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The Impact of “Buy Now, Pay Later” on Customer Shopping Behavior in Online Retail

Online retailers across industries struggle to contain consumer returns. The emergence of new forms of payment that allow consumers to buy products without paying directly, commonly referred to as “Buy Now, Pay Later” (BNPL), may incentivize consumers to return products at an even higher rate. We study the role of consumers’ payment method choice in retail transactions by focusing on the impact of BNPL on sales and returns. We obtain a unique dataset containing over 30 million transactions and returns in two markets from a major European fashion retailer and employ causal inference techniques to identify the impact of payment method choice on sales and returns. In short, our findings suggest that, compared to other payment methods, BNPL increases sales, but also leads to a substantial increase in returns. We conduct back-of-the-envelope analyses to quantify the economic impact of BNPL.