As a rising number of shoppers embrace buy now, pay later services as a way to cover basics like grocery expenses, food retailers are finding themselves at the center of a disruptive trend that is altering many people’s financial relationship with supermarkets, according to industry and credit analysts.

BNPL loans have become such an accessible way for consumers to delay paying for purchases that many shoppers now either see the services as convenient tools to manage daily costs — or have come to depend on them to obtain essential goods, said Matt Schulz, chief credit analyst for LendingTree, an online service that helps people shop for loans.

“People using buy now, pay later for groceries is pretty telling … and it was kind of inevitable given the state of the average American’s finances,” Schulz said.

Nearly 40% of U.S. adults had less money saved up than they did a year earlier, and 10% didn’t have any savings, according to a survey Bankrate conducted in January. In addition, more than a third of respondents to the poll said their credit card debt was higher than their emergency fund.

BNPL services typically let shoppers spread the cost of a purchase over four payments during the course of several weeks. Offered by companies like Afterpay, Zip, Affirm, PayPal and Sezzle, the programs are distinct from credit cards, since they are intended for specific transactions, not as a multipurpose line of credit.

The loans are often interest-free to shoppers, with merchants paying a fee to the provider to complete a transaction, much as they do with credit card purchases.

BNPL loans are quickly getting more popular with consumers

While BNPL programs — which are similar in some ways to layaway plans but allow consumers to take home their purchase before fully paying for it — offer a way for consumers to pay for big ticket items like computers over time, people have lately been showing a distinct willingness to also use them as a way to manage basic costs.

Forty-six percent of respondents to a survey LendingTree commissioned in March indicated they have used a BNPL service, compared with 43% a year ago. More than a quarter of participants said that they rely on BNPL services to cover expenses before receiving their next paycheck, while 21% said they have used one of the services to pay for groceries.

Recent data from Adobe Analytics also points to rising consumer interest in these services, especially for groceries. The share of online BNPL transactions involving groceries grew 40% in January and February — the fastest pace among the retail categories Adobe looked at in the U.S. for that time period.

“The fact that buying groceries with BNPL has become so common is surprising. We knew it was happening but didn’t realize it was widespread,” LendingTree said in a report about its research, which showed that people across the income spectrum have come to rely on the services.

The risks and rewards of BNPL for grocers

A range of food retailers directly accept BNPL services as a payment method, and the payment companies offer direct links to the grocers, as they do for other types of merchants. Afterpay, for example, includes Kroger on the list of retailers it works with, while Zip features Whole Foods Market and Instacart on its website. Walmart, meanwhile, lists PayPal and Affirm among the payment options it accepts.

BNPL programs aren’t limited to retailers that have specifically arranged to work with them. Zip points out, for instance, that shoppers can use a virtual card it offers with any merchant who accepts Visa.

“Using buy now, pay later for groceries is really interesting, because it speaks to something that would be more likely done out of struggle than of confidence,” Schulz said. “People’s financial margin for error is always small, but inflation and rising interest rates and general economic chaos have made that margin for error even smaller.”

The Consumer Financial Protection Bureau has highlighted the growing role BNPL services are playing in the economy, cautioning that the services can be riskier to consumers than they might appear on the surface. In a September report, the federal agency said five BNPL companies it examined loaned shoppers $24 billion in 2021 — a figure that was nearly a tenfold increase from 2019. 

The fact that BNPL programs carry the risk that a consumer might not be able to manage the payments doesn’t mean they aren’t a sound budget-management tool, said Chris Walton, a former Target vice president who is now co-CEO of OmniTalk and serves an advisor to Sezzle.

“It's just a smarter way to use credit from the consumer perspective,” said Walton, who predicted the rise of BNPL in a 2017 opinion piece. “Of course, I think the current economic environment is helping to push it into grocery, but at the end of the day, if the economics of it work out for all parties involved, it’s a smarter way for the consumer to spend their money and get the most out of their money.”

Neil Saunders, managing director of GlobalData Retail, said the rising popularity of BNPL services as a way to buy groceries is a sign of how acceptable it has become to shoppers to pay for purchases over time — and an indication of just how hard inflation has bitten many people.

“There isn’t really a stigma attached to it. It’s something that’s seen as being quite normalized now for consumers to use,” Saunders said. “But the problem with any form of credit is that you have to pay it back at some point. And I’m not quite sure how some of these consumers are going to pay back the debt.”

Saunders added that while BNPL programs carry the risk of default, he doesn’t think it’s the grocery industry’s responsibility to take a stand on how people fund their purchases. At the same time, he said, the emergence of the loan services in the food retailing space is a reminder of the central role retailers play in making affordable goods available to shoppers.

“How people pay for things is very much up to individuals. I don’t think grocers can dictate that and I don’t think they have a moral obligation to question consumers about it,” Saunders said. “In fact, I think it would be pretty insulting for retailers to say to consumers, ‘You can't pay by this option because we don't think you can afford it in the long run.’”