The effect of buy-now-pay-later (BNPL) on consumers

Purpose and goal

FinTech companies are changing the lending market by offering new credit products to consumers. One recent, fast-growing innovation is buy-now-pay-later (BNPL). BNPL enables consumers to defer payments for obtain goods to a later point in time, without having to pay interest. While interest-free short-term loans existed already before, the novelty of BNPL firms is that they offer their services integrated in e-commerce platforms and stand as a third party between merchants and customers. We want to assess the impact that BNPL-schemes have on consumers.

Expected effects and result

BNPL-schemes might make credit markets more efficient by increasing competition and reducing discrimination when allowing previously excluded households access to short-term loans. BNPL schemes can increase customer benefit by allowing “try before you buy” goods and avoiding reimbursement fees for refunded payments. Merchants might also benefit since it could lead to them acquiring more customers and raising turnover. Meanwhile, some consumers might become more indebted and combined with the usage of credit cards, they might accumulate additional interest payments.

Planned approach and implementation

We want to explore the effects of BNPL on consumer outcome variables. The study is joint work of researchers from University of Lund, the Leibniz Institute for Financial Research SAFE in Frankfurt and Norges Bank.