One potential problem is “loan stacking,” in which a consumer gets credit from multiple B.N.P.L. companies, each one not knowing about the others. That can happen because B.N.P.L. loans typically don’t show up on credit reports. A spokesman for Affirm, Casey Becker, said the company is working with credit-reporting agencies on how they can provide more clarity on their short-term installment loans but without damaging consumers’ credit reports needlessly (since frequently opening and closing loans is usually a black mark). The other potential problem cited by the Consumer Financial Protection Bureau is sustained usage of the product, “in which frequent B.N.P.L. consumption over a period of months and years may affect consumers’ ability to meet non-B.N.P.L. obligations.”
For a perspective from Wall Street I exchanged emails with Eugene Simuni, managing director for research at MoffettNathanson, a research boutique in New York. The pay-later aspect is sensible for large purchases but “much less clear for the day-to-day spend categories,” he wrote. Right — if you need B.N.P.L. to pay for your weekly groceries, you run the risk of getting further and further behind. On the plus side, he said the industry leaders are focused on lending prudently, made easier by their ability to make a separate credit decision for each purchase.
In a November 2021 survey for the Federal Reserve Bank of Philadelphia, about 69 percent of B.N.P.L. users said they were satisfied with the product, vs. 81 percent of credit card users who said they were satisfied with credit cards. B.N.P.L. users cited convenience, rather than lack of access to other forms of credit, as their main motive for using it. About 10 percent said they had made some payments late, although only 2 percent said they never managed to catch up.
The B.N.P.L. sector is young, and it hasn’t gone through an extended downturn yet, so it’s impossible to know how well the companies and their borrowers will fare if the U.S. economy does go into a recession in the next year or so, as many economists are predicting. Becker, the Affirm spokesman, underlined that the Consumer Financial Protection Bureau itself is uncertain on the question. Max Levchin, the Silicon Valley entrepreneur who is the co-founder and chief executive of Affirm, wrote in a quarterly letter to shareholders in November, “When we speak to consumers about their experience using Affirm, the words we often hear are ‘flexibility,’ ‘control,’ ‘simplicity,’ and sometimes, ‘love.’ ” Let’s hope the next word they hear isn’t “ouch.”
Outlook: Ray Farris et al.
The U.S. housing market will show more signs of a slowdown in data being released this week, predict Ray Farris, Jeremy Schwartz, Xiao Cui and Charlie Landry of Credit Suisse. The annual rate of starts on construction of homes probably fell about 3.9 percent in November from October, while the annual rate of sales of existing homes probably fell about 2.9 percent over the month, they estimate. “We expect construction activity to continue to contract through 2023, but the pace of decline should moderate after the initial shock of rising mortgage rates. Builders are still working their way through a backlog of projects, which is helping to prevent a sharper decline in construction activity,” they wrote on Thursday.
