Burrito now, pay later

Speaker 1 There is one company that 90% of U.S. lenders check with before they decide whether to give you a loan for a house or for a car.
It's a credit rating agency called FICO.

Speaker 1 Now, this week, FICO announced that when it calculates your credit score, it's going to include for the first time ever your Buy Now Pay Later purchases. Buy Now, Pay Later companies are everywhere.

Speaker 1 Klarna just partnered with DoorDash. You can put a burrito on payments.
And if that seems unwise, well, Klarna's CEO told CNN, yes, he in fact agrees.

Speaker 3 Like, why even offer that option?

Speaker 4 Yes, and that is unwise.

Speaker 5 I would not recommend anyone to put a burrito on Binappellater for clarity.

Speaker 1 Coming up on Today Explained, is burrito now pay later a great deal or just another debt trap?

Speaker 6 How much is that burrito in the window?

Speaker 6 With Blarna, it comes home with me.

Speaker 6 How much?

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Speaker 5 Okay, let's see here.

Speaker 6 Today. Today.

Speaker 5 Explained. Explained.

Speaker 9 I'm Akila Kinho, and I'm a journalist at the Financial Times, British newspaper, and I'm now based in the US covering consumer finance.

Speaker 1 One aspect of consumer finance that you've been covering recently is buy now pay later services. What are those and how do they work?

Speaker 9 So buy now pay later or BNPL is basically a type of lending that's provided by companies that call themselves FinTech, so financial technology.

Speaker 9 But what they really are is just they're lenders who allow shoppers and consumers to split their purchases into installments.

Speaker 9 And largely these installments are interest-free. So you don't pay an interest rate on on them.

Speaker 1 Wait, if they're if they're not charging interest, how do they make money?

Speaker 9 Right, so it's not entirely transparent, and each of them has a different sort of breakdown of how they make money. But essentially, they take a fee from the merchants.

Speaker 9 Merchants love BNPL because it gets people to buy more stuff.

Speaker 11 You need to book a flight today. The prices is perfect, but you just paid all your bills, and it's not really a good time financially.

Speaker 8 I have some options for you.

Speaker 13 I have spent thirty-two thousand one hundred ninety-six

Speaker 13 on a firm in Klarna since 2022.

Speaker 13 And the big question is, what did I purchase?

Speaker 14 You know how much better I felt about myself financially knowing that I was paying $43 today as opposed to paying $170 today? My shelves are full of makeup.

Speaker 14 I can't really mentally justify buying more makeup, but I mean, hey, it's only $43.

Speaker 9 And some of them also make money from late repayment fees, which they call all sorts of funny names like snooze fees or reminder fees.

Speaker 9 But yeah, they're basically penalties that they take from consumers who don't pay on time.

Speaker 1 2025 was my year of not buying crap online. I'm taking it very seriously.
I've been pretty good. But on occasion, I have seen the option to pay with Klarna.

Speaker 1 But I actually like can't remember where, maybe Sephora. What kinds of stuff can you buy with BNPL?

Speaker 9 Well, so that's the thing. Pretty much now anything, or at least a wide range of items.

Speaker 9 So, you know, people have always, or you know, for a long time, been able to pay in installments for big purchases, like, you know, a sofa.

Speaker 1 A couch, yeah.

Speaker 9 A couch, exactly. But now

Speaker 9 it's kind of spread to makeup, fast fashion, online clothing, that's a big one. And even DoorDash.

Speaker 15 Like, are we not going to discuss the news headline that all of a sudden DoorDash and Klarna are going to allow you to pay for fast food in installments.

Speaker 5 So now you can get your expensive DoorDash sent right to your front porch, cold, mushy, DoorDash person. I'm probably farted on it, but now it's on a payment plan.

Speaker 5 Bad decision at the bad decision at the bad damn decision.

Speaker 1 Akeelah, let's say I buy the burrito and then I decide I'm going to default on it. I'm not going to pay the $15 back.
What happens?

Speaker 9 So if you can't repay on time and you can't sort of honor the repayment plan that you've agreed to with one of the providers, often they'll charge late repayment fees.

Speaker 9 And so, if you keep doing that, it's likely they won't approve you for more loans with them. And then, another kind of contentious area of this whole debate is that

Speaker 9 for a long time,

Speaker 9 defaults on Bino Pay Later plans were not reported to credit bureaus, and so they they wouldn't affect credit scoring, which had a lot of consequences.

Speaker 9 One of them being that people could stack up loans from different providers, with each of the providers not knowing that the person would already have BNPL loans with others.

Speaker 9 But that's actually changing. So the sector has come under pressure from consumer protection groups, and there's also been a rise in defaults recently as people fear

Speaker 9 that the risks of a US recession are becoming higher.

