Buy now, pay later grocery programs are a ‘debt trap’ for struggling families | Borrowing & debt
Families affected by the cost of living crisis are being targeted by credit companies offering ‘buy now, pay later’ deals on weekly groceries, pet food and hot drinks.
Shoppers are being asked to spread out their payments for staple foods and treats to help cope with “these difficult times”. One promotion states, “Whatever your credit rating, we’ll give you a ton of credit to shop with.
The sector faces new regulation, but welfare groups warn the new form of credit is “like a speeding train”. The products typically offer interest-free credit with the money paid in three or four installments over a month or more.
Klarna, the biggest buy-now-pay-later player, has focused on partnering deals with retailers selling fashion and home goods, but some operators are encouraging credit on groceries, fast food and hot drinks.
A survey conducted by the Observer found:
Tech finance firm Zilch, valued at £1.5billion, announces a buy it now and pay later deal with the Icelandic supermarket, offering ready meals, pet food and soft drinks with a first payment of 25% of the sale price, and the balance paid without interest over six weeks. The company also promotes home-delivered food and coffee with interest-free credit.
An online grocery store called Flava is offering buy now, pay later a credit to struggling families with no credit check for products from Kellogg’s Coco Pops to Pot Noodle. Its website says: “Stop worrying about how you will survive the lockdown.”
Clearpay, one of the largest buy-it-now and pay-later operators, promotes vodka and gin retailers and online confectioneries on its website, where products can be purchased on interest-free credit for six weeks.
Mehmet Sezgin, former board member of MasterCard Europe and global retail banking expert, said: “No one should buy perishables like food on credit. It is an invitation to debt and bankruptcy.
A report by Bain & Company, a consultancy, estimated that the market was worth around £6.4 billion a year in the UK, based on industry data, and was used by around 10 million buyers.
The Treasury is due to release proposals later this year on regulating the sector, which is not covered by consumer credit laws because no interest is charged on the debt. Some companies charge transaction fees and late payment penalties.
One in three users buy now, pay later missed a payment or made one late, according to a report published last year by the charity Citizens Advice. The report found that consumers using the credit products were also charged £39 million in late fees over a year.
Rachel Beddow, Senior Policy Officer at Citizens Advice, said: ‘It’s like a runaway train. You can shop around the clock and easily lose track of what you owe, and there’s not enough protection for people who end up in debt.
British company Zilch, which describes itself as “the UK’s fintech darling”, is one of the first to buy now, pay later suppliers to operate with Financial Conduct consumer credit clearance Authority (FCA), but is under scrutiny over its promotion of its product for groceries, beverages and home delivery.
Zilch announced on Facebook that consumers can “refund in six weeks” Domino’s Pizza and Uber Eats. He also announced that consumers could pay for their coffees in four interest-free installments.
The company announced buy now, pay later in Iceland last week. Two large salmon fillets were promoted for a ‘1st payment’ of £1.50; a box of 40 sachets of Winalot dog food was promoted for a ‘1st payment’ of £2.25; and a 24-can carton of Whites sparkling lemonade was promoted for a “1st payment” of £1.75. The remaining balance of the shelf price is paid over six weeks.
Online food store Flava has been the first to buy now, pay later for groceries, offering a “guaranteed £100 credit”. The website, which says it offers a ‘ton of credit’, says: ‘If you’ve had credit problems in the past, an unnecessary search of your credit report will only damage it further. that’s why we don’t.”
Repayments can be made over four weeks and are interest free. Many Flava promotions are for products high in sugar and fat. His specials last week included a 2.7kg tub of Original Choc Nibbles for £18.99 and a Dobsons Cream Soda Mega Lollies tub for £18.
Clearpay also encourages buy now, pay later for food and drink. Companies promoted on its website include Drink Supermarket, Beerhunter, Bottle Bling, the Sweet Shack and Happy Candy UK.
A review by former FCA acting chief executive Christopher Woolard of the unsecured credit market published in February last year said that buy now, pay later could be a useful tool, but a buyer could quickly amass £1,000 in credit using multiple lenders. and this could harm the consumer.
Michael Donald, former head of Visa UK and founder of UK digital payments app ImageNPay, said: “There must be stricter controls to block certain categories which are a fast track for the less fortunate in society to s ‘in debt.’
Zilch says it offers a better and more affordable option for consumers than credit cards and does not allow installment payments on items costing less than £5. It also offers its customers to pay by debit in one installment and earn cashback. Philip Belamant, Founder and Managing Director, said: “Customers can choose to pay in four instalments, which are typically £45-£65 purchases, or pay in one debit payment. We educate consumers. Zilch can be used as a traditional credit card alternative with no interest or late payment fees.
The company said it has safeguards for customers, including freezing additional expenses when a deposit has not been paid.
Clearpay said: “We allow customers to make interest-free purchases without risking falling into the revolving debt trap.” Flava did not respond to a request for comment.
Alex Marsh, Head of Klarna UK, said: “Unlike credit card providers, who for decades have debted people with exorbitant credit limits, minimum payments and exorbitant interest rates, our BNPL products are without interest or fees and provide consumers with a clear repayment schedule.
Laybuy, another major provider of buy-it-now and pay-later, said its credit was not intended to be used for groceries, alcohol or fast food.
An FCA spokesperson said: “Buy now, pay later, products need to be regulated. It is essential that the law, which defines our mandate, adapts as the market innovates, so that new products and services are developed in a way that benefits consumers and that action can be taken to prevent harm.