It's really concerning to me that I get offered the ability to pay over time for my McDonald's order. I haven't tried it, idk if there's a minimum, but like, why is it asking me for the $2.00...
It's really concerning to me that I get offered the ability to pay over time for my McDonald's order. I haven't tried it, idk if there's a minimum, but like, why is it asking me for the $2.00 sandwich order. It cannot be a good sign for the economy
I don't really feel like it's an indicator for anything. It cost very little for merchants to accept Klarna as a payment method. Doubly so if they use a PSP instead of rolling payments themselves...
I don't really feel like it's an indicator for anything. It cost very little for merchants to accept Klarna as a payment method. Doubly so if they use a PSP instead of rolling payments themselves - in that case, it's typically just a checkbox in a dashboard.
Eat now, pay later'? DoorDash-Klarna deal fuels concerns around loans for takeout I'm concerned that people are taking out short term loans to pay for dinner. I'm similarly concerned that it's...
The announcement has drawn a flurry of criticism on social media, less directed at the companies themselves than questioning what the need to use a “buy now, pay later” service for food orders says about the increasingly debt-ridden economy.
I'm concerned that people are taking out short term loans to pay for dinner. I'm similarly concerned that it's (not just Klarna but a similar service too) offered as an option when I spend $2.21 using Google Pay through the McDonald's app.
Merchants are 1 of the 2 ways Klarna makes money. I don't see how it's a good sign.
A lot of is just automated. Like I said, checkbox in a dashboard kind of stuff if you're using Stripe or Adyen for payments. Why not take Klarna? Even if very few people end up using it, there's...
A lot of is just automated. Like I said, checkbox in a dashboard kind of stuff if you're using Stripe or Adyen for payments. Why not take Klarna? Even if very few people end up using it, there's little harm for the merchant.
Merchants are 1 of the 2 ways Klarna makes money.
They're pretty much the only way Klarna makes money.
Lots of things are easy to implement and still a bad sign. Financing my McDonald's or door dash isn't a good economic sign, nor is it great for the consumer. I don't care how easy it is. Experts...
Lots of things are easy to implement and still a bad sign. Financing my McDonald's or door dash isn't a good economic sign, nor is it great for the consumer.
I don't care how easy it is. Experts are also concerned about how much debt people have. Even Klarna says it's not great. And now people are defaulting on their debt.
I think stu2b50's point is that the fact the option is there is not a bad sign. They are not commenting about it being a bad sign if people use it. And I'm inclined to agree. That someone added...
Lots of things are easy to implement and still a bad sign.
I think stu2b50's point is that the fact the option is there is not a bad sign.
They are not commenting about it being a bad sign if people use it.
And I'm inclined to agree. That someone added another option to an already bloated UI doesn't say much about the economy. It's a boring fact. If people are actually using it because they have no other choice, that's potentially very bad.
I know and I disagree with them. If doordash is cutting a deal with Klarna, and Klarna makes a lot of its money from merchant fees - and those fees would be with DD not with the restaurants - then...
I know and I disagree with them.
If doordash is cutting a deal with Klarna, and Klarna makes a lot of its money from merchant fees - and those fees would be with DD not with the restaurants - then DD thinks it'll be used and thus improve business to the extent those fees are worth it.
That's not a good economic sign IMO even before it's used by the customers. Just because it's easy to implement (not free, but easy) doesn't mean the decision to implement it says nothing.
Klarna's business model of subprime lending is what's questionable. Doordash isn't adding Klarna specifically so much as they're enabling every possible payment option. Even if only 1% of...
Klarna's business model of subprime lending is what's questionable.
Doordash isn't adding Klarna specifically so much as they're enabling every possible payment option. Even if only 1% of consumers will use the option, that's guaranteed growth. The risk to Doordash is basically nothing, so why not add it? That's why big platforms add every obscure payment option you can think of.
If I'm understanding your logic, accepting credit cards is a bad thing because it enables consumers to take on debt. I disagree because the businesses are simply accepting payments. The source of the money usually isn't their problem (and trying to legislate these things is how we end up with Visa shutting down adult content creators).
Yes among other things. You don't get rejected for poor credit, you are actively offered to finance (it's like McDonald's offering you a credit card app with your fries), there's not the consumer...
Klarna's business model of subprime lending is what's questionable.
Yes among other things. You don't get rejected for poor credit, you are actively offered to finance (it's like McDonald's offering you a credit card app with your fries), there's not the consumer protection present that credit cards have. The costs of failing to pay are obscured. As far as I can tell there's nothing telling you how high your weekly or whatever payments are going.
Doordash isn't adding Klarna specifically so much as they're enabling every possible payment option. Even if only 1% of consumers will use the option, that's guaranteed growth. The risk to Doordash is basically nothing, so why not add it? That's why big platforms add every obscure payment option you can think of.
I understand why companies do things I think are bad. I said I don't care how easy it is for the company.
I'm describing it as a big red flag.
If I'm understanding your logic, accepting credit cards is a bad thing because it enables consumers to take on debt. I disagree because the businesses are simply accepting payments. The source of the money usually isn't their problem (and trying to legislate these things is how we end up with Visa shutting down adult content creators).
I didn't say anything about credit cards and my opinion on them. It's nice that you disagree with a point I didn't make, but that's something you built on your own to argue with.
