The Buy Now Pay Later Crisis: Would you like to finance your groceries?

Published in

Tech Impact

6 min readMay 16, 2023

It’s everywhere now. Klarna, AfterPay, Affirm. Would you like to pay for your groceries now — or later? As we argue about unemployment rates and inflation, we ignore another great scourge: Buy Now Pay Later (BNPL).

In 2019, the BNPL market was $6.28 billion globally. By 2022, it had grown to $22.86 billion. Fortune Business Insights expects the global BNPL market to grow to $90.51 billion by 2029 [1]. By velocity, the BNPL industry has been increasing by 20%+ every year.

Maybe that doesn’t sound like a lot — after all, the global ecommerce market exceeds $1 trillion annually. But the BNPL industry is far more insidious than that, targeting the most vulnerable individuals and providing a nearly completely frictionless user experience.

Because you can’t just BNPL a hot tub or a vacation.

You can BNPL groceries.

What’s the problem with Buy Now Pay Later?

BNPL isn’t a credit card. It’s more like an installment loan. But credit is nothing new — so why is the BNPL industry accelerating so quickly, and why is it so dangerous?

Meet Susan: Our socioeconomic avatar

Today, Susan will represent an all-too-familiar socioeconomic plight. Susan works too hard and makes too little. She’s not struggling, but she also doesn’t have it easy. She lives paycheck to paycheck, just like 58% of Americans today [2].

A week before her next paycheck, Susan finds only $140 in her bank account. But she still needs to eat. She loads up Instacart to make a grocery order — it’s $139. She’s just barely made it!

Unfortunately, once the delivery fees, tips, and tax are added, it comes to $158. So, while she has enough for the groceries, she doesn’t have enough for the associated fees. Luckily, on Instacart, she notices that she could “BNPL” this transaction. She can pay $39.50 in 4 installments over the next eight weeks.

And it doesn’t cost a thing!

Susan doesn’t like debt, but this is easy. So, she clicks a button, and she gets her groceries delivered. She didn’t want to go the store after a grueling work day, anyway.

So, what was wrong with that?

In many industries, we speak of friction. There are some nuances to friction, but it usually indicates anything that blocks the desired outcome of a process.

BNPL is so attractive because it virtually eliminates friction. These elements make BNPL psychologically dangerous:

BNPL is built into the checkout process. You don’t need to do anything special. You don’t need to open a credit card account or undergo a lengthy sign-up process. It’s integrated directly into your favorite stores.
BNPL is frequently free. Some companies do charge interest or origination fees, but others don’t charge any interest. While you might cringe at putting something on a credit card, BNPL feels like you’re getting something for “free.”
BNPL is easy to use. Because the payments are automatically drafted from your account, you never have to consider them again.
BNPL is often introduced at the end of the checkout process. That’s when you might otherwise balk at additional costs (such as delivery fees) and feel you’ve already wasted time (through sunk cost).

These characteristics of BNPL could incline an individual to make a worse financial choice than they otherwise would have made.

Let’s go back to Susan…

Susan didn’t pay any interest on her grocery transaction. But she could have — some BNPL loans have interest rates over 30%! Still, high interest isn’t required to make this a problem.

Susan purchased $158 of groceries. She only paid $39.50 (BNPL frequently requires that you pay the first installment immediately). Now, she has $100.50 in her bank account when she could have had $0. The next day, she goes out to eat. She spends another $50. Susan has now spent $208 on food.

Let’s look at an alternative scenario for Susan:

Sideways Susan didn’t notice the BNPL badge on her grocery order. Instead, she sighed, put on her shoes, and went to the grocery store. She purchased all the groceries she wanted. It came out to $139. Sure, it left her with $1 in her bank account — temporarily. But she managed to last until payday. Sideways Susan ends the week having spent $139 on food.

Critically, the difference between Susan and Sideways Susan isn’t just the $50 that Susan “overspent” (and nearly all of us will overspend occasionally). It’s also the $19 in Instacart fees. BNPL didn’t just defer Susan’s payments — BNPL encouraged Susan to spend more than she could.

And it did so while obfuscating the amount she had spent — because it barely touched her bank balance.

In Susan’s scenario, well, she can catch up. Maybe she’ll pay it off with her next paycheck. But Susan only has one BNPL loan. It’s possible to have dozens. Over time, paying back BNPL purchases could become the majority of Susan’s paycheck — and slowly push her into more expensive financing options.

Susan could easily find herself paying:

NSF fees when transactions start to bounce.
Late fees for essential bills like rent.
Shut-off fees to get utilities turned back on.

Not having money costs money. That’s another issue in our society. But while it’s a separate issue, BNPL purchases make Susan more vulnerable to these costs.

Buy Now Pay Later’s impact on the consumer

Susan is hypothetical, but the problem is not.

BNPL is primarily attractive to those who are already vulnerable. The Consumer Financial Protection Bureau (CFPB) discovered that BNPL users have lower credit scores, use credit a lot, and are more likely to be delinquent [3].

And that makes sense because someone who has a credit card and pays it off every month will just use that.

Today, more consumers are using BNPL debt to finance essential purchases like groceries [4]. As consumer debt reaches record-breaking rates and delinquencies rise, this becomes even more of a cause for concern [5]. Because BNPL loans can be structured for years, it’s possible that we haven’t even seen their true impact. And it’s possible we won’t until inflation rises further and the economy worsens.

Presently, BNPL loans may have interest rates of up to 36% [6]. That’s the same as high-interest credit cards. But BNPL have a particularly insidious caveat: They are recorded as individual installment loans on a credit file [7]. Even paying these loans on time can hurt your credit score — they show as a new credit line and can affect your total age of credit.

The new economy: Instant gratification, delayed consequences

The general thesis of BNPL isn’t new. In the old days, you’d do a “layaway”: Make payments for an item over time. But there was one remarkable difference.

You didn’t get the item until after you had paid.

Today’s economy is all about instant gratification. We spend now and worry about the consequences later. But while we can cast this as an indicator of irresponsibility, it could equally be an indicator of urgency. It’s easy to wait for a guitar on layaway. It’s harder to wait for groceries.

BNPL will not go away, especially now that Apple and PayPal have released their BNPL solutions. More insidious is the problem that we need to solve: A growing need for products and services that we cannot afford.