‘All of us are going to pay’: 30% of Americans are taking out BNPL loans to pay for groceries, and it’s probably going to cost you

Buy now, pay later use for groceries has risen to 29% of U.S. consumers, nearly double the 14% reported two years earlier, as affordability pressures push households to finance necessities. A University of Washington study finds retailers may raise sticker prices to offset BNPL merchant fees, effectively causing cash-paying consumers to subsidize financed purchases, while thin grocery margins could also lead retailers to reduce inventory. Consumer-credit risks are rising as 47% of BNPL users reported a late payment in the past year, despite average balances of roughly $135.

Analysis

The investable signal is not grocery-price pass-through; it is adverse selection in BNPL credit cohorts. As BNPL shifts from discretionary goods into recurring essentials, repayment capacity becomes more correlated with employment shocks and inflation, while repeat transaction frequency can make loss emergence faster than the headline average balance suggests. AFRM and KLAR may retain GMV growth, but higher provisioning, fraud controls and merchant-risk pricing could pressure contribution margins over the next 1-3 quarters.

Large grocers and mass merchants have more ability to absorb payment costs through vendor negotiations, private-label mix and basket cross-sell; smaller specialty retailers are the more exposed merchant cohort. This favors scale platforms such as WMT and COST versus discretionary merchants with thin margins and limited pricing power, although the direct BNPL mix must be verified before treating it as an earnings driver. The secondary effect is regulatory: evidence of consumers financing staples strengthens the case for credit-reporting, affordability checks and late-fee restrictions, potentially raising compliance costs but improving long-run credit underwriting data.

Consensus may overread this as immediately bearish for BNPL. Essential-spend usage can lower merchant customer-acquisition costs and create highly recurring transaction volume; the key question is whether incremental lifetime gross profit exceeds losses and funding costs. Watch AFRM's delinquency/vintage disclosures, merchant take rate, funding spreads and management commentary on essential categories: a rise in 30+ day delinquencies or reserve rate without offsetting take-rate expansion would falsify the growth-quality case quickly.

Key Decisions for Investors

• Maintain a 1-3 month underweight or tactical short bias in AFRM only on confirmation from earnings that reserve expense, 30+ day delinquency or funding costs are rising faster than GMV. Use a defined-risk put spread around earnings rather than outright short exposure; cover if management shows stable loss rates and expanding revenue-less-transaction-cost margin.
• Monitor KLAR ahead of results for evidence that grocery/essential-volume growth is being subsidized by merchant pricing or credit losses. No directional trade without segment-level cohort and take-rate data; the private-company/limited-liquidity context makes AFRM the cleaner public proxy.
• Consider a 6-18 month relative-value basket: long WMT or COST versus a short basket of lower-scale discretionary retailers with demonstrable BNPL dependence and weak gross-margin trends. Enter only after confirming payment-fee exposure in filings; thesis is that scale retailers retain pricing and supplier leverage while smaller merchants absorb the cost.
• Set a regulatory alert for CFPB action on BNPL credit reporting, ability-to-repay standards or fee disclosures. A formal rulemaking would be a near-term multiple-compression catalyst for AFRM/KLAR, while comprehensive bureau reporting could be a longer-term underwriting positive.