'Buy now, pay later' (BNPL) provider Zilch has hit the headlines for encouraging people to spread the cost of groceries and takeaways over six weeks.
Leading debt advice charity StepChange told Which? It's a 'worrying' development, while the Advertising Standards Authority (ASA) said it was 'carrying out a proactive monitoring exercise of advertising across the BNPL sector'.
Here, Which? takes a closer look at how Zilch is marketing its BNPL products as a way to spread the cost of food and explains why using credit in this way can be a slippery slope if you are struggling to make ends meet. We'll also offer advice on how to cut down your food bill without borrowing money.
Typically BNPL schemes offered by the likes of Klarna have focused on marketing fashion and household items - and some have fallen foul of the regulator for linking shopping with BNPL to 'lifting or boosting mood.'
Using credit to pay for food isn't new. The Money and Pensions Service estimates that nine million people in the UK often use credit for food and bills.
However, the trend for advertising BNPL to pay for food is worrying experts.
Richard Lane, Director of External Affairs at StepChange told Which?: 'A common indicator of problem debt is a client borrowing to pay for essentials like food, so parts of the industry now promoting buy now, pay later credit for grocery shopping is worrying.'
Zilch isn't typical of the big BNPL schemes which you might find at online checkouts.
Instead, you need to download the Zilch app and search for a store you want to shop with.
Once on the site, you will be able to pay in one or pay in four and be told what fees may apply and the limit you will have.
Zilch offers 0% at eligible stores (unregulated by the Financial Conduct Authority), while Zilch Anywhere (regulated by the FCA) can be used at any store but charges a fee of £2.50.
You then pay 25% upfront with a virtual Zilch Mastercard and pay the rest over six weeks - or you can pay in one go and get cashback.
As Zilch isn't a payment option at online checkouts, it relies on promoting its service to customers through its website and ads.
The image below shows how 'Fast food & groceries' is the second shopping category promoted on Zilch's website, below 'Fashion' and above 'Home & electronics'.
But Zilch is also promoting its services by sponsored adverts on social media(see below) that encourages shoppers to order an UberEats takeaway using Zilch, telling them to 'have it now and pay later.'
On its blog, Zilch encourages people to 'recharge' and 'take care of themselves' by using BNPL to buy beauty products, perfumes and dine out on credit. 'Have afternoon tea and feel like royalty even just for a day', says one blog post, while another encourages you to try a 'luxurious dining experience' at expensive restaurants like Sarap Mayfair and Rules in Covent Garden. Some of these blog posts are categorised under the tag 'financial wellness'.
When we asked Zilch if the promotion of BNPL for food and drink purchases was problematic a spokesperson told us: 'Zilch's campaigns are fully compliant and span all use cases and categories, not just food or grocery, but we feel it is crucial that customers who already make use of high-cost credit for this purpose are made aware that there is a better, more affordable way to manage spending than what they're used to from incumbent lenders.
'As explained to Which? in-depth in an interview, instead of fragmented accounts, payment options, credit card interest and fees, and BNPL tied to retailers, we provide our customers ways to pay via credit or debit everywhere with a virtual card and have one, consolidated view of any current debt with Zilch, payment schedules and cashback earned.'
Which? research published last year found people in more affluent households or with families are more likely to use BNPL services. But we also found that some people are using BNPL to access credit at stressful and challenging times in their life.
When we looked at Trustpilot reviews on Zilch we found dozens saying they used Zilch to pay for orders with UK supermarkets because they were 'poor', 'strapped for cash', and on a 'low income'.
Kimberley Neve, lead author of a recent report into obesity in the UK by the Centre for Food Policy at London's City University, believes the Zilch UberEats ads target people in financial difficulty and appeal to their desire for instant gratification.
She told Which?: 'Especially if you're on a low budget, attractive price offers allow a sense of spontaneity, freedom and fun that can be limited with financial stress.
'By focusing on attractive pricing, you're essentially targeting people on a lower income.'
