NEW YORK–As consumers face higher prices, more people are getting into financial trouble for using buy now, pay later (BNPL) financing for everyday purchases, especially groceries.
The New York Times profiled several people who have found themselves in a long-term hole as a result of the short-term BNPL loans, including Josh Roberts, who was making $16.50 an hour and who started buying food using the BNPL provider Klarna. He soon found himself owing more than $1,000 to Klarna, including estimated $100 of it in late fees, the Times reported.
He is not alone.
“When pay-later services like Klarna, which was founded in Sweden, arrived in the United States about a decade ago, they were largely used for one-time, discretionary purchases like concert tickets and high-end clothing,” the Times reported. “But as inflation mounts, Americans are increasingly turning to them to finance something much more mundane and essential: what they eat. And there are signs that the use of these services for repeated, everyday expenses like groceries and restaurant meals is pushing some users, particularly younger people who are already overextended, deeper into debt.”
Speaking to his experience, Roberts told the Times, “If you are not financially literate, it is easy to abuse it and say, ‘I will just keep using it, it is free money’.”
Roberts has since paid off the debt and said he no longer uses BNPL financing.
Easy, Peasy
The Times noted that BNPL companies say their products are a convenient tool to help consumers manage their finances in tough times.
“The services, with breezy names like Zip, Zilch and Affirm, are easy to use, with well-designed apps, websites, virtual credit cards and widgets. Shoppers can apply for them in a checkout line and be approved in minutes,” the report stated. “Unlike credit cards, most of the services don’t charge interest or require applicants to undergo extensive credit checks. There is usually a processing fee for each purchase, typically paid by the merchant.”
In the U.S. in 2021, some $45.9 billion in pay-later transactions were made online in 2021, up from $15.3 billion the year before, according to GlobalData.
Food, which accounted for about 6% of those purchases, appears to be an important part of the growth. BNPL financing provider Zip reported it has seen 95% growth in U.S. grocery purchases, and 64% in restaurant transactions. Klarna reported that more than half of the top 100 items its app users are currently buying from national retailers are grocery or household items, the Times said.
But at least one person is warning that the BNPL services can lull shoppers into thinking they can take on more debt with no consequences.
‘Insidious’ Marketing
“Buy-now-pay-later companies have really insidiously and ingeniously kind of like marketed themselves and advertised themselves as, ‘I am just your friend, I am just here to help you out,’” Jathan Sadowski, the author of “Too Smart: How Digital Capitalism Is Extracting Data, Controlling Our Lives and Taking Over the World,” told the Times.
The report further noted that BNPL users tend to be economically vulnerable, with a July report by Fitch Ratings finding that they carry more debt than the general population, and that more than 41% of applicants have a poor credit history.
The report also showed that delinquency rates for some pay-later services more than doubled from June 2021 to last March — from 1.7% to 4.1%at Afterpay, for example — while delinquency rates for major credit cards remained unchanged, at roughly 1.4%, according to the Times.
The Very Best in CU Reporting. For You. For Free. Or Your Money Back.
Don’t forget to check your Spam/Junk email folder if you haven’t been receiving your free, popular and daily CUToday.info news headlines.
And if you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time.
CUToday.info has received very positive response from readers following the move to an improved provider of the daily headlines, but many also noted they did need to go to their Spam/Junk folder and mark it as safe.
The new email solution has not only improved every reader’s delivery experience, but it also features a fresh, new format that is easy to read, especially on mobile devices.
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com.