More Americans are using ‘buy now, pay later’ services to pay for groceries

https://www.marketwatch.com/story/more-americans-are-using-buy-now-pay-later-services-to-pay-for-groceries-2f583d1c

by mennaali • 3 years ago

61 127 3 years ago

I don't want people borrowing money to buy corn flakes

I am willing to pitch in to help

that said, why would I not be surprised to find out many of these people have a newer and more expensive phone than me? a nicer car?

sorry for the cynicism but I've watched too many people in the drive-up food bank line in $80k pickups...we have a disconnect here

lettergram• 3 years ago

Lol what are credit cards? Most Americans buy now and pay later for everything.

I don’t think it’s good, but that’s the truth.

BizarreByte• 3 years ago

It's good if you do it responsibly. If you put everything on a good rewards CC and pay it off soon after you will come out ahead.

Invictus02• 3 years ago

Why pay for anything in cash if credit cards are giving 3% back + perks?

tekla3• 3 years ago

I get a 2-3% discount on everything with credit cards. There is literally no downside to using credit cards

waboremo• 3 years ago

It's not just Americans, the BNPL industry has seem tremendous growth around the world. China reports credit card usage quadrupling and alongside that BNPL schemes, Europe is expected to see the BNPL industry hit close to $1 trillion by 2028.

It's a global phenomenon unfortunately.

adamnemecek• 3 years ago

I highly doubt that.

gabereiser5• 3 years ago

a lot of times those $80k pickup trucks are used by contractors that can write off the expense but still don't make enough to feed their kids and cover the mortgage. I know a few folks that do this. Their truck is a complete write off because they're contractors for construction or trade-labor. Sometimes its even company provided for the larger builders.

arcticbull2• 3 years ago

The vast majority of the time those $80K pickup trucks are just people's daily drivers.

75 percent of truck owners use their truck for towing one time a year or less (meaning, never).
Nearly 70 percent of truck owners go off-road one time a year or less.
And a full 35 percent of truck owners use their truck for hauling—putting something in the bed, its ostensible raison d’être—once a year or less.

The F-150 is America's most popular passenger vehicle, and I'm pretty sure construction worker isn't America's most popular job :)

[1] https://www.thedrive.com/news/26907/you-dont-need-a-full-siz...

yamtaddle• 3 years ago

If you fall on hard times, it also often doesn't make a hell of a lot of financial sense to sell your vehicle. Doubly so if you do use it to make money. Even if you can get something cheaper, that "something cheaper" might be less reliable, which can lead to losing work—transportation unreliability is a very common element of poverty stories, frequently messing up opportunities or causing major set-backs. And it's not like you're going to get that entire $80k (new) back by selling a used truck.

Requiring or expecting that people burn through all their material resources before getting help isn't how you get people out of poverty. Such requirements are a part of America's "poverty trap" and also cause misery in the disability system.

skt5• 3 years ago

contractors can write off the expense

there's an opportunity cost for that expense. it reminds of this episode of Schitt's Creek - https://www.youtube.com/watch?v=hg1Uk60rBsc.

ye-olde-sysrq• 3 years ago

It's worth noting that since we've been in a near-zero interest rate environment for a long time, servicing $80k of debt was comparatively very easy, especially when car makers dealers were desperate to keep selling more and more cars even if the loans were going to be hot garbage. So it's very possible that these people managed to drive off the lot with that car without putting barely anything out-of-pocket.

giraffe_lady• 3 years ago

"A judge is one thing an almsgiver is another."

If you want to help help, if you don't don't. What you're doing here is the worst of both basically.

thwayunion4• 3 years ago

I can't remember the last time I paid for groceries with anything other than a credit card. Or even saw someone else pay for groceries with plastic, which is hopefully CC or EBT since using debit cards at POS is kind of risky.

Jochim5• 3 years ago

Some of them might. Those commitments may have been affordable at the time. There's not much you can if your situation changes once you owe the money.

