Extract of the Introduction

In the last decade, buy now, pay later (BNPL) has become an increasingly popular payment option in the United States. This Payments System Research Briefing explores how BNPL compares with other “purchase/pay-over-time” options, and the benefits and risks BNPL presents to the consumers and merchants who adopt them. A forthcoming Briefing will consider BNPL from the perspective of financial institutions, payment networks, and regulators.

BNPL is a type of short-term loan that allows consumers to make purchases and pay for them at a future date over a series of installments. BNPL divides a consumer’s purchase into multiple equal payments, with the first due at checkout. Shorter-term BNPL products are usually interest free, while longer-term BNPL products may charge interest. Although BNPL was initially used mainly for online purchases, it has expanded to purchases in stores and has become an increasingly popular payment option to purchase electronics, clothing and fashion items, furniture, and appliances. Today, BNPL is beginning to be available for services such as travel and even health care.