Buy now, pay later grocery schemes are a ‘debt trap’ for struggling families
UK regulators say the latest surge in interest-free credit does not offer enough protection for those who are slipping into debt.
Families hit by the cost-of-living crisis are being targeted by credit firms offering “buy now, pay later” deals on weekly groceries, pet food and hot drinks.
Shoppers are urged to spread their payments for staple foods and treats to help cope with “these difficult times”. One promotion states: “Regardless of your credit rating, we will offer you a tonne of credit to do your shopping with.”
The sector faces new regulation, but welfare groups warn the new form of credit is “like a runaway train”. The products typically offer interest-free credit with the money paid in three or four instalments over a month or longer.
Klarna, the biggest player in the buy now, pay later sector, has focused on partnership deals with retailers selling fashion and household items, but some operators are promoting credit on groceries, fast food and hot drinks.
An investigation by the Observer has found:
The tech finance firm Zilch, valued at £1.5bn, is advertising a buy now, pay later deal with superstore Iceland, with ready meals, pet food and fizzy drinks on offer with a first payment of 25% of the shelf price, and the balance paid interest-free over six weeks. The firm also promotes home-delivered food and coffees on interest-free credit.
A report by Bain & Company, a consultancy firm, has estimated the market is worth about £6.4bn a year in the UK, based on industry data, and is used by about 10 million shoppers.
One in three buy now, pay later users have missed a payment or made a late one, according to a report published last year by the welfare charity Citizens Advice. The report found consumers using the credit products had also been charged £39m in late fees over one year.