From the CNBC’ Fast Money show:
Buy now, pay… maybe?
Analysts are turning sour on “buy now, pay later” stocks after a new note highlighting missing payments from over 50% of users in key income groups. "
Overall, delinquency is worsening at major industry participants.
53% missed at least one payment (household income <$75K).
40% of users borrow on multiple BNPL apps.
That stat about people missing BNPL payments has been around since BNPL burst into the market.
The numbers for credit cards are similar. (42% in one survey)
If you dig into the stats, you will see that the most common reason for missing a payment (45-60% depending on what survey you look at) is “Forgot to pay”
After that, there is a “No Money to pay” category of around 25% but then also:
Too busy - 10%
No late fees on cards - 9%
Traveling - 8%
I imagine since there are no late fees on BNPL it’s pretty easy not to worry about a payment and therefore there is a higher “missed a payment rate.”
The media copies each other on reporting. One media company screams “BNPL customers are late with payments!” And then all the other writers copy that so they can post an article and seem like a consumer advocate, too.
I’m not saying BNPL customers are not getting themselves into trouble. I’m saying that there is no way to tell from these copycat articles.
I think it’s a good thing BNPL is being investigated, and hopefully against credit cards and similar credit score profiles etc (ie someone who is using BNPL because their credit card is maxed out or they have a poor credit score should be compared against similar people using credit cards). I think we’ll see similar numbers and then we can put this to bed. And if they really find a problem, it should be addressed.
I signed up for all the BNPL services because I wanted to watch them and I do see lots of emails encouraging me to shop with deals. They sort of are a retail marketing middleman too. That maybe is an issue. We’ll see.
Mizzmonika,
Thanks for posting the survey info regarding the reasons for BNPL delinquencies. It sort of clarifies things, and maybe puts BNPL in a better light, but as for me - no thanks.
I had taken a starter position in Affirm and then read an article that cited 50% delinquency rate (without explanation). I quickly sold my position. As far as I am concerned 50% delinquencies is just too many people not making payments irrespective of the reason. IMO, there’s better investments for my money.
I had taken a starter position in Affirm and then read an article that cited 50% delinquency rate (without explanation). I quickly sold my position. As far as I am concerned 50% delinquencies is just too many people not making payments irrespective of the reason. IMO, there’s better investments for my money.
Brittlerock,
I am not sure where you received your numbers, maybe it was a broad article that was putting multiple companies together. But if you actually checked into Afrm and read their reports you would find a very different picture. I pulled this off their 10K. They have a great delinquency rate, much better than most banks.
Our continuously-learning risk model benefits from increasing scale. As data from new transactions are incorporated into our risk algorithms, we are able to more effectively assess a given credit profile. Our model is robust enough to allow us to assess credit risk at a pre-defined risk level with a high degree of confidence, resulting in a weighted-average quarterly delinquency rate of approximately 1.1% for the thirty-six months ended September 30, 2020.
Delinquency Rate on All Loans, All Commercial Banks …
I think we all can agree that Afrm’s delinquency rate is first in class.
I urge everyone not to take generalized numbers and use them for the companies you invest in but to dig deeper and find the gems that are actually doing better than the rest.