Buy Now Pay (Pain?) Later

Abstract

“Buy-now-pay-later” (BNPL) is a relatively 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 compared with nonusers, consistent with BNPL facilitating overborrowing. 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. This paper was accepted by Camelia Kuhnen, finance. Funding: E. deHaan acknowledges financial support from Stanford University; B. Lourie and C. Zhu acknowledge financial support from University of California Irvine. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.03266 .