BNPL: "It's Pretty Terrifying"

Welcome to Money Isn’t Everything. I’m Mary Wisniewski, Cornerstone Advisors editor-at-large and host of the show.

Today on the show, I’m talking with Sam Miller, the co-founder and CEO of Kasheesh, which lets consumers pay for stuff by splitting the balance between up to five cards, including gift cards.

On the show, Sam unpacks why he considers the buy now, pay later model dangerous.

We also explore his startup and its roots, some key principles in how to help protect people’s financial health, and how to deal with the doubt others have over your product when it’s something new.

Here’s our conversation.

Sam, welcome to Money Isn’t Everything. Thanks so much for being on the show today.

Thanks for having me.

Yeah.

It’s going to be, I was going to say a wild ride, but we don’t know that yet.

Potentially a wild ride, at least in the news.

Buy now, pay later has been in the news for quite some time.

Chase just did a big deal.

It seems like buy now, pay later is just becoming more pervasive, and I want your take on that because you are building an alternative to buy now, pay later.

But before we get into that, what’s your assessment of what’s happening with buy now, pay later right now?

I think it’s pretty terrifying.

I often liken it to the 2008 housing crash, where you have a lot of individuals taking out loans for things that they don’t fully understand, whether it’s the interest rate or hidden fees or the fact that they are subprime credit.

It’s kind of terrifying to think about the fact that, on average, buy now, pay later consumers are taking out around 10 loans per year, with a decent chunk of them taking out multiple loans each month.

So when you look at the elements of predatory lending, loan stacking, hidden interest fees, it’s a scary model.

Because while consumers were looking for alternative routes to finance their transactions, the ripple effect of what they might do when they start to get into that realm of loan stacking, of the predatory lending of BNPL, can have a really adverse effect on an individual’s financial health.

I am so excited that that is your take because I know a sizable amount of people in the industry are like, hey, this is a great option for people because it allows them to pay for something that they might not be able to pay for.

But I even think of it as a chaotic way of, how do people even manage knowing what is owed, when, where, if they’re stacking those buy now, pay later loans?

Have you seen, is there any kind of solution?

Personal financial management has been boo-booed over the years, but is there anything useful out there since people are using buy now, pay later, and they’re using it a lot, aside from Kasheesh?

Yes.

It’s difficult because prior to buy now, pay later, it was, you either used your credit card or your debit card, and that was it.

When buy now, pay later launched, it was the first-to-market form of alternative finance at checkout.

What we ultimately learned from that is that consumers were looking for an alternative method of payment rather than just the traditional forms of credit, debit, or even gift cards.

The unfortunate part there is, because they were first mover in the space, it really just took off.

Just because it was a solution doesn’t mean it was the right solution.

The momentum that they had prior to anyone else even stepping in the space of alternative finance at checkout just allowed for them to really dominate the market and make their presence pretty hard to disrupt.

What we’re starting to see now, and as you just alluded to, the fact that, how do you even pay this off, are the negative elements of this.

In the CFPB report, you start to see some really glaring negative components of the BNPL industry as a whole.

It’s pretty terrifying.

When you look at just the fact that a consumer can technically borrow more than they make in a given calendar year because there’s no cross-communication between Affirm and Klarna and Afterpay and all the other BNPLs, and they do a very limited check on your credit score, it’s something that you can end up finding yourself in where you might not owe a lot of money right now, but four months down the line you’re going to get hit with five different BNPL invoices.

Then what do you do?

I mean, 80% of America right now is living paycheck to paycheck, with 29% of consumers who make north of $100,000 a year living paycheck to paycheck.

So in that given month when you’re hit with those five invoices of payments that you do owe, that might be at 0% interest now, if you go delinquent on any one of them, let alone all five, all of a sudden your interest can actually rise up to 36%.

If you’re living paycheck to paycheck and now, on top of your average cost of living, you owe five different invoices from these lenders, there’s just no way that you’re going to be able to pay that back.

Yeah.

I think that only gets more chaotic since so many people are doing gig work.

If you happen to get these invoices in a month where you’re working fewer hours, or you’re not getting your paychecks at the higher amount that month, that’s even more dangerous.

Well, let’s talk about what you’re building, which is an alternative to this.