Speaker 9 So now actually, last week, one of the largest providers of credit scoring in the US has announced that it will take into account BNPL by no pay later.

Speaker 1 My first impulse when I saw Klarna was nobody's going to do this, but I clearly was wrong. How popular is this?

Speaker 9 So it's increasingly popular. It's rising really fast,

Speaker 9 particularly with young people initially, but that it's also spreading beyond that demographic. And it's so popular because it's so easy.

Speaker 9 So, you know, that's the kind of fintech element. These companies have been really good at creating like a very seamless payment flow online.

Speaker 9 So if you're shopping, you don't even have to really plan for it or think about it ahead of time.

Speaker 9 You'll just see a button to click on and then very easily you can get that loan. And it's also popular because people want to buy a lot of stuff.

Speaker 9 Like, you know, we're all targeted with these ads online, and we all know about the rise of influencers.

Speaker 16 Today, we're finally doing my bedroom makeover on a budget with the help of Klarna.

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Speaker 12 I just bought some new kitchen appliances, and I've been obsessed.

Speaker 1 What's the weirdest thing that you've seen?

Speaker 9 The most probably concerning from a consumer protection perspective and from a a financial stability sort of perspective is groceries. So, you know, if people start to pay, which they are,

Speaker 9 but like, you know, paying for food and very essential items with

Speaker 9 loans,

Speaker 9 I think is pretty wild.

Speaker 1 Yeah, buying groceries on payments is uncomfortable to think about. So are these services more popular with people who are low income and really need them to spread the payment out?

Speaker 9 So we don't have a ton of data. So it's difficult to say for certain what the breakdown is in terms of the users.

Speaker 9 However, we do know that

Speaker 9 people who can get approved for these loans might not get approved for other loans or credit cards.

Speaker 9 So there is an understanding among economists and analysts that it's more subprime population than other consumer lending areas.

Speaker 9 And so what this means is that the people who are using these services services to buy groceries

Speaker 9 are probably higher-risk customers. And so, if the economy turns,

Speaker 9 there is a higher risk of default from that population. One of the things that people are watching at the moment is unemployment, the unemployment rate.

Speaker 9 So, at the moment, employment still remains strong, but you know, that could change, and that could sort of create problems for those consumers.

Speaker 1 Americans tend to accept debt

Speaker 10 with few reservations,

Speaker 1 even in a lot of cases, if we can't pay it back.

Speaker 1 And there are probably a million reasons for this, but if someone says, I'm going to give you a $30,000 credit limit, we're like, yes, I'm going to spend $30,001.

Speaker 1 So Buy Now, Pay Later is not shockingly new. We've always had, you know, layaway at the furniture store.
But Klarna and these other payment systems are everywhere now and they're easy.

Speaker 1 Do you think this is going to lead to people racking up more debt just because they can?

Speaker 9 So I think there is a really interesting tension where these products have the possibility of offering flexibility and be another financial tool in people's lives, specifically people who don't easily have access to credit or funding.

Speaker 9 And so that has the potential of being great. It also has the potential of spiraling into a potentially unsustainable financial situation for these people.

Speaker 9 And I think that often we look to regulation to kind of find that right balance between consumer protection and financial freedom and kind of managing the incentive that these companies have to grow their businesses versus protecting the economy.

Speaker 9 One of the big concerns with this at the moment is that this industry is so new that it's not regulated as credit in the US. So, credit cards are strictly regulated.

Speaker 9 Mortgages, the mortgage market is strictly regulated. And there was a push to regulate binopilator as credit, the same way credit cards are regulated in the US.

Speaker 9 That's been stripped away because of leadership changes in the CFPB, the Consumer Financial Protection Bureau, installed by the new administration. So,

Speaker 9 perhaps that's the kind of missing piece in the puzzle that makes it a potentially more dangerous tool, or it might not fulfill its potential as it would if there was proportionate, adequate regulation.

Speaker 9 You basically want it to be a system where it can be used as a tool, but the people who use it as a tool understand the risks that it comes with and the consequences it can have on their financial lives.

Speaker 1 Akeelah Kino of the Financial Times coming up. No judgment, but are we addicted to debt?

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Speaker 10 This is Today Explained.

Speaker 10 So I am Kyla Scanlon. I am an author and an economic content creator.
So my first book in this economy came out last year, and I make videos across social media.

Speaker 10 I've written for the New York Times Opinion section, Bloomberg Opinion, and my main goal is to help people understand the economy so they can make better decisions about their life.

Speaker 1 You and I have never met. You do not know anything about me, but I do not like buy now pay later.
You tell me why that is.

Speaker 7 Why you don't like it.

Speaker 1 Why am I so suspicious of buy now pay later?

Speaker 10 I think a lot of people are suspicious.

Speaker 10 When Clorina teamed up with DoorDash, I made a video about it because I was freaked out. Huh?

