I believe in the former as a matter of principle as it helps with my turnover but if it is not illegal nor immoral to choose the latter but if I know the retailer does that beforehand, I just end up take my business elsewhere.

        So in short, it is not an issue but rather a choice made by the retailer.

        Which leads to point 2. Point 2 is not silly. Cost associated with the probability of higher turnover is NOT the same as thief stealing your items as the latter doesn't bring ANY margin at all (the former still gives you margin but just lesser but with a probability of faster turnover).

        Because of that probability, the cost should not be passed. Remember before RBA did it's stupid interchange reform, we were all happy without surcharge for decades and look where we are now. Car Parking operator charges like 3-4% in fees (Eg: Museum VIC Carlton) when most visa/mc costs 1.5%.

        And to that matter, it is (I believe) only right if I provide CC as a facility to pay, I pay for the feature because I know it will help with turnover even if it gives less margin.

  • pegaxs on 14/07/2019 - 22:29
    +2

    Yeah… but I want it NOW!!

  • [Deactivated] on 15/07/2019 - 00:27
    +5

    If you don't like BNPL, don't use it.

    No one is forcing stores to have BNPL, no one is forcing customers to utilize BNPL. This entire phenomenon is built on mutual and voluntary transactions.

    The middle man isn't doing "essentially nothing". If it is truly nothing, we'd all be doing it. It's a short term personal loan that can be approved at POS.

    • cloudy on 15/07/2019 - 21:39

      I don't use it.

      No one forces people to do drugs, but it's not a bad thing to talk about the harm of drugs, and why we should as a society seek to dull its spread.

      I don't know what you are doing, but im starting a Buy Now Pay Later scheme, you can use my scheme to buy something and pay it off even later, using After Pay, and after that you can use your credit card, and then after that pay it off. I'll charge 10% and once everyone loves it every retailer will be on it, disadvantaging only those who don't use it.
      Can't see how it's a good thing still.

      • [Deactivated] on 15/07/2019 - 21:41

        So it's a disadvantage to use BNPL yet every retailer and every customer will use it and somehow I will be disadvantaged by not using it.

        What?!?

        • cloudy on 15/07/2019 - 23:03

          BNPL will not increase spending as retailers are told, or hope in chase for short term revenue. It simply, moves consumption a few weeks earlier.

          But it charges an extra 1-2% to retailers to do so.

          So lets assume we all ditch paying how we normally do for BNPL. We don't increase how much we can spend, that's determined by our incomes.

          Retailers on the other hand will lose 1-2% extra every purchase. This profit is re-couped via higher prices, to everyone that shops there. Whether you pay with low cost of methods such as cash or EFPTOS or VISA/MC, so in effect even though you don't use BNPL, you suffer from the increase usage of BNPL of others.

          It's the reason why fair retailers like Aldi charge credit card fees, theres an additional cost to it. BNPL is credit card on steroids, so to speak. Visa/MC is around 1-2%. BNPL is more than double, sometimes triple for small retailers.

  • bobbified on 15/07/2019 - 00:40
    +1

    Participation in BNPL schemes is voluntary and stores make the decision to participate in the hope of generating additional revenue.

    Any fees associated with BNPL is based on individual transactions. A sale made with 90% of the usual profit margin is better than no sale at all.

    Why I have beef with BNPL is it's just add costs to stores and forces prices up for everyone,

    I don't see how it adds costs and forces prices up (unless every sale is made via BNPL schemes).

    • modsec802 on 15/07/2019 - 05:03

      Read the link. Since the store can’t differentiate between BNPL transactions and regular transactions in pricing they put the prices up for everyone to make BNPL worthwhile

      • bobbified on 15/07/2019 - 07:24

        Since the store can’t differentiate between BNPL transactions and regular transactions

        I read the articles but I can't see where it says they can't differentiate. In this day and age with the systems we have, I find it hard to believe that the shop cannot distinguish between the transactions.

        When it comes to the transactions where the "commissions" are 4-6%, the shop is still making money. The shop has the option to not participate in the whole BNPL scheme but that might then mean that product is left sitting on the shelf unsold. So isn't it better for them to have that product moved, even if it meant that they receive only 94-96% of their set margin? These BNPL schemes are targeting customers who will likely not be making that purchase without the service.

        So then is the business being "forced" to jack up the prices or are the owners simply taking advantage of the additional sales through the BNPL channel and expecting to make the same profit as they did before? ie, greed.

        • redforever on 15/07/2019 - 08:58

          I think I read it somewhere that unlike credit cards, After Pay does not allow businesses to pass on their fees to customers using after pay.

          So I guess the costs is then absorbed by the business and spread across all sales regarding of payment methods.

