WEBVTT - What's Behind the Boom in Buy Now Pay Later 0:00:02.720 --> 0:00:17.720 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.600 --> 0:00:21.680 Hello and welcome to another episode of the out Thoughts podcast. 0:00:21.800 --> 0:00:23.160 I'm Tracy Alloway. 0:00:22.880 --> 0:00:24.680 And I'm Joe. Why isn't thal Joe? 0:00:24.720 --> 0:00:27.280 I have a confession to make. Yeah, I do a 0:00:27.280 --> 0:00:31.840 lot of online shopping, like a lot more than is healthy. 0:00:31.600 --> 0:00:34.519 Probably more than I realized from looking over your shoulder 0:00:34.720 --> 0:00:37.159 in the office and asking you what you're looking up, 0:00:37.159 --> 0:00:38.839 because I do do that and you never like it. 0:00:38.880 --> 0:00:41.280 But I still do know because sometimes I am, in 0:00:41.320 --> 0:00:44.760 fact shopping online in the office. But a few years 0:00:44.760 --> 0:00:47.960 ago I noticed a phenomenon, a change when it came 0:00:48.000 --> 0:00:51.600 to online shopping. You know what that was, I can guess, yeah, 0:00:51.640 --> 0:00:54.280 all right, all of a sudden, whenever I was checking out, 0:00:54.560 --> 0:00:57.640 you would get an offer, a little button usually that 0:00:57.680 --> 0:01:00.000 would say do you want to take a buy now 0:01:00.360 --> 0:01:03.480 pay later option? And usually it's with a company like 0:01:03.560 --> 0:01:08.119 Klarna or a firm or something like that. They're everywhere now. 0:01:08.440 --> 0:01:10.600 So, like I've certainly seen all these buttons, I've never 0:01:10.720 --> 0:01:14.320 used it. I don't really know why I haven't, because like, 0:01:14.360 --> 0:01:16.920 why shouldn't I spread out? Why shouldn't I? 0:01:17.240 --> 0:01:18.000 Like for real? 0:01:18.200 --> 0:01:22.080 Like my understanding is that the core of the business 0:01:22.120 --> 0:01:25.160 model works is that there's no like formal interest, right, 0:01:25.240 --> 0:01:27.920 so if you make one hundred dollars purchase, you get 0:01:27.959 --> 0:01:29.960 to spread it out, say in four payments of twenty 0:01:29.959 --> 0:01:32.319 five dollars, and so whether it's one hundred dollars right 0:01:32.360 --> 0:01:34.920 now or one hundred dollars and four months, it's the 0:01:34.959 --> 0:01:37.600 same from the end buyer, which, of course in theory 0:01:37.640 --> 0:01:38.319 because there's a. 0:01:38.240 --> 0:01:39.880 Time value of money, is not intuitive. 0:01:39.920 --> 0:01:43.319 But the idea is that the retailer implicitly pays the 0:01:43.360 --> 0:01:46.920 interest because it's a form of customer acquisition, and so 0:01:47.000 --> 0:01:50.280 the retailer is implicitly willing to take one hundred dollars 0:01:50.360 --> 0:01:54.320 or whatever over x period of time rather than all 0:01:54.360 --> 0:01:57.680 at once in exchange for essentially making it easier for 0:01:57.720 --> 0:02:00.520 customers to buy. But from the customer person like you 0:02:00.560 --> 0:02:02.960 were me, who presumably have the money to make to 0:02:02.960 --> 0:02:05.000 buy what we're purchasing, I still don't get why we 0:02:05.040 --> 0:02:07.840 don't all use buy now, pay later, because why not 0:02:08.000 --> 0:02:10.360 spread out our purchases further out into the future. 0:02:10.639 --> 0:02:14.200 You know how Rebel Wilson described it in a firm commercial. 0:02:14.360 --> 0:02:16.080 I didn't. I don't. I haven't seen it. 0:02:16.080 --> 0:02:18.560 Like eating a tub of ice cream, but spreading out 0:02:18.600 --> 0:02:19.760 the calories. 0:02:19.360 --> 0:02:21.120 Over four weeks exactly, why don't. 0:02:21.240 --> 0:02:24.560 It's still six hundred calories, right, that's the issue. But 0:02:24.639 --> 0:02:29.000 I think, okay, so this is obviously a nuanced subject. Yes, 0:02:29.240 --> 0:02:33.080 so clearly zero percent interest doesn't sound like a problem. 0:02:33.120 --> 0:02:37.440 But obviously if you fail to pay, you pay a penalty. 0:02:37.600 --> 0:02:39.280 Then the penalties are building, right. 