What stu2b50 is saying is that people probably aren't taking out a loan to pay for McDonald's, this is just an artifact of McDonald's accepting Klarna as a payment processor and Klarna offering...
What stu2b50 is saying is that people probably aren't taking out a loan to pay for McDonald's, this is just an artifact of McDonald's accepting Klarna as a payment processor and Klarna offering BNPL options by default on all transactions it processes.
This NBC article doesn't actually say much, mostly drawing supposition from Twitter users. I would want to see actual data showing a meaningful number of consumers are using BNPL to buy a sandwich before I put much thought into this.
This is all independent of the broader problem of people buying more on credit, and more people failing to repay loans. I don't want to downplay that growing concern. I just think this whole "people are paying for their Chipotle burritos in installments" is clickbait nonsense.
I don't know if Klarna allows pay later options for a $2.00 sandwich, but it's not just one of a list, it's flagging and saying "hey if you want to use Klarna click here." We know people are...
I don't know if Klarna allows pay later options for a $2.00 sandwich, but it's not just one of a list, it's flagging and saying "hey if you want to use Klarna click here."
We know people are actually using BNPL for door dash orders. Klarna advertises "pay in 4 at restaurants.com". I won't be surprised if they don't actually offer that for a two dollar order. I'm still concerned by it.
Wait no, merchant costs to Klarna are like 6% or something outrageous. And it's still profitable at that level for the retailer. Turns out people buy far more than they can afford through buy now...
Wait no, merchant costs to Klarna are like 6% or something outrageous. And it's still profitable at that level for the retailer. Turns out people buy far more than they can afford through buy now pay later schemes.
Paying your meals on credit is absolutely an indicator of economic downturn. People either don't have enough, or have fully given up on the current economic situation of today and do not care about being in or defaulting on debt. When people are uncertain, they will postpone payments. Additionally, poor people often spend their money quickly on (what could be considered) frivolous things, quite simply because it'll be gone by debt repayment the next day so you might as well get something for yourself. Like a Klarna McDonald's meal.
Just to be clear, Klarna's business model is late fees and debt, but a record number of people are defaulting on the debt causing Klarna to lose money. It was always a risky endeavour but recent levels of debt delinquency have been astronomical. On everything from credit card debt to mortgage payments, delinquency is on the rise. Klarna suffers from that.
Aside from that, Klarna offers subprime loans that are genuinely problematic in and of themselves. They caused multiple crashes and financial crises. Granted, a couple of two dollar burritos defaulting won't crash the economy, but the underlying reason people are going for subprime loans in the first place are the worrysome parts.
In my experience it's not so different from a normal credit card. I have a Klarna card that I use personally (which allows me to use it anywhere that accepts credit cards, rather than just places...
In my experience it's not so different from a normal credit card. I have a Klarna card that I use personally (which allows me to use it anywhere that accepts credit cards, rather than just places that directly support Klarna) and it just works like a normal credit card except that I can set it to work like a debit card if a purchase is beneath a certain threshold (for me I have this set to 25€).
I was very short on money earlier this year due to my wife leaving and some mix-ups that delayed my receiving some unemployment payments, and I put everything (even the very small stuff) on Klarna to give myself time to sort out selling some stuff and getting my financials sorted. Not ideal for sure, but neither would putting it all on a credit card, and Klarna's set-up does allow me to choose which things I pay off in a way that's not as transparently doable on a credit card. (I've since received the delayed money fwiw, so I'm no longer living off credit for the time being.)
But I don't really see how allowing payments with Klarna is any worse than allowing payments with a traditional credit card. They aren't totally identical but they operate more or less under the same principles. And it's extremely common to pay for a small meal at McDonald's with your credit card.
Are the regulations on it different in Europe or did you get it in the US? All sorts of products that are red flags can be useful for individuals, from payday loans to floating credit card...
Are the regulations on it different in Europe or did you get it in the US?
All sorts of products that are red flags can be useful for individuals, from payday loans to floating credit card balances around - I'm trying to refinance a car loan we're sort of upside down on for our wheelchair van more to lower payments than anything else. (It's complicated, we're also sort of not upside down.) There are significant differences in consumer protections, a very minimal approval process, and the ease of piling up weekly or monthly payments with each further approval.
Their card may function differently than the "buy now pay later" at checkout button?
I'm saying, and still maintain, it is a red flag to the economy to me to be actively offered a payment plan for the smallest purchases at checkout on every platform for every purchase. I'm sure some folks need it and some will use it with no problems but as the above article notes, people do not have the money to be doing that.
I don't know enough about how they're regulated in either place to know whether these regulations are different between the US and EU. Is there some key way that they're more poorly regulated than...
I don't know enough about how they're regulated in either place to know whether these regulations are different between the US and EU. Is there some key way that they're more poorly regulated than normal credit cards are in the US?
They also operate a bank within the EU, which presumably entails more stringent regulations to an extent. I have a bank account with them and a debit card as part of that (it's good for international payments compared to my other German bank and comes with a real debit card rather than the weird German-only kind you get from most accounts here, so I use it for my day-to-day while keeping big things like bills and rent in my older-school German bank), separately from the Klarna card that works more like a credit card. I used to use a different online bank before switching to Klarna, but they got into crypto and also had higher fees.
