Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns
Firms offering “buy now, pay later” (BNPL) point-of-sale installment loans with minimal underwriting and low interest have captured a growing fraction of the market for short-term unsecured consumer credit. We provide a detailed look into the US BNPL market by constructing a large panel of BNPL users from transaction-level data. We document characteristics of users and usage patterns, and use BNPL roll-out to provide new insights into consumer responses to unsecured credit access. BNPL access increases both total spending levels and the retail share in total spending, with magnitudes too large for standard intertemporal and static substitution effects to explain. These findings hold for consumers with and without inferred liquidity constraints. Our findings are more consistent with a “liquidity flypaper effect” where additional retail liquidity through BNPL “sticks where it hits”, than a standard lifecycle model with liquidity constraints.
We thank Malcolm Baker and Adi Sunderam for helpful feedback. We also thank participants at the JOMT seminar and the Harvard Business School finance unit seminar. We would also like to thank Luigi Camilli, Kris Shen, Elio Farina and especially Anton Tarasenko for excellent research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.