Buy-now, pay-later plans have had a huge effect on consumer behavior, but they may play a larger role in retailers’ actions than was previously thought. New research from Olin Business School at Washington University in St. Louis suggests the growing payment option can influence retail prices and inventory decisions as well as increase the financial burden on consumers.
After running millions of simulated scenarios, the researchers found that accepting BNPL does not necessarily lead to higher retail revenues. Though BNPL increases the number of products sold, what the retailer actually keeps from each sale can decline.
“BNPL isn’t cheap to offer, with transaction costs in the 5% plus range,” said Ben Danner, Senior Analyst, Debit at Javelin Strategy & Research. “However, the idea is that customers will increase their average over value, which is of course the merchant appeal. Retailers have been quick to meet customer demand by offering a range of BNPL services, but these options typically come with higher transaction costs compared to traditional credit card payments.”
Rising Prices for Everyone
To offset the BNPL company’s fee, retailers often raise sticker prices, meaning cash-paying customers can end up subsidizing customers who use pay later. “Wider adoption of BNPL contracts leads to higher prices for all consumers,” the study concludes.
The researchers also found that offering discounts directly to BNPL customers would not increase sales because they are already spending beyond their means, after a fashion.
“The ‘buy now, pay later’ button does not target how much you are willing to pay for an item,” said Panos Kouvelis, the Emerson Distinguished Professor of Supply Chain, Operations, and Technology, and a co-author of the study. “It targets what you are able to pay right now.”
The researchers also identified other effects on retailers. They found that accepting BNPL could lead retailers to stock less inventory because a lost sale becomes less costly to bear.
Moving to Everyday Items
Although the BNPL business is growing, that growth is happening in some dangerous places. In 2025, an estimated 91.5 million Americans used a BNPL plan, according to data from LendingTree.
But up to one-third reported using the service to purchase groceries, while a growing share is using it for rent and bills. About 41% of users missed at least one payment in the previous year, according to data cited in the Washington University report.