PuppyTailWags2• 3 years ago

If I just got a new phone and then lost my job what's wrong with me going to the food bank? If I just got a nice car and then had to get helicopter'd (out of network so I have to eat the full cost) for a medical emergency, what's wrong with me going to the food bank? I don't want to be in line. I don't want to be publicly seen unable to afford food.

notch898a3• 3 years ago

Nothing, please just don't be the guy I saw with a brand new car literally clearing out the unattended "little food bank" stand to sell stuff on facebook marketplace (while audibly complaining about the low value of the DVDs also placed in there). Sadly when I see the new car kind of people that seems to be what they're doing.

xboxnolifes• 3 years ago

Because of loans and human Psych. I'm becoming more and more convinced that easy access to loans (Buy now, pay later) is too dangerous for the social part of society, assuming we also want to protect those who abuse them from their own actions.

They seem to only marginally help those who already have money, but frequently negatively impact those who either don't have money or just make very bad financial decisions.

jongjong3• 3 years ago

With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the consumer to borrow. The company makes a nominal profit on the loan but a net loss in terms of buying power; similar mistake made by SVB; tomorrow-money is not worth the same as today-money.

Since 2008, the Fed has been paying interest on deposits using newly issued currency. That free money will keep entering the economy and cause inflation. The higher they raise the rates, the more free money will enter the economy.

ollien• 3 years ago

From the article

“While a pay-in-four plan doesn’t usually charge interest, longer-term BNPL plans may charge an annual percentage rate up to 30%,” an article in Nerdwallet noted in 2022. “Fees, like for late or rescheduled payments, range from $1 to $10 and are sometimes capped at 25% of the purchase value, depending on the company.”

So I guess if you pay in a four-month-installment on time, it could make sense, but that seems like a super risky gamble.

jongjong3• 3 years ago

A few months ago, I bought a car with a loan.

I was surprised to learn that essentially all lenders offer a fixed 8% interest rate... When annual inflation is at least 10% in my country and reserve bank interest rates are on the rise. If it was a variable interest rate, that would present some risk. But it's not even the case. It's literally a fixed 8% annual rate over 5 years (by which point the loan will have been fully paid). So assuming that I can keep my income in line with inflation, it ends up becoming easier to repay my loan as inflation progresses.

It's not quite the same situation for people with real estate mortgages as their rate is variable (or fixed only for a couple of years; so not really fixed when you consider that the loan is 20 to 30 years...) and their repayments increase along with the reserve bank interest rates. My repayments are constant and my debt is being inflated away as we speak.

I bought a basic/small, but good quality car as I think it will hold its value well due to its focus on utility and fuel (cost) efficiency.

toast02• 3 years ago

If you have the $10 for lunch, you can either pay in cash, or put it into your buy now pay later slush fund and pay on time. There's no fiscal risk, only behavioral risk.

Ally Bank currently offers 4% apy interest on a Money Market Savings, maybe you can find similar from a better bank. 4% apy over the term isn't much, but it's certainly fiscally better than paying cash today.

smcl• 3 years ago

I really don't think this is down to people who could otherwise afford their groceries deliberately making a savvy financial decision to counter inflation. It'll unfortunately just be folks who need (say) $100 but don't have it on hand when they need to go grocery shopping

SkipperCat• 3 years ago

Sadly, I don't think people are doing this as an arbitrage using the time value of money, they're just broke.

lm28469• 3 years ago

With the current inflation figures, it might actually be a smart move. If the interest charged on the loan is less than inflation, then it makes sense for the consumer to borrow.

This isn't some mastermind long term plan to gain a few cents over years.

It just means more and more people can't afford basic necessities, it's the case pretty much everywhere in the west, food banks are busier than ever this alone is a clear signal.

Cthulhu_• 3 years ago

This would only be viable if it's a longer-term loan, these are equivalent to payday loans - you'll get fucked over hard if you fail to make the payments in time.

__derek__5• 3 years ago

Since 2008, the Fed has been paying interest on deposits using newly issued currency. That free money will keep entering the economy and cause inflation. The higher they raise the rates, the more free money will enter the economy.

This idea is an example of Neo-Fisherism.[1] It's not really a mainstream view, but Erdogan's central bank has been trying it out (cutting rates to ease inflation).[2] It hasn't exactly worked as he expected.[3]

[1] https://www.stlouisfed.org/publications/regional-economist/j...

[2] https://www.economist.com/the-economist-explains/2022/01/27/...

