First Big Test for Buy Now, Pay Later

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube. Search Bloomberg Clobal News, Well Affirm Clarina after Pay. You know the names and the big players when it comes to the buy now, pay later industry, also known as bnpls. They are the subject of this week's Bloomberg Business Week cover story. That magazine issue now on newstands. It's also online of Bloomberg dot com, slash business Week and on

the Bloomberg terminal. A great group in the byeline as made to Prez, Evan Weinberger and Jenny Seraine, all chipping in on the story. As Made Press is Projects and Investigations reporter for Bloomberg News as May joins us on the phone from California. Joe well Bur is with us now. He's editor of Bloomberg Business Week. He's with us in the Bloomberg Interactive Broker Studio. So Joel, the concept of buy now, pay later, it really took off over the

last couple of years. What could go wrong with, you know, buying something now but paying later. It sounds so good, like it's pretty good, just give it to me now. So so what really stood out here was how much we were all suddenly being indated with with sort of these offers, like you go to a checkout and it's sort of like, you know, do you want to pay in four easy payments? And we were sort of like, where did this come from? Like it is suddenly everywhere,

and lo and behold. It really took off during the pandemic and we were all doomed scrolling and hoping consumption would bail us out of a pandemic and you know, or at least maybe feel better for a moment. And it turned out that this industry just boomed on it. But now we're seeing economic headwinds. Regulators have taken note, and lo and behold, old as. We'll talk with as

may here. Uh, there's good old fashioned debt problems even when you're you know, supposedly paying and four for easy payments. So so as may As you kind of dove into this topic, the topic I'm curious. There's a real fundamental loophole that the by now pay later industry is built on, which was it's one thing if you pay in five payments, but it's another and four. Why why that distinction and

why does it matter so much? Yeah, So this story really focuses on the pay and for a model in particular, and that's what really unites these companies, so Affirm after pay Learner. They all kind of do different stuff, but there their main product is paying for, or one of their main products is paying for and that's what they all do the same. And so the way that they're able to really change the consumer credit game was by

bypassing consumer protection regulations. That explains one of the reasons why these two have just seemingly exploded overnight. And so if you take the Truth in Lending Act, for example, that's a landmark law and acted and it requires extensive disclosures for what are called unsecured consumer loans split into payments are five or more. The law doesn't touch pay

in four because it's pay in four four payments. And so that's a really like, you know, that's a really easy way to understand some of the loopholes that they've been able to, um, you know, bypass and and take off as a result. Well, let's talk about taking off, Like how big have these companies become? Because right, the bigger also kind of sets up the problem that you know, that they could become a bigger problem down the road, especially as we talk about recession. Feels like on a

daily basis, So how big has this industry become? Usage has increased, you know, over the past few years, usage increase every year. So consumers, you know, they're really making up a larger part of particularly e commerce spending. Um they're slowly creeping into brick and mortar, but it's really just e commerce. So we're looking at at like, you know, a few percent um two percentage points of consumer spending online,

but obviously growing, you know, every single day. As far as valuations, I mean, if you look at Clarna, the value has dropped significantly recently, but it's still worth seven billion dollars after pay was sold to Block, the Digital Payments Company for twenty nine billion dollars. So these companies

are are very big. They're making Hey, they're missing billionaires. Um. And as Joel said, though, you know, were we may we may see the party coming to an end or at least um, you know, getting a little bit less fun.

And yeah, that happened. Um. You know that Clarina headline, Uh, you know when the valuation got got slashed recently was really interesting because it was sort of like if everything seemed like it was going great for this industry and then you saw that valuation gets last night, it was sort of like, wait, what so what what is what

is your reporting bear out there? What like, what what's going on with the industry and why are valuations maybe continuous Suddenly there's I mean there's a number of reasons. So first of all, losses are up there, say being you know, more people obviously, you know, usage has increased, so they're having more customers. But also more customers are unable to pay back their loans. So investors obviously don't like that. Stocks are way down, you know, competition is increasing.