          • bobbified on 15/07/2019 - 09:50

            @redforever:

            So I guess the costs is then absorbed by the business

            So is BNPL really a "cost" or is it a transaction that generates "smaller profit" from a sale that otherwise wouldn't have happened (because the purchaser doesn't have the money upfront to complete the sale)?

            • futureminime on 15/07/2019 - 10:42

              @bobbified: If you're paying for something, money is going out and its definitely a cost. The question is: can the business and industry wear the cost?

              Stating that the sale otherwise wouldn't have happened is somewhat correct, but limiting the modelling to one time. If they can BNPL ie pay later when they have money then its not unreasonable to assume they could Buy Later Pay Later, and that the transaction would happen but just be delayed by the payment term. (although for any individual business you'd want the sale now, as there is risk that the customer would change their mind and buy something else or from someone else)

              Also - You're assigning the cost of the transaction to that transaction, rather than to the business as a whole. These costs can be split across the price of all items. In this way its not 'smaller profit' from one sale, but smaller profit from every sale. Not to say this is an issue - its the same thing that happens if you buy at Colesworth with an Amex card but an ever increasing number and cost of overheads makes an ever shrinking bottom line.

              Lastly, "smaller profit" isn't always a viable outcome. At the end of the day a business needs enough profits to be viable to support the investment of the business owner/s. Lots of small profits can work for commodity industries but by the nature of BNPL you're targeting higher value purchases, which would tend to relate to fewer, more expensive items. These often need larger margins to pay the carrying cost of the inventory and cater for the fluctuations in sales volumes

        • redforever on 15/07/2019 - 09:00

          The fee is 4-6% of the transaction value, not their profit, so the margin will be slightly lower.

          • bobbified on 15/07/2019 - 09:46

            @redforever:

            The fee is 4-6% of the transaction value

            Isn't it the same logic though? - I'm sure the business doesn't mind the additional sales (as opposed to not making that sale at all), as long as they are not making a loss on that particular BNPL sale. It's not even a bad thing if the business breaks even with that sale.

            • suti on 15/07/2019 - 12:07

              @bobbified: The incorrect assumption you make is that the store has made "additional sales". If a consumer was going to buy a good/service anyway without BNPL but use BPNL because they don't see a downside to it, then the store needlessly pays commission.

            • cloudy on 15/07/2019 - 21:44

              @bobbified: I think the key is, is the sale an additional sale or is the sale simply brought forward a few weeks.

              Most sales of this nature are simply brought forward a few weeks, at a pretty high cost.

  • Zedsdeadbabyzedsdead on 15/07/2019 - 01:01
    +4

    I feel the subject goes much deeper and comes back to usuary (now known as interest). I'd prefer a system with no interest as society would be better off.

    • EightImmortals on 15/07/2019 - 06:33
      +1

      But the WHOLE system relies on usury not just BNPL. In fact usury has become the very basis of the western economic system (not by chance either). Look up 'money as debt' for a basic idea. :)

      • Zedsdeadbabyzedsdead on 15/07/2019 - 23:41

        Nice to speak to you Eight, it's been a while! The above is true. I'm a big fan of a debt jubilee as well:) Some excellent material in Deutronomy.

    • Seraphin7 on 15/07/2019 - 10:45
      +2

      What does this even mean? You want someone to give you money now (whether in the form of cash or paid for good and services) and you don't want to pay for either the convenience of this or the risk the lender is taking on?

      • [Deactivated] on 15/07/2019 - 11:28

        For some reason Japan has been OK with that system for decades. :)

    • futureminime on 15/07/2019 - 11:06
      +1

      A system with no interest is a system with no lenders. The usury part is the abuse of the financial power to charge undue or unwarranted rates of interest.

      I guess the question is what is 'undue'. You have to game theory that out to see whats fair. If I have a guaranteed way of doubling some money overnight, 0% risk I would borrow as much as I could up to 1.999999 of the cost as I would still be making money when it doubled. Similarly if I was lending the money with 0 risk and getting interest back the next day I'd lending everything I could at a tiny margin as I'd still be making money.

      Any system needs a fair incentive to get all parties involved - including the lender (in this case 'you'). You need to cover the opportunity cost of what you could otherwise have done with the money rather than lending it, and the risk of repayments being late or not coming at all. Often you'll need to cover the cost of you borrowing the money yourself (consider banks borrow money from their depositors, and lend it with increased risk to others and then need a margin as an incentive)

      I do have a issue with the targeting of rates to lower socioeconomic groups who don't have better options while those better off have the individual bargaining power to get a fairer deal.

      • HighAndDry on 15/07/2019 - 18:44

        I guess the question is what is 'undue'.

