Financing My Klarna Doritos Locos Taco(theahura.substack.com)
theahura.substack.com
Financing My Klarna Doritos Locos Taco
https://theahura.substack.com/p/tech-things-financing-my-klarna-doritos
84 comments
They’re exploiting the economically and financially illiterate who have self control issues. Let’s just call it what it is
> They’re exploiting the economically and financially illiterate who have self control issues. Let’s just call it what it is
As the post to which you replied did, without needless judgement:
As the post to which you replied did, without needless judgement:
I view it kinda similar to gambling apps with their
endlessly optimized special offers designed to exploit the
human monkey brain.If it were truly as exploitative as you're suggesting, wouldn't the aggregate consumer fees/interest be more than the merchant fees?
You have to clear credit checks to get a credit card. Theres also generally a more involved application process (at least a little bit). The added barriers helped prevent the most financially unstable people from getting them.
There's plenty of problems with the system, but at least it's more difficult for people to get preyed on by credit card companies.
I see these companies like Klarna as not any better then payday loan places.
There's plenty of problems with the system, but at least it's more difficult for people to get preyed on by credit card companies.
I see these companies like Klarna as not any better then payday loan places.
Yep.
[deleted]
Sure, but so do credit cards in largely the same degree. But there's a lot less moral outrage about credit cards
Oh really? Not in my neighborhood.
Having a credit card allowed me to cancel my non-savings account and not pay bank fees. I use my credit card to pay for everything and then pay the credit card from my savings account. They are so dumb lol.
If you had a decent enough credit rating, there would be no need to use klarna as you’d already have credit on better terms.
You clearly don’t get it pal.
You clearly don’t get it pal.
Predatory lending is a specific kind of targeted, exploitative lending. The form it takes is irrelevant (See below). And 2 wrongs don't make a right, but 3 lefts do.
- Credit cards with absurd fees and rates
- Payday lending
- Point-of-purchase loans
- Credit cards with absurd fees and rates
- Payday lending
- Point-of-purchase loans
You mean adult humans who can make their own choices?
Lets not infantilize people.
Lets not infantilize people.
> It turns out it's worth it to merchants because when you're not paying now, you end up buying more than you would otherwise.
This applies to credit cards too. And Klarna offers 6 week interest free loans (with partial payments along the way), not really that different from the 30 day loans from credit cards. So why is Klarna worth the extra merchant fees to the merchant?
Because the terms are way friendlier. Merchants get the money right away, and there is no risk of chargebacks. The article doesn't mention this specifically though the overall confusion is the same: Klarna is a slightly different form of credit card.
This applies to credit cards too. And Klarna offers 6 week interest free loans (with partial payments along the way), not really that different from the 30 day loans from credit cards. So why is Klarna worth the extra merchant fees to the merchant?
Because the terms are way friendlier. Merchants get the money right away, and there is no risk of chargebacks. The article doesn't mention this specifically though the overall confusion is the same: Klarna is a slightly different form of credit card.
It's interesting psychology. You can do buy now, pay later + get it later without Klarna.
Just go to checkout, divide the sum by how many instalments you want to pay. Then open your banking app, setup a monthly transfer for that instalment to savings account, setup reminder in 3-6 months, then in 3-6 months just buy it.
Just few more steps, but for a human it's more attractive to get item now and feel the pain later, rather than the other way around.
That's how they make money.
If you do have money, it also means that you get item now and keep your money invested. If it’s the sort of BNPL that has no fees as long as you pay on time (not sure if Klarna does that, but I’ve seen a lot of those), technically it’s better to always use that.
Technically, yeah, but the overall benefit is pretty small. If you average $x/BNPL period, you're dealing with the cognitive/time overhead of buying everything with BNPL for the reward of whatever investment return you can get on $x. For an average household, that might be like a hundred bucks per year on average?
That’s the complete opposite of “buy now, pay later”, it’s “buy later, pay now”!
That's a big problem we have right now. It's just way too easy to buy shit you don't need with money you don't have. And the trap of paying over time completely warps your perception of how much you're spending. Even if you're responsible and make all the payments on time and don't pay a massive amount of interest.
> That's a big problem we have right now.
The problem isn't new.
https://www.youtube.com/watch?v=R3ZJKN_5M44
The problem isn't new.
https://www.youtube.com/watch?v=R3ZJKN_5M44
[deleted]
So: supply-colluding predatory lending in most cases with a shinny distraction of democratization of personal microfinancing.