The Klarna card doesn't operate differently than the "buy now pay later" stuff in terms of repayment at least afaik, it just operates as a more convenient way to use Klarna for those purchases. You can use it in-person at shops in a way you wouldn't easily be able to without the physical card. The only difference I'm aware of is being able to set up "Flex pay" to have it just take the money directly from your bank for small payments just like a debit card, like I mentioned in my last comment.
I think credit cards of any kind can be somewhat predatory in many situations, but in my experience Klarna is no worse than any of the American credit cards I've used on that front. If anything, it's been better for me in this respect than my US credit cards, as Klarna is much better at reminding me when my payments are due and not charging fees/interest when I pay them off just slightly late bc of the good ol' ADHD. I guess I just don't understand what makes them so much worse than getting a normal credit card and paying it off at the end of each month -- something that people repeatedly recommended I do once I turned 18 in order to build up good credit in the US! Klarna's "payment plan" just doesn't seem to actually be substantively different from the "payment plan" that you'd get from putting the same charge on a credit card.
My app ate my reply, my short answer is that the CFPB was just starting to regulate them similar to credit cards like last year. That agency is gutted and it's not clear which consumer protections...
My app ate my reply, my short answer is that the CFPB was just starting to regulate them similar to credit cards like last year. That agency is gutted and it's not clear which consumer protections apply and who's enforcing them - credit cards have specific ones, loans have specific ones, etc. But they make money on defaults/late fees and merchant fees, and they're seeing double the amount of defaults. I'd be interested to see what kind of fee my $2.00 sandwich got charged if I missed a payment.
I am sure if it's functioning as a bank it has different regulations on it there, and maybe all these products are regulated slightly differently anyway.
My point ultimately is that McDonald's doesn't sell you a credit card when you order. You can pay with one, sure but they're not asking you if you want a no-credit-check loan to buy your sandwich.
It is a red flag for how the average American is doing that these companies have found it in their best interest not just to offer these services at checkout, but to actively suggest or otherwise flag them for attention and for how many Americans are using them for necessities and small "luxuries" (I don't consider eating out that much of one, comparatively). I get it for concert tickets, if you can afford it the interest is way better than that credit card.
I'm not saying they're evil - or that they're not - or that credit cards are the best financial choice, or anything. I'm saying it is a bad sign of how we're doing economically.
(This answer was less short than originally anticipated)
Ah okay, I wasn't aware they weren't regulated like credit cards in the US. Credit cards are much less widespread here in Germany anyway, so I don't know whether they're regulated differently here...
Ah okay, I wasn't aware they weren't regulated like credit cards in the US. Credit cards are much less widespread here in Germany anyway, so I don't know whether they're regulated differently here as well, but I think you're right that the regulations are almost definitely different between the US and EU.
Yeah they were starting to be, but i'm not sure that they are currently. But they explicitly landed in a grey area for at least a while. It's possible that, for example, getting a refund through...
Yeah they were starting to be, but i'm not sure that they are currently. But they explicitly landed in a grey area for at least a while. It's possible that, for example, getting a refund through Klarna or Affirm is easier than it was before. I am not blaming people for using the tools in front of them. I just don't like the sense it gives me about how we're doing.
You know, I noticed that for the first time the other day at lunch. I 100% assumed it was a funny glitch, because who does a layaway plan for a burger? That it actually is real leaves a sinking...
You know, I noticed that for the first time the other day at lunch. I 100% assumed it was a funny glitch, because who does a layaway plan for a burger? That it actually is real leaves a sinking feeling in my stomach.
It's very weird to me everyone explaining why it's actually just easy for the company to do and not worrying. Like we should be concerned about how many people are using it and what happens when...
It's very weird to me everyone explaining why it's actually just easy for the company to do and not worrying.
Like we should be concerned about how many people are using it and what happens when that collapses!
Luckily this is a case where the wider economic damage is quite limited. Klarna is giving out a bunch of subprime debt to people who apparently can't pay it back. If that comes to a head, nobody...
Luckily this is a case where the wider economic damage is quite limited. Klarna is giving out a bunch of subprime debt to people who apparently can't pay it back. If that comes to a head, nobody other than klarna has a problem. Realistically, they are forced into bankruptcy and part of that is selling their debts off to collectors who hassle these folks to pay back.
I'm very confused by the idea that it isn't a bad sign for the economy because the only people who get hurt are the people who get hurt. It's not good for more people to be defaulting on their...
I'm very confused by the idea that it isn't a bad sign for the economy because the only people who get hurt are the people who get hurt. It's not good for more people to be defaulting on their debt, it's not good for people to need to finance their lunch order. But sure, people are free to act and make their own choices. It's still a red flag to how our economy is doing.
Im talking about the macro economy. One company going under is not a big deal, broadly speaking. Auto loans having similar issues would be a big deal, because that's talking trillions when this is...
Im talking about the macro economy. One company going under is not a big deal, broadly speaking. Auto loans having similar issues would be a big deal, because that's talking trillions when this is millions.
Sure, it's an indicator, that's all I've been trying to say this whole time, but if folks can't buy necessities they're going to default on auto loans too. Something can be a bigger red flag and...
Sure, it's an indicator, that's all I've been trying to say this whole time, but if folks can't buy necessities they're going to default on auto loans too.
Something can be a bigger red flag and the smaller one is still a bad sign. If we were talking about those other types of loans here I'd probably have brought them up
That's my point, klarna is a blip, it'll go out without meaningful impact. The real issues are bigger like auto loan, student loans, medical debt, etc.