At first, I was like, wow, that’s wild, but it also makes total sense, actually, because you allow people to use five payment cards, right, for an online transaction?

Yeah.

Let’s talk about that.

How did you identify this as a need?

Yes.

So, Kasheesh is an app that allows consumers to split any payment, both online and in person, across up to five credit, debit, and gift cards at the exact same time.

It works with Apple Pay, Google Pay.

We have a native app, a browser extension, mobile dashboard, web dashboard, pretty much everything.

We wanted to give our consumers the true flexibility of being able to utilize their financial well-being wherever and however.

It really started four years ago, back when COVID was still a thing.

I was at a friend’s house, and his fiancée was talking about how she was trying to buy something online.

They didn’t offer anything close to what Kasheesh does.

We’re pretty much the only player in the market, to be frank, that does this.

She ended up calling the retailer.

She understood at the time that she didn’t want to do BNPL for the reasons that we just addressed.

She was a little bit more financially savvy back then to understand the perils of the BNPL market.

She ended up calling the retailer, and the retailer said, “Well, if you come in store, you can split it across as many cards as you want.”

That’s a common practice that I myself have seen.

I’ve seen friends do it.

I’ve seen family do it.

Whether it’s at restaurants or retailers, people are pretty used to splitting payments across multiple cards.

I was surprised to figure out that there just wasn’t an online offering for it.

On my walk home, I called my co-founder, Kevin Kim.

Two days prior, his brother-in-law called him with the exact same issue.

We viewed it as a really kismet moment to look into the space more.

What we ultimately found was that a lot of consumers were doing this just in a very archaic way, where they were going to the merchant’s website, buying a gift card from that merchant, and then funding that gift card multiple times with different underlying cards.

Wow.

We thought to ourselves, if we can take what they’re already doing in person and online and create a very sophisticated yet simple version of that, we can actually make a dent here in the alternative finance space at checkout.

Gosh.

That’s such a hassle, to stack up gift cards in that way.

You just introduced me to something new.

Thank you.

We were looking at Reddit threads dating all the way back to 2016.

We were shocked with the amount of volume that they were doing that way.

Gosh.

Well, because this is financial health.

You’re talking about all the financial health things that really matter.

Of course, I’m imagining part of your user base would be people living paycheck to paycheck, but there’s probably the other group, likely the maximize-rewards type in some way.

Am I thinking about that right?

Yeah.

It’s a pretty even split right now between people that are living between paychecks, as well as individuals that are using this to maximize the amount of points that they’re getting on any transaction.

The first thing that went to my mind, and I did see this where you were quoted in another article, but you absolutely need the real-time balance then of their debit to make sure they’re not overdrafting.

I also think I either heard or read about how your system will tell someone not to do this, maybe in certain transactions.

I want to know more about that.

When would that happen?

How would that happen?

What is that experience like?

Yeah, definitely.

One of the key features of Kasheesh is we always wanted to make sure that it had the consumer’s best interest in mind.

A lot of the BNPLs out there, frankly, don’t care if you’re doing well or not financially.

As long as you use their service, they’re pretty happy with the outcome.

For us, it was, we want to make sure that not only are people using our service, but they’re using it in a way that is not detrimental to their financial health in the long run.

So what we did was, we partnered with Plaid.

We have real-time account balances with your debit and your credit cards, and we actually verify that the funds exist before you go and make any transactions.

As part of that, we ended up building an AI engine called Smart Split, which is currently patent pending, where we will look at your cards based on billing, balance, rewards, utilization rate, a variety of factors.

We will actually recommend to you which cards to use and for how much.

That’s key because of a few things.

One, from a liquidity perspective, if you’re living paycheck to paycheck, making sure that you have enough to get by in between those paychecks, we take that into consideration.

From a secondary component, from credit, we want to make sure that you’re staying under 30% utilization rate across your cards.

The reason being is that if you stay under 30%, your credit score goes up.

If you go above 60%, your credit score goes down.

So we want to avoid any situation where our consumers are actually going above that 60% threshold.

Obviously, there are circumstances if you have a very low credit limit that you’re going to teeter that line, but we do our very best in all situations to make sure that you’re staying as close to 30% or below as possible.

That is interesting.

I definitely remember fintech, let’s say maybe even five years ago, where it was like, here’s a product that is built to help someone, let’s say, build savings, but then some of the users were using it and were overdrafting their account.