And yet, Klarna cannot figure out a way to make a decent profit, even with less than 40% of the employees (from the VC funded glory years) and dozens of acquisitions of actually profitable companies.
> convince everyone that this is beeblebrox and therefore the previous rules don’t apply.
This reminds me of how services like Realpage have been described as "algorithmic price-fixing." There's something traditionally illegal (but profitable), and people try to get away with it by slapping on "but with a computer" as some kind of twist that's supposed to make it OK.
Sometimes there's a POSIWID [0] aspect to it, where the excuse is "no human explicitly designed the system to do X from the ground up"... which is a distraction from "we kept shopping around and tweaking until it started to do X and then we decided to make that a core part of our business."
That might be a defense against mens rea, but once someone points out that you created a crime-machine by accident, you still gotta fix it or turn it off.
[0] https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
This reminds me of how services like Realpage have been described as "algorithmic price-fixing." There's something traditionally illegal (but profitable), and people try to get away with it by slapping on "but with a computer" as some kind of twist that's supposed to make it OK.
Sometimes there's a POSIWID [0] aspect to it, where the excuse is "no human explicitly designed the system to do X from the ground up"... which is a distraction from "we kept shopping around and tweaking until it started to do X and then we decided to make that a core part of our business."
That might be a defense against mens rea, but once someone points out that you created a crime-machine by accident, you still gotta fix it or turn it off.
[0] https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...
I cannot for the life of me find the article that explains this succinctly and with a hint of salience, but I recall reading sometime this year about how Klarna (a Swedish company) created the concept, in part, because the Swedish (culturally) tend to pay back their loans. It was a hit in its motherland, with little fraud and generally-responsible users. Then they went worldwide, in particular in America where we are a pack of jokers and heathens who are happy to finance a Crave Case and a vape with no intention of paying it back ever.
It apparently never occurred to them that we are like this.
It apparently never occurred to them that we are like this.
Cute story, but do you think a massive company that specializes in loans and credit would move to the largest credit market in the world with a 100 years of very detailed financial data and models about loans, delinquencies, defaults, bankruptcies, etc but “it never occurred to them” to check that?
I mean, that was the literal whole point of the article, that they were culturally caught off guard. It happens! I'm going to try to find it again and edit this with a link.
I’m not doubting the existence of such article. I’m asking you to engage some critical thinking and not accept whatever cute, PR or otherwise “fun” narrative you read anywhere.
It’s “fun” to think that Starbucks struggles in Italy is because they are dumb and didn’t realize that Italians have a long cultural tradition with coffee that’s very different than Americans. “Oh dumb Americans and dumb Starbucks. How stupid are they to try to sell espresso in the land of espresso lol”. You need to engage just a little bit of critical thinking and realize that Starbucks knew that well in advance and thought the would give it a shot anyway. Maybe they could occupy a different cultural niche just like they did in dozens of other countries with similarly rich cultural traditions around coffeeshops and coffee or tea like the Middle East and Asia.
It’s “fun” to think that Starbucks struggles in Italy is because they are dumb and didn’t realize that Italians have a long cultural tradition with coffee that’s very different than Americans. “Oh dumb Americans and dumb Starbucks. How stupid are they to try to sell espresso in the land of espresso lol”. You need to engage just a little bit of critical thinking and realize that Starbucks knew that well in advance and thought the would give it a shot anyway. Maybe they could occupy a different cultural niche just like they did in dozens of other countries with similarly rich cultural traditions around coffeeshops and coffee or tea like the Middle East and Asia.
Critical thinking is long gone from most, and this site is now popular enough, and cs is main stream enough, that a good majority of this site even barely thinks beyond what fluff was put in front of them.
Let’s dig a little deeper. Why isn’t education around the basics of finance mandatory in school?
How does that account for the disgusting klarna ads I see in NYC that glorify buying things you cannot afford?
Either they got over their shock fast and learned how to take advantage of us, or it was the plan all along.
Either they got over their shock fast and learned how to take advantage of us, or it was the plan all along.
My picture, may be wrong, is that not paying your loans is easier to get away with in the US. That you can just not pay and people will sigh and actually give up. While in Sweden people will hound you until they get their money.
Consider this:
> Klarna requires you to have a card filed with them and they will charge your card an exorbitant interest rate if you miss a payment. But on the other hand…if you cancel your card, or if you put in a temporary card from one of those temporary card services that auto-expires, what is Klarna going to do? They can’t, like, claw back the taco.
