![]() Higher-income users are more likely to use BNPL for big-ticket items like household appliances, the researchers note. The loans create what the authors call the “flypaper effect.” Consumers with healthy access to liquidity like credit cards or bank accounts spend a bigger portion of their total budget on retail goods when they use BNPL. ![]() A separate dataset from helped the researchers track some 20,000 specific retailers to identify merchants using BNPL, including the top US retailers. The authors then analyzed a sample of 400,000 consumers, half who used BNPL and half who didn’t. ![]() To track BNPL use, researchers tapped data from a US aggregator for 10 million individual transactions from January 2010 to May 2021 among merchants, providers, and consumer bank accounts. Retailers are willing to pay more for providing the service because almost half of consumers spend between 10 percent to 40 percent more when paying through BNPL versus a credit card, the authors note, citing a December 2020 survey from data firm Cardify.ĭetailed consumer data for BNPL hasn’t been easy to analyze previously because transactions aren’t reported publicly or to credit bureaus. There’s typically little or no credit check and most loans charge zero interest if the bills are paid on time. Rather than a revolving credit line, consumers take out an installment loan through the retailer at the time of purchase, usually agreeing to pay the total in four installments. Paying with BNPL differs from credit cards. ![]() You say, ‘OK, now I'm going to buy it for sure.’” Consumers spend more with BNPLīPNL credit burst onto the market within the past several years, advertised under fintech providers like Klarna and Afterpay and tied to the point-of-purchase of a particular product. Before, you were looking at $100 for the item, plus shipping, plus taxes. “You see something you like, you put it in the shopping cart, and you start to checkout. “Put yourself in the shoes of the consumer,” says Di Maggio, the Ogunlesi Family Associate Professor of Business Administration. While these new payment methods might seem like a tempting way to afford gifts, they can lead to a trap of overdraft and insufficient funds fees, especially for lower-income shoppers who shop beyond their means, the authors say in their working paper. Now, as an inflation-charged holiday season approaches and threat of a recession looms, the research invites caution. And it’s no wonder: Consumers using the payment method often spend more than they would with a credit card, according to new research by Harvard Business School professors Marco Di Maggio and Emily Williams, and HBS doctoral student Justin Katz. The payment method made up $97 billion-or 2.1 percent-of total US e-commerce sales in 2020, a figure that is expected to double by 2024.īNPL is so lucrative, merchants are paying fintech companies roughly twice the amount they pay in credit card fees to offer the short-term loans to consumers. ![]() Online shopping features that let consumers pay for goods in interest-free installments exploded during the pandemic, but new research questions the riskiness of such services: Are people getting in over their heads?īuy now, pay later (BNPL) financing has snowballed and is particularly popular with Gen Z shoppers in their teens and 20s. ![]()
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