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TITLE: The Role of Buy Now, Pay Later Services in Price Discrimination and

Consumer Spending Behavior.

Financial technology ( commonly abbreviated as Fintech) has undeniably undergone transformative

growth, particularly over the past decade, reshaping the global financial landscape with groundbreaking

services. Innovations such as mobile payment systems—products like Apple Pay and Google Pay (Forbes,

2024)—along with the advent of instant-issue virtual bank cards, have revolutionized secure online and

in-person payments. These advancements reflect a broader trend of increasing flexibility and convenience in

consumer financial transactions, catering to the evolving needs of today's digital economy.

However, despite these remarkable advancements, the Global Payments Report by FISWORLDPAY (2024)

reveals a concerning decline in the use of traditional credit and debit cards, a shift that has had adverse effects

on sales and purchases across industries(Guidance, n.d.). In parallel, cart abandonment rates have skyrocketed,

peaking in 2013, when 71.98% of consumers abandoned their online shopping carts. This trend has persisted,

with subsequent years showing an approximate abandonment rate of 70% (Statista, 2021). An insightful article

by Oberlo delves further into this phenomenon, highlighting that industries such as luxury goods/ jewelry, and

beauty and personal care top the charts, with abandonment rates of 82.84% and 80.92%, respectively(Oberlo,

n.d.).

In response to these challenges, a new financial solution has emerged: BNPL (Buy Now, Pay Later)

platforms. These services, such as Klarna and afterpay, have become increasingly popular among Gen Z and

Millennial consumers, who are more inclined to choose non-traditional credit options that promote financial

freedom without the stress of credit card debt. As a result, BNPL platforms have gained significant traction in

the online shopping space, with reports indicating that 8 out of 10 purchases under $100 are made using this

method. This shift has fostered customer loyalty, while also creating a smoother, more convenient shopping

experience.
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Boasting a projected compound annual growth rate of 24% from 2023 to 2040, the BNPL market is

projected to reach a staggering $316 billion by 2030(Guidance, n.d.), solidifying its position as a key player in

the future of global commerce. Buy Now, Pay Later (BNPL) platforms have continued to grow in popularity,

especially among Gen Z and millennials. A report by Capital One revealed a significant increase in the number

of U.S. BNPL users, rising from 50.6 million to 94.4 million, nearly an 86.5 percent increase(Capital One, n.d.).

This highlights the growing influence BNPL services have on consumer spending behavior. Further exploring

the impact of BNPL adoption on consumer behavior, previous research has provided valuable insights. For

example, a study conducted by Ashish Kumar and colleagues used a quasi-experimental research design and a

synthetic difference-in-differences approach. This method compares the outcomes of two groups: a treatment

group (BNPL adopters) and a control group (non-adopters), allowing researchers to estimate the impact of

BNPL on spending. The study found a 6.42% increase in online spending among BNPL users compared to

those who did not adopt BNPL. This finding underscores how BNPL services can significantly alter consumer

spending patterns by making products more accessible, especially in cases of smaller, more frequent purchases.

At the heart of analyzing consumer behavior with respect to BNPL is the concept of price elasticity of demand.

This paper aims to explore how BNPL adoption influences consumer spending, particularly by altering

perceptions of affordability and price sensitivity. By examining these relationships, the paper will link BNPL

adoption to broader economic concepts such as price elasticity, demonstrating its role in shifting consumer

demand and spending habits.

The widespread adoption of BNPL services has significantly transformed how consumers perceive and

engage with prices, making price elasticity of demand a crucial framework for understanding their success.

Price elasticity of demand refers to how sensitive consumers are to price changes. According to the law of

demand, when prices increase, consumer demand typically decreases, meaning consumers become less willing

to buy. However, BNPL services challenge this norm by altering how consumers perceive the cost of products.
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For example, consider an $80 item that, if paid for upfront, might feel like a hefty expense for many consumers.

However, if that $80 is broken down into four installments of $20 each, the financial burden seems less

overwhelming, making it easier for consumers to justify the purchase. This is particularly effective for products

with elastic demand—items that consumers are more likely to buy when the price seems more manageable. By

splitting the total cost into smaller, more digestible payments, BNPL services reduce the perceived upfront cost,

making goods that might have once felt out of reach now seem more affordable. This change in perception

makes high-demand, price-sensitive products—those that typically would be avoided when facing a large

one-time payment—more accessible. As a result, the introduction of BNPL services has led to increased

consumer spending, particularly for products that might have otherwise been too expensive upfront. This shift

can influence not only individual purchase decisions but also broader trends in consumer behavior across

various industries.

