Drugstore chain Rite Aid is teaming up with Klarna, a global payments network and shopping assistant, to offer its customers the option to pay for goods and services through buy now, pay later installments.
With Pay in 4, the first payment is due at checkout, followed by three interest-free payments, each due every two weeks. Similar to other BNPL services, there are no additional fees or interest charges as long as payments are made on time. Rite Aid customers will need to create a Klarna digital card in the Klarna app to use the service.
BNPL services have become popular for big-ticket items at retailers like Best Buy and Home Depot. Rite Aid occupies a different space in the merchant landscape, as most purchases at a drugstore are for lower-cost items. Additionally, prescriptions and other medical services are specifically excluded from the program.
However, many drugstore items have not only increased in price recently but are essential purchases for many families. For example, a month’s supply of diapers for one child can cost a household nearly $50.
“If your kids need diapers, that’s not something you can put off until payday,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “Maybe you got hit with an unexpected auto repair or other unplanned expense. This Klarna deal now gives you the flexibility to stretch your emergency drugstore needs over four payments.”
Building Loyalty
Because the Pay in 4 option incurs no fees or interest to consumers, it appears that Rite Aid is covering all associated fees to Klarna.
“What remains to be seen is whether either Rite Aid or Klarna can make any money through low-ticket sales in retail financing,” said Apgar. “Or maybe the program runs at a loss for Rite Aid as a way to build consumer trust and loyalty. There is a CVS or Walgreens on every corner, but if Rite Aid helped you when you needed it, you’ll go out of your way to patronize them.”
The benefits to Klarna seem to align more with their long-term marketing goals rather than short-term financing profits.
“It’s a way for Klarna to build their customer list,” said Apgar. “Once you’re in the fold through Rite Aid, you’ll start receiving offers from other Klarna merchants on higher-ticket items. I wouldn’t think that this program is going to be a big moneymaker for anybody, but it has the potential to be a big business builder for both Klarna and Rite Aid.”