That's my point, klarna is a blip, it'll go out without meaningful impact. The real issues are bigger like auto loan, student loans, medical debt, etc.
Klarna is an indicator that even for small payments this is becoming a problem. Klarna going under is a small blip, but the ubiquitous use for frivolous payments is a Horseman. And yeah I got the...
Klarna is an indicator that even for small payments this is becoming a problem. Klarna going under is a small blip, but the ubiquitous use for frivolous payments is a Horseman.
And yeah I got the point. Car loans are worryingly following the same trend of delinquency and they are much more a part of the American economy.
I guess I’m mixed: at first blush using Klarna to pay for McDonalds seems ludicrous. But if I take a step back, I use my credit card to pay for McDonalds. I’m still taking a loan for my dinner. I...
I guess I’m mixed: at first blush using Klarna to pay for McDonalds seems ludicrous. But if I take a step back, I use my credit card to pay for McDonalds. I’m still taking a loan for my dinner. I guess the difference is that reasonable credit card use is essentially treated like cash. We don’t carry a balance month to month, we use the card because of the cashback that we’d lose out on paying cash and the ability to earn more interest on our cash accounts.
The fact that Klarna users are defaulting indicates that these subprime borrowers can’t actually afford basic necessities.
Which is why I'm saying it's a red flag for the economy as a whole. I'm not judging folks for using a tool, even if it's a bad idea to use it in general maybe it isn't for them. Or maybe they're...
Which is why I'm saying it's a red flag for the economy as a whole. I'm not judging folks for using a tool, even if it's a bad idea to use it in general maybe it isn't for them. Or maybe they're stuck. Lots of things are possible. It just all adds up to "it's not a great sign" on that macro level.
I'd agree, and I'd go further to say I think businesses like Klarna are a bad sign. It's essentially like "oh you can't get a credit card or a high enough limit, we'll give you a payday loan on...
I'd agree, and I'd go further to say I think businesses like Klarna are a bad sign. It's essentially like "oh you can't get a credit card or a high enough limit, we'll give you a payday loan on the spot!"
I've heard it suggested that some people are just using it as a payment processor rather than dealing with more awkward online payment methods like paypal.
I've heard it suggested that some people are just using it as a payment processor rather than dealing with more awkward online payment methods like paypal.
They may be, but from the article: So, not all people are doing that.
They may be, but from the article:
The fintech, which offers interest-free consumer loans to allow customers to make retail purchases, on Monday reported a net loss of $99mn for the three months to March, up from $47mn a year earlier.
Of similar concern in the US, repayments of vehicle subprime loans are also at an elevated rate and have been trending that way for a bit. This, combined with borrowers getting behind on payments...
Of similar concern in the US, repayments of vehicle subprime loans are also at an elevated rate and have been trending that way for a bit. This, combined with borrowers getting behind on payments in other spaces and a lack of rising wages across the board, isn't a great sign. Sprinkle on some tax rebates for the wealthy that do not translate into the kind of economic stimulus (and mental health benefits) that giving the same money (and child tax credits) to lower-income families would ... I just hope everyone gets through this.
Commenting about this separately because this is a whole other can of worms, but I want to point out something that people should really be calling their representatives about constantly: "buy...
Commenting about this separately because this is a whole other can of worms, but I want to point out something that people should really be calling their representatives about constantly: "buy now, pay later" (BNPL) services help enable irresponsibly high-value firearms purchases (and in concerning quantity). Not saying everyone does this, but it's almost as in-your-face as gambling ads on TV and the web and it's so, so accessible.
Regardless of one's views on firearm ownership and accessibility, there are many more risks to allowing the purchase of firearms via services like Klarna, Credova, Sezzle, and Paypal that provide opportunities to vastly over-extend one's buying power in addition to traditional credit cards. It's very, very easy to purchase a firearm and, in many states have it delivered and take possession of that firearm well before the first payment is due. That's the opposite of "layaway," where a person pays in installments until they've paid the full amount before being able to go home with the appliance, furniture, etc. that they've bought. Even the credit card companies are getting in on BNPL opportunities with direct emails about how to convert large, recent purchases into payment plans after the transaction.
I see a lot of these services that specifically target individuals at point-of-sale and during checkout with such great offers even I've taken a look. Some of those people literally cannot qualify for traditional, better-regulated credit services. As much as I dislike the predatory nature of high-interest rate credit cards and all of that, so many firearm sites are partnering with BNPL services to enable spending habits without even a "please call 1-800-GAMBLER if you have a gambling addiction..." in the fine print. Some of the biggest firearm retailers have different BNPL companies and their payment plan options listed on every product page load.
While we can't fix every unhealthy mindset, there's a lot more we can do here and I think this is one of several ways we need to tackle bad spending habits. There are a lot of people buying things they can't afford and then are faced with either selling/consigning it (and losing face/taking a hit to their masculinity) or finding other ways to eventually pay off a debt that turns out sometimes has additional fees and interest rates attached. That additional pressure further entrenches people into the mindset that the world is out to get them and leads them further down a toxic road.
The COVID-19 pandemic era produced a massive increase in BNPL transactions in the United States, going from $2 billion in 2019 to $24.2 billion in 2021.[8]
I'd be curious how this correlates to subprime car loans and, separately, Qanon-related purchases during the pandemic and leading up to the election (like the guy who bought a new truck thinking that Q would pay for it if only the election went his way).
