Working Paper: NBER ID: w31202
Authors: Wenlong Bian; Lin William Cong; Yang Ji
Abstract: The past decade has witnessed a phenomenal rise of digital wallets, and the COVID-19 pandemic further accelerated their adoption globally. Such e-wallets provide not only a conduit to external bank accounts but also internal payment options, including the ever-popular Buy-Now-Pay-Later (BNPL). We examine, for the first time, e-wallet transactions matched with merchant and consumer information from a world-leading provider based in China, with over 1 billion users globally and a business model that other e-wallet providers quickly converge to. We document that internal payment options, especially BNPL, dominate both online and on-site transactions. BNPL has greatly expanded credit access on the extensive margin through its adoption in two-sided payment markets. While BNPL crowds out other e-wallet payment options, it expands FinTech credit to underserved consumers. Exploiting a randomized experiment, we also find that e-wallet credit through BNPL substantially boosts consumer spending. Nevertheless, users, especially those relying on e-wallets as their sole credit source, carefully moderate borrowing when incurring interest charges. The insights likely prove informative for economies transitioning from cash-heavy to cashless societies where digital payments and FinTech credit see the largest growth and market potential.
Keywords: ewallets; buy-now-pay-later; consumer behavior; credit expansion; payment competition
JEL Codes: E42; G20; G23; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ewallet transactions (E42) | crowding out of other payment options (E42) |
| BNPL (H60) | borrowing behavior (G51) |
| BNPL (H60) | consumer spending (D12) |
| BNPL (H60) | credit access (G21) |
| BNPL (H60) | ewallet transactions (E42) |