Adoption of Buy Now, Pay Later (BNPL): A Time Inconsistency Perspective

Buy Now, Pay Later (BNPL) is a rapidly growing fintech tool, which is particularly popular among young consumers, with the potential to support more sustainable retail consumption. While firms increasingly adopt BNPL, its impact on time-inconsistent consumers remains underexplored. We address this gap using two game-theoretic models: one with traditional payment and one with BNPL. In both models, time-inconsistent consumers decide whether to purchase and then whether to return a product after learning about their fitness. In the traditional model, greater time inconsistency reduces optimal price, demand, and profit. In contrast, these outcomes remain unaffected by time inconsistency under BNPL. Comparing the equilibrium results of the two models, we find that the firm always benefits more from offering BNPL than traditional payment when consumers are time-inconsistent. By deferring payment, BNPL increases consumers’ present willingness to buy, enabling firms to charge higher prices without reducing demand, and thereby achieve higher profits. Although BNPL can improve firm revenue and overall welfare, it may reduce consumer surplus by encouraging over-consumption. We also consider the presence of the BNPL provider and default of payments to make our results more robust. These findings highlight the need for caution and potential regulation to protect consumers with self-control problems.