Rapidly rising inflation is prompting consumers to turn increasingly to fractional payments. Previously reserved for more expensive purchases, it is now beginning to be used for groceries and fuel, as is already the case in the USA, Australia and the UK.
Fintechs and investors welcome the expansion of the market to include everyday shopping
Split payments, or "Buy Now Pay Later" (BNPL), are becoming increasingly popular. In some countries hit by dramatic price rises, such as the UK, Australia and the USA, payment in instalments is no longer reserved for one-off purchases: it is also used to pay for groceries and fuel.
Fintechs and investors have been quick to seize the new opportunities offered by rising inflation and its impact on fractional payments. For example, Swedish fintech Klarna, a Buy Now Pay Later specialist, has partnered with US oil companies Texaco and Chevron to enable its customers to pay for their full tank of fuel in several monthly instalments.
Australian fintech Fupay has signed contracts with supermarket chains IGA Marketplace and Foodworks, as well as with United Petroleum, to offer fractional payments for groceries and fuel.
The Affirm fintech has launched a debit card as part of its fractional payment offering, making it possible to pay for everyday purchases, particularly groceries, in instalments. The success of this debit card has attracted the attention of investors, who see in these new uses an expansion of the fractional payment market.
Increased risk of overindebtedness
However, the use of fractional payments to pay for groceries is not to everyone's taste. In France in particular, several credit providers see it as an increased risk of overindebtedness. This risk is all the greater at a time of rising inflation.
In Europe, as in the United States, the United Kingdom and Australia, the financial authorities are keeping a close eye on those involved in fractional payments, and intend to further regulate this practice, which is not currently subject to the same rules as consumer credit.
Fractional payments are also not taken into account when calculating indebtedness, and many consumers use them without even realizing they are taking out credit. According to a study conducted by the Woolard Review for the FCA, 25% of consumers using fractional payments are under 25, and 50% are aged between 25 and 36.
Late payment fees are particularly high, and provide a significant proportion of revenue for Buy Now Pay Later players. In 2020, for example, Klarna generated $834 million in sales from late payment fees alone, up 47% year-on-year. For Australian fintech Afterpay, late fees accounted for around 14% of its revenues in 2020.
For the time being, French fractional payment players do not seem inclined to offer their customers BNPL solutions for food shopping. La Banque Postale subsidiary fintech Django is the latest to enter the market. It stands out for its declared determination to protect its customers from overindebtedness, by preventing them from exceeding the threshold of 2 fractional payments over a rolling 30-day period. It even offers services developed jointly with the Crésus association for the fight against overindebtedness, with which it has established a partnership.