The Rise of E-Wallets and Buy-Now-Pay-Later: Payment Competition, Credit Expansion, and Consumer Behavior
60 Pages Posted: 13 Apr 2023 Last revised: 26 Jan 2024
Date Written: March 31, 2023
Abstract
The past decade has witnessed a phenomenal rise of digital wallets, which is further accelerated by the COVID-19 pandemic. Such e-wallets provide not only a conduit to external bank accounts but also internal payment accounts, including the popular Buy-Now-Pay-Later (BNPL). We examine, for the first time, e-wallet transactions matched with merchant and consumer information from a world-leading e-wallet provider, with around one billion users globally and a business model that other providers converge to. We document that internal payment options, especially BNPL, dominate both online and on-site transactions. BNPL serves as “digital cash” in mediating small-valued transactions and purchases of non-durable goods, while expanding credit access to underserved consumers, thanks to its adoption in two-sided payment markets. Exploiting a randomized experiment, we also find that e-wallet credit through BNPL substantially boosts consumer spending without incurring interest charges or delinquent behavior. These findings crucially depend on the cross-sale capacity and inherent incentives of super-app ecosystems, which foster complementarity between credit provision and payments. The insights inform economies transitioning from cash-heavy to cashless or featuring app-driven platforms where digital payments and FinTech credit see the largest growth and potential.
Keywords: Cashless, Consumer Credit, FinTech, Financial Inclusion, Mobile Wallet
JEL Classification: E42,G20, G23, G51
Suggested Citation: Suggested Citation