[3] https://tradingeconomics.com/turkey/inflation-cpi

ryandrake• 3 years ago

This comment is pretty much Peak HN. The article is about people who are, in general, financially not well off and likely living paycheck to paycheck:

People who use BNPL for purchases tend to be more financially distressed than nonusers, according to a March report by the Consumer Financial Protection Bureau. They’re also more likely to be an active user of other credit products such as payday loans and credit cards, the report added.

HN comment: "This is a smart way to hedge interest rates vs. inflation risk in their portfolios!"

I love this place sometimes :-D

jongjong3• 3 years ago

Yes but it's good that for once the desperate move is not so reckless.

JumpCrisscross2• 3 years ago

Do we have data on what products are being financed? Online grocery orders can include a variety of things, not all of which we’d conventionally call groceries. It's problematic if BNPL is financing daily meals; another if it's a luxurious dinner or pots and pans.

PuppyTailWags2• 3 years ago

I would consider pots/pans to be part of groceries. How is anyone expected to cook if they can't spend the money on a 20-30$ frying pan?

fastaguy88• 3 years ago

Another percent-based set of statistics that tells us nothing.

How many Americans were using buy-now pay-later a year ago? 10,000? 50,000? (out of 200 million). A 40% increase in market share from what? A market share of 0.0001%? Did the BNPL amount stay the same, and the market shrink (and what is the market -- on-line purchases or total grocery sales?) And there are 10% more orders, but 19% less revenue. So perhaps fewer people are paying more because of inflation, or more, how can we tell?

Perhaps written by Chat-GPT with the proviso that no actual information be provided.

__derek__5• 3 years ago

The article notes:

everyday BNPL orders, including groceries, accounted for barely 1% of all [BNPL] purchases in 2021.

Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries. Of course, there was also the secular increase in online grocery orders:

This trend may be partly due to the fact that Americans are simply spending more money on groceries online. Online grocery spending grew by nearly 27% year over year to $8.4 billion in February.

velavar• 3 years ago

> everyday BNPL orders, including groceries, accounted for barely 1% of all purchases in 2021.
Presumably the share for groceries alone didn't increase meaningfully in 2022, or that would have been noted for effect, so we're looking at less than 1.4% of all BNPL payments for groceries.

It could just mean that BNPL as a product was not much used a couple of years ago, no? It could just mean that these folks would merely then put their groceries on a revolving credit card (which in many ways is worse). It doesn't necessarily mean folks are shifting to riskier forms of debt?

ghaff2• 3 years ago

The online grocery stat really surprises me. Relative to pre-pandemic? OK, seems high but I can buy it that a lot of people tried it and some liked it enough to keep it. But YoY from February, at a time when grocery prices have increased a fair bit, is almost hard to believe. "Grocery prices are up so lets make them go up even more for a bit of convenience."

stametseater• 3 years ago

1% of all purchases in 2021.

Percent of purchases seems like the wrong statistic. It is likely the case that most purchases are very small, people buying a single pack of cigs at a gas station and things like that. Furthermore, people with a lot of money likely make more purchases than people with little money. The percentage of the population making such everyday BNPL purchases is the interesting statistic, and I suspect it is higher than the % of all purchases.

rhacker• 3 years ago

I've been using buy now pay later for like 20 years, since that's how long I've had a credit card.

Waterluvian3• 3 years ago

On the topic of being able to afford food, Pizza Pizza in Canada sent a flyer to my door about "Fixed Rate Pizza."

The entire thing is a tongue-in-cheek take on "we won't change the price of our pizza for a year" but they make it sound like a mortgage. You can even go online and get pre-approval for your pizza.[1]

To me, this smells of some marketing people thinking they're really really clever. It's fairly well-executed. But just completely tone deaf. Some people are losing their homes. They're trying to feed their children[2]. This is not the time to goof about the absolute fucking dystopic idea of food mortgages.