Speaker 10 This gets into into something that I've written a little bit about too, the convenience contradiction, where we're optimizing for this effortlessness.

Speaker 10 When everything's like really easy, the less resilient that people become. And so the more fragile a system is, the more anxious people are.

Speaker 10 And so you reach for even more convenience in order to soothe yourself. I think that just encourages bad behavior.

Speaker 10 Like there's like, you know, buying a moisturizer from Sephora, you're gonna use the moisturizer as part of a skincare routine. Like that's a little bit more commonplace.

Speaker 10 But the fact that people might be financing the quote-unquote private taxi for their burrito, burrito, like that's just encouraging bad financial habits. DoorDash is incredibly expensive.

Speaker 10 And if you have the option and the ability to go and, you know, get your food from the restaurant itself, that's something that we should be probably encouraging people to do so they don't incur those extra fees.

Speaker 10 And so I think things like that, where it's encouraging people to spend more money than they have for a service that they don't necessarily need, that's when...

Speaker 10 Things can get really bad. And there was a lot of jokes during that Klarna DoorDash partnership announcement.

Speaker 17 It is true, ladies and gentlemen. You can now finance your DoorDash.
Collateralized burrito obligations.

Speaker 4 I know y'all ass is not going to debt for some extra guacamole and chips.

Speaker 10 Could we have a bunch of people who are just so overextended on credit and they're ignoring their payments because there's elements of financial nihilism where we really do have a massive problem on our hands?

Speaker 10 And so I look at things like that. I view that a little bit differently than like a moisturizer from Sephora

Speaker 10 as something that could be quite bad in the future.

Speaker 1 It sounds like you were sounding a warning. What else did you say in that video to your viewers?

Speaker 10 What I talked about in that video was sort of the poor impulse control economy.

Speaker 10 Because what happens when you remove all friction from consumption is that the meal that arrives to your doorstep has no social ties to you.

Speaker 10 It requires no planning and it leaves nothing behind but packaging waste. So I talked about meme coins, I talked about sports betting and how companies can collect the data on the vices that we have.

Speaker 10 And so when everything becomes totally frictionless, like when you can order a private taxi for your burrito, that sort of behavior can stem out into things that are probably a lot worse for us, including like gambling on meme coins, gambling on a baseball game.

Speaker 4 And some people think that I'm crazy because I'm trying to make six figures on a two-figure or less budget on FanDuel. The biggest scam that's plaguing the community right now is sports betting.

Speaker 4 And mainly I'm referring to these fantasy apps.

Speaker 18 What i just witnessed in the last leg of our hell mary parlay

Speaker 18 is the most disgusting

Speaker 10 the most despicable the most sickening thing i have ever seen in sports history and so that's what i worry about is that the convenience and the impulsivity that it allows for allows for the expansion of the grift economy of a world where people are spending money on things that they don't need to, and they're just totally lost in that cycle.

Speaker 1 You're a commentator. You're a public intellectual.
You're also a Gen Zero and you talk directly to Gen Zers who are operating in the economy. How is your generation using BNPL?

Speaker 10 A lot of Gen Zers have had very common interactions with debt. Student loan debt is a big part of the life of a Gen Zero.

Speaker 10 You know, medical bills, anything involving a credit score, like debt has been so normalized for the younger generation that when they see something like BNPL, it's like, oh, this is, it's just casual debt.

Speaker 10 Huh.

Speaker 13 Hi, my name is Diva and I am $107,000 in debt and I am the affirming Clarina girl.

Speaker 19 There's a point when you realize that the consequences of not paying a loan are actually not like that

Speaker 19 bad.

Speaker 10 And so I think for young people, they've been raised in the shadow of the 2008 crisis, you know, student loan debt, like I said. So it's just sort of what they do with their money.

Speaker 1 This is interesting that debt has always been available to Gen Z. If you're an older millennial like I am, that's not really the case.

Speaker 1 You kind of remember getting your first credit card when you were like 22, but there was no Apple Pay. You couldn't just pay for stuff on your phone.

Speaker 1 And it strikes me that like my nieces and nephews who are teenagers, they can do that. They have this ease with paying for stuff and taking on debt for stuff that

Speaker 1 never occurred to me would be an option when I was young.

Speaker 10 Yeah, I mean, I think a lot of that is structural. So

Speaker 10 in 2020, their government sent out unemployment checks.

Speaker 20 I am asking Congress to amend this bill and increase the ridiculously low $600 to $2,000 or $4,000 for a couple.

Speaker 21 It's the biggest ever

Speaker 21 approved in Congress,

Speaker 21 $6.2 trillion.

Speaker 21 So, you know, we used to get used to the billion. It used to be a million, then it was billion, now it's trillion.

