A growing number of Americans are using “buy now, pay later” services to buy basic goods like groceries, raising concerns about consumer debt.
Installment services like Klarna and Afterpay offer interest-free short-term loans to cover purchases, but fines for late payments can be hefty, and critics worry their ease of use could lure shoppers into dangerous debt.
In 2021, $45.9 billion in postage payments were made online, a sharp increase from $15.3 billion a year earlier, according to GlobalData analysis published by The New York Times.
Grocery accounted for about 6 percent of purchases last year, but appears to be a key part of the sector’s explosive growth as soaring U.S. food prices increase the appeal of deferred payments.
Buy now, pay later services like the apps above offer interest-free short-term loans to cover purchases, but late payment fines can be hefty in some cases
A growing number of Americans are using “buy now, pay later” services to buy basic goods like groceries, industry data shows
How the Big Pay Later Firms Are Performing
Klara
Payment Plans: Pay in four installments or 30 days with no interest. Pay for major purchases with interest in 6 to 24 months.
Late Fees: Up to $7, no more than 25% of the original purchase
additional payment
Payment Plans: Pay in four installments with no interest.
Late Fees: Up to $8, no more than 25% of the original purchase
Confirm
Payment Plans: Pay in four installments with no interest or 6 to 12 months with interest.
Late Fees: None
Sweden-based company Klarna, for example, reported that grocery or household items accounted for more than half of the top 100 items purchased through the app.
Zip, an Australia-based company, says it has seen 95 percent growth in U.S. grocery purchases and 64 percent growth in restaurant transactions.
Chipotle is one of the restaurant chains partnering with Zip, allowing hungry Americans to put 25 percent on a burrito and pay the remaining installments over six weeks.
Proponents of the Buy Now Pay Later (BNPL) industry say it offers an interest-free and consumer-friendly alternative to credit cards, which can incur high interest charges if balances are not paid.
“For years people have been using their credit card to buy their groceries, but they’ve been stung by sky-high interest rates – Klarna’s interest-free products are a cheaper alternative designed to prevent people from getting into unmanageable debt,” according to a Klarna Spokesman told in a statement.
“We limit the use of our services after missed payments and we carry out strict checks on every transaction so that we only lend to people who can pay us back, as we lose when customers cannot pay back,” the Klarna statement added.
“If a client’s financial situation changes, we’re happy to help them get back on track.”
Klarna reports that failure rates for its service remain consistently below 1 percent.
But critics of the growing industry say that because BNPL services don’t charge interest, they’re more loosely regulated than credit cards and don’t offer the same consumer protections.
The rise of BNPL services in the US comes as inflation drives up the cost of essentials
“One of the biggest issues we’ve seen with Buy Now Pay Later is that there’s a general lack of assessment of the ability of someone using that funding to pay off that debt,” said Marisabel Torres of the Center for Responsible Lending versus Consumer Reports March.
And while they don’t charge interest, many BNPL firms charge late fees, which can be as high as 25 percent of the original purchase amount, higher than the average credit card rate.
Late payment can also have a negative impact on consumer creditworthiness.
A major BNPL service, Affirm, does not charge late fees and says it reviews and approves every single transaction.
“This is radically different from credit cards, which have a revolving line of credit and make money off consumers even if they’re left in a maelstrom of revolving debt,” an Affirm spokesman told .
“Because we don’t charge late or hidden fees, our success depends on consumers successfully managing their finances,” the spokesperson added.
Americans can even pay for a Chipotle burrito in installments now
A spokeswoman for Afterpay, also known as Clearpay in Europe, said in a statement: “In this uncertain economic environment, customers are turning to Afterpay to help them manage their finances and budget – especially as you need your Afterpay/Clearpay – Payments can time your paycheck cycle.
“With Afterpay/Clearpay, consumers can avoid expensive loans and credit cards and fall down the rabbit hole of revolving debt,” the statement added.
Afterpay cited research showing its U.S. users saved $459 million in interest and fees by using the installment service.
The average BNPL user tends to carry more debt than the average American, according to a July report by Fitch Ratings, which found that more than 41 percent of applicants have a bad credit history.
In Australia, where it is popularly known as ‘pay in for’, BNPL services are already ubiquitous.
But their surge in the US comes as inflation drives up the cost of essentials, with food prices rising a record 13.1 percent year-on-year in July.
In the UK, the industry has come under regulatory scrutiny, with Britain’s financial regulator BNPL this month asking firms to disclose the cost of late repayments to customers.