“Buy now, pay later” (BNPL) schemes are transforming how consumers shop, with new research from Imperial College Business School showing a remarkable 10% rise in customer spending when these payment options are available. The study, led by Dr Stijn Maesen, Assistant Professor of Marketing at Imperial College, and Associate Professor Dionysius Ang from Leeds University Business School, also revealed that customers were nine percentage points more likely to make a purchase when given access to BNPL options.
Key Drivers of Increased Spending
The research provides valuable insights into how BNPL schemes influence consumer behaviour:
- Credit-Driven Purchases: Shoppers who primarily use credit cards are especially likely to spend more when a BNPL option is available.
- Vulnerable Consumers: Customers with a higher likelihood of financial difficulties were found to increase their spending significantly under BNPL schemes.
This underscores how BNPL can serve as a double-edged sword: while it offers flexibility for many, it also increases the risk of overspending among financially vulnerable groups.
The Rise of BNPL in Retail
BNPL services have gained enormous traction in recent years, attracting over 380 million users worldwide in 2024. These schemes allow customers to break payments into smaller, manageable instalments, often interest-free, which appeals to those making large purchases.
For businesses, the benefits are undeniable. Retailers see higher conversion rates, increased average order values, and sustained customer loyalty. As businesses leverage these schemes to boost profitability, the broader economic implications of BNPL adoption warrant closer scrutiny.
Dr Maesen explained: “While BNPL has proven to be a valuable tool for retailers, there are potential risks associated with allowing financially vulnerable individuals to accumulate unsustainable debt. Regulatory intervention is crucial to ensure a balance between consumer protection and business profitability.”
A Call for Stronger Regulation
As the cost-of-living crisis continues to strain household budgets and the global economy faces uncertainty, the study advocates for stronger regulatory oversight of BNPL schemes. Policymakers must work to ensure these services do not disproportionately harm those already struggling financially.
The researchers recommend that regulations focus on safeguarding consumers while maintaining the benefits of BNPL as a convenient and flexible payment option.
Data Insights on Customer Behaviour
The study analysed weekly sales data from a major US retailer that introduced BNPL as a payment method. This allowed the researchers to assess the impact of BNPL on customer spending patterns:
- Spending Increase: Customers who typically spent £100 increased their spending to £110 on average after BNPL became available.
- Long-Term Impact: The rise in spending persisted, demonstrating the scheme’s ability to drive sustained customer engagement.
Balancing Benefits and Challenges
BNPL schemes offer undeniable advantages for consumers and businesses alike. However, they must be implemented responsibly to avoid exacerbating financial vulnerabilities. For businesses, the schemes represent a lucrative opportunity, while regulators face the challenge of ensuring that the most at-risk individuals are not left worse off.
As BNPL adoption grows, striking a balance between its benefits and risks will determine its role in shaping the future of retail and consumer finance.