New Staff Memo: Buy now, pay later – a threat to financial stability?

News, Staff memo Buy now, pay later (BNPL) is a payment option that has grown significantly in recent years. Nanna Svahn, senior economist at the Financial Stability Department, has therefore analysed the potential threats to financial stability posed by the payment product. The author highlights two main risks: the indirect interconnectedness of the BNPL providers and their dependence on deposits to finance their business model.

Currently, Sweden stands out with the world’s highest share of BNPL payments in e-commerce. However, as the product’s popularity has grown, both in Sweden and abroad, so has criticism. The lack of consumer protection is often highlighted when the risks of BNPL are assessed. However, the potential threats to financial stability have not received as much attention. The author of this Staff Memo has therefore examined the potential impact of BNPL on financial stability.

The analysis shows that the risks associated with BNPL from a financial stability perspective presently stem primarily from the dependence of the BNPL providers on insured deposits to finance their business model. Authorities need to improve their understanding of the risks related to how the BNPL providers choose to finance their activities. Moreover, there is a degree of indirect interconnectedness that means that if confidence in one provider is damaged, it could spread to others.

Author: Nanna Svahn, working at the Financial Stability Department

Staff Memos

A Staff Memo provides members of the Riksbank’s staff with the opportunity to publish advanced analyses of relevant issues. It is a publication for civil servants that is free of policy conclusions and individual standpoints on current policy issues. Publication is approved by the appropriate Head of Department. The opinions expressed in Staff Memos are those of the authors and should not be regarded as the Riksbank’s standpoint.

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Updated 05/09/2023