0:02:39.080 --> 0:02:41.600 So there's that. But the other issue with some of 0:02:41.639 --> 0:02:45.160 these buy now, pay later items, and it's really interesting. 0:02:45.200 --> 0:02:47.080 I kind of think about this as a parallel to 0:02:47.120 --> 0:02:50.280 the private market and credit. So this idea that there's 0:02:50.320 --> 0:02:54.080 this like whole world of additional credit or leverage that 0:02:54.160 --> 0:02:57.120 we don't actually have very good data on, and that 0:02:57.280 --> 0:02:59.680 is growing, right. I think that is the key. 0:03:00.120 --> 0:03:02.160 So here's how I see the issue, which is that 0:03:02.200 --> 0:03:04.320 if I could have a tub of ice cream and 0:03:04.360 --> 0:03:07.200 it spread out the calories over four months. 0:03:06.840 --> 0:03:08.519 I would certainly do that. 0:03:08.520 --> 0:03:10.760 That sounds pretty great because I burn a certain number 0:03:10.760 --> 0:03:12.440 of calories in the day, and so if I had 0:03:12.480 --> 0:03:14.639 four months to burn them that that would be far 0:03:14.639 --> 0:03:18.639 more efficient. But the flip side is, well, I would 0:03:18.680 --> 0:03:21.480 eat more ice cream, so I would eat four times. 0:03:21.639 --> 0:03:23.679 I would eat four times as many tubs of ice 0:03:23.680 --> 0:03:25.920 cream in that given day, knowing that I have this 0:03:25.960 --> 0:03:28.720 four month calorie budget. And so then you still get 0:03:28.760 --> 0:03:31.000 the question of like, Okay, maybe there's not a formal interest, 0:03:31.120 --> 0:03:33.560 or maybe there's penalties, but I'm buying a lot more 0:03:33.600 --> 0:03:36.920 with today's buying power, and that may still yet prove 0:03:37.000 --> 0:03:40.800 to be unsustainable to the end consumer, even if it 0:03:40.840 --> 0:03:43.960 doesn't formally. Clock is what we measure as consumer debt. 0:03:44.080 --> 0:03:46.840 Here's the added layer. Let's say you're trying to lose 0:03:46.880 --> 0:03:48.960 weight or trying to be healthy, and you have like 0:03:49.040 --> 0:03:52.680 a dietician. Imagine eating the ice cream, but him never 0:03:52.840 --> 0:03:56.440 knowing that you're eating the ice cream, right, Like, this is. 0:03:56.560 --> 0:03:59.120 Well, I lied to my doctors all the time. I mean, 0:03:59.160 --> 0:04:01.040 I'm used to that. Okay, all right. 0:04:01.160 --> 0:04:03.600 Rather than us debate this, we do in fact. 0:04:03.360 --> 0:04:06.680 How much didn't you well, you know, like once a week, 0:04:06.880 --> 0:04:09.520 I like go through a three milligram Think I did 0:04:09.600 --> 0:04:10.200 actually quit? 0:04:10.520 --> 0:04:13.240 And I'm saying that told me this morning you said 0:04:13.280 --> 0:04:14.800 you were not going to have any more zins for 0:04:14.840 --> 0:04:17.640 the restaurant, and I think I would take the opposite 0:04:17.640 --> 0:04:20.280 side of that bet. But now you've committed in public, 0:04:20.400 --> 0:04:23.600 public best, So we'll see how it goes. Okay, rather 0:04:23.680 --> 0:04:25.960 than us talk about this, we do, in fact have 0:04:26.000 --> 0:04:28.320 the perfect guest. We're going to be speaking with Julie Morgan. 0:04:28.400 --> 0:04:32.440 She is a president of the Century Foundation, formerly at 0:04:32.480 --> 0:04:35.800 the Consumer Financial Protection Bureau of the CFPB, where she 0:04:35.960 --> 0:04:40.000 thought a lot about the buy now, pay later phenomenon. 0:04:40.160 --> 0:04:42.760 So we're going to get some of her thoughts right now. Julie, 0:04:42.760 --> 0:04:43.520 welcome to the show. 0:04:43.640 --> 0:04:45.000 Thank you. I'm so excited to be here. 0:04:45.320 --> 0:04:48.440 So how did this happen? Like, how did this business 0:04:48.440 --> 0:04:51.880 model actually come about? Because it felt very sudden to me, 0:04:52.000 --> 0:04:53.640 But on the other hand, I was outside of the 0:04:53.760 --> 0:04:56.159 US for a long time, so maybe it was quite gradual. 