The United States faces a disturbing financial phenomenon that is beginning to spread throughout Europe: 91.5 million people finance their purchases with interest-free deferred payment services, and 25% of them use them for something as basic as filling the refrigerator. Defaults continue to grow: 34% in 2023 42% this year.
The alarm does not come from pessimistic analysts, but fromNigel Morris, co-founder of Capital One and investor in Klarna. Someone who built an empire by understanding exactly how much financial stress the average American can endure before going bankrupt.
Why is it important. In addition to the data itself, because the majority of these loans do not appear in traditional credit histories. Regulators call it “phantom debt.” A bank may consider someone who is drowning on five simultaneous microloans between Klarna, Affirm and PayPal solvent. The system flies blind.
Morris sums it up: “If I’m a BNPL provider and I don’t look at credit agency data, I’m completely unaware that someone may have taken out ten of these loans last week.” And that is exactly what is happening.
Between the lines. BNPL dangerously replicates pre-2008 logic: debt concentrated in vulnerable borrowers, packaged and sold to investors who believe they understand the risk.
- Elliott Advisors bought Klarna’s UK portfolio for $39 billion.
- KKR agreed to acquire up to $44 billion in BNPL debt from PayPal.
The difference with the crisis subprime is that much of that debt remains invisible to the financial system.
The contrast. The Biden Administration attempted to regulate BNPL like credit cards. Trump backed down in May after pressure from the industry, revoking 67 rules. Days later, the Financial Protection Bureau published a surprisingly optimistic report: customers repaid their loans 98% of the time. The discrepancy with the 42% real delinquency rate reveals the problem: no one really knows what happens when someone manages several simultaneous accounts.
Yes, but. By not reporting to the credit agencies, these companies prevent their customers from building a history to access cheaper credit. “Some companies don’t want that to happen because they don’t want the consumer to graduate,” Morris acknowledges. It’s part of the business model: keeping users trapped.
And Europe is not immune. Klarna has been operating as a licensed bank since 2017 and has expanded its model to large Spanish shopping areas. The integration with Apple Pay and Google Pay makes it as simple as bringing your mobile phone closer to the dataphone. What started as a niche payment option is becoming integrated financial infrastructure.
{“videoId”:”x9b3a8a”,”autoplay”:false,”title”:”IF YOU SHARE A TENTH OF THE CHRISTMAS LOTTERY you have to KNOW THIS… 😓 #shorts”, “tag”:”loteria”, “duration”:”50″}
turning point. Morris does not predict a collapse, but vigilance is urgently needed. In the United States, signs are accumulating: rising unemployment, end of student loan moratoriums, accelerated deregulation…
The combination creates conditions where problems could escalate quickly. And when consumer debt becomes unsustainable, the pain spreads. Also even the investors who financed this ecosystem.
Featured image | appshunter.io
(function() { window._JS_MODULES = window._JS_MODULES || {}; var headElement = document.getElementsByTagName(‘head’)(0); if (_JS_MODULES.instagram) { var instagramScript = document.createElement(‘script’); instagramScript.src=”https://platform.instagram.com/en_US/embeds.js”; instagramScript.async = true; instagramScript.defer = true; headElement.appendChild(instagramScript);
was originally published in
Xataka
by
Javier Lacort
.
GIPHY App Key not set. Please check settings