Speaker 10 In 2021, the Fed had rates really close to zero. Like, we're always talking about the deficit.
We're always talking about how much money the United States as a country owes.

Speaker 10 The national debt stands currently at about $36.2 trillion.

Speaker 16 Moody's has lowered the United States credit rating because of an increase of government debt.

Speaker 10 And so, I think for everybody, they're just looking at that and they're like, well, you know, if the government owes all this money, like, surely I can have a little bit of debt too.

Speaker 10 And then credit scores have become such a core part of the American identity.

Speaker 10 It really informs a lot of how you can buy a house or, you know, if you can even get certain loans that I think people view debt as structural to them as a person. And that's just increased.

Speaker 10 And I think it really has a lot to do with the environment that Gen Z has grown up in and the fact that these tools are so readily available and they're so easy to use.

Speaker 1 Talk to me a bit about how you think about debt. Is it dangerous?

Speaker 10 Well, I think when you look at debt systemically, right,

Speaker 10 debt's not inherently a bad thing. Like most things, it's a tool.
Like social media, you could say it's bad, but it's a tool. It's all about how you use it.
Same with debt.

Speaker 10 You know, BNPL in itself is an evil, especially if you can pay it all off without having to face those high interest rates.

Speaker 10 Credit cards themselves are an evil, but it's really about the system that encourages these sorts of products to be created.

Speaker 10 So, you know, real wages were stagnant for a really long time. The entry-level labor force is really deteriorated.
It's very tough to get a job right now.

Speaker 10 If you're graduating from college and the college wage premium has eroded quite a bit, you know, rent is high because we don't build enough housing, groceries are up.

Speaker 10 And so I think people are just like looking at the very high prices, the impossibility of ever buying a house, you know, the struggles that they might be facing in the labor force.

Speaker 10 And it's really like, well, sure, it might be irresponsible to use BNPL to get a moisturizer from Sephora, but like literally, what else am I going to do? Like, I don't see a solution before me.

Speaker 10 And so I think that's been the... big thing with debt is that we've used it as a tool in order to navigate some of the hairier parts about being in the United States right now.

Speaker 1 It strikes me that what you're talking about is where traditionally like a safety net would grab somebody, right? You need a bridge between last month's paycheck and this month's first paycheck.

Speaker 1 And I think historically you might say, and I think this is a valid question,

Speaker 1 look, you can't afford the Sephora lotion right now. So why don't you just wait?

Speaker 1 And it sounds like what you're saying is that's a bit of a privileged or maybe old-fashioned idea of how paying for things works.

Speaker 10 Right. And I think why don't you just wait? Ignores some of the ladder issues that we're facing.
Like Gen Z, younger people,

Speaker 10 honestly, millennials in some capacity are facing this really like broken ladder problem where it's like, okay, sure, you know, they could wait to buy that moisturizer, but that would require the entry-level labor market to free up again.

Speaker 10 That would require wages to really speed up. That would require the housing market to normalize.
And so I think a lot of people blame younger people for, you know, using debt and using BNPL.

Speaker 10 And I think you should be careful. Like, I don't think you should be living above your means in an extravagant way.

Speaker 10 But it really is like a psychological buffer of sorts where people are just like, well, I don't know what else to do. So I'm going to go and buy this thing.

Speaker 10 It is an element of instant gratification, the same thing that we see in social media. But for gin zealoters and younger people,

Speaker 10 there isn't that stability, that expectation of stability in the traditional sense. And so I think these little small luxuries matter.

Speaker 10 Like buying that moisturizer matters because it is indulgent in a certain way, but it's also a flex of agency in an economy that doesn't feel like it's allowing you into it.

Speaker 1 It does feel a little bit like there is some American ethos here that says To live is to be in debt and we've all accepted that.

Speaker 10 Yeah, I mean, that's kind of the only way you can get by sometimes. You know, there's that misquoted statistic about paycheck to paycheck.
Like, it's not 60% of Americans living paycheck to paycheck.

Speaker 10 It's far lower, but I think, you know, a lot of people just feel like one wrong move and the whole thing could come tumbling out beneath you. Like, and so we just have these

Speaker 10 issues that are outside of the realm of like consumer packaged goods being delivered.

Speaker 10 Where it's like, as many, you know, policymakers and politicians and pundits have written about, where we have to really start thinking through actual solutions to these problems because they're just not going to fix themselves.

Speaker 10 The incentives are too misaligned.

Speaker 1 Kyla Scanlon, she's the author of the book, In This Economy, you can find a link in our show notes. Miles Bryan and Gabrielle Burbay produced today's show.

Speaker 2 Amina El Sadi edited.

Speaker 1 Laura Bullard fact-checked Patrick Boyd and Andrea Kristen's daughter engineered. Thank you, Matt.
It's Today Explained. I'm Noel King.

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