One nitpick on that quote I feel like there's this implication from Wikipedia/the article it's based on that BNPL was a consistent business up until COVID hit and then all hell broke loose. But...
One nitpick on that quote
The COVID-19 pandemic era produced a massive increase in BNPL transactions in the United States, going from $2 billion in 2019 to $24.2 billion in 2021.
I feel like there's this implication from Wikipedia/the article it's based on that BNPL was a consistent business up until COVID hit and then all hell broke loose. But 2019 is roughly the period when the current crop of BNPL companies with their fancy schmancy tech were starting to launch.. So that's why there was a huge jump in numbers. I'm sure COVID also had a big impact, but just adding some color there.
Damn, when even Klarna is feeling the heat I think we're in big trouble economically. , not sure if that stat is true but its going to make for some rude awakenings once forbearance ends in June
Damn, when even Klarna is feeling the heat I think we're in big trouble economically. I read somewhere that like 80% of student loans haven't been paid at all, not sure if that stat is true but its going to make for some rude awakenings once forbearance ends in June
42.7 million borrowers, 5 million of which have not made any payments in the last 360 days. That means 80% of student loans not having been paid at all is definitely not correct. Not a great...
Shit has been on hold for a long time - between those of us in the SAVE program on hold, the pandemic, my payments before that being zero for a while, I'd love to be "paying" but I have no payment...
Shit has been on hold for a long time - between those of us in the SAVE program on hold, the pandemic, my payments before that being zero for a while, I'd love to be "paying" but I have no payment amount to even pay to get credit for the time I've been working and payments made to finish my PSLF next year. Many of us are in forbearance because someone decided to sue because it wasn't fair other people got loan forgiveness/because the state of Missouri thought it should get an opinion because Mohela was the processor.
There's the potential to "buy back" months but to even know that is because I'm in a very helpful Facebook group. I'm not 100% sure how it will work eventually. But yeah PSLF has been fucked over...
There's the potential to "buy back" months but to even know that is because I'm in a very helpful Facebook group. I'm not 100% sure how it will work eventually. But yeah PSLF has been fucked over even as SAVE literally saved my ability to make it work for all my loans. I owe significantly more now than when I started. If I didn't pay it off this way, I'd be getting forgiven in 25 years.
Thankfully Iike my job and hope to retire from it someday
Ah I definitely misremembered the stat then, but 60%+ of student loans going to collections is still a ridiculously high number and incredibly worrying if that ends up being accurate. Hard to tell...
Ah I definitely misremembered the stat then, but 60%+ of student loans going to collections is still a ridiculously high number and incredibly worrying if that ends up being accurate. Hard to tell with this administration, because they often just make up lies.
They're not going into collections immediately. I'm not in repayment but I'm "current" not behind. The 38 percent is only referring to people who are both. Lots of us are on hold.
They're not going into collections immediately. I'm not in repayment but I'm "current" not behind. The 38 percent is only referring to people who are both. Lots of us are on hold.
Klarna has never been profitable and they're getting worse because delinquency is up. A regular paying Klarna customer does not make them money, but neither does one that doesn't pay their late fees.
Klarna has never been profitable and they're getting worse because delinquency is up.
A regular paying Klarna customer does not make them money, but neither does one that doesn't pay their late fees.
It's really concerning to me that I get offered the ability to pay over time for my McDonald's order. I haven't tried it, idk if there's a minimum, but like, why is it asking me for the $2.00 sandwich order. It cannot be a good sign for the economy
I don't really feel like it's an indicator for anything. It cost very little for merchants to accept Klarna as a payment method. Doubly so if they use a PSP instead of rolling payments themselves - in that case, it's typically just a checkbox in a dashboard.
Eat now, pay later'? DoorDash-Klarna deal fuels concerns around loans for takeout
I'm concerned that people are taking out short term loans to pay for dinner. I'm similarly concerned that it's (not just Klarna but a similar service too) offered as an option when I spend $2.21 using Google Pay through the McDonald's app.
Merchants are 1 of the 2 ways Klarna makes money. I don't see how it's a good sign.
A lot of is just automated. Like I said, checkbox in a dashboard kind of stuff if you're using Stripe or Adyen for payments. Why not take Klarna? Even if very few people end up using it, there's little harm for the merchant.
They're pretty much the only way Klarna makes money.
Lots of things are easy to implement and still a bad sign. Financing my McDonald's or door dash isn't a good economic sign, nor is it great for the consumer.
I don't care how easy it is. Experts are also concerned about how much debt people have. Even Klarna says it's not great. And now people are defaulting on their debt.
I think stu2b50's point is that the fact the option is there is not a bad sign.
They are not commenting about it being a bad sign if people use it.
And I'm inclined to agree. That someone added another option to an already bloated UI doesn't say much about the economy. It's a boring fact. If people are actually using it because they have no other choice, that's potentially very bad.
I know and I disagree with them.
If doordash is cutting a deal with Klarna, and Klarna makes a lot of its money from merchant fees - and those fees would be with DD not with the restaurants - then DD thinks it'll be used and thus improve business to the extent those fees are worth it.
That's not a good economic sign IMO even before it's used by the customers. Just because it's easy to implement (not free, but easy) doesn't mean the decision to implement it says nothing.
Klarna's business model of subprime lending is what's questionable.