It was not intentional, but the data wasn’t accurate at that point.

So I think that’s really promising, that that is improving, to say the least.

What about how are you going about acquiring users?

It’s been entirely organic.

That’s been the craziest part of this entire experience, seeing our product just blossom in the market on its own.

I’m a firm believer that if you are going to build a tech company, especially one that has to do with people’s finances, that you build something of substantial value and you won’t have to do any advertising.

Because if it really does work, and it works and benefits and helps consumers, it will advertise itself.

We went about this with the approach that we were going to go at it organically and just let the market determine whether or not this was going to be a viable product.

We were fortunate enough where it kind of just took a life of its own.

Our consumers are referring it to one another.

We’ve blown up to the point where even Google’s AI has picked us up as the top search result for split payments across cards.

It’s just been organic and virality, and we’re pretty happy with where we ended up, and it’s just continuing.

And you have celebrity backers.

We do.

We do.

We have a lot of celebrity backers on our cap table.

The thesis there was that eventually, if we ever needed to tap into their social following, that would be a pretty affordable way to do so.

Instead of us paying them, they’re literally paying us to own equity in the business.

So we would have a zero-dollar CAC if we needed to tap into their tens, if not hundreds, of millions of followers.

But yeah, we do have a great bevy of celebrity investors like Odell Beckham Jr., Michael Rubin, and the like.

Well, there are two questions I have right now, but I’m going to jump back a little bit because I’m also curious.

What are you finding consumers are using the most?

What kind of transactions are they divvying up the payments for?

Are we talking rent?

I’m imagining shopping, for sure.

But what are the most common items?

Yeah, that’s a loaded question.

You name it, we’ve seen it.

We’ve seen consumers paying off Affirm and Klarna payments with Kasheesh.

Oh, wow.

Yeah.

We’ve seen them using Kasheesh with Bilt to pay off their rent.

So, using Bilt to pay rent, but using our technology to back their Bilt card so that they can split the payment of rent across multiple cards.

We’ve seen them go to Costco, Walmart, Whole Foods, Amazon, all the big box.

Then we’ve seen even smaller transactions at CVS because of our tap-to-pay feature, where they’re just going to buy toiletries.

It’s 20 bucks, and they just need to split it up across two cards because, again, with the fact that they’re living paycheck to paycheck, a lot of these consumers need that breathing room so that they don’t put themselves in a harmful position.

But literally any transaction you can name, we’ve definitely seen.

Wow.

That’s really intriguing.

The other question that was on my mind goes back to the acquisition.

You’re saying it’s organic.

But we talk to a lot of banks and credit unions.

Of course, they’re still like, “Here’s my branch. This is how I get customers because they see us.”

And, of course, that’s very expensive.

I’m curious about your take on the traditional banks and credit unions, their path to growth, versus what you’re doing.

Yeah.

One of the benefits of us is we’re not fighting with anyone for the space.

Those credit unions and banks and community banks are typically fighting with each other for the same customer, whereas we’re not fighting for the same customer.

Our customer is just using their cards within our platform.

So we’re an ancillary benefit to the marketing that they’re doing and the advertising that they’re doing because they’re just going to use the cards that they either have or are getting within our platform.

We do get likened to BNPL quite often just because we are a first mover in alternative financing in a different way.

However, because there’s no competition for us out there, we’ve been able to navigate the market pretty affordably without having to pay for those consumers.

You just opened it up.

There’s one segment on the show that we do called “That’s What You Said.”

This is what you said on a podcast, but it was a bit ago, so I wonder if it’s still true.

But I think it’s really telling.

You said, “The one thing I’ve learned is that even the biggest CEOs and the biggest founders are still doubted when it comes to new ventures.”

I think you were talking about Elon Musk at the time.

I’m wondering, does that still feel true to you?

Let’s unpack it a bit, either way, depending on your answer.

Yeah.

I mean, you’re always going to be doubted.

That’s just unfortunately the case when you’re building something innovative.

People are always going to doubt it until it’s just so commonplace that there’s no reason to doubt it.

No one doubts Facebook anymore or Mark Zuckerberg.

But there was a time where, prior to every household having Facebook or Instagram or one of Meta’s assets, that they did doubt it.

