Researchers from Imperial College Business School and University of Leeds published a Journal of Marketing study that examines the impact of BNPL installment payments on retail sales. The study, forthcoming in the Journal of Marketing, is titled “ Buy Now Pay Later: Impact of Installment Payments on Customer Purchases ” and is authored by Stijn Maesen and Dionysius Ang.
Buy-Now-Pay-Later (BNPL) is an increasingly popular payment method, allowing customers to spread payment into interest-free installments over a few weeks or months. Worldwide BNPL spending was $316 billion in 2023 and is expected to grow to $450 billion by 2027. With major retailers such as Walmart and H&M partnering with BNPL providers like Affirm, Klarna, and Afterpay, over 45 million U.S. customers have adopted this payment method.
When customers choose BNPL installments at the checkout of a participating retailer, the bill is paid in full by the BNPL provider to the retailer. Customers pay the BNPL provider for the first installment at the time of purchase and repay the remaining interest-free installments over a short time period.
However, despite the growing popularity of BNPL installment payments, little is known about their impact on retail sales.
In this new Journal of Marketing study, the researchers use transactional data from a major U.S. retailer and find that BNPL installment payments boost spending. By allowing customers to pay for purchases in smaller, interest-free installments, BNPL boosts both the number of purchases and the average amount spent.
The study compares BNPL installment payments to upfront and delayed lump sum payments. BNPL consistently boosts spending across various products (e.g., party supplies, apparel, flights, mugs, coffee pods) and number of installments (e.g., three installments, four installments, six installments).
According to this study, there are two main reasons why BNPL installment payments lead to more spending:
“By making payments appear less costly and facilitating budget control, we discover that BNPL installment payments feel less financially constraining. Consequently, this reduction in financial constraints translates into greater spending,” Maesen says.
Previous studies have focused on framing prices in aggregate terms ($60 a month) or segregated terms ($15 a week) and demonstrated that segregating versus aggregating prices has consequential effects on perceptions and purchase intentions. This new research differs from previous studies in the following ways.
This research offers actionable insights for various stakeholders.
Understanding the benefits and potential risks associated with BNPL is crucial as this payment method continues to reshape the retail landscape.
Full article and author contact information available at: https://doi.org/10.1177/00222429241282414
About the Journal of Marketing
The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Shrihari (Hari) Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) serves as the current Editor in Chief. https://www.ama.org/jm
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Journal of Marketing
Buy Now, Pay Later: Impact of Installment Payments on Customer Purchases
1-Sep-2024