Doordash isn't adding Klarna specifically so much as they're enabling every possible payment option. Even if only 1% of consumers will use the option, that's guaranteed growth. The risk to Doordash is basically nothing, so why not add it? That's why big platforms add every obscure payment option you can think of.
If I'm understanding your logic, accepting credit cards is a bad thing because it enables consumers to take on debt. I disagree because the businesses are simply accepting payments. The source of the money usually isn't their problem (and trying to legislate these things is how we end up with Visa shutting down adult content creators).
Yes among other things. You don't get rejected for poor credit, you are actively offered to finance (it's like McDonald's offering you a credit card app with your fries), there's not the consumer protection present that credit cards have. The costs of failing to pay are obscured. As far as I can tell there's nothing telling you how high your weekly or whatever payments are going.
I understand why companies do things I think are bad. I said I don't care how easy it is for the company.
I'm describing it as a big red flag.
I didn't say anything about credit cards and my opinion on them. It's nice that you disagree with a point I didn't make, but that's something you built on your own to argue with.
What stu2b50 is saying is that people probably aren't taking out a loan to pay for McDonald's, this is just an artifact of McDonald's accepting Klarna as a payment processor and Klarna offering BNPL options by default on all transactions it processes.
This NBC article doesn't actually say much, mostly drawing supposition from Twitter users. I would want to see actual data showing a meaningful number of consumers are using BNPL to buy a sandwich before I put much thought into this.
This is all independent of the broader problem of people buying more on credit, and more people failing to repay loans. I don't want to downplay that growing concern. I just think this whole "people are paying for their Chipotle burritos in installments" is clickbait nonsense.
I don't know if Klarna allows pay later options for a $2.00 sandwich, but it's not just one of a list, it's flagging and saying "hey if you want to use Klarna click here."
We know people are actually using BNPL for door dash orders. Klarna advertises "pay in 4 at restaurants.com". I won't be surprised if they don't actually offer that for a two dollar order. I'm still concerned by it.
Wait no, merchant costs to Klarna are like 6% or something outrageous. And it's still profitable at that level for the retailer. Turns out people buy far more than they can afford through buy now pay later schemes.
Paying your meals on credit is absolutely an indicator of economic downturn. People either don't have enough, or have fully given up on the current economic situation of today and do not care about being in or defaulting on debt. When people are uncertain, they will postpone payments. Additionally, poor people often spend their money quickly on (what could be considered) frivolous things, quite simply because it'll be gone by debt repayment the next day so you might as well get something for yourself. Like a Klarna McDonald's meal.
Just to be clear, Klarna's business model is late fees and debt, but a record number of people are defaulting on the debt causing Klarna to lose money. It was always a risky endeavour but recent levels of debt delinquency have been astronomical. On everything from credit card debt to mortgage payments, delinquency is on the rise. Klarna suffers from that.
Aside from that, Klarna offers subprime loans that are genuinely problematic in and of themselves. They caused multiple crashes and financial crises. Granted, a couple of two dollar burritos defaulting won't crash the economy, but the underlying reason people are going for subprime loans in the first place are the worrysome parts.
I just noticed that option when I used DoorDash earlier this evening. Absolutely wild.
In my experience it's not so different from a normal credit card. I have a Klarna card that I use personally (which allows me to use it anywhere that accepts credit cards, rather than just places that directly support Klarna) and it just works like a normal credit card except that I can set it to work like a debit card if a purchase is beneath a certain threshold (for me I have this set to 25€).
I was very short on money earlier this year due to my wife leaving and some mix-ups that delayed my receiving some unemployment payments, and I put everything (even the very small stuff) on Klarna to give myself time to sort out selling some stuff and getting my financials sorted. Not ideal for sure, but neither would putting it all on a credit card, and Klarna's set-up does allow me to choose which things I pay off in a way that's not as transparently doable on a credit card. (I've since received the delayed money fwiw, so I'm no longer living off credit for the time being.)
But I don't really see how allowing payments with Klarna is any worse than allowing payments with a traditional credit card. They aren't totally identical but they operate more or less under the same principles. And it's extremely common to pay for a small meal at McDonald's with your credit card.
Are the regulations on it different in Europe or did you get it in the US?
All sorts of products that are red flags can be useful for individuals, from payday loans to floating credit card balances around - I'm trying to refinance a car loan we're sort of upside down on for our wheelchair van more to lower payments than anything else. (It's complicated, we're also sort of not upside down.) There are significant differences in consumer protections, a very minimal approval process, and the ease of piling up weekly or monthly payments with each further approval.
Their card may function differently than the "buy now pay later" at checkout button?
I'm saying, and still maintain, it is a red flag to the economy to me to be actively offered a payment plan for the smallest purchases at checkout on every platform for every purchase. I'm sure some folks need it and some will use it with no problems but as the above article notes, people do not have the money to be doing that.
I don't know enough about how they're regulated in either place to know whether these regulations are different between the US and EU. Is there some key way that they're more poorly regulated than normal credit cards are in the US?
They also operate a bank within the EU, which presumably entails more stringent regulations to an extent. I have a bank account with them and a debit card as part of that (it's good for international payments compared to my other German bank and comes with a real debit card rather than the weird German-only kind you get from most accounts here, so I use it for my day-to-day while keeping big things like bills and rent in my older-school German bank), separately from the Klarna card that works more like a credit card. I used to use a different online bank before switching to Klarna, but they got into crypto and also had higher fees.
