Professor Preyas Desai says companies benefit from delayed payments and consumers may be underestimating their real costs
The use of ‘buy now, pay later’ is growing. Labeled “the hottest product” in the United States during the 2021 holiday season, the buy now, pay later market is projected to reach about half a trillion dollars by 2026.
Companies offer buy now, pay later (BNPL) to attract consumers with limited cash by delaying repayment at no interest, making it easier for them to buy products they couldn’t otherwise afford. These payment plans also help retailers attract consumers who like their products but might not have the liquidity to purchase them. But buyers incur some costs in using these plans — for example, consumers might run into difficulties in repaying BNPL loans, and sometimes they face processing delays and disputes over refunds, when they try to return products.
In a paper published in the journal Quantitative Marketing and Economics, Preyas Desai, the Spencer R. Hassell Professor of marketing at Duke University’s Fuqua School of Business and Professor Pranav Jindal of the Indian School of Business examined companies’ incentives in adopting BNPL plans as well as the role of the consumers’ costs of using BNPL.
[This article has been reproduced with permission from Duke University's Fuqua School of Business. This piece originally appeared on Duke Fuqua Insights]