Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns

91 Pages Posted: 6 Sep 2022 Last revised: 7 Sep 2023

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Justin Katz

Harvard University

Emily Williams

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 23, 2022

Abstract

This paper studies the impact of the emerging market for “buy now, pay later” (BNPL) installment loans on consumption patterns using detailed financial transactions data. For liquidity-constrained consumers, BNPL increases total spending and overdraft fees, but also facilitates greater expenditure smoothing. For all users, BNPL access boosts spending on retail goods, suggesting static substitution towards retail consumption. These inter-temporal and static substitution effects are much larger than a reasonably-calibrated lifecycle model with liquidity constraints can capture. Our findings are more consistent with a “liquidity flypaper effect” whereby the additional retail liquidity from BNPL “sticks where it hits,” increasing short-term spending.

Keywords: household finance, fintech, consumer credit

JEL Classification: G50, G51, G41

Suggested Citation

Di Maggio, Marco and Katz, Justin and Williams, Emily, Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns (August 23, 2022). Available at SSRN: https://ssrn.com/abstract=4198320 or http://dx.doi.org/10.2139/ssrn.4198320

Marco Di Maggio

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Justin Katz

Harvard University ( email )

Emily Williams (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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