The economics of “Buy Now, Pay Later”: A merchant’s perspective

Tobias Berg, Valentin Burg, Jan Keil and Manju Puri

Journal of Financial Economics, 2025, vol. 171, issue C

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.

Keywords: BNPL; FinTech Lending; Payment; Consumer Credit (search for similar items in EconPapers)
JEL-codes: D12 G40 G50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:171:y:2025:i:c:s0304405x25001011

DOI: 10.1016/j.jfineco.2025.104093

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