Apple recently announced that it would get into the game with its version of paying for work called Apple Pay. Later, PayPal joined the crew a couple of years ago with its version of paying for You know, even big banks these days are looking at the n p L. It's less so pay and for and more so just like kind of old fashioned uh installment loans that they want to apply the b NPL name too, because it's such

a hot name. Um But also we sawt you know, we looked at Consumer Financial Protection Bureau complaints their database, and complaints are mounting, and then of course regulation is likely coming. UMPP is now looking into this industry and trying to really figure out like what kind of consumer harm is happening, And we definitely found that there was

absolutely consumer harm being happening. I mean, in part because it's just so easy to get these own you know, the credits, the old traditional credit system, you know, excludes people unfairly a lot of the times, but it also sometimes you know, prohibits people from being able to take on debt because they truly cannot you know, they truly cannot take on debt because they're not going to be able to pay it back. And this is a problem. You know, the b NFL industry often will give you

a loan even if you can't qualify elsewhere. So you know, that's really the heart of a lot of the problems, as will you go through the business model here and how these companies make money because I've seen these checking out when I'm buying stuff online and they offer essentially zero percent interest if you paying for in some cases, So how do they how do they make money if they're they're not charging you for the ability to pay back over time exactly, you know, so so you usually

paying for is always interest free. You can get hit with late fees, but primarily what b NFL companies do to make money is that they charge the merchant a percentage of whatever it is you're buying, and the merchant thinks that that's worth it because they you're more like to buy with these things, so you're there's less quote quote unquote cart abandonment. You're not going to walk away from your card. You're actually gonna go through with the purchase.

And then also your cart is going to be bigger, You're gonna buy more stuff because you think you're human monkey or your monkey brain things that it's cheaper because you're only paying and fo you're praying and for payments not all, you know, not one big price tag at once. So primarily mergency and make up a big part of

the of the revenue of across the board for these companies. Um. You also, you know they do with some Klarna and a firm for example, also have longer term interest loans that they offer until they make some interest off that. But this is kind of their main selling point. I mean, they really say the merchants are their primary customer. You know, we as shoppers think that we're getting the good deal,

but really it's merchants that are their primary customer. Um. So that's really the and that's and that's also sorry. What what they say helps distinguish them from credit cards because it makes them better than credit cards because credit card companies, you know, they may are credit card issuers, they make a lot of money off of the invite and fees that they charge on people that don't play

their bills on time. The other thing that's really fascinating that as Man goes into and you can read it on your own, is about how there's a whole shadow credit industry that's sprung up here too, all right, it's a great read. It's the cover story. Joe Weber as may depress. Thank you so much. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes, Tim Stinovic on Bloomberg Radio. All right on the Bloomberg Today.

An update on how funding plans from monkey poks are at risk because of an impasse on Capitol hillover additional aid for COVID nineteen meantime timp there are nearly thirty six d monkey pox cases across almost every state DC in Puerto Rico. Maybe it doesn't sound like a lot, but do you remember when COVID didn't sound like a lot either. I'm not saying apples to apples, no, not

apples to apples. But at the same time, the World Health Organization, you know, make taking the extraordinary step over the weekend of declaring it an emergency. Let's get into it with Dr Tom Inglesby, director at Center for Health Security Think JOHNS. Hopkins at Bloomberg School of Public Health. Dr angles He joins us on the phone from Baltimore, the Bloomberg School of Public Health that is supported by Michael R. Bloomberg founder of Bloomberg GALP and Bloomberg Philanthropies.

Dr Engels, be great to have you with us. I mentioned the extraordinary step of that we heard from the World Health Organization essentially for the second time in three years, declaring, you know, another global health emergency this time monkey poks. How should we be thinking about this, especially in the context of what we've learned about viruses over the last two and a half close to three years. Yeah, well, first of all, very good to be with you, Thanks

for having me. Um. I think, Um, you're right to think about kind of the frequency with which we're seeing these new viruses and and uh, in the past, in between big events, I think we've kind of started to to think that they won't happen again. But I think we're really looking at kind of the new global normal. We will continue to have infectious disease crises in the world, and we just need to get prepared for them, have

good stockpiles of medicine, be ready to react quickly. And I'm really happy that the World Health Organization declared a public health emergency because I think it helps focus the intention of countries and hopefully get more resources for the response. So it means, since we've learned so much over the last two two and a half years because of COVID, we're going to get the next pandemic or infectious disease crisis. We're gonna get it right. We're gonna be really well prepared. Right, Sorry,

I can't stop laughing. Forgive me. I grew up in a large family with a lot of sarcasm. I think we are. It doesn't always feel like it, but we are building new capacities in the world. In the United States, we have this time around. We have a vaccine that's ready to go. We don't have nearly enough of it, but the vaccine was created some time ago, so as opposed to COVID vaccine, which took about a year to come online, we do have vaccine that's ready to go.

