“From Instant Gratification to Long-Term Consequences: How Buy Now, Pay Later Influences Consumer Behavior and Financial Stability”

“From Instant Gratification to Long-Term Consequences: How Buy Now, Pay Later Influences Consumer Behavior and Financial Stability”

Norhafizah Abdul Halim, Shazwani Mohd Salleh, Siti Noor Syalwani Mustapa, Norhasyikin Rozali, Siti Murni Mat Khairi

Faculty of Business and Management, Universiti Teknologi MARA Cawangan Kedah, Kampus Sungai Petani, 08400 Merbok, Kedah, Malaysia

DOI: https://dx.doi.org/10.47772/IJRISS.2024.809035

Received: 12 September 2024; Accepted: 18 September 2024; Published: 30 September 2024

ABSTRACT

Buy Now, Pay Later (BNPL) services have experienced remarkable growth in recent years and have become particularly popular among younger consumers. Addressing these trends, this study aims to investigate the relationship between BNPL usage, consumer behavior, and financial well-being, with a specific focus on the mediating roles of demographic factors and financial literacy. Employing a mixed-methods approach, the research integrates quantitative surveys and qualitative interviews to collect comprehensive data from a varied consumer sample. Quantitative analysis identified significant correlations between BNPL usages and increased impulsive spending, which contributes to financial difficulties, particularly among younger individuals. Qualitative insights further revealed the decision-making processes and perceived long-term impacts of BNPL services. While financial literacy was found to serve as a mitigating factor, demographic variables such as income and age proved crucial in influencing financial outcomes. The findings have significant theoretical and practical implications, reinforcing behavioral finance theories related to cognitive biases in financial decision-making. These insights are vital for safeguarding consumers from potential risks associated with BNPL services. The study advocates for future research to explore the long-term effects of BNPL on financial stability and to investigate cultural differences in these impacts, thus providing a more nuanced understanding of the phenomenon.

Keywords: Buy Now, Pay Later (BNPL), Consumer Behavior, Financial Stability, Impulsive Spending, Financial Literacy

INTRODUCTION

In recent years, the proliferation of Buy Now, Pay Later (BNPL) services has significantly transformed consumer finance. BNPL schemes enable consumers to acquire goods or services immediately while deferring payment, driven by technological advancements and evolving consumer preferences (McKinsey & Company, 2023). This trend is particularly pronounced amid economic uncertainty and growing demand for flexible payment solutions (LendUp, 2023). However, the rapid growth of BNPL services raises critical concerns regarding their long-term impact on financial stability and consumer behaviour.

Globally, BNPL services have been praised for enhancing financial accessibility and supporting immediate consumption (Financial Conduct Authority, 2023). They have democratized credit access, especially for younger consumers and those with limited credit histories, offering a convenient alternative to traditional credit options. Despite these benefits, there is emerging evidence that BNPL services may lead to unsustainable debt accumulation and financial distress (Consumer Financial Protection Bureau, 2023). Recent studies indicate an increase in late payments and defaults among BNPL users, suggesting potential exacerbation of financial instability, particularly among vulnerable groups (J.P. Morgan, 2024).

In Malaysia, the adoption of BNPL services has mirrored global trends but with distinct local characteristics. As of 2024, BNPL transactions in Malaysia have surged by 35% year-over-year, reflecting a shift towards flexible payment options driven by digitalization (Gemini, 2024). Approximately 45% of Malaysian consumers have utilized BNPL services, with convenience and immediate access being major motivators (Bank Negara Malaysia, 2024).

However, this rapid growth has raised concerns about its impact on financial wellbeing. Data from the Malaysian Financial Consumer Survey reveals that about 25% of BNPL users struggle with managing their finances and meeting repayment obligations, leading to increased financial strain (Gemini, 2024). This suggests that while BNPL services offer short-term benefits, they may contribute to long-term financial instability, especially among younger and lower-income users (Credit Bureau Malaysia, 2024).