0:04:56.720 --> 0:04:59.400 I'm really excited to answer this question for a number 0:04:59.440 --> 0:05:01.680 of reasons, including the way that you all introduced this, 0:05:01.880 --> 0:05:04.320 because you spent a lot of time talking about BUYEOW 0:05:04.400 --> 0:05:08.440 pay leader as this pay in for zero interest maybe 0:05:08.480 --> 0:05:11.480 like no fee or low feed model, and we did 0:05:11.560 --> 0:05:15.200 see that model arise during the pandemic and become a 0:05:15.279 --> 0:05:17.600 much more assalient part of the way consumers were paying 0:05:17.600 --> 0:05:20.520 for goods during the pandemic. And so if I could 0:05:20.520 --> 0:05:22.920 take you back to kind of those early years at 0:05:22.920 --> 0:05:25.839 the CFPB. Where we're coming out of the pandemic, we're 0:05:25.880 --> 0:05:28.839 seeing this rise in buy now pay lead. You know, 0:05:28.920 --> 0:05:33.240 regulators and researchers started to investigate this to understand what 0:05:33.279 --> 0:05:35.839 it meant for consumers and what the risks were. And 0:05:35.880 --> 0:05:38.800 I think there were kind of two fundamental assumptions about 0:05:38.839 --> 0:05:42.080 buyeow pay leader at that time. One was just what 0:05:42.120 --> 0:05:46.000 we said, it's a pay in for no interest, low 0:05:46.120 --> 0:05:49.080 or no fee model. And then two people were using 0:05:49.120 --> 0:05:51.039 this in kind of the like what I think of 0:05:51.040 --> 0:05:54.680 as a stereotypical gen Z kind of way. They were 0:05:54.760 --> 0:05:57.919 using it to finance a purchase that was slightly larger 0:05:58.000 --> 0:06:00.520 or more extravagant than what they would have bought, and 0:06:00.560 --> 0:06:03.760 it was usually on something like a purse or an 0:06:03.839 --> 0:06:06.760 item of clothing. What we've found over time is that 0:06:06.880 --> 0:06:09.640 both of those assumptions turned out to be wrong. Right, 0:06:10.120 --> 0:06:14.000 So number one, what we're seeing right now as buy now, 0:06:14.040 --> 0:06:16.159 pay later and calling by now pay lead is not 0:06:16.400 --> 0:06:20.719 in fact always that pay in for no interest product. 0:06:21.160 --> 0:06:23.400 And in fact, many of the companies that we associate 0:06:23.400 --> 0:06:25.760 with buy now pay lead, like a firm or Klarna, 0:06:26.400 --> 0:06:29.600 are mostly not offering that product. So a firm says 0:06:29.600 --> 0:06:32.279 that product is only twenty percent of their business. The 0:06:32.320 --> 0:06:34.520 rest of their business is what I would think of 0:06:34.560 --> 0:06:37.120 as like a point of sale loans or short term 0:06:37.120 --> 0:06:40.719 installment loans with interest rates ranging from you know, ten 0:06:40.760 --> 0:06:43.599 to thirty percent and terms that range from thirty days 0:06:43.640 --> 0:06:44.919 to six or eighteen months. 0:06:45.160 --> 0:06:47.680 So it's buy now, pay later, but it's more like 0:06:48.000 --> 0:06:49.120 just a formal loan. 0:06:49.279 --> 0:06:50.880 Yeah, I mean it's. 0:06:50.320 --> 0:06:54.160 Payment and installment and there's a schedule, but also there 0:06:54.240 --> 0:06:56.360 is a nominal interest rate that's visible. 0:06:56.080 --> 0:06:58.600 To the consumer exactly, and I think it is by now, 0:06:58.680 --> 0:07:01.960 pay later, in the sense that any loan, including your mortgage, yes, 0:07:02.000 --> 0:07:05.360 buy now, pay later. Right. So they've kind of kept 0:07:05.440 --> 0:07:08.640 this marketing that I think was really appealing to consumers 0:07:08.760 --> 0:07:12.200 and that sort of soothed regulators that these products were 0:07:12.280 --> 0:07:15.960 fairly low risk, and then started shifting that into these 0:07:16.080 --> 0:07:17.280 products that look very different. 