Buy Now Pay (Pain?) Later

Abstract

“Buy Now Pay Later” (BNPL) is a largely unregulated FinTech innovation that provides consumers with easy access to credit for specific retail purchases. The BNPL market is projected to reach $1 trillion by 2025, but we know little about the effects of BNPL on consumers’ financial health. Using banking data for 10.6 million U.S. consumers, we find that new BNPL users experience rapid increases in overdraft charges and credit card interest and fees, as compared to non-users. An instrumental variable exploiting consumers’ pre-BNPL shopping habits increases the plausibility of BNPL having a causal negative effect on users’ spending habits and financial health. Our results contribute to the academic literature by expanding our understanding of a major development in consumer credit, and indicate that regulators should take seriously the concern that BNPL plausibly has negative welfare implications.

Keywords: BNPL, FinTech, consumer credit, household accounting and finance, regulation

JEL Classification: G50, G51, G41, M41