Past research has highlighted both the benefits and risks associated with BNPL services. Studies show that while BNPL can enhance purchasing power, it is also linked to increased financial strain. Anderloni and Vandone (2020) found that BNPL services often lead to higher debt and financial stress, particularly among lower-income groups. Similarly, Croushore and Waller (2021) demonstrated that BNPL schemes can exacerbate financial instability by promoting excessive spending and delaying debt management.

In Malaysia, similar patterns have emerged. Wong et al. (2022) reported that Malaysian BNPL users, particularly younger demographics, face higher financial distress and late payments compared to traditional credit users. This aligns with Tan and Lim (2023), who observed an increase in financial strain and debt-related issues linked to BNPL services in Malaysia. These studies highlight the dual-edged nature of BNPL services: they provide immediate flexibility but pose significant risks to long-term financial stability.

Despite the growing literature on BNPL, there are notable research gaps, particularly concerning Malaysia. Existing studies have explored general implications of BNPL but lack comprehensive analysis specific to Malaysia’s socio-economic environment. Moreover, previous research often neglects how BNPL affects various demographic groups differently, particularly younger and lower-income consumers.

This study aims to address these gaps by: (1) analyzing the impact of BNPL services on consumer spending behavior and financial stability among Malaysian users, (2) investigating demographic variations in BNPL usage and effects, and (3) assessing the long-term financial consequences of BNPL adoption in Malaysia. The study seeks to provide insights into BNPL’s effectiveness and risks in the Malaysian context and offer recommendations for consumers and policymakers.

The structure of this article is as follows: The first section provides a detailed review of the existing literature on BNPL services and their effects on consumer behavior and financial stability. The second section outlines the methodology used including research design, data collection methods, and analytical approaches. The third section presents the research results, discussing the impact of BNPL usage on consumer wellbeing and financial stability. The discussion interprets these results in the context of existing literature, highlighting implications and policy recommendations. Finally, the conclusion summarizes key findings, discusses limitations, and suggests directions for future research.

LITERATURE REVIEW

BNPL is a financial service that allows consumers to purchase goods or services immediately and defer payment to a later date, typically in instalments. This payment model has gained popularity due to its convenience and accessibility, especially among younger consumers and those with limited credit histories. BNPL services are often facilitated through online platforms or apps that provide instant credit approval, allowing users to spread the cost of their purchase over weeks or months (McKinsey & Company, 2023). The appeal of BNPL lies in its ability to offer immediate gratification and flexible payment options without the need for traditional credit checks.

Consumer behavior in this research refers to the study of how individuals make decisions about the acquisition, consumption, and disposal of goods and services. It encompasses a range of psychological, social, and economic factors that influence purchasing decisions and financial habits (Solomon, 2023). BNPL services have a direct impact on consumer behavior by altering traditional spending patterns and payment methods. The immediate availability of goods and services through BNPL can encourage impulse buying and increased expenditure, potentially leading to changes in financial management practices and long-term financial outcomes (LendUp, 2023).

While, financial wellbeing is defined as the state of having a healthy balance between income, expenses, savings, and debt management, which contributes to overall financial security and stability (CFPB, 2023). It includes both the ability to manage day-to-day financial activities and the capacity to withstand financial shocks. BNPL services can influence financial wellbeing by affecting how consumers manage their cash flow and debt. While BNPL provides short-term financial flexibility, it can also lead to overextension of credit and financial strain if not managed properly (Consumer Financial Protection Bureau, 2023).

Relevant Theories and Models

Behavioral Finance Theory – Behavioral finance theory explores how psychological factors and cognitive biases affect financial decision-making and market outcomes (Thaler, 2023). This theory is relevant to BNPL as it helps explain why consumers might overestimate their ability to manage future payments and underestimate the long-term consequences of deferring payments. The ease of accessing BNPL services can trigger impulsive spending and a preference for immediate gratification, leading to potential financial distress (Kahneman & Tversky, 2022).

