The Rise of E-Wallets and Buy-Now-Pay-Later: Payment Competition, Credit Expansion, and Consumer Behavior

The past decade has witnessed a phenomenal rise of digital wallets, which is further accelerated by the COVID-19 pandemic. Such e-wallets provide not only a conduit to external bank accounts but also internal payment accounts, including the popular BuyNow-Pay-Later (BNPL). We examine, for the first time, e-wallet transactions matched with merchant and consumer information from a world-leading e-wallet provider, with around one billion users globally and a business model that other providers quickly converge to. We document that internal payment options, especially BNPL, dominate both online and on-site transactions. BNPL serves as “digital cash” in mediating small-valued transactions and the purchases of non-durable goods, while greatly expanding consumer credit access at the extensive margin thanks to 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 without incurring interest charges or delinquent behavior, thanks to the inherent rewards and disciplines within the super-app ecosystem. The insights inform economies transitioning from cash-heavy to cashless or featuring appdriven platforms where digital payments and FinTech credit see the largest growth and potential.