For people struggling to pay the bills, using credit as a safety net has its advantages - but it can easily make your financial problems worse.
'If people cannot afford to pay for food without borrowing, then credit may simply exacerbate the problem and postpone the point at which it gets addressed,' said Richard Lane. 'It may be a debt solution rather than more credit that people really need.'
If you choose to split up your food bill, there's a risk you'll prioritise the credit repayments over paying other important bills. In a recent study, StepChange found that two-thirds (65%) of people who used credit as a safety net had missed household or utility bills, taken out more credit or cut back to the point of hardship in order to meet their repayments.
Zilch argues that it offers a better alternative to paying for food than using credit cards or overdrafts because these come with 'fees and high interest that compound problem debt.'
It also says that its customers aren't at risk of entering problem debt because it uses affordability assessments, soft credit checks and open banking to see what financial commitments a customer has - so it could reject them if it saw issues.
However, other BNPL firms and regulators acknowledge that the visibility of other debts through open banking and credit checks is poor. So Zilch and other BNPL companies may not get the full picture of a customer's accounts and borrowing when making their checks - meaning they could lend to someone they shouldn't.
There's also a risk that people sign up to use Zilch without realising they're taking on debt.
We also found reading the terms and conditions of these products is rare. As a result, people could be entering into BNPL agreements without fully understanding the risks.
Late payments with Zilch could affect your credit rating and make it harder for you to borrow money.
Zilch told Which? its advertising is in line with the ASA and FCA guidelines.
According to the ASA, marketing for BNPL products must 'make clear that they are a form of credit'. It states that ads are likely to be misleading if they do not prominently signpost the relevant risks and limitations.
Some of Zilch's ads we've analysed include risk warnings and encourage consumers to spend responsibly. Others don't.
The post below, taken from Zilch's Instagram, makes no reference to the fact that it's a credit product, doesn't point shoppers towards the terms and conditions and states there are no 'surprises' when using its scheme.
It also doesn't distinguish between Zilch's two BNPL schemes. While one - Zilch Anywhere - is regulated by the FCA and carries transaction costs, the other - Zilch, which has no fees - is unregulated.
We came across a number of online reviews where people said they were caught out paying unexpected fees, suggesting Zilch's marketing isn't always crystal clear.
Zilch told Which?: 'Zilch is not a point-of-sale finance provider - Zilch's direct customer relationship means that customers must go to the Zilch site (where both schemes are clearly distinguished), sign up and agree to all terms and conditions, select a store, choose how to pay (at which point are shown any and all fees associated with a representative APR calculation) before they go on to spend. This eliminates any potential for misunderstanding of fees or schemes.'
When we presented what we found to the ASA, it said: 'We know people have concerns around the advertising of BNPL services and this is a priority area for the ASA.
'We're currently carrying out a proactive monitoring exercise of advertising across the BNPL sector in order to identify any consumer protection issues with a view to launching investigations in the next few weeks and taking enforcement action where necessary.'
If you're struggling with the price of food and drink at the moment, here are some tips on how to save.
Each month we track the cost of a basket of groceries at the biggest supermarkets and often find a big gap between the cheapest and most expensive.
Lidl was crowned cheapest supermarket in January 2022, for the range of 23 groceries we looked at costing an average of £24.78, compared to Waitrose which had an average basket price of £33.94 - nearly £10 more.
Branded items can cost a lot more than non-branded ones, but you might be put off at the thought of sacrificing on the taste.
We regularly put big brands, such as Heinz and Kellogg's, up against supermarket's own brands in our Which? taste tests, with surprising results.
Our most recent test looked at Marmite vs own label yeast extract spreads and found a £1.69 jar beat Marmite (which typically costs £2.50) on taste.
Freezing leftovers instead of binning them will save you money and time, as you've got an instant meal for a day when you don't fancy cooking.
You'll need to be referred to a food bank, either through Jobcentre Plus, a social worker, Citizens Advice, a medical professional or your local authority. If you aren't in touch with any of these organisations, you can still contact the food bank directly to ask for help.