To adopt or not? The impacts of “Try-Now-Pay-Later” on platform markets

Abstract

“Try-Now-Pay-Later” (TNPL), which combines “Try Before You Pay” (TBYP) and “Buy Now, Pay Later” (BNPL), is a business model innovation launched by some platforms such as Klarna and Affirm in collaboration with retailers. It allows consumers to place an order for free and provides consumers with a free experience period to assess the product fit before finishing the payment. Under TNPL, cash flow occurs within platform markets (including platforms, retailers, and consumers), influencing purchasing decisions of consumers and operational decisions of platforms and retailers. This paper develops a game-theoretic model to investigate the impact of TNPL on platform operations in a market where a retailer sells through a platform. The retailer determines the retail price and pays a commission fee to the platform for each product sold, and either the retailer or consumers pay(s) for the return freight. The results show that (1) TNPL can increase both the retailer’s retail price and the platform’s commission rate, no matter who bears the return freight. (2) Compared to the traditional model, the retailer is most likely to benefit the most from TNPL, followed by consumers, with the platform benefiting the least. (3) If the retailer’s proficiency in handling returns is not significantly greater than that of consumers, especially when the proportion of defaulting consumers is larger and the opportunity cost of cash is lower, all three parties are better off when the return shipping cost is borne by consumers. (4) TNPL generates Pareto improvements when consumer utility enhancement is significant, the product matching rate is high, the proportion of defaulting consumers is small, and the cash opportunity cost is low. Furthermore, the impact of TNPL on competing platforms and retailers depends on the relative competitive advantages gained through consumers’ utility improvements. Our findings offer valuable insights for platforms and retailers on how to optimize their operational strategies to effectively leverage TNPL, thereby enhancing both business performance and social welfare.