We do have a medicine that works against this virus that's also ready to go. It's just a matter of getting it in the to the places that need it fast enough and getting it getting doctors and healthcare providers very aware of this illness so they can not to test for and know to get the vaccine and the treatment for people who need it. So forget, but and forgive me my sarcasm. But I can't tell you how many you know, Dr Englesby people have come up to me.

They know what we do for a living. We we know we have incredible access to the likes of someone like yourself who are on the front lines and are hearing about it, seeing about it directly. Um people coming up to me, They're like, are you worried about this? And I don't know what the right answer is. Yeah, I mean, I think if you are in a high risk group, then I do think you should be worried

about it. Right now, that high risk group is men who have sex with men, and uh so a lot of attention is now being focused on providing that community with information awareness, especially the healthcare providers who take care of that demographic. Making sure that they have access to vaccine is quickly as we get vaccine online. If you're not in that group, then I think it's it's reasonable to be paying attention to it, just to be tracking it. But it is not now posing a risk to the

general population. It is possible that if we don't get control of it over time, that it could move into different groups of people in the United States, but this is not a disease that spreads like COVID or influence the person to person through the air. This requires very close contact, skin to skin contact or household contact between people are very close to each other. So it's never gonna be like what we experienced the COVID, but it's

something to pay attention to get it right. It has in in past years when it was mostly in Africa, in a number of countries in Africa, it did have um some mortality associate with it, you know, single digit percentages between one per five. It is not does not appear to be killing people yet in the world. There have been a few cases of people die, but very very very small numbers. But it is causing very painful illness um for long painblell illness for for some of

the people who've gotten it. So I really want to make sure that we do everything we can to contain it and end in the United States it doesn't become a problem that lasts and that's out there as as another thing that people have to were worried about. Can you be really quick ted seconds, Are we ready for the next COVID like pandemic as a society just quickly? We're not ready, but I think we are removing in positive directions. We just can't take our eye off the ball,

all right, really appreciate it. Thank you so much. Dr Tom Inglesby. He's director of the Center for Health Security at the Johns Hopkins Bloomberg School of Public Health, of course, supported by Michael R. Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropy. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, this guy is not so friendly as Jeff Blue in

Frontier battle to over buying Deep discounter Spirit Airlines. The battle is over, as you know, Jeff Blue clinching a deal one day after Spirit called off a plan merger with Frontier. Well, today, Barry Biffle, he's the president CEO Frontier Airlines, telling Bloomberg our own Katie Greifeld about walking away from that deal with Spirit but mm hinting it might not all be over. So I'm not gonna speculate.

But look, we're always looking for ways to save more consumers, Mike, So, so I'm not gonna close the door, but let's let's let them, uh, you know, pursue their path and we'll see how it goes. Barry, Jeff Blues calling the doors, We'll see how it goes. That's what he said exactly. We'll time, we'll tell Well, uh, let's get to it with our own Blueberg Intelligence senior Aero Aerospace, Defense and Airlines analyst, George Ferguson. He's on the phone from New Jersey.

George is so glad to have you back with him and myself. So are you surprised that it kind of went this way? And do you agree that maybe the door still might be open for Frontier? So not surprised that it went this way? Um, you know really, I think after we saw Jeff blue uh, you know up there proposed usls UM, I think if if Frontier had more to bring, they would have brought it, and we just didn't see him bring anything, I think, significantly more

to the deal to try to win it. And so she seemed him, you know me that they were just trying to convince shareholders that in the long run it was better to put Speed together with Frontier. Um. But they again we weren't ready to bring cash and so um, so I wasn't surprised if it was interesting that they I think we never really finally got a vote yesterday or itally of a vote. Um. So it just tells me that the Cheryls just weren't going to be We're

gonna be suede. I mean, there's definitely some discussion in the marketplace today that, Um, there are people that are worried that you know, the d O J you know and I trust wouldn't let this go through. I just I don't see it, like I don't see either of these airlines being so critical to the US UM, you know, travel business that they couldn't let them, you couldn't put

