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 wellbeing. Using banking data for 10.6 million U.S. consumers, we find that first-time 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 credibility of BNPL having a causal negative effect on users’ financial wellbeing. Our results contribute to the academic literature by expanding our understanding of a major development in household finance, and indicate that regulators should take seriously the concern that BNPL could have significant negative welfare implications.