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  • Frank Tian

👛 CFPB Reports on BNPL

Updated: Sep 26, 2022

Here is a summary with some highlighted numbers.


🔲 The Data


In Dec 2021, CFPB asked for data from 5 major BNPL operators in the US: Affirm, Afterpay, Klarna, PayPal, and Zip.


Yesterday the agency released an 80+ page report based on the aggregated data. No consumer-level data was available.


🔲 The Stats


◾ BNPL customers are skewed to the young: 49% are age 33 and under.


◾ Apparel and beauty is the biggest category: 59% of the total $ spent.


◾ Majority payment is from the debit card: 89% vs 10% from a credit card.


◾ Habitual users: 15.5% carrying 5+ loans; 4.0% carrying 10+ loans.


◾ Pay Late: 10.5% of borrowers are charged with a 1+ late fee.


🔲 The Profit Model


Using 2021 numbers:


◾ BNPL earns 4.0%~ of total purchase as revenue.

  • Merchant discount: 2.49%

  • Interchange: 0.67%

  • Referral: 0.32%

  • Late fees: 0.28%


◾ BNPL incurs 3.0%~ of total purchase as cost.

  • Payment processing: 1.47%

  • Credit loss: 1.30%

  • Cost of funds: 0.16%


◾ BNPL earns a profit of 1.0%~ of total purchase.


🔲 The Challenges


Before the regulator is yet to step in:


◾ Competition leads to lower revenue


The low barrier of entry makes merchant discounts a race to the bottom. Then come the heavyweights such as MasterCard Installment/Apple Pay Later.


◾ Increase in cost of fund


The Fed hike the rate by 225 bps already in 2022 … it could go another 150 bps.


◾ Rise of credit loss


Consumer credit loss is gradually normalizing towards the pre-pandemic level: 3.79% in 2021 vs. 2.93% in 2020.


It will become worse if a recession materializes, even a mild one.


🔲 The Actions


The operators have adopted the following:


◾ Hike the late fee


◾ Tighten the underwriting


◾ Turn the app into the lead engine


Full CFPB Report: Buy Now Pay Later Market Trends Consumer Impact 2022


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