        That question is answered by the market. Much like your examples, if people think that 5% is worth the risk of lending to person X, then that's the "due" rate, unless someone else think the risk is lower. The market together works out what the minimum rate is.

        I do have a issue with the targeting of rates to lower socioeconomic groups who don't have better options while those better off have the individual bargaining power to get a fairer deal.

        No such thing as a "fairer" deal. The more you NEED a loan, the bigger the risk you are of not repaying it. So the lower your bargaining power, the higher your risk. If you're a low risk borrower, your bargaining power comes precisely because you're low risk.

    • HighAndDry on 15/07/2019 - 18:41

      comes back to usuary (now known as interest).

      If there's no interest, there's no reason for anyone to lend money, ever.

      • cloudy on 15/07/2019 - 22:11

        BNPL has no interest, it has fees. Add on top of that, charging others for you to take the loan. Perfect!!

        This is why it works so well for BNPL. The people who take the risk, gets it for "free"

      • Zedsdeadbabyzedsdead on 15/07/2019 - 22:35

        Plenty of organisations offer 0% loans in this world…..

  • EightImmortals on 15/07/2019 - 06:31
    +1

    There was a deal here the other day with no paypal option and the URL didn't have 'https' so I opted for BNPL instead just for a bit of peace of mind.

  • sahh on 15/07/2019 - 07:30

    In the current retail market it doesn’t seem like retailers are increasing their prices to cover off on their BNPL costs… they’re probably using it to up their revenue/profit and lowering their margins

  • JimmyF on 15/07/2019 - 08:23
    +1

    This has long been on my mind that we are in a world with ever more middle men trying to skim a cut for no real utility. Buy Now Pay Later pretty much acts like a Goods Tax, skimming a few percent off every purchases

    The middle man isn't skimming, they are offering 'loans', so you're paying fees attached to that in one way or another. If you don't like that, then don't use them. You don't need to use the BNPL offers or put things onto credit card credit.

    Its a funny thing, once you don't have debt/interest sucking your cash flow, your income becomes so much 'larger'. That $100 week or month you spent on interest payments, now means you can spend it on other items.

    The problem is the instant gratification generation is driving this, they just can't wait.

    If you learn to wait and SAVE then buy, you save so much money in interest payments, that your income goes 10-20% further as you don't have to pay interest!

    • cloudy on 15/07/2019 - 22:34

      I don't use any credit, not even for my house.

      My problem isn't a debt problem, my problem is that the shorterism of others will cost us all, in particular people like me who take no debt. Why, coz we bare some of the cost, and we never use any of the "benefit" (of having that tv a few weeks sooner)

      And I describe it as skimming simply because I see it that why, its a quasi tax on the financially unwise (ie those that cant wait), passed upon all.

      • JimmyF on 16/07/2019 - 11:11

        Pay cash and don't use your credit card = no skimming as you put it.

        don't use BNPL plans also equals no skimming

        • cloudy on 16/07/2019 - 19:56

          Not sure if you read the article, retailers are putting up prices across the board to cover these costs. Doesn’t matter what form of payment you pay with, due to BNPL banning surcharges.

          Sorry if I’ve not been clear, but the increase in costs is being passed on to everyone, which is why I’m cut, and you should be too.

  • [Deactivated] on 15/07/2019 - 10:14
    +1

    The bright side is that when you know these schemes cost the retailer 10% - you can save 10% by paying upfront.

    The down side is that these schemes seriously screw up lives e.g. https://www.abc.net.au/news/2019-07-12/complaint-centrelink-…

    • HighAndDry on 15/07/2019 - 18:46
      +1

      Can't win, can you? Control what people can use payments for, and they accuse Centerlink of being racist and being paternalistic and draconian. DON'T control what people can use this money for, and they accuse Centerlink of allowing them to be exploited.

      Bah. People should exercise self responsibility.

      Edit: Look at this bloke from your article:

      "I did all the paperwork and everything. I got loaned a laptop, Playstation 4, a big screen TV and a little speaker," he said.

      He did all the paperwork, and he was getting a PS4 (I don't have one), a big screen TV (mine is 5yrs old) and a little speaker (no one needs one). Arguably he probably could've done with a cheaper laptop too. Whose fault is that?

  • chumlee on 15/07/2019 - 18:51

    Millennials ate flocking to BNPL as credit card issuers have been fleecing customers for decades with ridiculously high interest rates & late payment fees.

    A lot of millennials don't even own a credit card and prefer debit cards

    You seriously think retailers are bothered by a 4% charge from BNPL providers? Rent & wages are killing them.

  • Valuehunter on 25/10/2020 - 02:43

    ref ""Credit cards

    45-90 days interest free""  OP which card offers 90 days?   the highest i know is GO MC but has a montly maintiaince fee
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