The influence of the buy-now-pay-later payment mode on consumer spending decisions

Abstract

• Buy-now-pay-later (BNPL) increases spending, even compared to credit cards. • Showing installment prices (e.g., 4 payments of $25) drives increased BNPL spending. • Installment prices do not impact spending with other payment modes (e.g., cards). • More installments or a smaller first installment further increases BNPL spending. • Offers opportunities for retailers and insights for policymakers to protect consumers. Buy-now-pay-later, a rapidly growing payment mode, facilitates short-term deferral of payment by several installments without interest or fees. Although consumers and payment providers claim that buy-now-pay-later influences spending, existing research does not fully explain how or why. Purchase transaction data and a series of experiments demonstrate greater consumer spending with buy-now-pay-later compared to other payment modes. This research contributes an underlying process that explains how and why buy-now-pay-later increases consumer spending. The presentation of installment prices (i.e., the amount paid per installment) with buy-now-pay-later lowers consumers’ perception of purchase expensiveness, which increases spending. However, presenting installment prices does not affect spending with other payment modes. Furthermore, the number of installments, the magnitude of the first installment, and the presence of the installment price moderate the effect of buy-now-pay-later, demonstrating how installment prices affect consumer spending. Taken together, the findings provide opportunities for retailers to increase consumers’ spending and actionable insights for policymakers to protect consumers.