them together. Just they're just not big enough. Um, will help us in the country and us George, help us understand sort of the test for regulators in a situation like this, because this is a highly regulated industry. So what does what what does Spirit and Jeff Blue? What do they have to prove to regulators in order for

regulators to sign off on this? Okay, so I'm gonna I'm gonna punt on this one because I have a I have a colleague that spends all day long on the hearth and or whatever index, you know, they're used, and and I'm just gonna say, you know that they're gonna want to make sure that it doesn't mean that the industry is too concentrated and that consumer is going

to pay a lot more for fairs. And so again I'm going to drop back on there four major airlines in front of the Southwest, American, United and Delta already right have a huge amount of the marketplace. Is not going to be a lot of the marketplace. There's already competitors underneath the combined to the last school be there, right, we'll have we'll have a growing frontier underneath there. And the group you you of this industry as airlines are always being born, um, you know, and so we've got

Breeze and a Velo and you name it. So speaking of Blue right, yeah, And so I'm just having I have a hard time imagining someone saying there isn't enough competition in this industry, because there's a heck of a lot of companies in this industry always working to take fairs down on each other always. Yeah, I mean right, you know this the cycles of you know, tons of airline names and then we see consolidation and then we see more airline names, and then we see consolidation. Like right,

you've seen this movie several times before. I don't know if it's harder to get into it now. I don't know. I'm even this quarter. If you think about it, the airlines are approaching levels of capacity and they're nowhere near that level of profitability. I mean Southwest did breach that today. That did a nice job. They said they see fair softening into three Q. They guided much lower than their twenty nineteen results. They aren't getting back all the increases

in costs. It's a very competitive marketplace. George, before we let you go, help us understand what a confined Jet Blue Spirit would look like. It's going to be run by the CEO and just wants to know you're going to get mint on Spirit. Yeah, there's no way. I mean, how do they do this? These are different cultures. Yeah, so I think they will. I think it's absolutely going the Jet Blue direction. It'll be a kindler, gentler, low

cost carrier. I think you will get mint on some uh, some of the routes right there, the routes you can get people to pay up for. It's it's they're gonna have to reconfigure all the Spirit airplanes, repaint them all and I think every you know, everyone to be sort of kindler and gentler and there and there and there we do those interiors, right, Yep, that's a bunch of money involved. Yeah, that we'll put out a piece of research. They put some numbers on that. Does it still just

ten seconds? Still be? Is it still though? A discount? Deep discount airline? Don't know, not deep discount. I think a discount, but not a deep discount. Maybe called a funding. Very interesting day, well maybe then a little bit of a new strategy there for for Jet Blue. George Ferguson, we ran out of time. We wanted to talk a little bit about the air show in the UK, but we're gonna have to bring you back for that because I'm just curious about some of the major trends going forward.

George Ferguson, He's senior Aerospace, Defense and Airlines analyst at Bloomberg Intelligence and must read on the Bloomberg when it comes to all things in this industry. Thank you so much. This is Bloomberg. I'm broom a journal Yeah, but you let me drive, no, no, no, who's please? I'll ride gravels. I want to drive. It's good question drive. This is good ride for the clobemular thing. Well up on Bloomberg Radio list. Indeed, everybody, we are just about nine minutes

away from the closing bell on this Thursday. A lot going on, and we are seeing a rally underway another risk trade, building on the games that we got in yesterday's trade. I'm talking about the equity markets in particular. You heard Charlie talking about it. More than one percent gains on each of those major averages right now. Tim, Yeah, I wonder if this is a bear market rally like our guest yesterday said, or if you know it's here

to stay. Let's take into the tech part of this with James chock Mark partner and technology Analystic Clockwise Capital. James joining us on the phone from Miami this afternoon. James, good to have you back with us. It's been a while. How are you. I'm well, pleasure to be with you. Well, let's talk tech because it's a sector that you watch really closely. Um, worst is it behind us? I mean, we've gotten some important tech earnings this week. We've learned

a lot. Is the worst behind us when it comes to the sell off. Well, I think what you can gather from this week's earnings, especially looking at you know, the tech bell, whether it's like Microsoft and Google, is that the secular shifts that we're seeing on the digital and digital transformation side are far stronger than the macro

