Pay Now, Buy Never: The Economics of Consumer Prepayment Schemes

Working Paper 34918

DOI 10.3386/w34918

Issue Date March 2026

Prepaid consumption is a common feature of modern consumer markets and is often presented as a mutually beneficial arrangement: consumers receive upfront discounts, and firms secure future sales. We analyze a large-scale Pay Now, Buy Later (PNBL) program in which consumers prepay for restaurant credit with bonuses, and spend the balance later. Using detailed transaction data from over 4 million consumers, we document widespread balance breakage: approximately 40% of prepaid value is never used. Because many consumers underutilize their balances, merchants recover significantly more than the bonus cost. The median firm earns roughly $5.5 in breakage profit for every $1 of bonus credit issued. While PNBL participation does lead to modest increases in consumer spending over time, firms gain substantially more from breakage than from any loyalty-driven revenue. These findings challenge the prevailing win–win narrative: PNBL schemes often result in a significant transfer from consumers to firms. We develop a stylized contract model to illustrate the misaligned incentives firms face, and show through counterfactual analysis that a simple escrow policy with an appropriately chosen deposit requirement can realign firm incentives and generate more consumer-serving outcomes.