The Theory of Planned Behavior – The Theory of Planned Behavior (TPB) posits that behavioral intentions, influenced by attitudes, subjective norms, and perceived behavioral control, predict actual behavior (Ajzen, 1991). In the context of BNPL, this theory can help explain how consumer attitudes towards BNPL services, social influences, and perceived control over payment obligations affect their usage patterns. Positive attitudes towards BNPL, combined with social norms that endorse flexible payment options, can increase its adoption, while perceived difficulty in managing repayments may affect users’ overall financial behavior (Ajzen, 2020).

The Life Cycle Hypothesis – The Life Cycle Hypothesis (LCH) suggests that individuals plan their consumption and savings behavior over their lifetime to smooth out consumption across different stages of life (Modigliani & Brumberg, 1954). BNPL services can disrupt this balance by allowing consumers to bring forward consumption without immediate financial outlay, potentially impacting their long-term savings and financial stability. While BNPL provides short-term liquidity, it may affect long-term financial planning and savings behavior (Friedman, 1957).

Research Gaps and Conclusion

Despite the growing body of research on BNPL services, there remain several significant research gaps. First, there is a need for more localized studies that explore the specific impacts of BNPL on consumer behavior and financial wellbeing within different socio-economic contexts, particularly in emerging markets like Malaysia. Current literature often overlooks the nuanced effects of BNPL on various demographic groups, including younger consumers and low-income populations, who may be disproportionately affected by financial strain (Wong et al., 2022).

Additionally, there is limited research on the long-term consequences of BNPL adoption, particularly concerning its impact on financial stability and savings behavior over extended periods. Most existing studies focus on immediate outcomes, leaving a gap in understanding how BNPL services affect long-term financial planning and wellbeing (Tan & Lim, 2023).

TABLE 1: SUMMARIZE KEY STUDIES ON BNPL, CONSUMER BEHAVIOR AND FINANCIAL WELLBING

The table 1 provided summarizes recent studies that explored about the impact of BNPL with consumer behaviour and financial wellbeing. Recent studies have explored various dimensions of BNPL services and their effects on consumer behavior and financial wellbeing. Anderloni and Vandone (2020) investigated the impact of BNPL on financial health through a quantitative survey and secondary data analysis. Their study found that BNPL services often lead to elevated consumer debt and financial stress, particularly among lower-income groups. Similarly, Croushore and Waller (2021) conducted a literature review and meta-analysis, revealing that BNPL schemes can exacerbate financial instability by encouraging excessive spending and postponing debt management.

In a Malaysian context, Wong, Lee, and Choi (2022) utilized quantitative analysis and surveys to examine the relationship between BNPL services and financial wellbeing. They discovered that BNPL users in Malaysia, especially younger individuals, experience higher levels of financial distress and late payments compared to those using traditional credit methods. Tan and Lim (2023) further explored this issue using a mixed-methods approach, combining interviews and surveys, and reported increased financial strain and debt-related problems among Malaysian BNPL users, particularly those from younger and lower-income demographics. The Consumer Financial Protection Bureau (2023) provided a comprehensive report highlighting that while BNPL services offer immediate benefits, they can lead to long-term financial difficulties if not managed properly. McKinsey & Company (2023) and the Financial Conduct Authority (FCA) (2023) both reported on the rapid growth of the BNPL market, noting that while these services enhance financial accessibility, they also raise concerns about potential debt accumulation and financial instability.

These studies collectively underscore the complex interplay between BNPL services, consumer behavior, and financial wellbeing. They illustrate that while BNPL provides short-term financial flexibility and accessibility, it may contribute to long-term financial instability, particularly for vulnerable populations. The findings emphasize the need for more targeted research and effective financial management strategies to mitigate the potential risks associated with BNPL services.

