Grocery chain Iceland rolls out BNPL scheme

Iceland's new initiative, announced in partnership with charity lender Fair for You, allows customers to take out small loans on a pre-loaded card to cover their grocery shop – of up to GBP 100. Shoppers will be able to initially apply for a Food Club Card on Fair for You's website which is pre-loaded with an amount of between GBP 25 and GBP 75.

Fair For You, a not-for-profit lender to low-income customers, counts the UK Treasury as one of its backers. Under the scheme, customers apply for a loan from Fair For You and receive a prepaid Mastercard they can use in Iceland stores.

For additional Iceland shops, further credit can be taken out. There is a total limit of GBP 100 outstanding at any one time. People will pay back GBP 10 a week and are able to choose the day that they make repayments, able to overpay when it is convenient.

Shoppers are urged to be cautious

Households are, however, advised to treat using BNPL offers to help with rising costs with extreme caution. As officials mention, BNPL can be easy to get into and very difficult to get out of, especially if households become users of multiple BNPL lenders. And now, with BNPL services like Klarna starting to report on transactions to Experian and TransUnion, BNPL has the real opportunity to damage credit scores.

As with all credit solutions, BNPL can be beneficial and a good exercise to increase a credit profile, but the fact these services are now offering loans for food and utility bills, it's a reflection of the times.

Inflation on the weekly supermarket shop hit 11.6% in the past four weeks, the highest level since Kantar, a market research firm, began collecting data in 2008. Aside from the rise in food costs, British consumers are also grappling with soaring energy costs amid the sharpest fall in real wages on record and growing fears of a recession.

BNPL extension

The BNPL industry first attracted consumers looking to finance the purchase of designer clothes and other high-end products. Now, operators are focusing on more mundane purchases like gasoline and groceries as inflation hits multi-decade highs.

Zilch, for example, has advertised on Facebook that consumers can ‘pay back over six weeks’ for Domino’s Pizza and Uber Eats. It also advertised that consumers can pay in four interest-free instalments for their coffees.

Online food store Flava has pioneered BNPL for groceries, offering GBP 100 credit guaranteed. Clearpay also promotes BNPL for food and drink.

A review by the Financial Conduct Authority’s into the unsecured credit market said BNPL could be a useful tool, but a shopper could quickly amass GBP 1,000 of credit using multiple lenders and it could cause consumer harm.