It becomes something that you just have to have thick skin about and understand that that view and opinion and perspective of whether it’s you or your business is just something that comes with the nature of being in the startup ecosystem itself.

But you’re always going to be doubted.

I think that doubt also breeds a lot of positives.

It kind of puts a chip on your shoulder of proving the naysayers wrong.

It also shows you maybe some of the product features that you should implement because they wouldn’t be saying certain things if they existed.

For example, for us, one of the things that we learned from just our consumers that are using the product, and some consumers that wanted to use the product but they needed a little bit of an edge that they were looking for, is our upcoming loyalty program.

Same thing as a traditional credit card program, where you get points for transactions.

They wanted some form of loyalty program while they use Kasheesh.

So while they were looking at us and giving us feedback, it actually led to a pretty heavy product development that we ended up implementing into the system because of what people were saying on the outside.

Tell me about the name.

How did you dream that up, and what does it mean?

Do we want the real story?

I always want the real story.

Frankly, it was a bunch of tequila.

And that’s the way some things go.

Yeah.

A bunch of tequila in front of my computer, going through the business plan and the model and having some tequila along the way.

Ended up coming out with the name, and once you said the name out loud, it stuck.

We always wanted to create a brand that didn’t feel so financially focused, like a bank.

We didn’t want it to be something that people were afraid of.

There was a large stigma about similar products like this.

I always give the analogy of the person at the grocery store that’s in the front of the line and they’re either counting nickels or writing a check to the grocery store, and they feel embarrassed because of what they have to do.

We never wanted to create a brand where consumers who need to use our product feel embarrassed.

When we were creating the brand itself and the name itself, we wanted to land on something that was inviting to consumers and felt a little bit fun and felt exciting to them.

So that way, when they were going through this journey of navigating their personal finances, there was no element of, “Ah, I kind of feel like crap because I have to do this.”

I’m so glad you brought this up because I had a, this point sort of came up in a different way.

It was like, what’s an embarrassing card to throw down?

At the time, this guy was mentioning, like, “Oh, a smiley face on a card would be embarrassing on a date to use,” for example.

So this is underscoring that point of, hey, people feel ashamed.

How do you create this brand where you can disconnect that, like you don’t feel shame coming?

I think that’s really fascinating.

Have you found any other ways to achieve making someone feel more comfortable, knowing that they need something but probably have money shame?

Yeah, definitely.

On our website, we have a Financial Academy where consumers can go without us even mentioning it to them or sending it to them, where they can go and build their financial literacy.

A lot of what we found out was that consumers were making mistakes pre-transaction or post-transaction.

Pre-transaction being that they didn’t educate themselves enough prior to making the transaction itself, and post-transaction is when you make the transaction and then realize how bad it is for you.

So what we wanted to be able to do was not only be the hub that helped you pre-transaction learn about what you need to do with your financial well-being, but through the use of Kasheesh be able to teach yourself through the product itself some of the better methods of how to pay for things.

It’s one of the reasons that led to our AI Smart Split engine, because we didn’t want them to have to feel like they needed to ask someone why it is that they should do something.

They should just learn through the experience of doing it.

Then we wanted to build a library of resources that they can access for free and just go and use and learn more about what best practices they should be considering.

Whether or not it’s using Kasheesh, it could be using someone else or using a BNPL.

We wanted to make sure that our consumers were looked out for.

So we built that out, and it’s been tremendous for our consumers because a lot of the reasons why financial mistakes are made is because of that lack of literacy and education when it comes to consumer finance.

I’m curious now.

This is a hot topic that is very much emotion, but of course the CFPB is, like, not looking good right now.

I’m wondering, do you have any other, for the consumers or even the credit union more than the banks probably, who want to support their customers or members, is there a recommended resource of, hey, this is an alternative to the CFPB for the temporary moment?

Have you heard of anything that might be of use to a human?

Yeah.

It’s tough because a lot of the platforms out there are incentivized.

NerdWallet, The Points Guy, Credit Karma, they’re getting paid by their affiliates to write specific content.

If you read an article, at the bottom of that article is a prompt to get a credit card or open a bank account or something of that nature.

So it’s a little biased when it comes to the content material that they’re putting out in the open market.

It makes it really tough for consumers to actually read something that’s not trying to sell them on anything.