pressures that we're seeing. And I think there's also seeing a bifurcation between the highest best of breed quality UM that can weather the storm, UM, the weather the macro storm, and the company and the companies that I have been having micro issues UM that benefited from COVID but now are having trouble gaining their footing once again. So, you know,

we remain optimistic. Obviously the macro pictures something that no company is immune from, but at least gathering from the results that we've seen this week, there's certainly reason for optimism, especially given the valuation. Okay, so help us understand which companies you consider sort of the leaders here versus which ones can't handle this new macroeconomic environment. I want to start with meta platforms, which is just can't get a

break when it comes to shareholders. UM. Is it is that one of the ones that's going to be left behind. I think as it stands right now, if we look at it in a vacuum in July, it looks like it will be I think there are structural issues, um that the company needs to overcome. Um. Not granted, the comps will get easier next year once they Anniverse three.

The privacy changes bright Apple, but I think it's TVT and there are some bright spots which impressions growth and the team um ad impressions as why the AU number taken up slightly higher. Um. But at the end of the day, you know it's I think that's in the show new story camp stands right now. Yeah, I mean that's a big, potentially big shift in terms of their business, right and so who knows that story yet to be told?

All right? When you look at some of the other names, I mean what we got from Microsoft was that kind of calming for you? Absolutely? UM. And I think at one point on Meta said, I think the lesson learned is anytime you have a company changed their name, you have to, uh, you have to take a second look at it. I mean we saw the same thing with Square changing the block, right, Yeah, what you start to Microsoft, Um, I think it was very incurrent. I think coming out

of COVID. Some companies are worst positions. Some companies are UH positions with the via the status quo. Some companies are better position and I think Microsoft is definitely in the latter camp. The cloud services continue to drive a business. The adoption is there, and then you have new optionality like on initiatives such as on the gaming side. UM. So that's one that that we like and we own. What about I just want to ask about Google before

we start looking forward Google? Also, how do you feel about that one? Google? We like it, we own it, not as much in size as some other companies, just given that advertising as discretionary as it is. You know, that's one of the first things that pulled back. But the reading the tea leaves there. UM, you can you can, I think, deduce that you know, this is a company with first party data on like a Facebook, UM that can weather the macro storm a little bit better than

UM than others. And at the same time you're seeing the strength of their platform and and UH, I think that bright days are ahead for Google. UH in terms of you know which companies will perform better provide a better return over the next six months. I think there other other companies that will. But Google our threact away

was certainly neutral deposits. All right, let's talk Amazon, because last time you're on with us, James, it was back in April you said that Amazon has more levers than any other make a cap out there as you said that you liked it as your opinion on Amazon change at all, And we get reminder, you know, just a few minutes we're gonna hear from the company on its latest report. Uh No, the opinion on the company hasn't changed.

I think, you know, if we have to look back and about our positioning at that point, probably underappreciated the the Fed's influenced, you know, on the market. But structurally speaking, Um, the company is certainly um more sound than it's ever been. And I think you can argue that a lot of these companies, Amazon included, have come out of COVID, come out of managing the macro issues and managing the inflationary

issues better than they would have otherwise. So I think the companies are stronger and more member, more agile results of this. And I think for the quarter, you know, we've seen retail results, you know, mixed bag there, but you know, top line possibly, you know, under pressure because of the macrobe and the bottom line. They're working through

the costuges. But as we look forward into three Q in the back after this year, I think that's where you're gonna see the leverage that we talked about last time, uh comes to fruition. So we remain very bullish on Amazon and it remains our largest position. Yeah. I think about whether there's an Apple or Amazon, how much they

are entrenched in my world personally. Um, and when I go to buy something, how quickly I go to Amazon because I kind of know and I just for the first time actually went to a locker had something delivered, and it was like such a great positive experience. Great news. You're gonna get to go to dr Amazon soon. I don't know about that. Um Hey, James, real quickly? Uh ten seconds if Amazon comes in week, is at a buying opportunity very quickly? Please? Yes? I mean in short, yes, absolutely? Uh,

you know I know you can be quick. Thank you so much. We love talking. We still like ten extra seconds for you to jameson so we don't actually gotta run. James Shock he's partner and tech analyst over at Clockwise Capital, joining us on the phone from Miami. Thanks for listening

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