The Economics of Consumer Credit on an E-Commerce Platform

Abstract

Digitalization nurtured the integration of E-commerce, payment, and consumer lending. Point-of-Sale financing offered on E-commerce platforms (e.g., ``Buy Now, Pay Later'') poses a new challenge for financial regulators. This paper analyzes E-commerce consumer credit's economics and welfare implications through a stylized model. First, if they access the same technology, platforms provide more credit than banks because of the synergy between E-commerce and consumer lending. Second, E-commerce consumer credit increases platforms' market power and efficiency losses. Third, E-commerce consumer credit amplifies the credit channel of monetary policy transmission. Fourth, platforms lend more excessively than banks when consumers are present biased.

Keywords: consumer credit, E-commerce platform, economy of scope, BNPL, FinTech

JEL Classification: G23, G51, E44