0:07:17.560 --> 0:07:21.240 Okay, whether we're talking about the new products or the 0:07:21.320 --> 0:07:24.360 sort of the traditional BNPL the way Tracy and I 0:07:24.480 --> 0:07:28.760 described it in the beginning. Currently, what kind of collection 0:07:28.960 --> 0:07:31.200 of data like when that happened? So we know, like 0:07:31.240 --> 0:07:34.800 credit card data gets collected. There's public statistics about just 0:07:35.080 --> 0:07:37.800 the sheer volume of credit cards what do we have 0:07:38.080 --> 0:07:40.800 right now in terms of where this gets slotted and 0:07:40.800 --> 0:07:42.080 how it's collected as data. 0:07:42.440 --> 0:07:44.800 Yeah, we don't have a ton. So we have a 0:07:44.840 --> 0:07:47.040 couple of different ways of looking at buy now, Pay later. 0:07:47.280 --> 0:07:49.720 Most of it is through government sources, So the Federal 0:07:49.760 --> 0:07:52.920 Reserve and the CFPB have the ability to pull data 0:07:52.960 --> 0:07:55.200 from the companies, and if you look at the CFPB's 0:07:55.280 --> 0:07:57.560 reports on buy now, Pay Later, that is what they're doing. 0:07:57.640 --> 0:08:00.960 They're pulling transaction level data through market monitoring orders. 0:08:01.480 --> 0:08:04.240 That's not but when you say market monitoring orders, just 0:08:04.280 --> 0:08:07.480 to be clear, the companies are compelled to regularly update 0:08:07.520 --> 0:08:10.320 the CFPB with some level of data. 0:08:10.320 --> 0:08:13.120 They're compelled to provide data. The regularly piece is not 0:08:13.280 --> 0:08:16.000 part of it. So this tends to be a one off, right. 0:08:16.120 --> 0:08:18.640 We don't have a consistent stream of data coming from 0:08:18.640 --> 0:08:21.200 the companies, and so that gives us like a small 0:08:21.240 --> 0:08:23.760 window into what's happening in the buyout pay latter space, 0:08:23.800 --> 0:08:27.000 but it's really not enough. And then we have survey data, 0:08:27.200 --> 0:08:30.480 and that's where you see lending Tree and Axios and 0:08:30.600 --> 0:08:35.360 others asking consumers, and I think it's important to understand 0:08:36.000 --> 0:08:38.040 that they are you're just kind of getting what the 0:08:38.040 --> 0:08:41.400 consumer thinks they have, and it's it really inhibits our 0:08:41.440 --> 0:08:44.160 ability to get at are you using paying for are 0:08:44.200 --> 0:08:46.040 you paying interest? And all those things? 0:08:46.640 --> 0:08:50.040 How does buy now Pay later fit into private credit 0:08:50.080 --> 0:08:51.079 scores like FICO? 0:08:51.360 --> 0:08:51.480 Right? 0:08:51.480 --> 0:08:54.160 Because I imagine you know, if you're applying to a bank, 0:08:54.320 --> 0:08:56.440 they're going to look at your FICO score if you 0:08:56.480 --> 0:09:00.280 want something like a mortgage. And even though buying now 0:09:00.360 --> 0:09:03.800 Pay later seems to be for mostly smaller items at 0:09:03.840 --> 0:09:06.319 the moment, so maybe you owe like a couple hundred 0:09:06.440 --> 0:09:09.880 or something via a firm, maybe you also owe a 0:09:09.920 --> 0:09:13.160 few thousand via Klarna, right, And I imagine if you're 0:09:13.160 --> 0:09:15.720 a bank using Fyco scores, you would want to know 0:09:15.840 --> 0:09:16.520 that information. 0:09:17.240 --> 0:09:19.960 Yeah, so we don't know this information right now. Fico 0:09:20.080 --> 0:09:23.120 announced recently that they plan to start using buy now, 0:09:23.120 --> 0:09:26.079 Pay Later as part of their scoring model, and we've 0:09:26.080 --> 0:09:30.079 seen the companies be extraordinarily resistant to that. So Clarnet 0:09:30.120 --> 0:09:32.160 and others are saying that they're not going to turn 0:09:32.240 --> 0:09:36.040 over data until they get certain assurances from Fyco about 0:09:36.040 --> 0:09:39.160 how that data is going to be used. So what 0:09:39.200 --> 0:09:42.240 we have right now is kind of snapshots in time 0:09:42.320 --> 0:09:45.559 to understand how people are stacking, you know, buy Nowpay 0:09:45.600 --> 0:09:47.560 Later on top of credit card debt and on top 0:09:47.600 --> 0:09:50.440 of other products. And the research that we have there, 0:09:50.480 --> 0:09:54.080 which is somewhat limited, does suggest that people are stacking this, 0:09:54.320 --> 0:09:56.880 you know. It tells us that about sixty percent of 0:09:56.920 --> 0:09:58.920 the people who are using buy now Pay Later have 0:09:58.960 --> 0:10:01.839 a SubTime credit score. It tells us that they are 0:10:01.840 --> 0:10:04.720 mostly using it on top of credit card debt. And 0:10:04.760 --> 0:10:08.080 it's also suggesting that before people take on buy now 0:10:08.120 --> 0:10:10.400 pay Leader, there's a slight uptick in their use of 0:10:10.440 --> 0:10:12.840 their credit cards. So there's a suggestion that it's really 0:10:12.880 --> 0:10:15.480 like you're maxing out one form of debt and then 0:10:15.520 --> 0:10:16.199 taking on another. 0:10:16.880 --> 0:10:19.760 I just looked up the Q two New York Fed 0:10:19.920 --> 0:10:21.040 Household Debt Report. 0:10:21.080 --> 0:10:22.720 I think it just came out a few days ago. 0:10:22.720 --> 0:10:24.400 I must've it's Q two anyway. 0:10:24.400 --> 0:10:26.480 It says there's one point two to one trillion in 0:10:26.559 --> 0:10:31.200 total credit card balances outstanding. Do we have something that 0:10:31.240 --> 0:10:33.720 we have a guess for what is the number of 0:10:33.880 --> 0:10:38.000 BNPL loans of any form currently outstanding, so that we 0:10:38.040 --> 0:10:40.079 can benchmark that against credit cards. 0:10:40.240 --> 0:10:42.800 We have numbers that are reported by the companies. We 0:10:42.920 --> 0:10:45.599 don't have data that is reported by a government. So 0:10:45.880 --> 0:10:48.800 just like that, I think that the best we have 0:10:48.920 --> 0:10:51.040 is that the transaction volume is around one hundred and 0:10:51.040 --> 0:10:54.280 sixteen billion, and that's up from about thirteen point eight 0:10:54.320 --> 0:10:56.920 billion in twenty twenty, so this is growing pretty rapidly. 0:10:57.120 --> 0:10:59.280 So it's it's a non zero. I mean, it's not 0:10:59.440 --> 0:11:03.200 like clear like still like a fraction of credit cards, 0:11:03.240 --> 0:11:05.680 but this is beyond the rounding air, that's right, Okay. 0:11:06.360 --> 0:11:10.400 Do we have any sense of how usage patterns have changed? 0:11:10.600 --> 0:11:12.960 So for instance, you know, during the pandemic, did we 0:11:13.000 --> 0:11:15.640 see an uptick in buy now, pay later use as 0:11:15.679 --> 0:11:18.319 people were struggling because they didn't have jobs or had 0:11:18.360 --> 0:11:21.600 short term cash flow issues? Has it come down since then? 0:11:22.040 --> 0:11:24.720 We're seeing an uptick in people's use of bineopi lator, 0:11:24.760 --> 0:11:27.200 and we're seeing shifting patterns of what they're using it 0:11:27.240 --> 0:11:30.640 to purchase. So I think I said earlier that there 0:11:30.679 --> 0:11:32.840 was this assumption that people were using this to purchase 0:11:32.840 --> 0:11:36.360 clothing or other kind of luxury goods. And you know, 0:11:36.440 --> 0:11:38.760 even back in twenty twenty two when the CFPB put 0:11:38.760 --> 0:11:41.439 out its first report here, we saw that that wasn't true. 0:11:41.600 --> 0:11:46.680 People were using bunopaylator for things like groceries and education costs. 0:11:47.040 --> 0:11:50.040 The surveys that have come out recently showed that that's growing. 0:11:50.240 --> 0:11:52.599 So there was I think in an Axio survey and 0:11:52.640 --> 0:11:55.360 a lending Tree survey, they showed somewhere between fourteen and 0:11:55.440 --> 0:11:58.760 twenty five percent of bineopay lator users are using it 0:11:58.800 --> 0:12:02.120 to purchase groceries. They're showing that a bigger percentage of 0:12:02.160 --> 0:12:06.280 people are using binopulator for medical and dental costs than 0:12:06.440 --> 0:12:10.280 for the things people might assume stereotypically it's used for, 0:12:10.600 --> 0:12:14.960 like dining out or ordering in, or even like purchasing 0:12:14.960 --> 0:12:16.280 concert tickets and things like that. 0:12:32.240 --> 0:12:32.840 Is it bad? 0:12:33.000 --> 0:12:35.760 I mean, like, you