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

53 Pages Posted: 6 Sep 2022

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

Firms offering "buy now, pay later" (BNPL) point-of-sale installment loans with minimal underwriting and low interest have captured a growing fraction of the market for short-term unsecured consumer credit. We provide a detailed look into the US BNPL market by constructing a large panel of BNPL users from transaction-level data. We document characteristics of users and usage patterns, and use BNPL roll-out to provide new insights into consumer responses to unsecured credit access. BNPL access increases both total spending levels and the retail share in total spending, with magnitudes too large for standard intertemporal and static substitution effects to explain. These findings hold for consumers with and without inferred liquidity constraints. Our findings are more consistent with a "liquidity flypaper effect" where additional retail liquidity through BNPL "sticks where it hits", than a standard lifecycle model with liquidity constraints.

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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