A fifth of BNPL customers use Fintech apps to pay for groceries on installment plans

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More like eat now, pay later.

As a sign of the times, a recent survey by LendingTree found that 1 in 5 buy-now-pay-later users in America buy groceries using fintech providers like Klarna, Afterpay and Paypal. While consumers placing luxury purchases like Pelotons, Prada bags and Playstations on BNPL apps has fueled their growth, the new financial reality of users placing essentials on tech-enabled layaway has the potential to turn sour for everyone involved.

You have to eat

During the pandemic, spending through BNPL companies increased on items such as clothing, appliances and electronics as locked-in consumers indulged in retail shopping. It didn’t hurt that most BNPL companies don’t charge interest and that Wall Street investors noticed their popularity.

But with the high-flying economy in a tailspin, thanks in part to rising inflation, many cash-strapped customers are now using their installment apps to buy even the most basic things. More than 1 in 5 users, who often live paycheck to paycheck, say that without BNPL they could not afford their monthly eggs, meat and vegetables. “I can’t just buy groceries out of pocket like I used to,” 34-year-old administrative assistant Faith Smith told Bloomberg. “It helps for a week or two, but then you’re stuck with a grocery bill for a couple of months.”

• In 2019, five of the most important lenders in the United States originated loans worth $2 billion, according to the Consumer Financial Protection Bureau. By 2021, it had shot up to $24.2 billion. That’s great for the BNPL sector, but it coincided with historically low interest rates and relatively soft inflation. Reality has changed, but consumers have not yet fully adapted.
• According to the LendingTree survey, 32% of BNPL customers earning $100,000 or more say they use their loans as a paycheck-to-paycheck bridge. Using that reasoning, it wouldn’t be a shock to see them fall behind on payments or drop BNPL services altogether, an outcome that would negatively impact lenders who support BNPL and retailers who use them to boost sales.

Too sharp: “High interest rates are a double-edged sword. On the one hand, it will encourage more consumers to embrace BNPL over other forms of credit such as credit cards because the interest-free interest periods of BNPL become more attractive in a high-interest environment, Richard Wray, COO at payment processor Carta Worldwide, told Fintech Global. “On the other hand, it puts a squeeze on BNPL suppliers raising money to borrow from the debt market.” Either way, it will make it harder to delay the pain.