[1] https://www.pizzapizza.ca/fixed-rate-pizza/

[2] My wife volunteers at our kids public school's snack program (Canadian schools generally don't provide lunches). The school has a very wide range of income levels, so you get everything from kids who ignore the snacks (fruit, veggies, sometimes cereal bars), to kids who are sent to school with an empty container to bring food home. Luckily there are some really good social systems in place to try to remove this responsibility from a child, but it's soul crushing to see. This footnote is tangential but I'm having a very raw moment of anger, sadness, and hope.

aidenscott2016• 3 years ago

I get a 403 from the UK

Waterluvian3• 3 years ago

Interesting that they 403 you.

https://ibb.co/JnpnCr4

https://ibb.co/dQF85hN

JumpCrisscross2• 3 years ago

completely tone deaf. Some people are losing their homes

It looks more like a joke about inflation than mortgages.

Waterluvian3• 3 years ago

The webpage linked above includes "How do I apply?" and "get pre-approved." There's even a graphic of a home with a balloon when talking about inflation and literally mentioning mortgage rates.

Perhaps I'm feeling sensitive to this and it is a funny joke. Naturally the audience can decide for themselves. =)

open-paren• 3 years ago

It's probably related to a recent Dominos x Uber Eats x Zilch ad that went viral. https://twitter.com/MustelidFan69/status/1448973244434948125 https://www.ft.com/content/c4da9b2f-5187-4956-931d-0554d4268... (https://archive.is/ELFOk)

darth_avocado• 3 years ago

For some reason the narrative seems to be that BNPL is bad for you, but I would argue they are objectively better than credit cards. Or in the worst case as bad as credit cards. The fees on BNPL tends to be capped in most cases while you could carry cc debt for infinite amount of time at high interest rates with no cap on how much you pay.

AlexB138• 3 years ago

Is there some real material different between BNPL and a regular credit line? People often seem up in arms about BNPL, and I'm not clear on what is uniquely insidious about it. Are the rates more predatory than a credit card, for instance?

SilasX• 3 years ago

This. It doesn't seem materially different from a credit card: if you pay within a certain window, no interest charges. It's just that BNPL is associated with being unable to afford it at the moment.

And, not surprisingly, comedians used to make exactly that joke! When fast food chains like McDonald's started accepting credit cards, they would joke that if you pay with one, it's like you're saying you can't afford the meal all at once.

tracker12• 3 years ago

For me, it's clawing back a couple percent against the tx fee, they effectively charge every other customer.

sonotathrowaway• 3 years ago

I’ve heard that the form of credit that is used is somehow inferior, such that it reflects badly when judging your credit history.

I have absolutely no idea if that is true or how I’d even ascertain the veracity, so don’t quote me.

thwayunion4• 3 years ago

BNPL doesn't make much sense if you have access to typical quality credit lines. The x% cash back on groceries, plus a month of interest on deferred payment, is probably a better deal than the extra duration on the credit line you might get from BBPL.

The major difference between some BNPL apps and credit cards is that the apps don't require a credit check. So, y'know, there's a certain segment of the market they are targeting.

I think the ethics are fairly mixed -- access to capital is important and capital is expensive to some people for a really good reason. Of course there are fairness issues and predatory lenders, but there's a balance between the two concerns.

But the risk modeling for CCs and BNPL are quite different. I expect there to be a BNPL blow-up at some point.

teeray• 3 years ago

The major difference between some BNPL apps and credit cards is that the apps don't require a credit check.

But why would they extend a one-off unsecured line of credit without a check of creditworthiness? It’s not like they can repo the groceries if you don’t pay.

jabroni_salad• 3 years ago

The offers I see are always 0% over 4 months. Napkin math for my credit card (22% APR) is 7.3% for that duration. I'm sure I did that wrong but I literally never carry a balance.

The way this makes money is that they charge the merchant, and the hook for the merchant is that they are opening up their target demographics to include people that cannot otherwise afford the product. In that sense, I think BNPL competes with Layaway rather than with creditcards. More broadly, it's kind of a known factor that the middle class is shrinking and BNPL helps keep consumerism accessible to people that would otherwise be downgrading their lifestyle.

The risk is that if you do not manage your finances very well you can get tricked into thinking you can afford things that you cannot and end up underwater to payments. It's like R-A-C but they won't send the sheriff to repossess your sofa.

ab0aa907• 3 years ago

I think the difference is their target market. Credit card companies usually target people who they think can make payments without too much stress.

