Afterpay’s latest supermarket move sparks debt fears for millions

Buy now, pay later (BNPL) services have become a familiar sight at the checkout for everything from fashion to furniture. But now, Afterpay—the biggest name in the BNPL game—is eyeing off a new frontier: your weekly grocery shop at Coles, Woolworths, and ALDI. 

This move, made possible by a recent tightening of regulations, has sparked a heated debate among financial experts, consumer advocates, and everyday Australians. 

BNPL platforms like Afterpay, Klarna, and Zip have operated in a grey regulatory area for years. Signing up was a breeze, with little more than a few personal details between you and a shiny new purchase. 

However, the rules have changed as of this year. BNPL providers must follow the same rules as credit card companies and traditional lenders. 

That means assessing your ability to repay, checking your income and expenses, and reporting your payment history to credit agencies, for better or worse.

Afterpay’s co-founder, Nick Molnar, sees this as a signal that the big supermarkets should finally embrace BNPL. 

‘Some of the biggest industries in Australia have been holding out to offer Afterpay until a date that we are regulated. We are now starting to scale into more everyday spend,’ he said.

But not everyone is convinced this is a good thing. Dr Andrew Grant, a finance expert from the University of New South Wales, warned that using BNPL for groceries could be a recipe for trouble. 

‘It is very easy to get in a hole if you are frequently buying things outside your budget,’ he said. 

‘When it comes to groceries, am I going to spend more at the supermarket if you’re offering Afterpay? That’s something to be a little bit worried about.’

Domenique Meyrick, co-chief executive officer of Financial Counselling Australia, is even more blunt: ‘We’re very concerned about the possibility of these products being used in supermarkets.’

‘Using credit to make ends meet is often a recipe for disaster—BNPL providers and retailers should not encourage people to do so.’

Financial counsellors have seen firsthand the damage that can be done when people juggle multiple BNPL loans and rack up late fees. 

While most users manage their repayments, a significant minority end up in a cycle of debt, struggling to keep up with payments on even the most basic essentials.

From big-ticket items to bread and milk

Traditionally, BNPL was used for larger purchases—think a $1,000 TV or a new fridge. But the cost-of-living crisis has changed the game. 

More and more Australians are turning to BNPL to cover everyday expenses like groceries and fuel. 

According to a recent Compare Club survey, nearly a third of respondents admitted using BNPL for essentials, while almost a quarter owed between $1,000 and $5,000 to a BNPL provider. Alarmingly, 20 per cent said they paid late fees every few months.

So, will you soon be able to Afterpay your apples and bread at the checkout? Not just yet. 

Coles and ALDI have said they have no plans to introduce BNPL as a payment option, while Woolworths keeps its cards close to its chest. 

One reason for their caution is the cost: merchants pay 2 to 8 per cent to accept BNPL payments, compared to just 0.5 to 2 per cent for debit and credit cards. 

There’s also the risk of a reputational hit if supermarkets are seen to be encouraging debt among already-struggling shoppers.

Still, the door isn’t completely closed. Dr Grant believes supermarkets could be swayed if the cost of acceptance comes down, and if BNPL can prove it’s not pushing vulnerable customers into financial strife.

Even though Afterpay cannot officially be used at the big supermarkets, there’s a workaround that many Australians are already using. 

Several BNPL platforms allow you to buy Coles, Woolworths, or ALDI gift cards, which you can then use to pay for groceries. This loophole is growing in popularity as household budgets are squeezed.

BNPL and your credit score

One of the biggest changes under the new regulations is that your BNPL payment history will now be reported to credit agencies. 

That means missing a payment could hurt your chances of getting a credit card, personal loan, or mortgage later. On the flip side, responsible use could help build your credit profile.

Afterpay argues that BNPL is a modern alternative to credit cards, which have been used for everyday purchases for decades. 

‘We clearly see people preferring an option like Afterpay as a better way to pay,’ a spokesperson said.

But with the cost of living biting hard, the question remains: Is spreading out your grocery bill over four instalments a smart way to manage your money, or is it a slippery slope into debt?

Have you used BNPL for groceries or other essentials? Should supermarkets offer Afterpay at the checkout, or is it a step too far? We’d love to hear your thoughts and experiences in the comments below. 

Also read: Is Afterpay the key to managing grocery bills or a slippery slope into debt?