More people are paying for groceries with buy now, pay later apps as inflation pinches
Consumers are increasingly using buy now, pay later apps to cover the cost of their rising food bills amid high inflation.
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 pay-over-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 that the trend could lead to deep debt if consumers continue to push the cost of essentials into future paychecks that aren't guaranteed.
"The average consumer is under the misconception that buy now, pay later isn't debt," Tallents said. "They think of it as a different way to pay for something which is, I think, extremely dangerous."
But families feeling the pinch of higher prices on food, household goods, back-to-school supplies and more, say spreading out the financial hit is necessary right now.
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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.
"Right now I am feeling it," Lopez said. "I love using these apps, and I can get what I need."
How much have groceries 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 Statistic's 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 are up 16.6% over last year, and eggs jumped 2.9% and 39.8% from a year ago.
Some food costs did go down last month. Bacon prices fell 0.5%, and fish prices declined 0.6%.
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What apps can I use to buy groceries and pay later?
Various BNPL companies have partnerships 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 in-store or online at Costco.
Many of the apps allow users to create a virtual, one-time-use debit card for ordering groceries from any store they like.
Check out the individual app websites or download the apps to find out which retailers each company partners with or whether you can use one-time cards for non-partner purchases.
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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 BPNL.
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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 BPNL loans you have out at once.
BNPL users tend to be younger and already 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.
"They've already committed a tremendous amount of their future paycheck and earnings," Tallents said.
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.
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How to 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 now with one-time-use debit cards the apps will let you create.
He used that option to cover his $231 parking pass for college.
"The plus side is that they're interest-free," he said. "It's a great way to spread payments out."
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