Mandisa Mzizi, owner of Mandisa's Market Pick n Pay, originally  a spaza shop. Pick n Pay is offering to open accounts  for customers with 'the lowest possible  fee'. Picture: MASI LOSI
Mandisa Mzizi, owner of Mandisa's Market Pick n Pay, originally a spaza shop. Pick n Pay is offering to open accounts for customers with 'the lowest possible fee'. Picture: MASI LOSI

Thinking of applying for an account at Pick n Pay? Think again. That's the advice of financial advisers and debt counsellors who say it's unwise to buy groceries on credit and that the more access you have to credit, the more likely you will be to use it.

"If you aren't using credit to buy your groceries, why start now? And if you already have a credit card which gives you interest-free credit for 55 days, why would you need this account?" says financial adviser Craig Torr of Crue Invest in Cape Town.

More credit cards and accounts usually equal more costs. But the Pick n Pay account is being offered free of an initiation fee and attracts a monthly fee of just R10, which is incurred only in the months that you use it.

Credit providers are entitled to charge an initiation fee of up to R150 when granting you a credit facility and can charge a monthly administration fee of up to R60.

High cost of credit

Richard van Rensburg, the deputy CEO of Pick n Pay, says the high cost of credit is one of the reasons consumers have less disposable income for groceries, hence the design of a product with "the lowest possible monthly fee" and no hidden costs.

But Torr says even if this account is less costly than a regular credit card, it's likely to be a temptation, and if you don't pay your outstanding balance in full within 55 days, you will pay interest of up to 20.75%. "Encouraging consumers to buy food on credit is not helpful; it's encouraging more of the wrong behaviour."

Just over half of all credit-active consumers in South Africa have an impaired credit report, which means they either have a judgment or administration order against them or have one or more accounts in arrears. This indicates overindebtedness.

Torr says that most overindebted consumers who have consulted him have numerous credit cards and accounts. "Having maxed one card or account, they open another, usually to pay off the older accounts. If you need credit in order to buy groceries, you need help."

Essential expense

Pretoria-based debt counsellor Charl Marais agrees. "Even if the credit comes at a reduced cost, you should not be buying food on credit." Food is an essential living expense and therefore funding it on credit is unsustainable and costly. If you need credit to buy food, you may already be overindebted, he says. "To give credit to a consumer who doesn't have the funds to pay for food is reckless, and if he's not yet overindebted, granting him credit to buy food may well cause [him] to become overindebted."

Van Rensburg says credit provider RCS is taking on all the risk and will enjoy all the rewards associated with lending - it is responsible for vetting consumers, will carry any bad debts and will receive interest earned from credit.

He says the benefit to Pick n Pay is "a saving on the high credit card interchange fees [the fee paid by the merchant when you pay using a credit card] and an anticipated increase in spend by customers in stores".

Wrong message

Soweto-based debt counsellor Jacob Ramonti says opening another line of credit to consumers to pay for food sends the wrong message to financially illiterate consumers, a large segment of Pick n Pay's market.

Ramonti laughs at the suggestion that customers can exploit the 55-day interest-free period. "Most people don't even know how to read their bank statements. If you really have the consumer's best interests at heart, why turn cash-paying customers into consumers of credit?"

RCS CEO Regan Adams says a lot of cash-paying customers use short-term loans, a more expensive form of credit. If consumers of credit are not serviced by the regulated market, they turn to the unregulated market - loan sharks.

Furthermore, a significant portion of Pick n Pay customers use a credit card to pay for groceries. "Obviously this is not new. Woolworths has been doing it for years; Game is doing it." Woolworths offers a store account and a Woolworths-branded credit card, while Game offers a store account.

When assessing a consumer's creditworthiness, the creditor assesses the consumer's overall ability to pay and their behaviour based on their payments. Affordability assessments, prescribed by the National Credit Act, are robust, Adams says. Allowing consumers to buy on credit at Pick n Pay would not change their behaviour. "Buying food on credit is not what gets people into trouble."

Johannesburg financial adviser Boitumelo Mothoagae says credit should be used to build wealth. "A home is a wealth-building asset, and a car can be too. But food is something we consume daily; it's perishable and doesn't last, and for that reason you should not buy it on credit. If you default, your credit report will be negatively impacted - over some groceries. It's a high price to pay."

Pick n Pay is offering account holders a R200 discount on their first shop using the account if they spend at least R500.

Customers will receive a free detailed monthly statement and can check their balance on the Pick n Pay app, on the website, through the call centre or at the till. Customers can pay their instalment by debit order or at any Pick n Pay till while shopping.

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