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 retail purchases. BNPL spending is projected to reach $1 trillion by 2025, but we know little about its effects. Using banking data for 10.6 million U.S. consumers, we investigate the effects of BNPL on leading indicators of users’ financial health. We find that new BNPL users experience rapid increases in bank overdraft charges and credit card interest and fees, as compared to non-users, consistent with BNPL facilitating over-borrowing. An instrumental variable exploiting consumers’ pre-BNPL shopping habits bolsters our inferences. Our results inform regulatory investigations into the effects of BNPL on users’ financial health, and expand academia’s understanding of an important consumer credit innovation.

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

JEL Classification: G50, G51, G41, M41