know, it seems like people are 0:12:35.840 --> 0:12:38.800 using buy o pay later for dental or they're using 0:12:38.800 --> 0:12:41.720 it for groceries or whatever, and like, you know, the 0:12:41.760 --> 0:12:45.520 idea that people are obviously stressed and have to spread 0:12:45.520 --> 0:12:48.960 out or borrow money to make those purchases is obviously 0:12:49.400 --> 0:12:51.880 I guess there's an inherent angst about that because these 0:12:51.920 --> 0:12:55.439 are human essentials. But is it really per se bad 0:12:55.679 --> 0:12:57.840 or is it just like no, this is like yet 0:12:57.880 --> 0:13:01.240 another tool that people have to sort of you know, 0:13:01.400 --> 0:13:03.439 smooth consumption and so forth. 0:13:03.920 --> 0:13:06.080 I think it's bad that we're seeing an uptick in 0:13:06.160 --> 0:13:09.400 the use of credit products to pay for essentials. That's 0:13:09.440 --> 0:13:12.199 not to say that buy now, pay later is particularly 0:13:12.240 --> 0:13:14.800 the enemy there, but you know, this is part of 0:13:14.840 --> 0:13:19.400 the reason I've been interested in consumer credit overall is that, 0:13:19.880 --> 0:13:22.080 you know, we see these broader changes go on in 0:13:22.080 --> 0:13:25.720 the policy space. In particular, recently, we've seen Donald Trump 0:13:25.840 --> 0:13:30.120 and Republicans in Congress push through a bill that cuts Medicaid, 0:13:30.360 --> 0:13:35.120 cuts food assistance, you know, makes education more expensive, and 0:13:35.320 --> 0:13:38.600 the availability of consumer credit products that are kind of 0:13:38.640 --> 0:13:42.000 waiting in the wings there blents our ability to really 0:13:42.120 --> 0:13:45.080 understand what those changes mean. So, you know, we know 0:13:45.200 --> 0:13:47.839 that the Medicaid cuts will result in people having more 0:13:47.880 --> 0:13:50.400 expensive health care, but we need to be looking at 0:13:50.440 --> 0:13:52.120 the fact that that's going to result in buy now, 0:13:52.120 --> 0:13:54.240 pay later loans, It's going to be an opportunity for 0:13:54.320 --> 0:13:57.400 medical credit cards from places like Synchrony with per credit, 0:13:58.160 --> 0:14:02.240 and so it's relevant to our overall economic situation. It's 0:14:02.320 --> 0:14:04.920 relevant to the kind of like what I think is 0:14:04.920 --> 0:14:08.400 like a silent financial crisis that's happening for the vast 0:14:08.480 --> 0:14:12.240 majority of families in the United States, but it's not tracked. 0:14:12.559 --> 0:14:14.440 You know, we've been talking about buy now, Pay later 0:14:14.600 --> 0:14:17.920 really not being tracked, but the overall sort of like 0:14:17.960 --> 0:14:22.680 consumer credit conditions for families are really not tracked and 0:14:22.760 --> 0:14:25.560 talked about in that way. We see economists going on 0:14:25.640 --> 0:14:31.360 TV talking about consumption and CPI and GDP, where families 0:14:31.400 --> 0:14:33.720 are kind of sitting around the kitchen table talking about 0:14:33.800 --> 0:14:36.400 Klarna and a firm and Sally May and Abvian. 0:14:37.320 --> 0:14:39.480 When you were at the CFPB, how are you thinking 0:14:39.560 --> 0:14:43.640 about buy now, Pay Later from a sort of regulatory perspective. 0:14:43.440 --> 0:14:45.880 Yeah, so we were looking at the risks of the products, 0:14:45.920 --> 0:14:48.040 and then we were kind of trying to look you know, 0:14:48.080 --> 0:14:51.680 we've had this phenomenon with consumer credit products across the board, 0:14:51.840 --> 0:14:53.720 not just specific to buy now, Pay Later, but it 0:14:53.760 --> 0:14:56.080 was really evident at CFPB that you have these sort 0:14:56.080 --> 0:15:00.680 of like new entrants into a market whose products are 0:15:00.880 --> 0:15:05.080 framed very differently than a traditional consumer credit product, and 0:15:05.120 --> 0:15:07.480 it's often part of the marketing pitch. It's like we're 0:15:07.480 --> 0:15:10.160 not alone, we're not