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BNPL, Bread, and KitKat Minis

Ashwin Ramasamy
Ashwin Ramasamy
Mar 21, 2022
Min Read

HODL BNPL?

What sounds cool?

'Equated monthly installments with zero-percent interest rates' or  'Buy Now, Pay Later?

The former is not my invention but that's how I bought my first television for my bachelor pad in India. We don't use a television anymore at our home. The fintech companies don't use the antiquated term anymore either. They have switched to 'BNPL'. This week, Zomato – the Doordash of India – launched BNPL for food. Yes, BNPL for food! Order your bread now and pay later. Capitalism sucks, my friend. I love it, nonetheless.

Do you know why I love it, in this specific case?


It's a sign. It's the proof of concept...that credit cards are being challenged.

Credit cards are an enigma shrouded in mystery

I won't get technical but if you are someone who has tried to buy credit card data, you'd realize that neither banks nor the networks like Visa or Mastercard know what you buy at a retail shop. They know what you have spent but not what exactly you spent on. But the consumer gets credit only through a credit card network, brought to them by a bank.


Let's see how broken that is.


Imagine, if a DTC apparel brand wants to do a product drop and wants to take it any and all of their loyal fans. Discounting is one way but it erodes the brand. You can ask the fans to use their credit cards. If someone needs a credit card to buy a non-luxury cloth, it's likely that they don't have easy credit access or at least not one that isn't punitive with the interest rates. There is friction and the DTC brand cannot solve it.

Here's a good primer on the problem, as told by Affirm.


Ultimately, the shopper who is hesitant to use credit or does not for a credit line through their card will opt-out, even if they are a loyal fan of a brand. The brand has no direct way to incentivize them unless they offer a discount. Two parties who are willing to enter a contract cannot do so because the financial architecture is not built to identify and single out specific transactions at an SKU level. Ergo, disruption.

Affirm, Klarna, and Afterpay enable short-term credit at no interest for small consumer spending. The consumer wins, the brand wins in spite of paying a fee to the BNPL provider. It's their cost of acquisition. What's better than the top-of-the-funnel conversation from ads? Bottom of the funnel. Who gatekeeps that today? The platforms that enable BNPL.

Love is in the air

The market loves these platforms.

Klarna raised $1 billion in March 2021 and $639 million in June, taking the latest valuation to $46 billion. Afterpay was acquired by Square for $29 billion, and PayPal purchased Paidy, a Japanese BNPL platform, for $2.7 billion. Affirm, went public last year (and was taken to the cleaners last week).

BNPL is a credit card disruptor alright. But they are also platform businesses that bring customers (and not just visitors). So, HODL BNPL?

Not yet!

The Mini KitKat Problem

There are risks. BNPL (the kind that is meant for buying bread) is a product of its time. We have had easy money in the market, remember?

  1. BNPL is the 'KitKat Mini' version of 'Collateralized Debt Obligations'. I am blowing it out of proportion but we are giving credit to those who can't afford it. It will end well.
  2. Small-ticket purchases and installments don't go well. The battle against the credit card network is better thought at the high end – enabling transactions that are of high value, where credit default risks could be more manageable.
  3. I wonder why Shopify or Amazon would need Affirm for delivering a BNPL product. Can they not do it on their own?

Affirm's twitter gaffe and the results notwithstanding, BNPL is on fire. Educate me, if you think it is another product of the chaotic times.

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Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
hm.com
HQ Location: Beaverton, Oregon, United States Of America, 97005
hm.com, operated by H & M Hennes & Mauritz AB, is an internationally-focused online store that generates eCommerce net sales primarily in Germany as well as in the United States and the United Kingdom. With regards to the product range, hm.com achieves the greatest part of its eCommerce net sales in the “Fashion” category.
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Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
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