BNPL companies target people who are unlikely to afford the purchase and they will be in far worse position afterwards. Since these are high risk loans, so they come with even higher interest rates and fees too.

twelve40• 3 years ago

yes, there is a difference:

* advertised as "no interest unlike credit cards" ("free") but if you are struggling, you will get hit with fees

* less strict credit checks, so more struggling people can get it

* attracts struggling people because if your credit is good and you are paying off, you will get much better deal with CCs in terms of cash back, miles, etc - nothing like that here

* merchants actively promoting bnpl to entice struggling people to buy things they can't afford (merchants typically don't promote one-click-pay with specific credit cards)

all these add up to heavily incentivizing broke people to become even more broke, more so than credit cards

starkparker• 3 years ago

Some, not all, BNPL lenders can get predatory with interest and fees if you don't pay the entire balance in 4 payments. For instance, Affirm strikes deals with retail partners that determine the interest rate (if any) on longer payment plans, which can go up to 30% APR vs. a 25% APR mean credit card rate for 650-700 credit scores. That variability also isn't always transparent to the buyer, who might not expect any interest if they used Affirm with another business that didn't require it. Zip, which is compatible with any payment that accepts Visa, charges a flat $1 payment fee per transaction and then a variable late-payment fee that depends on your state. Since more than a third of BNPL users in 2021 missed at least one payment - more than half of those under 40 did, and age demos make up a majority of BNPL users - these fees and rates are lucrative to the lenders.[1]

BNPL lenders don't tend to check a buyer's credit, and those that do don't pull a full report, so it's more accessible than a credit card. But successful payments to a BNPL also don't get reported up to credit agencies, and missed payments can be (at least a third and up to three-quarters of those who missed a payment took a subsequent credit score hit), so paying down a BNPL plan exposes the buyer's credit score to risks with no potential benefit. Since the lack of credit check makes BNPLs attractive to demographics with poor credit scores - young, poor, and underbanked - even responsible usage of BNPLs do nothing to improve those scores.[1][2]

Like with many low- or no-friction payment tools, BNPLs can facilitate overspending by people who already have poor credit, and the consequences of doing so can be dire to the overspender with few or no consequences to the BNPL lender. Planning a BNPL purchase isn't a problem, but point-of-sale BNPL options and BNPL instruments in debit-card form factors make debt an impulse buy in ways that credit cards can't do in some jurisdictions because they face regulations that BNPL lenders don't (yet[3]). People under the most pressure are buying necessities with BNPL and paying the BNPL debt down with credit card debt, a sort of worst-of-all-worlds scenario.[2]

BNPL usage has only increased with inflation and spread to necessities, which in the long run benefits only BNPL lenders. BNPL users are juggling a mean BNPL balance of $665.[2]

Another thing that raises hackles about BNPL lenders is how often they promote their services as a social good by pointing out how they avoid the predatory practices of credit cards. As for-profit institutions this can ring as dissonant to people who've experienced stress from debt, because it can suggest that providing low-friction debt to people who can't afford higher-friction debt is a moral imperative. The cringe of it expands when such platitudes are in the company's report to shareholders about its financial successes.[4]

And on top of everything, the business model for BNPLs existed only with low/near-zero interest rates. Their value as businesses is evaporating as they face actually having to pay for the money that the lenders themselves are borrowing to fund BNPL transactions.[5]

1: https://www.creditkarma.com/about/commentary/buy-now-pay-lat...

2: https://www.creditkarma.com/about/commentary/consumers-rely-...

3: https://www.reuters.com/business/finance/us-consumer-watchdo...

4: https://www.klarna.com/assets/sites/15/2022/02/27195201/Klar...

5: https://www.reuters.com/technology/buy-now-pay-later-busines...

paxys4• 3 years ago

I have my share of problems with big tech, but none of them compare to the rotten garbage that is sectors like payday loans and BNPL. These are industries exclusively set up during rough economic times to prey on the poor.

Just think about BNPL for 3 seconds. How do they make money? By selling people shit they can't afford, waiting for them to miss payments, and charging hefty interest and fees – sometimes totaling up to as much as the product itself.

