High grocery prices cause shoppers to lean into ‘buy now, pay later’ apps

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High grocery prices have caused shoppers to lean into “buy now, pay later” apps, reports The Washington Post. 

Even with inflation starting to ease, consumers have started to rely on the pay later programs to be able to afford groceries through a series of installments. In addition to groceries, many have used the buy now, pay later tools to finance big-ticket merchandise like Pelotons or laptops. 

The Post reports that buy now, pay later services are increasingly being leveraged for groceries with use surging 40% in the first two months of 2023, according to data from Adobe Analytics. Additionally, with inflation and consumer debt still relevant, industry analysts expect more U.S. shoppers to rely on such services to be able to afford food and necessities like school supplies. 

“The consumer is incredibly adept at finding ways to stretch their spending and, healthily or not, buy now, pay later has certainly provided that outlet,” said Simeon Siegel, an analyst with BMO Capital Markets. “It’s not the only way, but I think it has been the easiest way in recent years.”

Services like Klarna, Affirm, and Afterpay offer cash-strapped consumers “immediate liquidity,” said Marco Di Maggio, a professor of business administration at Harvard Business School, who has studied the $309 billion industry, which is projected to grow more than 25% by 2026, according to analytics company GlobalData.

Shoppers using the Klarna app don’t have to pay interest if they meet the payment in four installments. And, by ordering online and picking up in-store, users can break up payments when paychecks need to go straight to bills. 

Although programs have been put in place with the hopes of slowing the economy enough to bring down inflation, overall prices are up 4% from a year ago, according to The Post — an improvement from last summer’s rate of 9.1%, but still twice as high as the Federal Reserve would like. And, the Bureau of Labor Statistics reported that businesses cut hundreds of thousands of workers’ hours, forcing them into part-time roles. 

As a result, many shoppers have yet to feel much relief at the supermarket — the average family in June spent about $973, up 3.5% from last year, according to the U.S. Department of Agriculture.

A survey by the Federal Reserve showed that about 1 in 8 consumers used a buy now, pay later service in the last 12 months, up slightly from 10% the year before. As such, Apple, PayPal, and credit card companies like Chase and American Express have also added the service.

Active consumers grew 26% year-over-year in the third quarter of 2023 for U.S. public company Affirm which is solely focused on buy now, pay later. However, Di Maggio noted that although these companies are attracting more customers, it doesn’t mean they are becoming more profitable. 

“It might mean — in the credit market — that you are attracting more marginal customers, so it’s actually worse for business,” he said. That’s because buy now, pay later companies rely on loans to operate, so rising interest rates have been a concerning financial burden.