More using ‘buy now, pay later’ for groceries

Grocery prices rose again in August, according to the monthly Consumer Price Index released Tuesday, and consumers are increasingly using buy now, pay later apps to cover the cost of rising food bills.

In fact, 1 in 5 people who use BNPL services now say they’ve used the payover-time model to cover the cost of groceries, said Hugh Tallents, senior partner at management consulting firm cg42. Half of them do so regularly.

The move into delaying payments arrives in tandem with stubbornly high inflation, which barely moved from 8.5% in July to 8.3% in August.

Almost $46 billion in buy now, pay later transactions were made online in 2021, up from $15.3 billion the year before, according to GlobalData, a data analytics company.

Financial experts warn the trend could lead to deep debt if consumers push the cost of essentials into future paychecks that aren’t guaranteed.

But families feeling the pinch of higher prices say spreading out the financial hit is necessary right now.

Jesse Lopez, 34, has a 10-month-old son and uses Sezzle to pay for Target runs to stock up on food, diapers and baby clothes.

“I get paid biweekly,” says Lopez, who lives in Chino, California. “That’s the only time I use those apps.” A recent trip to Target on payday cost him $200, for which he paid $50 upfront and will pay $50 each of his next three paychecks.

“That’s very convenient,” he said, especially now, when the recent college grad just had his rent rise $50 a month.

How much have prices gone up?

Grocery prices rose by 0.7% from July and are up 13.5% over the past 12 months, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index.

In August, bread prices rose 2.2% from the previous month and 16.2% from a year ago. The price of chicken increased by 0.5% and is up 16.6% over last year, and eggs jumped 2.9% and 39.8% from a year ago.

What apps can I use?

Various BNPL companies partner with retailers that sell groceries.

For example, Klarna allows you to order online from Walmart and pay in four installments. Sezzle and several other apps can be used in-store at Target. Users can download the Zip app to use instore or online at Costco.

Many apps allow users to create a virtual, one-time-use debit card for ordering groceries from any store they like.

Why is it concerning to use BNPL for groceries?

The New York Times recently reported that Zip has seen 95% growth in U.S. grocery purchases. Klarna reports that more than half of the top 100 items its app users are buying from national retailers are grocery or household items, while Zilch says groceries and dining out account for 38% of its transactions.

These numbers are a good illustration of the overall growth of BNPL.

Economists warn that BNPL could push people into dangerous debt

It’s not uncommon for people to use credit cards at the grocery store; many cards offer extra points, miles or cash back on grocery purchases.

But Tallents said pushing your food expenses more than a month out isn’t a smart financial move. Especially when it’s difficult to track how many BNPL loans you have out at once.

BNPL users tend to be younger and less financially stable than those who do not use these services, he said.

“These are people who are twice as likely to have had a negative financial event in their life, like a bankruptcy,” Tallents said. “They may not have access to credit cards or credit limits ... and this is an end run around for them.

“That is all fine and good in an environment where everyone is employed like we are right now,” he said. But if a downturn in employment were to hit, there could be trouble.

And his firm’s research shows people are spending more than they would on groceries when they use BNPL.

“And a lot of these folks are missing payments and a lot of them are putting the BNPL on their credit cards,” which means they’ll pay interest in addition to late fees if they can’t pay it off quickly, Tallents said.

Use buy now, pay later safely

When used responsibly for one-off, bigger-ticket items like a new TV or iPhone, he said, there’s no reason why people can’t utilize BNPL safely.

Lopez said he doesn’t use credit cards and always makes sure his BNPL payments match up with his paychecks.

He said he is grateful for the ability to use BNPL on practically any purchase.

“The plus side is that they’re interestfree,” he said. “It’s a great way to spread payments out.”