One of the reasons why, in our Financial Academy, we stayed far away from that.

So to the credit unions and community banks, and to anyone out there in the fintech ecosystem, I would say build something that’s completely unbiased, that actually just looks at the consumer and the consumer’s best interests, and speak to that.

I think that will do wonders for the entities and the FIs, and it’ll do wonders for the users in the community itself because that transparency is what they actually need.

They’re not learning anything in school about this.

They’re not learning anything, unfortunately, from the communities that they’re in.

So it either comes down to your parents and partners teaching you, or just learning through firsthand experience.

Sometimes that experience comes far too late, where a lot of damage was already done.

So if you can create resources that they can use prior to that damage being done, it’s tremendously helpful.

They view your brand in a positive light purely because of that.

Right.

Like you’re giving value.

Sam, how are you going about attracting talent?

Or what are the hot perks these days in attracting talent?

Talent is forever shifting.

Now, obviously, with the advances in AI, it’s definitely a volatile market where you’re looking at talent differently.

For us, attracting talent was always people that were focused on the mission and focused on building something truly special and truly unique that’s never been done before.

Any startup is going to be a hurdle and a challenge, but a startup that’s a first mover in a space is tenfold.

So we really focused on finding movers and shakers that had fintech experience and were in the industry in one way or another, that had either experienced this problem themselves or had family members, friends, or just knew the market conditions and wanted to build something like this because they saw that there was a need and a necessity for a product like Kasheesh to exist in the world.

I’m also curious.

What else is striking your fancy in fintech?

Any other categories of fintech that you’re like, hey, this could be really useful, or this is something to watch in a negative way?

I mean, BNPL is definitely the biggest one that I’m, we need to be a lot more concerned with what’s going on there.

If you just look at the fact of, right now, BNPL, 63% of originated loans are multiple loans.

So when you look at, how do you even pay that back if you’ve stacked loans to the point where you don’t even know who pays that back?

Then you look at the fact that the credit market has blown to $1.2 trillion.

It’s directly attributed to the fact that they don’t know who to pay and when.

So if you have five loans due one month and three credit cards due, but you only have enough to cover two of those expenses, who do you pay?

That’s really what I find to be the most interesting right now in the space.

Consumers are confused as to who to pay and how much and what can they afford to pay and when to pay it.

So what recourse here is delinquency.

You’re seeing BNPL delinquencies increase.

I think it’s been doubling year over year since 2021.

You’re looking at service providers, and one of the things I’d be curious to know is what damage has this done to service providers.

Let’s say you buy something through BNPL and you’re supposed to spread it over six months, and you become delinquent month two.

You already have that Peloton in your apartment.

You’ve already paid off your car and you’ve driven it off the lot, things of that nature.

What happens to those merchants and to those retailers when someone doesn’t pay the remaining balance of those months?

Does Affirm eat it on the chin?

Are they selling that debt to a debt collector, which is ultimately going to kill that consumer’s credit score?

There’s not a lot of insight and data into what happens when those instances occur.

For me, I’d be really keen on if there was a startup out there that ended up tackling that solution and providing a lot more clarity into what happens in those negative scenarios.

But that, to me, is where there are a lot of gray areas of misunderstanding.

Well, now you just got me.

That’s what I’ll look out for then.

Sam, one last question for you.

Before, if someone wants to reach out to you, what’s the best way?

Yeah.

My email is sam@kasheesh.co.

You can go directly to our website, Kasheesh.co.

Find our app in both Google and Apple’s app stores, as well as just signing up directly on our website.

Well, cool.

Last question.

What’s the image on your phone’s lock screen?

And there’s a founder for you.

Sam, thanks so much for being on the show.

It’s been a delight to have you today.

Of course.

Thanks for having me.

Okay.

So one thing I learned is a consumer pattern I had no idea about, and that is, when someone is shopping online, they will buy a gift card to then just use right away so they can pay for whatever they want to buy with two different cards.

I think that’s really interesting.

If you liked this episode, you’ll also like an episode I did a while back exploring girl math and payments with Sophia Goldberg, who is the CEO and co-founder of Ansa.

We explore payments as well.

I will drop that link in the show notes too.

Otherwise, see you in two weeks with someone I really, really admire, Dr. Leda Glyptis.

See you then.