equity, We're this totally different thing, 0:15:10.320 --> 0:15:14.600 and it preys on consumers hesitants to use debt. And 0:15:14.640 --> 0:15:17.080 then also you know this idea that we might float 0:15:17.120 --> 0:15:19.960 above any regulatory scheme, so for buying out, pay lead 0:15:20.240 --> 0:15:23.360 and for these other products like earned wage access or 0:15:23.360 --> 0:15:26.320 income share agreements. You know, we were looking at like 0:15:26.400 --> 0:15:28.520 what is this under the law, and with buying now 0:15:28.600 --> 0:15:32.440 pay later, particularly the products like where Klarna or a 0:15:32.480 --> 0:15:36.200 firm is offering basically like a digital or physical card 0:15:36.280 --> 0:15:39.680 where you can make repeated purchases where you have a 0:15:40.080 --> 0:15:42.160 you know, an overall lit It starts to sound like 0:15:42.200 --> 0:15:45.360 a credit card, right, And so you know, cfhobe's initial 0:15:45.440 --> 0:15:48.560 approach on regulation here was to really just say, like, 0:15:48.960 --> 0:15:51.520 you've got to follow some of the fundamental basics that 0:15:51.560 --> 0:15:54.320 apply to the product that you are, right, And so 0:15:54.520 --> 0:15:57.040 that was really meant to help people with some of 0:15:57.080 --> 0:16:01.800 the real kind of basic consumer protections around managing disputes 0:16:01.880 --> 0:16:05.840 and getting accurate billing statements. The other thing CFPP was 0:16:05.880 --> 0:16:09.400 doing was on the enforcement and supervision side, so really 0:16:09.680 --> 0:16:11.560 taking a look at these companies the same way we 0:16:11.600 --> 0:16:14.880 do any other financial institution and making sure they're following 0:16:14.920 --> 0:16:16.840 the law. And I think it's important to talk about 0:16:16.880 --> 0:16:20.120 that piece because we've seen the Trump administration pull back 0:16:20.200 --> 0:16:22.920 on the proposed regulations, but we've also seen them pull 0:16:22.960 --> 0:16:27.040 back on enforcement. They specifically said they would deprioritize by now, 0:16:27.080 --> 0:16:30.240 pay later in enforcement, and so there are these other 0:16:30.680 --> 0:16:33.560 real basics that we're seeing fall apart. You know, if 0:16:33.560 --> 0:16:36.320 you look at what consumers are complaining about right now, 0:16:36.400 --> 0:16:40.240 they're saying, I had auto pay on my you know, 0:16:40.280 --> 0:16:43.280 my Clarina or my after pay and I tried to 0:16:43.320 --> 0:16:45.960 take it off and the company continues to charge me. 0:16:46.040 --> 0:16:49.040 These are like really basic questions of whether the companies 0:16:49.040 --> 0:16:52.720 are falling consumer financial laws and you know cfpps just 0:16:53.080 --> 0:16:53.640 off the job. 0:16:54.000 --> 0:16:57.640 So you mentioned that in the research, prior to someone 0:16:57.720 --> 0:17:02.800 beginning to use BNPL, increase in their credit card usage, right, 0:17:03.160 --> 0:17:06.000 why does someone flip over? Like why doesn't so some 0:17:06.040 --> 0:17:09.800 of these purchases. What is insufficient about the existing credit 0:17:09.800 --> 0:17:12.359 card system? Is it that they're hitting their credit limits 0:17:12.480 --> 0:17:15.520 or what is the situation such that then BNPL becomes 0:17:15.560 --> 0:17:16.200 more attractive. 0:17:16.440 --> 0:17:18.440 Yeah, I think we need to take a deeper look 0:17:18.440 --> 0:17:20.800 at credit utilization because I do think there are people 0:17:20.880 --> 0:17:24.560 who are flipping over and they're using their available credit 0:17:24.640 --> 0:17:26.760 balance and then they're shifting to bind a pay leader. 