The exponential growth of BNPL services is closely tied to a range of market conditions that have

heightened their relevance and appeal to consumers. These conditions are critical for understanding the

widespread adoption of BNPL and its continued influence on consumer behavior. A core driver of this growth is

the emphasis on flexibility and accessibility, which aligns with the priorities of younger generations seeking

seamless purchasing options. BNPL caters to this demand by enabling consumers to buy items without the

immediate financial strain of paying the full price upfront or the fear of credit score impacts associated with

traditional credit systems. Additionally, the global economic landscape has played a significant role in shaping

BNPL’s success. With inflation rates reaching 7.0% in 2021 and 6.5% in 2022 (Medium, 2020), consumers have

become increasingly price-sensitive, searching for payment solutions that ease the burden of rising costs. The

COVID-19 pandemic further accelerated this trend, as restrictions and safety concerns drove a surge in online

shopping. According to a report by Adobe, U.S. online sales skyrocketed to $813 billion in 2020, representing a

42% increase from the previous year. This shift in consumer behavior directly fueled the adoption of BNPL
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services, which provided a convenient solution for managing higher online spending during uncertain times.

Notably, BNPL transactions also saw unprecedented growth during the pandemic. For instance, a study by CB

Insights noted a 215% year-over-year increase in BNPL usage during 2020, reflecting its critical role in

facilitating purchases when traditional financial stability was under strain. Together, these market conditions

underscore the pivotal role of BNPL in reshaping consumer spending habits and adapting to economic

challenges.

The adoption of BNPL services has fundamentally shifted price sensitivity and consumer behavior, leading

to increased sales and broader market penetration across industries. For instance, retailers partnering with BNPL

providers like Afterpay observed a 20-30% rise in conversion rates and a 60% increase in average order

value(Afterpay, n.d.), while Klarna users spent 68% more per transaction than non-users(klarna, 2024),

illustrating how smaller installment payments lower perceived financial burdens and encourage spending on

discretionary, higher-priced goods particularly transformative in industries such as fashion, electronics, and

travel, where companies like Nike, H&M, and Airbnb use BNPL to attract younger, budget-conscious

demographics . Collaborations with platforms like Shopify and BigCommerce have further normalized BNPL,

driving adoption among smaller retailers and reinforcing its integration into the digital economy. Furthermore,

companies like Sephora have reported BNPL users spending $200 per transaction compared to $120 for

traditional payment users, emphasizing the service’s ability to extend consumer purchasing power and foster

loyalty through affordability.

The future of BNPL services requires balancing their innovative potential with the challenges they pose.

While collaborations with e-commerce platforms, such as Klarna's partnership with Shopify, have demonstrated

how BNPL can drive market penetration and higher consumer spending, these services also risk promoting

unmanageable debt. Credit Karma reports that 34% of U.S. users have fallen behind on payments, highlighting

the need for stricter regulation and transparency(Developer Bazaar, 2021). To address this, providers should
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implement features like budgeting tools and spending alerts to foster responsible usage while investing in

differentiation through AI-driven personalization and eco-friendly options. Marketing efforts must emphasize

affordability while promoting financial literacy to prevent overspending. Additionally, partnerships with

regulators can establish standardized guidelines that safeguard consumers and maintain the sector’s integrity. By

navigating these challenges strategically, BNPL services can continue transforming consumer behavior and

expanding their reach sustainably​(walletwell.2023).

In conclusion, Buy Now, Pay Later (BNPL) services have revolutionized consumer spending, making

high-demand, price-sensitive products more accessible by lowering the perceived cost of purchases. Their rapid

adoption has been driven by changing market conditions, such as rising inflation, the shift towards online

shopping, and the growing preference for flexible payment options. While BNPL has led to higher consumer

spending, especially on discretionary goods, it has also raised concerns about consumer debt and financial

instability. For BNPL services to continue growing sustainably, it is crucial to implement responsible usage

features, foster collaboration with e-commerce platforms, and invest in innovations that prioritize consumer

education and financial literacy. By balancing the benefits of increased market penetration with measures to

protect consumers, BNPL services can maintain their transformative role in the marketplace while mitigating

potential risks.
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Guidance. (n.d.). The impact of Buy Now Pay Later on ecommerce businesses. Guidance.

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Oberlo. (n.d.). Cart abandonment rate by industry. Oberlo.

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