Summary

“Buy now, pay later” (BNPL) is a payment product that has emerged and seen strong growth in recent years. However, as the product’s popularity has grown, 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. It is important that the Riksbank understands the risks, given its responsibility to contribute to the stability and efficiency of the financial system.

This Staff Memo therefore examines the potential impact of BNPL on financial stability. This examination is based partly on the payment product itself and the broader checkout solution of which it is a part, and partly on the underlying business model used by the providers. We also examine whether there are risks to the financial system as a whole, for example if contagion effects were to arise between providers offering BNPL in Sweden.

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.

Furthermore, higher interest rates, increased competition and reduced e-commerce spending will test the viability of the business model going forward, likely leading to some form of consolidation in the coming years.

Published: 5 September 2023