EXPRESS: Buy Now Pay Later: Impact of Installment Payments on Customer Purchases

Abstract

Buy Now Pay Later (BNPL) installment payments allow customers to pay for purchases in a series of interest-free installments over a short period of time. This research provides novel insights into how customer adoption of BNPL installment payments impacts spending. The authors leverage customer-level transaction data before and after the introduction of a BNPL installment payment service at a large US retailer. A difference-in-difference analysis indicates that the adoption of BNPL installment payments is associated with (1) an increase in purchase incidence, and (2) larger purchase amounts. These effects are statistically and economically significant over time. Moreover, this increase in spending is greater for smaller (vs. larger) basket shoppers, and for shoppers who relied more heavily on credit (vs. debit) cards before adoption. Three pre-registered experiments show that BNPL installment (vs. lump sum) payments increase spending by reducing perceived financial constraints. Specifically, BNPL installments alleviate perceived financial constraints by reducing perceived costs and facilitating budget control. These findings highlight the substantive role of BNPL installment payments in shaping purchase behavior and provide important implications for the management of BNPL payment schemes.