I think this is a case in point, this expectation that if you don't pay that's the end of it. Even in the US it's possible to recover the money with a lawsuit, and I wouldn't be surprised if Klarna starts making use of that possibility.
If I'm right, this would also explain not using traditional credit scores, as they are more a measure of whether you usually pay your debts on time, but what matters is whether you have the assets/income so that you can be made to pay your debts.
Consider this:
> Klarna requires you to have a card filed with them and they will charge your card an exorbitant interest rate if you miss a payment. But on the other hand…if you cancel your card, or if you put in a temporary card from one of those temporary card services that auto-expires, what is Klarna going to do? They can’t, like, claw back the taco.
I think this is a case in point, this expectation that if you don't pay that's the end of it. Even in the US it's possible to recover the money with a lawsuit, and I wouldn't be surprised if Klarna starts making use of that possibility.
If I'm right, this would also explain not using traditional credit scores, as they are more a measure of whether you usually pay your debts on time, but what matters is whether you have the assets/income so that you can be made to pay your debts.
[deleted]
That was a fun read, but the author never actually buys a taco with Klarna from what I can tell.
The fact that the author has never actually bought a taco with Klarna pretty clearly detracts from the article, even, in that they really don't seem to have any idea how the other half interacts with financial services.
I really should have bought a taco with klarna, mea culpa. It definitely would have made the article better
The article doesn’t mention it directly but as they alluded to, all these buy now pay later companies are bleeding money, which is kind of impressive in itself.
Delinquency rates are very high, and there isn’t much recourse for them when someone decides not to pay.
Delinquency rates are very high, and there isn’t much recourse for them when someone decides not to pay.
What is the upside to Klarna when they let you pay in installments with 0% interest ?
These installments likely don't cost Klarna any extra. You can play games with the credit card authorization system to simulate installments without incurring extra fees. Then Klarna has their own middleman fee like any other payment gateway, and it's very high despite the lack of extra cost.
4 instalments spaced by 2 weeks with the first up-front averages out to about a 3-week float, which is less than the grace period on ordinary consumer credit cards in the US. And Klarna charges merchants more for this!
The merchant fees they collect.
Klarna and other companies like it will reject the temp credit card situation. But nothing they can do if you cancel your debit card and close your bank account. Given the trouble that takes, they probably figure the risk is low
I just checked and they accept cards from privacy.com. Funny enough they do not accept my Chase Sapphire or Amex.
The description of the whole "copy something, but ignore the regulation" scheme is missing the most important part: Make sure that the extra risk you are undertaking be eaten by someone else, while you get most of the upside of the bet.
It's not even tech related at that point: It's also how synthetic CDOs were supposed to work for those issuing them in the financial crisis. If your innovation is only to eat the risk that before was illegal, then you are taking a gamble with is unlikely to pay off. It's also why private equity is using loans from third parties as part of their purchases: if the company they bought goes under because the fees were too high, or the intervention was too aggressive, the loan goes into default, and they didn't make the loan, so it's someone else's problem. Most crypto schemes end up like that too: The issuer offloads much of the risk. What is the real wonder of tokenized shares in a startup, if not for the venture capitalist to be able to offload risks into unsophisticated investors well before an IPO? Any place that is creating bonus risk is sticking most of it to someone else, capturing just the upside.
If Klarna wants to have a chance, it has to charge a whole lot more fees to the merchant, and then find a way to offload as much of the credit risk as possible, probably doing some kind of complicated scheme to make others underestimate the risk. Otherwise they are just WeWork, grabbing pennies in front of a steam roller until a bad recession destroys them.
It's not even tech related at that point: It's also how synthetic CDOs were supposed to work for those issuing them in the financial crisis. If your innovation is only to eat the risk that before was illegal, then you are taking a gamble with is unlikely to pay off. It's also why private equity is using loans from third parties as part of their purchases: if the company they bought goes under because the fees were too high, or the intervention was too aggressive, the loan goes into default, and they didn't make the loan, so it's someone else's problem. Most crypto schemes end up like that too: The issuer offloads much of the risk. What is the real wonder of tokenized shares in a startup, if not for the venture capitalist to be able to offload risks into unsophisticated investors well before an IPO? Any place that is creating bonus risk is sticking most of it to someone else, capturing just the upside.
If Klarna wants to have a chance, it has to charge a whole lot more fees to the merchant, and then find a way to offload as much of the credit risk as possible, probably doing some kind of complicated scheme to make others underestimate the risk. Otherwise they are just WeWork, grabbing pennies in front of a steam roller until a bad recession destroys them.
