BNPL belongs in grocery stores, not in restaurants

Buy now, pay later (BNPL) services have revolutionized consumer spending across various sectors in recent years, including electronics and fashion. Now, it’s gaining traction in the food and beverage (F&B) and grocery industries.

DoorDash has added BNPL for food delivery in the US and, more recently, KFC Malaysia teamed up with a local provider for fast food purchases.

Is BNPL an appropriate payment method for something like food? Media reports have called this into question, and while there are indeed drawbacks, the answer is more nuanced.

A KFC restaurant in Kuala Lumpur, Malaysia/ Photo credit: Faiz Zaki/Shutterstock

In my view, BNPL can offer great value for consumers in the grocery segment, but there is great risk in the F&B sector. Let’s dive in.

Business model

When BNPL was first introduced in Europe, it was focused on allowing consumers who didn’t have credit cards to pay for purchases at the end of the month.

In Australia, it allowed consumers to spread payments over a short duration according to their income schedule. This sprang from the local “lay-by” shopping culture, where consumers could make a downpayment to secure their purchase before paying the full amount.

See also: ‘Buy now, pay later’ is not dead

Most BNPL providers offer zero interest and no fees if payments are made on schedule. The service operates on a simple premise: The provider pays the merchant in full at the time of purchase, and the consumer repays the provider in installments. Revenue typically comes from merchant fees (similar to credit card processing fees) rather than from consumer interest.

In 2017, having seen the growth of BNPL, I co-founded Hoolah in Singapore.

Our best sectors were in fashion, beauty, electronics, and furniture, which have traditionally been fruitful for BNPL firms.

Risk spectrum

So, should these platforms offer their services for restaurants, groceries, and food delivery? This, to me, depends on the BNPL provider’s value proposition, their approach to risk, and the capacity to offer value outside of simple financing.

Fast food and restaurants have a particularly concerning risk profile for BNPL. These transactions typically involve relatively low-cost, perishable items that are consumed immediately.

At Hoolah,  we avoided the F&B sector, as we saw little incentive for a consumer to repay for a meal they’ve already eaten. Consumer research consistently showed little interest in installment payments for immediate food consumption, which lined up with our understanding of how BNPL provides value.

Money comes, money goes