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The Economics of “Buy Now, Pay Later”: A Merchant’s Perspective

Author

Listed:
  • Tobias Berg
  • Valentin Burg
  • Jan Keil
  • Manju Puri

Abstract

“Buy Now, Pay Later” (BNPL) is a key innovation in consumer payments. It bundles the sale of a product with a subsidized loan, effectively offering lower prices to low-creditworthiness customers. BNPL thereby allows merchants to price-discriminate among customers with different willingness-to-pay. Consistent with a price-discrimination mechanism, we show that BNPL increases sales by 20%, driven by low-creditworthiness customers and products where market power is larger. We find that the benefits of offering BNPL significantly outweigh the costs for the merchant. Our findings help to explain the surge in popularity of BNPL in e-commerce around the world.

Suggested Citation

  • Tobias Berg & Valentin Burg & Jan Keil & Manju Puri, 2024. "The Economics of “Buy Now, Pay Later”: A Merchant’s Perspective," NBER Working Papers 33152, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33152
    Note: CF
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G59 - Financial Economics - - Household Finance - - - Other

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