I stopped reading after "regulations cause more harm than good"
That's not the quote. The quote is
"Much of that regulation may do more harm than good, but our legislative system moves slowly and favors doing nothing over doing something"
Which is much more trivially true than your incorrect reading of it.
I think you should read the rest of the article, because it is mostly positive on regulation. The whole article is about why Klarna being a credit company while trying to dodge credit regulation is a _bad_ thing
"Much of that regulation may do more harm than good, but our legislative system moves slowly and favors doing nothing over doing something"
Which is much more trivially true than your incorrect reading of it.
I think you should read the rest of the article, because it is mostly positive on regulation. The whole article is about why Klarna being a credit company while trying to dodge credit regulation is a _bad_ thing
The point of crypto is not "breaking the rules." Bitcoin might be inefficient but its mostly used as a reserve currency these days. Crypto in general, however, is the first currency that is backed neither by its cult value (gold) nor the military and economic strength of the country that prints it (USD), but entirely by technological foundations itself. It is revolutionary, if also very power inefficient. It is effectively reducing the role of the state to an intermediary regulatory body as technology continues to advance to the point where such civil laws are not required. Of course the corporation, as an entity, will come to dominate the world, but that is the natural progression of history and can also be overcome through social and political movements. But not before the state itself, as a political entity, is effectively dissolved.
Crypto is the first viable non-nation state currency. It’s NeoCurrency and frankly it’s high time something like it should exist.
Every person I’ve ever met who espouses “crypto” sounds like they’re in a cult trying to recruit new members. I can’t recall meeting a person who uses crypto who when asked about it (if they didn’t bring it up first) treated it like “oh, yea, crypto, it’s whatever, you just use it or don’t”.
Have you tried doing an ACH to a friend or paid rent that way recently? Banks force you to Zelle (there are daily/weekly limits) they’re not enough to cover modern rents so you breakup payments. Meanwhile any stable coin transfer can be done in minutes and works better than any payment rail ever.
Edit: I got my landlord to open a Coinbase account because stablecoin payments are way easier (also got a signup bonus for referring a new account)
Edit: I got my landlord to open a Coinbase account because stablecoin payments are way easier (also got a signup bonus for referring a new account)
[deleted]
Pretty much every other developed country has solved this problem without having to transact in digital lottery tickets.
Yes and no. I can eTransfer in Canada... to a limit of $2,000 CAD daily. Rent is $2,100, so parent's point stands.
I could upgrade my cellphone and use Google Play Services, allowing up to $10,000 CAD daily, but I have no intention of doing so. I think it's messed up to tie my financial and digital sovereignty to a foreign corporation, I don't appreciate the hit to battery life, privacy, and the pre-requisite bump in hardware to run GApps, and I simply don't want to end up on the spending treadmill for new cellphones.
Canada "solved" this, but the limits haven't kept up with inflation or life in general
I could upgrade my cellphone and use Google Play Services, allowing up to $10,000 CAD daily, but I have no intention of doing so. I think it's messed up to tie my financial and digital sovereignty to a foreign corporation, I don't appreciate the hit to battery life, privacy, and the pre-requisite bump in hardware to run GApps, and I simply don't want to end up on the spending treadmill for new cellphones.
Canada "solved" this, but the limits haven't kept up with inflation or life in general
In Australia I can send $20k. In the UK it was similar.
These concerns seem very weird to me.
These concerns seem very weird to me.
They kind of are, I'll immediately cop to that. I don't think it's that odd to say the constant upgrade treadmill is expensive though. I also don't appreciate gating features of our society behind smartphone ownership.
My specific concerns are odd. Not appreciating smartphone requirements for life feels more mainstream (if only marginally)
My specific concerns are odd. Not appreciating smartphone requirements for life feels more mainstream (if only marginally)
I’m not tied to a smartphone to do those things in the UK or Aus either.
Different geographies work differently I guess. In Brazil there’s an entire payment network (pix) that is centrally run, free and hugely popular.
Different geographies work differently I guess. In Brazil there’s an entire payment network (pix) that is centrally run, free and hugely popular.
My living partner transfers me money via ACH each month to share our expenses. It's effectively instant.
ACH isn't instant, but if you use the same bank they may use something besides ACH to affect the transfer.
ACH is... FTPing around flat files, at some point in the day. Or the next day. Plus time for clearing.
FedNow is closer to instant
ACH is... FTPing around flat files, at some point in the day. Or the next day. Plus time for clearing.
FedNow is closer to instant
For the purpose of making rent payments, it doesn't matter.
