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Buy Now Pay (Less) Later: Leveraging Private BNPL Data in Consumer Banking

Laudenbach, Christine ; Molin, Elin LU ; Roszbach, Kasper and Sondershaus, Talina LU (2025) In Norges Bank Working Paper Series
Abstract
Buy Now, Pay Later loans (BNPL) are an increasingly popular way to finance small-ticket purchases. We provide new evidence on how BNPL influences regular bank credit markets, benefiting both lenders and borrowers through information production and learning. Using data from over one million unsecured bank loan applications from a bank that also provides BNPL services, we exploit the fact that BNPL enhances the bank’s ability to assess creditworthiness by incorporating transaction data beyond shared credit registers. We establish four key findings. First, BNPL users are more likely to be approved for bank loans due to lower internally assessed credit risk, while those with late BNPL payments face lower approval rates. Second, BNPL customers... (More)
Buy Now, Pay Later loans (BNPL) are an increasingly popular way to finance small-ticket purchases. We provide new evidence on how BNPL influences regular bank credit markets, benefiting both lenders and borrowers through information production and learning. Using data from over one million unsecured bank loan applications from a bank that also provides BNPL services, we exploit the fact that BNPL enhances the bank’s ability to assess creditworthiness by incorporating transaction data beyond shared credit registers. We establish four key findings. First, BNPL users are more likely to be approved for bank loans due to lower internally assessed credit risk, while those with late BNPL payments face lower approval rates. Second, BNPL customers benefit from discounted interest rates, while the bank earns a profit margin by price discriminating among customers with a good internal payment history but differing ex-ternal credit scores. Third, customers with a BNPL history exhibit better repayment behavior and lower default rates, partly driven by improved loan terms. Fourth, learn-ing e!ects from prior BNPL use likely reinforce this behavior. Our findings suggest that BNPL improves risk assessment and fosters learning, enhancing credit outcomes and access for higher-risk borrowers, thereby promoting financial inclusion. (Less)
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author
; ; and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Buy-Now-Pay-Later, Consumer Finance, Household Credit, Information Collection, Credit Risk Assessment
in
Norges Bank Working Paper Series
issue
2025:2
ISSN
1502-8143
language
English
LU publication?
yes
id
0eaf4179-7a72-46a5-bda6-390fa6ec22d3
alternative location
https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2025/wp-22025/
date added to LUP
2025-03-10 11:35:21
date last changed
2025-04-04 15:11:35
@misc{0eaf4179-7a72-46a5-bda6-390fa6ec22d3,
  abstract     = {{Buy Now, Pay Later loans (BNPL) are an increasingly popular way to finance small-ticket purchases. We provide new evidence on how BNPL influences regular bank credit markets, benefiting both lenders and borrowers through information production and learning. Using data from over one million unsecured bank loan applications from a bank that also provides BNPL services, we exploit the fact that BNPL enhances the bank’s ability to assess creditworthiness by incorporating transaction data beyond shared credit registers. We establish four key findings. First, BNPL users are more likely to be approved for bank loans due to lower internally assessed credit risk, while those with late BNPL payments face lower approval rates. Second, BNPL customers benefit from discounted interest rates, while the bank earns a profit margin by price discriminating among customers with a good internal payment history but differing ex-ternal credit scores. Third, customers with a BNPL history exhibit better repayment behavior and lower default rates, partly driven by improved loan terms. Fourth, learn-ing e!ects from prior BNPL use likely reinforce this behavior. Our findings suggest that BNPL improves risk assessment and fosters learning, enhancing credit outcomes and access for higher-risk borrowers, thereby promoting financial inclusion.}},
  author       = {{Laudenbach, Christine and Molin, Elin and Roszbach, Kasper and Sondershaus, Talina}},
  issn         = {{1502-8143}},
  keywords     = {{Buy-Now-Pay-Later; Consumer Finance; Household Credit; Information Collection; Credit Risk Assessment}},
  language     = {{eng}},
  month        = {{02}},
  note         = {{Working Paper}},
  number       = {{2025:2}},
  series       = {{Norges Bank Working Paper Series}},
  title        = {{Buy Now Pay (Less) Later: Leveraging Private BNPL Data in Consumer Banking}},
  url          = {{https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2025/wp-22025/}},
  year         = {{2025}},
}