Inflation pushes Gen Z and millennials to use BNPL services for groceries
What this means: In the face of inflation, BNPL has cemented its purpose for consumers. The growing use of BNPL services indicates clearly that consumers are looking for support in their discretionary income but also signals that consumers want to avoid credit card debt where possible. The industry must take notice that rise in BNPL usage directly impacts consumers' ability to spend at retail in the short term, but may indicate trouble ahead for consumers and retailers.
Millennials and Gen Zers are rethinking how they shop for everyday items: 43% of these consumers in the U.S. used buy now, pay later (BNPL) services to shop for groceries, according to a recent Cleo survey.
According to Cleo, an AI-powered assistant that helps Gen Z manage their money, BNPL services are growing as:
- 19% now use BNPL services regularly due to inflation.
- 29% rely on BNPL services when they require assistance affording essential items.
- 52% expressed intentions to increase their usage of BNPL services in the future.
Based on Cleo transaction data from March, the average user spent 14.3% more on BNPL platforms than they did during the previous month, spending $240 in March compared to $210 in February. The most popular BNPL platforms were Afterpay, Klarna and Affirm. Comparing millennials and Gen Z, Cleo data showed that millennials shop the most using BPNL services, and spent on average $252 in March, compared to Gen Z who paid out $178.
Beyond the fact that BNPL services are quite aggressively marketed toward millennials and Gen Z, these platforms are appealing for a few key reasons, Anna Yen, Cleo’s personal finance expert, told Retail Leader Pro.
“BNPL services are designed to be remarkably convenient by offering a seamless payment experience that lets consumers shop without paying the full amount upfront, and that’s very attractive for a generation that loves digital and mobile tech,” she said. “BNPL is also seen as a tool to help manage their budgets by spreading the cost of purchases over time, which is especially enticing to those with limited funds or who are just starting to build credit.”
Many BNPL services also have interest-free plans or low rates, making it a more attractive option for cost-conscious young people. Additionally, BNPL can function as an alternative to credit cards, which millennials and Gen Z often view negatively due to high-interest rates and the risk of getting into debt, Yen explained.
Inflation’s impact on younger consumers
Among millennials and Gen Z consumers, food insecurity has outpaced shelter concerns. Cleo reported more than half of respondents (52%) cited buying groceries as their biggest worry. Transportation costs followed at 22%, with rent coming in at 13%. Additionally, 38% of millennials and Gen Z are worried they won't be able to afford groceries because of inflation.
In grocery, 31% of millennials and Gen Z changed the way they shop due to higher grocery prices, and 46% said inflation greatly affected their household budget. Even those who are employed are looking for additional financial assistance with food: 26% of employed respondents have turned to government assistance programs such as SNAP, food banks or food stamps for groceries in the past year.
“With the steep rise in inflation, Gen Z and millennials are increasingly feeling its effects in their day-to-day lives,” Yen said.
Of course financial risks arise when turning to any form of credit for day-to-day spending, including BNPL platforms, Yen warned. For many of Cleo’s users, money is cited as the number one cause of stress, and in a recent survey, the personal finance app found that 74% of consumers said that the cost of living crisis was impacting their spending decisions this year.
“Inflation represents the rising cost of goods and services, so a reduction would decrease anxiety about further price increases; however, the price of goods and services is already elevated,” Yen explained. “As a result, millennials and Gen Z will likely continue to struggle with budgeting and managing money at current price levels.”
While missed payments are a concern for BNPL providers, the overall growth trend in BNPL usage seems likely to continue. Cleo anticipates that the integration of BNPL into payment platforms will continue, leading to greater accessibility and growth in usage, much like the expansion of credit card use. BNPL services growth also likely will be driven by younger consumers’ preference for digital solutions, ease of use and budget management benefits.
“BNPL addresses a consumer need for convenience, flexibility and a potentially cheaper alternative to traditional credit,” Yen said. “As a result, digital natives, like younger generations, are likely to continue adopting the service. However, it's important for BNPL providers to implement responsible lending practices and for consumers to use these services carefully to minimize the risk of missed payments and financial stress.”
What’s next: Even with inflation slowing down overall, higher prices are impacting consumers' disposable income today and will likely continue during the next year. Value is clearly on the minds of consumers when making retail purchases, and beyond BNPL usage, the industry needs to look for ways to increase value across sectors.