Why is Goldman getting into BNPL?

Buy-now-pay-laterGoldman is paying $2.24 bn in stock to acquire another Buy-Now-Pay-Later provider (at a 50% premium).

Why pay such a premium?

A few notes on BNPL

Buy Now Pay Later is the new form of consumer credit, where a customer deploys the credit extension through a phone app, at the point of purchase.

The BNPL provider pays the amount in full to the retailer. The consumer then pays one installment to BNPL immediately and typically three more in the following weeks to complete the purchase. The credit is often free… unless he selects insurance or a payment is missed, and then a long list of costs come in.

  • BNPL offers 30% typical returns for the lender. 
  • The practice is targeted to low credit-score users, who often end up with even worse credit scores.
  • There are lots of hidden costs.
  • Most users have no clue of the terms and conditions of their loans.
  • Unsurprisingly, APRs are much higher than advertised.
  • Even credit card issuers are alarmed at some of the issues, and some have banned the practice internally.
  • The industry growing at 40%/year.
  • There are securitized loans sustaining the growth, with rates in the 2.5-8%.
    … and lack of regulation!

We wrote an extensive note on the hidden costs of this new mean of payment, referencing an independent and extensive review from Pew Charitable Trust. There is a lot to say about this new technology that circumvents the usual banks and credit card processors.

If you had any doubt about the risks associated with this for the public, the fact that banks are paying a high price to get into this high-profit margin industry should attract your attention.


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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.


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