Buy Now, Pay Later (BNPL)...On Your Credit Card

TL;DR

This paper provides the first economic analysis of BNPL, showing its prevalent use among young and deprived consumers, raising concerns about their ability to repay interest-free instalments on credit cards.

Contribution

It introduces the first economic study of BNPL using UK data, highlighting its widespread use and potential risks for vulnerable consumers.

Findings

BNPL is frequently charged to credit cards by young and deprived consumers.

Charging interest-free BNPL to credit cards with high interest rates raises repayment concerns.

The study prompts regulatory questions about consumer refinancing of unsecured debt.

Abstract

We provide the first economic research on `buy now, pay later' (BNPL): an unregulated FinTech credit product enabling consumers to defer payments into interest-free instalments. We study BNPL using UK credit card transaction data. We document consumers charging BNPL transactions to their credit card. Charging of BNPL to credit cards is most prevalent among younger consumers and those living in the most deprived geographies. Charging a $0\%$ interest, amortizing BNPL debt to credit cards - where typical interest rates are $20\%$ and amortization schedules decades-long - raises doubts on these consumers' ability to pay for BNPL. This prompts a regulatory question as to whether consumers should be allowed to refinance their unsecured debt.