The Klarna card doesn't operate differently than the "buy now pay later" stuff in terms of repayment at least afaik, it just operates as a more convenient way to use Klarna for those purchases. You can use it in-person at shops in a way you wouldn't easily be able to without the physical card. The only difference I'm aware of is being able to set up "Flex pay" to have it just take the money directly from your bank for small payments just like a debit card, like I mentioned in my last comment.
I think credit cards of any kind can be somewhat predatory in many situations, but in my experience Klarna is no worse than any of the American credit cards I've used on that front. If anything, it's been better for me in this respect than my US credit cards, as Klarna is much better at reminding me when my payments are due and not charging fees/interest when I pay them off just slightly late bc of the good ol' ADHD. I guess I just don't understand what makes them so much worse than getting a normal credit card and paying it off at the end of each month -- something that people repeatedly recommended I do once I turned 18 in order to build up good credit in the US! Klarna's "payment plan" just doesn't seem to actually be substantively different from the "payment plan" that you'd get from putting the same charge on a credit card.
My app ate my reply, my short answer is that the CFPB was just starting to regulate them similar to credit cards like last year. That agency is gutted and it's not clear which consumer protections apply and who's enforcing them - credit cards have specific ones, loans have specific ones, etc. But they make money on defaults/late fees and merchant fees, and they're seeing double the amount of defaults. I'd be interested to see what kind of fee my $2.00 sandwich got charged if I missed a payment.
I am sure if it's functioning as a bank it has different regulations on it there, and maybe all these products are regulated slightly differently anyway.
My point ultimately is that McDonald's doesn't sell you a credit card when you order. You can pay with one, sure but they're not asking you if you want a no-credit-check loan to buy your sandwich.
It is a red flag for how the average American is doing that these companies have found it in their best interest not just to offer these services at checkout, but to actively suggest or otherwise flag them for attention and for how many Americans are using them for necessities and small "luxuries" (I don't consider eating out that much of one, comparatively). I get it for concert tickets, if you can afford it the interest is way better than that credit card.
I'm not saying they're evil - or that they're not - or that credit cards are the best financial choice, or anything. I'm saying it is a bad sign of how we're doing economically.
(This answer was less short than originally anticipated)
Ah okay, I wasn't aware they weren't regulated like credit cards in the US. Credit cards are much less widespread here in Germany anyway, so I don't know whether they're regulated differently here as well, but I think you're right that the regulations are almost definitely different between the US and EU.
Yeah they were starting to be, but i'm not sure that they are currently. But they explicitly landed in a grey area for at least a while. It's possible that, for example, getting a refund through Klarna or Affirm is easier than it was before. I am not blaming people for using the tools in front of them. I just don't like the sense it gives me about how we're doing.
I certainly don't think increased need to rely on credit of any type is a good sign for the economy. I definitely agree with you on that.
You know, I noticed that for the first time the other day at lunch. I 100% assumed it was a funny glitch, because who does a layaway plan for a burger? That it actually is real leaves a sinking feeling in my stomach.
It's very weird to me everyone explaining why it's actually just easy for the company to do and not worrying.
Like we should be concerned about how many people are using it and what happens when that collapses!
Luckily this is a case where the wider economic damage is quite limited. Klarna is giving out a bunch of subprime debt to people who apparently can't pay it back. If that comes to a head, nobody other than klarna has a problem. Realistically, they are forced into bankruptcy and part of that is selling their debts off to collectors who hassle these folks to pay back.
I'm very confused by the idea that it isn't a bad sign for the economy because the only people who get hurt are the people who get hurt. It's not good for more people to be defaulting on their debt, it's not good for people to need to finance their lunch order. But sure, people are free to act and make their own choices. It's still a red flag to how our economy is doing.
Im talking about the macro economy. One company going under is not a big deal, broadly speaking. Auto loans having similar issues would be a big deal, because that's talking trillions when this is millions.
So am I. I am not talking about Klarna going under being my concern at all. Literally just said it's a red flag for how the country is doing.
It's a blip is my point, the auto loan crisis is a blaring red siren.
Sure, it's an indicator, that's all I've been trying to say this whole time, but if folks can't buy necessities they're going to default on auto loans too.
Something can be a bigger red flag and the smaller one is still a bad sign. If we were talking about those other types of loans here I'd probably have brought them up
Uhhh... About that.
That's my point, klarna is a blip, it'll go out without meaningful impact. The real issues are bigger like auto loan, student loans, medical debt, etc.
Klarna is an indicator that even for small payments this is becoming a problem. Klarna going under is a small blip, but the ubiquitous use for frivolous payments is a Horseman.
And yeah I got the point. Car loans are worryingly following the same trend of delinquency and they are much more a part of the American economy.
I guess I’m mixed: at first blush using Klarna to pay for McDonalds seems ludicrous. But if I take a step back, I use my credit card to pay for McDonalds. I’m still taking a loan for my dinner. I guess the difference is that reasonable credit card use is essentially treated like cash. We don’t carry a balance month to month, we use the card because of the cashback that we’d lose out on paying cash and the ability to earn more interest on our cash accounts.
The fact that Klarna users are defaulting indicates that these subprime borrowers can’t actually afford basic necessities.
Which is why I'm saying it's a red flag for the economy as a whole. I'm not judging folks for using a tool, even if it's a bad idea to use it in general maybe it isn't for them. Or maybe they're stuck. Lots of things are possible. It just all adds up to "it's not a great sign" on that macro level.