You've undoubtedly done this before the IRS/Treasury $600 dollar reporting requirements... try to do this with someone new.
I have never been forced to use Zelle instead of ACH. You just have to know how to arrange an ACH payment with your financial institution.
Europe just nixed the general €100K limit on SEPA instant transfers. Before that, you had to split it up or wait 1-2 days for the regular transfer to go through.
We should meet.
How is it not backed by its cult value? It's the same as gold, only valuable if enough people agree that it's valuable. The technical foundations make it cool to think about, but not valuable without a large community of like-minded people.
Crypto actually has all of the same fundamental flaws the person you are replying to claims it liberates people from, they just take slightly different forms.
As you mentioned, like any currency its worth whatever people collectively believe that its worth and nothing more.
And on top of that, while it may not be tied to a singular government like the USD, it is heavily tied to being used in a place with operational telecomm and electricity infrastructure, which requires a functional societal order that the "military and economic strength" the original reply was talking about provides.
As you mentioned, like any currency its worth whatever people collectively believe that its worth and nothing more.
And on top of that, while it may not be tied to a singular government like the USD, it is heavily tied to being used in a place with operational telecomm and electricity infrastructure, which requires a functional societal order that the "military and economic strength" the original reply was talking about provides.
Gold has at least some value outside of "cult value" since it has industrial and decorative use.
Gold also has the nice property that it "just works", it will be there without electricity or an uplink to some network
[deleted]
Hi, author here. You should probably read my quoted post about crypto, which comes out ambivalently positive on the whole thing
(https://open.substack.com/pub/theahura/p/tech-things-the-poi...)
(https://open.substack.com/pub/theahura/p/tech-things-the-poi...)
To OP: This is not a crypto issue, and many of us not obsessed with the subject like me will get annoyed to see it being brought up.
You speak true of the subject matter, however. Except for Klarna, I had good credit (the last time I applied, score FICO was 720 with strong payment history (no negatives, a decade of history of good credit, near and/or zero balances, and a quarter million of personal income) and they wouldn't lend me a dime (I asked for like $100 or something...literally could not be bothered to find my wallet, get my card out, and find the 3 digit number on the back...I also figured it'd be neat to have a new line of credit). I suspect they have some other odd model for tracking you, and if they can't, they reject, so it is likely not as bad as you think.
It's probably much worse. ;)
You speak true of the subject matter, however. Except for Klarna, I had good credit (the last time I applied, score FICO was 720 with strong payment history (no negatives, a decade of history of good credit, near and/or zero balances, and a quarter million of personal income) and they wouldn't lend me a dime (I asked for like $100 or something...literally could not be bothered to find my wallet, get my card out, and find the 3 digit number on the back...I also figured it'd be neat to have a new line of credit). I suspect they have some other odd model for tracking you, and if they can't, they reject, so it is likely not as bad as you think.
It's probably much worse. ;)
You likely ran into anti-fraud provisions with that scenario, specifically identity theft prevention. Having worked at a similar business for years, a trend for high fraud occurrence is squeaky clean credit file-high income applying for low value credit.
These have a well above average occurrence of identity theft cases, presumably because the guaranteed affordability test pass combined with low value makes it easy to get the loan and subsequently unlikely anyone will bother to chase it when they identify it as fraudulent.
It's easier, and cheaper, as a provider to just reject all originating accounts in this scenario. Similar to applying for a mortgage: if your credit parameters vastly mismatch your affordability you will get a LOT more questions asked.
These have a well above average occurrence of identity theft cases, presumably because the guaranteed affordability test pass combined with low value makes it easy to get the loan and subsequently unlikely anyone will bother to chase it when they identify it as fraudulent.
It's easier, and cheaper, as a provider to just reject all originating accounts in this scenario. Similar to applying for a mortgage: if your credit parameters vastly mismatch your affordability you will get a LOT more questions asked.
I guess this is a weird corollary to "the ideal amount of fraud is nonzero" - things that look like a sure bet are actually far more risky.
[deleted]
It turns out it's worth it to merchants because when you're not paying now, you end up buying more than you would otherwise. Order sizes are ~15% higher [2]. Probably similar to how it hurts more to pay with cash than debit because it's so tangible.
I view it kinda similar to gambling apps with their endlessly optimized special offers designed to exploit the human monkey brain.
[1] https://www.fool.com/investing/how-to-invest/stocks/how-does... [2] https://www.uschamber.com/co/good-company/the-leap/klarna-se...