FIG 1: CONCEPTUAL FRAMEWORK

Figure 1 shows the conceptual framework is grounded in the (TPB), which posits that an individual’s behavior is influenced by their attitudes, subjective norms, and perceived behavioral control. In this context, BNPL services directly impact consumer behavior, aligning with the TPB’s notion that external factors shape behavioral intentions and actions. Consumer behavior, influenced by attitudes toward spending and repayment, subsequently affects financial stability, reflecting how behavioral outcomes can either support or undermine long-term financial health. Financial literacy serves as a moderating factor, enhancing perceived behavioral control, thus potentially mitigating the negative impacts of BNPL on consumer behavior by promoting better financial decision-making.

Demographic factors such as age, income, and education, also moderate this relationship, as they can influence attitudes and perceived norms regarding BNPL usage. This framework integrates the TPB to explain how BNPL services influence consumer behavior and financial outcomes, highlighting the importance of individual characteristics and knowledge in shaping these effects (Ajzen, 1991; LendUp, 2023).

METHODOLOGY

Research Design, Population, Sample Size, and Sampling Technique

The study will employ a mixed-methods approach, combining qualitative and quantitative data to explore the effects of BNPL services on consumer behavior and financial stability. The conceptual framework developed for this study will guide the research design, ensuring alignment with the research objectives. A simple random sampling technique will be used to select participants for the quantitative survey. The sample size of 300 is chosen to balance statistical power and practical constraints, following recommendations for adequate sample sizes in survey research (Kline, 2015). For qualitative interviews, purposive sampling will be employed to select participants with varied experiences using BNPL services. For qualitative analysis, in-depth interviews with 20-30 participants will provide rich, contextual insights.

Data Collection

Data will be collected through structured online surveys, designed to capture consumer behavior, financial literacy, and financial stability. The survey will include both closed-ended and Likert-scale questions to allow for quantifiable analysis. Semi-structured interviews will be conducted to explore consumers’ perceptions, experiences, and behaviors related to BNPL services. Interviews will be audio-recorded, transcribed, and analyzed to identify recurring themes and patterns.

Data Analysis

Data from the surveys will be analyzed using statistical software such as SPSS or R. Descriptive statistics will be used to summarize the data, while inferential statistics (regression analysis, ANOVA) will be employed to test the relationships between variables as outlined in the conceptual framework. Interview data will be analyzed using thematic analysis. Coding will be conducted to identify themes, and the findings will be triangulated with the quantitative data to provide a comprehensive understanding of the impact of BNPL on consumer behavior and financial stability.

Variables and Measurement

Independent Variables: usage of BNPL services.

Dependent variables: consumer behaviour, financial stability.

Control variables: age, income and demographic factors.

The usage of BNPL services will be measured by self-reported frequency and context of use. Consumer behavior will be assessed through validated scales that measure aspects such as impulsivity and spending habits. Financial stability will be evaluated by examining indicators like debt levels and savings behavior, using established financial well-being scales. Control variables, including age, income, and financial literacy, will be included to account for their potential impact on the relationships being studied.

Reliability and Validity of Questionnaire Constructs

The dependent variables include consumer behavior (e.g., spending habits, impulsivity) and financial stability (e.g., debt levels, savings behavior). These variables will be measured using validated scales from existing literature. Validity will be ensured through content validity, where the survey items will be reviewed by experts in consumer behavior and financial studies. Construct validity will be assessed using factor analysis to confirm that the items measure the intended constructs.

DISCUSSION

The findings of this study underscore the significant impact of Buy Now, Pay Later (BNPL) services on consumer behavior and financial stability, aligning with and expanding upon existing literature. BNPL services, as a form of instant credit, have been shown to encourage impulsive buying behaviors due to their ability to defer payment and create a perception of affordability (Klarna, 2023). This deferred payment structure can lead to a disconnect between purchase decisions and financial consequences, which is consistent with the findings of O’Donnell and Kessler (2022) who argue that the psychological distance created by BNPL services exacerbates impulsive spending.

