With rising food prices, UK supermarket Iceland has launched its BNPL scheme to maintain affordability for its most vulnerable customers.
Partnering with non-profit, Food for You, the supermarket has made short-term, interest-free microloans available for members of The Iceland Food Club. Customers can apply for loans of £25-£100, which are loaded onto a card, which can then be used throughout the country in any of the company’s stores.
Loans can be paid off in installments of £10 every week and are available six times a year, coinciding with school holidays.
At school, 1.7 million children are eligible for free school meals, taking some of the pressure off vulnerable families. During school holidays, they could feel the effects of inflation significantly more, with food price inflation reaching 12.6% in July after maintaining a steady average of 2.86% between 1989-2021.
The launch follows its successful trial run earlier this month, which they claimed had reduced the use of food banks by 92%.
But is BNPL the right way?
BNPL has had a bumpy ride of late, especially within the UK.
The modern BNPL market has become one of the fastest-growing sectors in finance. Between 2018 and 2020, BNPL transactions value grew by 292%. In 2021 the total value of global transactions had reached $120 billion.
In 2022, however, the market hit a snag in the UK. The FCA, which continues without regulation on BNPL, announced guidance for BNPL firms following contract changes in the four leading firms’ policies. The UK government also launched a consultation, whose results were published in June.
Charity Citizens Advice in June released their findings that 40% of BNPL customers in the UK have borrowed money to meet their payments on time, creating a debt spiral. According to their survey, 51% of 18-34 year-olds had borrowed money to pay for BNPL purchases, compared to 39% of 35-54 year-olds and 24% of people over 55.
The FCA has since warned firms about misleading advertisements of their BNPL products. Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said, “As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services.”
“Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely, and properly informed decisions. It is vital that adverts are clear, fair, and not misleading.”
Critics of the Iceland BNPL initiative have called it “deeply disingenuous,” accusing the company of encouraging customers to spend more than they can afford.
Richard Walker, Managing Director of Iceland, said that these critics are “middle-class people who have no difficulty accessing mainstream banks themselves and would not think twice about paying for their weekly shop with a credit card.”
A result of 18 months of pilot programs
Iceland’s BNPL launch has been a long time coming. Over 18 months, the firm has piloted multiple regional trials, which they report having been helpful to 95% of participants. According to the results of these trials, 92% were able to end or reduce their use of food banks; and more than 80% stopped borrowing from high-cost loan sharks.
“All the evidence we have seen from our trials – and from researching the widespread use of microcredit around the world – is that BNPL is a really helpful way of managing low and irregular incomes and improving the quality of life and the self-respect of those taking part,” said Walker.
The partnership with the non-profit Fair for You paints the initiative positively. Fair for You has provided households with affordable loans for some time and advertises that responsible lending is at its core.
Sho Sugihara, Founder and CEO of credit builder fintech, Pave, said, “The fact that a non-profit lender is backing the product makes me more comfortable with the announcement.”
“I think it’s important to consider the alternative for these consumers: borrowing money from friends, payday loans, or using credit cards. If the Iceland loan is interest-free, then that is a good alternative to some of those options.”
“However, I gather that it would leave a mark on your credit file if you miss a payment, so consumers should be reticent of that.”
Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.
Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.