0:17:27.320 --> 0:17:28.840 But I think there are a lot of other people 0:17:28.920 --> 0:17:32.560 who are just trying to juggle their essentials, you know, 0:17:32.600 --> 0:17:36.240 their groceries, and their kids back to school clothes, and 0:17:36.280 --> 0:17:38.800 they're doing it through whatever feels like the most convenient 0:17:38.880 --> 0:17:42.199 payment method. So the buy now pay lead companies have 0:17:42.560 --> 0:17:45.359 made a real effort at being that convenient payment method, 0:17:45.800 --> 0:17:48.640 both through kind of point of sale but also through 0:17:48.680 --> 0:17:53.200 their apps. So they're pushing their users towards an app 0:17:53.280 --> 0:17:55.960 that both makes it more convenience to make the payment 0:17:55.960 --> 0:17:59.119 but also pushes you advertisements for different products. And so 0:17:59.160 --> 0:18:01.479 I think we see people brought in there. But you 0:18:01.520 --> 0:18:03.920 mentioned earlier why you don't use buye now Pay later, 0:18:04.040 --> 0:18:08.159 And I do think it's important to great question. We 0:18:08.160 --> 0:18:11.040 could do a half hour on your personal finances, but 0:18:11.440 --> 0:18:13.600 I think it's important to know that even while there's 0:18:13.640 --> 0:18:16.120 a big percentage of people using this to cover basics, 0:18:16.560 --> 0:18:18.399 there is kind of a split in buy now pay 0:18:18.480 --> 0:18:21.320 lead where if you talk to consultants who look at 0:18:21.320 --> 0:18:24.720 this really closely, they're seeing people like you or I 0:18:24.920 --> 0:18:28.720 who can I'm making an assumption about your finances get paid. Well, okay, 0:18:29.240 --> 0:18:31.600 you know about like you or I who can make 0:18:31.640 --> 0:18:34.399 a purchase, but it's a painful purchase, you know, maybe 0:18:34.440 --> 0:18:36.760 it's like a new television or something that you just 0:18:36.840 --> 0:18:39.120 don't want to pay upfront, so there are people using 0:18:39.160 --> 0:18:40.400 it in that way too interesting. 0:18:41.080 --> 0:18:43.639 You mentioned ease of use, and I think this is 0:18:43.720 --> 0:18:48.520 really key. What are the conversations like with retailers, So like, 0:18:48.560 --> 0:18:51.040 what's the pitch that buy now, pay later platforms are 0:18:51.040 --> 0:18:53.679 going to make to I don't know, a Walmart or 0:18:53.840 --> 0:18:56.600 whoever to kind of plug directly into their websites. 0:18:56.960 --> 0:19:00.480 Yeah, so the pitch is basically basket size is and 0:19:00.520 --> 0:19:05.080 then overall transaction volume. Right, So they're showing that they're 0:19:05.080 --> 0:19:08.960 getting the retailers about ten percent more in terms of 0:19:09.000 --> 0:19:11.200 the basket size, so the amount of things that people 0:19:11.240 --> 0:19:14.199 are purchasing, and then some of the companies are reporting 0:19:14.280 --> 0:19:17.399 up to eighty percent more in terms of the actual transaction. 0:19:18.240 --> 0:19:20.919 So that's pretty significant for retailers, and I think it 0:19:21.000 --> 0:19:26.280 is what is propelling retailers to cut deals with Klarna 0:19:26.400 --> 0:19:29.000 or after pay and to pay the costs which are 0:19:29.080 --> 0:19:31.960 higher than interchange on a credit card. So in many cases, 0:19:32.119 --> 0:19:34.000 you know, we're looking at costs that are somewhere between 0:19:34.480 --> 0:19:37.439 one to eight percent of the transaction, plus like a 0:19:37.440 --> 0:19:40.160 flat fee that might be like thirty cents per transaction. 0:19:40.840 --> 0:19:44.119 So it's pretty significant. I think the other part of 0:19:44.200 --> 0:19:46.320 the pitch is and this is this is one of 0:19:46.359 --> 0:19:48.600 the pieces that was really kind of consuming a lot 0:19:48.640 --> 0:19:52.240 of our attention at CFB is the ability to use 0:19:52.240 --> 0:19:55.520 people's data to drive those purchases. So I think if 0:19:55.520 --> 0:19:58.520 you're a merchant looking at those big fees, if you're 0:19:58.560 --> 0:20:01.720 a Walmart or Amazon or Whoe or you're not just 0:20:01.760 --> 0:20:05.399 saying like, let me put this in Klarna or a 0:20:05.480 --> 0:20:07.840 firm's hands to hope that people use it more, but 0:20:07.920 --> 0:20:10.199 let me use the data I have on hand to 0:20:10.240 --> 0:20:13.520