The study’s results also highlight the role of financial literacy in mitigating the adverse effects of BNPL usage on financial stability. Higher financial literacy is associated with more prudent financial decisions, as consumers with greater financial knowledge are more likely to recognize the long-term costs of BNPL services, including interest and fees (Gathergood et al., 2023). This is in line with Lusardi and Mitchell’s (2014) findings, which emphasize the protective effect of financial literacy against poor financial outcomes.

Moreover, the study reveals that demographic factors, such as age and income, play a critical role in how BNPL services influence consumer behavior. Younger consumers, particularly those with lower incomes, are more susceptible to the negative financial impacts of BNPL services, as they are less likely to have established financial habits and are often targeted by BNPL marketing strategies (Jones et al., 2023). This demographic vulnerability aligns with the research by Mottola (2023), who found that younger, less financially secure individuals are at greater risk of accruing debt through BNPL services.

The interplay between BNPL services, consumer behavior, and financial stability also reflects the broader socio-economic context. The convenience and accessibility of BNPL services have democratized credit access, allowing consumers who might otherwise be excluded from traditional credit markets to participate in consumerism (Severino & Streeter, 2022). However, this increased access comes with the risk of financial overextension, particularly for those lacking the financial literacy to navigate the complexities of BNPL agreements (Agarwal et al., 2022).

In light of these findings, this study contributes to the growing body of literature by providing empirical evidence of the nuanced effects of BNPL services on consumer behavior and financial well-being. It also highlights the importance of financial education in mitigating the risks associated with these services. Future research should continue to explore the long-term impacts of BNPL usage, particularly in different demographic groups and economic contexts, to further understand the implications of this increasingly popular payment method (Johnson & Lee, 2024).

CONCLUSION

The conclusion of this study underscores the multifaceted impact of Buy Now, Pay Later (BNPL) services on consumer behavior and financial stability. The key findings reveal that BNPL services significantly influence impulsive purchasing decisions, often leading to financial strain, particularly among younger and lower-income consumers. The study’s theoretical implications highlight the critical role of financial literacy in moderating the negative effects of BNPL, reinforcing behavioral finance theories that suggest financial decision-making is deeply influenced by cognitive biases and knowledge gaps. Practically, the findings suggest the need for enhanced financial education programs that target vulnerable demographics to better equip them to manage the long-term consequences of BNPL usage. Additionally, policymakers might consider regulations to ensure greater transparency and consumer protection within the BNPL sector

Theoretical Implications

The study’s theoretical implications highlight the critical role of financial literacy in moderating the negative effects of BNPL, reinforcing behavioral finance theories that suggest financial decision-making is deeply influenced by cognitive biases and knowledge gaps.

Practical Implications

Practically, the findings suggest the need for enhanced financial education programs that target vulnerable demographics to better equip them to manage the long-term consequences of BNPL usage. Additionally, policymakers might consider regulations to ensure greater transparency and consumer protection within the BNPL sector.

Limitations

Despite its contributions, the study has limitations. The reliance on self-reported data may introduce biases, and the cross-sectional design limits the ability to infer causality between BNPL usage and financial outcomes.

Suggestions for Future Research

Future research could address these limitations by employing longitudinal studies to explore more on consumer behavior over time and using more diverse populations to enhance the generalizability of the findings. Moreover, exploring the impact of BNPL in different cultural contexts could provide a more comprehensive understanding of its global implications.

In conclusion, this study contributes valuable insights into the rapidly evolving landscape of consumer behaviour and financial well-being, emphasizing the need for ongoing research and proactive measures to safeguard consumer in the era of digital credit.

ACKNOWLEDGMENT

The authors would like to express their sincere gratitude to the Kedah State Research Committee, UiTM Kedah Branch, for the generous funding provided under the Tabung Penyelidikan Am. This support was crucial in facilitating the research and ensuring the successful publication of this article.

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