I'd agree, and I'd go further to say I think businesses like Klarna are a bad sign. It's essentially like "oh you can't get a credit card or a high enough limit, we'll give you a payday loan on the spot!"
Right! I don't love the CC at point of sale offers either, and if people default on those, it's also a bad sign. But these feel worse.
I've heard it suggested that some people are just using it as a payment processor rather than dealing with more awkward online payment methods like paypal.
They may be, but from the article:
So, not all people are doing that.
Of similar concern in the US, repayments of vehicle subprime loans are also at an elevated rate and have been trending that way for a bit. This, combined with borrowers getting behind on payments in other spaces and a lack of rising wages across the board, isn't a great sign. Sprinkle on some tax rebates for the wealthy that do not translate into the kind of economic stimulus (and mental health benefits) that giving the same money (and child tax credits) to lower-income families would ... I just hope everyone gets through this.
Commenting about this separately because this is a whole other can of worms, but I want to point out something that people should really be calling their representatives about constantly: "buy now, pay later" (BNPL) services help enable irresponsibly high-value firearms purchases (and in concerning quantity). Not saying everyone does this, but it's almost as in-your-face as gambling ads on TV and the web and it's so, so accessible.
Regardless of one's views on firearm ownership and accessibility, there are many more risks to allowing the purchase of firearms via services like Klarna, Credova, Sezzle, and Paypal that provide opportunities to vastly over-extend one's buying power in addition to traditional credit cards. It's very, very easy to purchase a firearm and, in many states have it delivered and take possession of that firearm well before the first payment is due. That's the opposite of "layaway," where a person pays in installments until they've paid the full amount before being able to go home with the appliance, furniture, etc. that they've bought. Even the credit card companies are getting in on BNPL opportunities with direct emails about how to convert large, recent purchases into payment plans after the transaction.
I see a lot of these services that specifically target individuals at point-of-sale and during checkout with such great offers even I've taken a look. Some of those people literally cannot qualify for traditional, better-regulated credit services. As much as I dislike the predatory nature of high-interest rate credit cards and all of that, so many firearm sites are partnering with BNPL services to enable spending habits without even a "please call 1-800-GAMBLER if you have a gambling addiction..." in the fine print. Some of the biggest firearm retailers have different BNPL companies and their payment plan options listed on every product page load.
While we can't fix every unhealthy mindset, there's a lot more we can do here and I think this is one of several ways we need to tackle bad spending habits. There are a lot of people buying things they can't afford and then are faced with either selling/consigning it (and losing face/taking a hit to their masculinity) or finding other ways to eventually pay off a debt that turns out sometimes has additional fees and interest rates attached. That additional pressure further entrenches people into the mindset that the world is out to get them and leads them further down a toxic road.
Edit: There's a Wiki page about BNPL:
I'd be curious how this correlates to subprime car loans and, separately, Qanon-related purchases during the pandemic and leading up to the election (like the guy who bought a new truck thinking that Q would pay for it if only the election went his way).
One nitpick on that quote
I feel like there's this implication from Wikipedia/the article it's based on that BNPL was a consistent business up until COVID hit and then all hell broke loose. But 2019 is roughly the period when the current crop of BNPL companies with their fancy schmancy tech were starting to launch.. So that's why there was a huge jump in numbers. I'm sure COVID also had a big impact, but just adding some color there.
I think that's good context, I wouldn't call it a nitpick. :)
Archived Link
Damn, when even Klarna is feeling the heat I think we're in big trouble economically.
I read somewhere that like 80% of student loans haven't been paid at all, not sure if that stat is true but its going to make for some rude awakenings once forbearance ends in June42.7 million borrowers, 5 million of which have not made any payments in the last 360 days. That means 80% of student loans not having been paid at all is definitely not correct. Not a great situation since only "38 percent of borrowers are in repayment and current on their student loans", but not as bad as 80% never having paid anything.
Shit has been on hold for a long time - between those of us in the SAVE program on hold, the pandemic, my payments before that being zero for a while, I'd love to be "paying" but I have no payment amount to even pay to get credit for the time I've been working and payments made to finish my PSLF next year. Many of us are in forbearance because someone decided to sue because it wasn't fair other people got loan forgiveness/because the state of Missouri thought it should get an opinion because Mohela was the processor.
Doesn't that hold you hostage to your job longer than the expected timeframe (10 years?) then? If so that's crazy.
There's the potential to "buy back" months but to even know that is because I'm in a very helpful Facebook group. I'm not 100% sure how it will work eventually. But yeah PSLF has been fucked over even as SAVE literally saved my ability to make it work for all my loans. I owe significantly more now than when I started. If I didn't pay it off this way, I'd be getting forgiven in 25 years.
Thankfully Iike my job and hope to retire from it someday
Ah I definitely misremembered the stat then, but 60%+ of student loans going to collections is still a ridiculously high number and incredibly worrying if that ends up being accurate. Hard to tell with this administration, because they often just make up lies.
They're not going into collections immediately. I'm not in repayment but I'm "current" not behind. The 38 percent is only referring to people who are both. Lots of us are on hold.
Klarna has never been profitable and they're getting worse because delinquency is up.
A regular paying Klarna customer does not make them money, but neither does one that doesn't pay their late fees.