Buy now, pay later grocery purchases could push up prices for all shoppers, while reducing the range of products stocked by retailers, a study by the University of Washington in St Louis has found.
The research, due to be published in the next issue of the journal Management Science, examined how retailers respond when customers use services such as Klarna, Affirm and Afterpay to spread the cost of essentials including milk, eggs and produce.
Researchers found that retailers may raise sticker prices to recover the merchant fees charged on buy now, pay later transactions. This means customers paying in full could effectively subsidise those financing their purchases, while everyone faces higher prices.
“Retailers, as a result of accepting these kinds of payments, they are going to increase prices, which basically means that all of us are going to pay for these practices that are out there,” said Panos Kouvelis, a professor of supply chain, operations and technology at Washington University’s Olin Business School.
The findings come as buy now, pay later becomes more common for smaller, essential shopping trips. A survey of more than 6,000 US consumers published in July found that 29 per cent said they had used such loans to buy groceries, up from 14 per cent two years earlier.
Overall, 91.5 million Americans use apps including Klarna, Affirm and Afterpay to finance purchases. Transactions made through the services grew by 20 per cent between 2021 and 2025, according to the Federal Reserve Bank of Richmond, although they still account for about 1 per cent of credit card transactions.
Why buy now, pay later could affect grocery prices
Kouvelis and his colleagues developed an economic model that considered consumers’ willingness and ability to use buy now, pay later, alongside the profits expected by retailers.
The researchers said the model showed why groceries could be particularly vulnerable. Buy now, pay later was initially aimed largely at higher-value discretionary purchases such as furniture and gaming consoles, where wider profit margins can absorb transaction fees.
Essential goods generally provide retailers with thinner margins. If some products become unprofitable after the fees are taken into account, shops may raise prices or stop stocking them, leaving consumers with fewer choices.
“Why does it really make sense for the retailer,” Kouvelis said, “unless they are hoping that as a result you are buying a much larger basket of goods and therefore they are making money on other products.”
Concerns over buy now, pay later debt
The increased use of short-term finance for necessities has also raised concerns about household debt. The sector is largely unregulated and these companies have historically not reported borrowing to credit agencies, creating what Kouvelis described as “phantom debt”.
Some consumers may have five to 10 buy now, pay later loans at the same time. The survey found that 47 per cent of users had been late repaying a loan in the previous year.
The average debt is about $135, and consumers are more likely to repay short-term finance before other debts. However, Kouvelis said the risks remained for both borrowers and retailers if people living on the financial edge took on more loans than they could manage.
He said: “There is a certain fear. There are some people that are living at the edge that are really overboring, and nobody knows about it. Of course, that’s bad for them because at some point time things are going to catch up with them … For the retailers, if these people are coming your way and they’re lowering your margins, also they have an effect in terms of your profitability.”