You can argue "it is legal" "they signed the contract" "they should have known better” all you like, but just like payday loans it is a social ill that we need to deal with.

jdiez17• 3 years ago

So... same business model as credit cards?

comte7092• 3 years ago

Credit cards also make substantial money on transaction fees, but yes you are correct.

thwayunion4• 3 years ago

Huge caveat is that some BNPL services don't require credit checks.

otikik• 3 years ago

Don’t they work under very different regulatory frameworks though? (As in: banks have some regulation)

dwater• 3 years ago

Different customer base. These loans are generally more expensive and sold to people who can't qualify for credit cards. So yes, same business model but with the "Predatory" knob turned up.

Jochim5• 3 years ago

AFAIK the interest rates on credit cards are nowhere near that of even regulated payday loans. The lack of interest on most cards if you repay in full each month can also make them a useful buffer if you have short term liquidity problems, ironically the problem that payday loan companies claim to solve.

Payday loan companies as they operate now belong in the class of companies that should simply be destroyed. Put betting shops in there as well.

time_to_smile• 3 years ago

If BNPL was the same as credit cards, then why not just use credit cards?

BNPL often ignores credit check or specifically targets groups that credit cards would deem too risky.

For me this doubles the problem with the BNPL space: not only are the predatory, but I have serious concerns about their own risk management.

I knew of a start up that was experimenting with running their own BNPL service with zero credit checks. The users that were being targeted had a 30+% default rate (because other users had credit cards) but the upper bound of interest that could be charged was around 25%... the company seriously didn't understand why they weren't able to make profit on this product. But hey, revenue did grow which is all VCs cared about so it worked for them.

paxys4• 3 years ago

BNPL targets people who wouldn't otherwise qualify for a credit card or personal loan.

Here's a simple test – if everyone paid their balances on time and in full, credit card companies would still survive. BNPL would not.

juniordev7• 3 years ago

So you don't know abt Gambling nd sports betting then.

How did you miss to learn about those at your University, Man?

dgrin91• 3 years ago

Honestly even with this reasoning I still don't understand the BNPL business model. If a person can't afford it from the start how are they going to afford it once interest and fees kick in? Seems like the BNPL providers are paying for something full price, potentially charging some fees, but overall receiving less because the debtor defaults.

Obviously I'm missing here because there is no way the BNPL industry would exist without profit, but I just don't get it.

_nalply• 3 years ago

It's like squeezing juice harder. They know how to squeeze the last drop of money out of poor people.

skeeter2020• 3 years ago

I agree strongly. It really encourages people with poor credit and/or little experience using a credit card "the right way" to finance what should be trivial purchases you either save up for firts, or just don't buy. BNPL for groceries is the ultimate borrow from tomorrow to pay for today; modern economies have taught their citizens well!

jollyllama• 3 years ago

I wonder to what degree this is causing price inflation and skewing price signaling

josephcsible2• 3 years ago

If you get offered BNPL with no interest or extra fees, isn't it a no-brainer to take it, even when you could afford to just pay the whole cost up front?

Jochim5• 3 years ago

Not sure about the US but in the UK it's now supposed to show up on your credit report.

You also need to be the type of person that keeps on top of your finances. The main trap for inexperienced/impulsive people is getting locked into paying for more than they can afford. Without BNPL they might look at their balance and decide not to buy the item. BNPL introduces a different type of calculation where you now "it's only $5/mo", and need the experience to consider "how many more $5/mo payments do I have".

The other problem is people with a volatile monthly income. They might be fine paying $50/month for a few months but due to their industry or changes in their financial situation they're now stuck with a commitment they can't afford and otherwise wouldn't have had without BNPL.

amerkhalid• 3 years ago

Perhaps also consider any points and other freebies like extended warranties that when using credit cards.

jlarocco• 3 years ago

Technically you're right, but is it worth the trouble for groceries?

paxys4• 3 years ago

You are missing out on credit card rewards. You don't get the consumer protections (disputes, extended warranties and more) offered by credit cards. It doesn't help build your credit history. And even if you think you can make all payments on time, if you happen to miss a single one then you are going to be hit by like 30% interest and other fees.

josephcsible2• 3 years ago

It doesn't help build your credit history.

Will missing payments of it hurt your credit history? If so, why is such one-sided credit reporting legal?

More Americans are using ‘buy now, pay later’ services to pay for groceries

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