"BuyNow, Pay Later" (BNPL) is a type of payment option that allows customers to purchase items and pay for them at a later date, often with no upfront payment or interest charges. This type of payment option is commonly offered by retailers as an alternative to traditional credit cards or private label cards. Instead of paying for their purchase in full at the time of sale, customers can choose to pay for their items over a period of time, usually as monthly instalments. BNPL gives the consumer instant gratification and a sale for the merchant – albeit at a small cost, as the BNPL provider will charge the merchant a fee.

It is difficult to predict how the economic downturn and recession will impact the BNPL industry. The success of BNPL companies and their ability to survive during this time may depend on a variety of factors, including the overall state of the economy, consumer spending patterns, and the competitive landscape. BNPL companies may be more vulnerable to economic downturns because they rely on consumer spending and may face increased default rates if consumers are unable to make their payments. On the other hand, BNPL options may also be more attractive to consumers during a recession because they allow customers to purchase items that they may not be able to afford upfront, and they may offer more flexible payment options than traditional credit cards.

Overall, BNPL companies are carefully monitoring the market conditions and consumer behaviour and will adjust their business strategies as needed to remain competitive and viable in the current economic environment. Furthermore, as interest rates continue to rise, credit card borrowing will be more expensive. This will have further repercussions on consumer spending over the next few years.

Saving to buy something in the future

Interestingly, now there is a new breed of start-ups that have turned the concept of BNPL on its head. A new and innovative payment method called “Save Now, Buy Later” (SNBL) will incentivise consumers to save for big-ticket purchases while avoiding the debt trap that can come with BNPL. SNBL is a financial strategy that involves setting aside money on a regular basis to build up savings, which can then be used to make a purchase at a later date. This approach is based on the principle of delayed gratification, where an individual sacrifices immediate pleasure or convenience to achieve a larger goal or benefit in the future.

Home improvements, a family holiday, furniture, and weddings are all examples of big-ticket items where consumers frequently hand over substantial sums of money in advance. The concept of saving for big-ticket purchases in life is not a new one. Adopting a “Save Now, Buy Later” mentality can help individuals manage their finances more effectively, build financial stability and security, and help achieve their long-term financial goals. It can also help individuals avoid overspending and going into debt, as they are able to pay for items in full using their saved-up funds rather than using credit or borrowing money. Many younger consumers are choosing to spend what they have rather than relying on credit. This could be due to a variety of factors, such as a desire to avoid debt, a preference for using cash or debit cards over credit cards, or a lack of access to credit. This is partly why BNPL may be more appealing to younger consumers.

Instant gratification can lead to debt for younger consumers

In the UK, research conducted by the Citizen's Advice in 2021 showed that 45% of 18-34 year-olds had used a BNPL service, with a quarter of these finding themselves unable to pay for food, rent or bills as a result of the repayments. NerdWallet, in the US, conducted a survey in 2021 and found that 44% of Gen-Z (that would include eligible consumers aged between 18 to 26) had used BNPL in the last 12 months. According to the Australian Securities and Investments Commission (ASIC), the average age of BNPL users in Australia was 33 in 2020. They also found that BNPL usage was more common among younger age groups, with 55% of 18-24 year-olds, and 44% of 25-34 year-olds using BNPL services, compared to just 12% of those aged 55 and over.

Retailers will go to great lengths to increase sales conversion and reduce their shopping cart abandonment. SNBL is a very different proposition. Savings clubs allow shoppers to pay for goods and services in instalments throughout the year instead of in one go, and they are often used by younger consumers that find themselves on low incomes. Some retailers offer private label debit cards, which are linked to a customer's checking account rather than a line of credit. However, most private label cards are typically credit cards that may offer special discounts or financing options to customers, and they have a higher interest rate than traditional credit cards. SNBL has enormous potential for merchants and consumers.

Who are offering SNBL – Save Now, Buy Later solutions?

Fintechs such as Accrue, Sparapay, Multipl, Hubble, Tortoise and Split offer a “Save Now, Buy Later” (SNBL) model in which consumers save money with merchants and benefit from discounts that come with advanced payments. These are the six companies that we have found that are defining how the SNBL proposition is offered.

Accrue, founded in the US in 2021, is a financial technology company and is not a bank as it likes to describe itself. The banking services are provided by Blue Ridge Bank. Accrue represents a potential new perspective for “Banking as a Service” relationships and offers a model for both fintechs and banks to compete with the BNPL service. What sets Accrue apart versus simply budgeting towards their goals in their savings accounts or saving via a Christmas Club account? People receive cash incentives paid into their accounts by participating retailers, the amounts depending on the price tag of the given merchandise and the seller’s appetite for volume. Accrue and many SNBL schemes are not part of the POS checkout, but they come much earlier in the marketing funnel when consumers are still shopping around. The consumer is free at any time to change their mind, cancelling the plan and keeping their money. Merchants don’t receive anything until a plan reaches fruition and the consumer pulls the trigger on the purchase.

Sparapay, founded by Joe Grilli, a young British entrepreneur, was created out of frustration caused by a poor experience using budgeting apps, a poor understanding that consumers had around their personal finances, and the resulting increase in the levels of consumer debt. Sparapay wanted to find a better way. Consumers are already saving for things they love, but no one is helping them do it. There are many ways that people are rewarded for buying on credit, but not much that incentivises people to save. Unfortunately, investors in Sparapay pulled out at the end of 2022. When Grilli investigated the reason, it seemed that the traditional BNPL providers, were also investing into the SNBL concept. Sparapay believed that Revolut and Monzo would follow suit, and they could not win as a start-up, so they took the hard decision to cease trading. This just illustrates the revolutionary and dynamic nature of how SNBL is emerging. The SNBL value proposition has yet to solidify in the market – for both merchants and consumers.  

Hubble, Multipl and Tortoise are three other fintech start-ups working on their own version of SNBL propositions. All located in India and focusing their efforts on a growing segment of consumers who don’t have access to credit but familiar with saving for a specific item to purchase once they have accumulated the necessary funds. The first example, Hubble Money, was launched in 2021 by Bishnoi and Neeraj Tulsyan, offers rewarding saving plans with leading brands through its mobile app. According to Hubble’s website, the consumer’s money is deposited in an escrow account with its partner bank, and you get a 10% discount on your purchases through the platform. Hubble can offer this flat percentage discount through a mixture of using merchant offers and its own funds. At the start of 2022, Hubble secured seed funding of $3.4 million in a round led by Sequoia Capital India. 

Multipl allows consumers to either invest money in mutual funds, using portfolios suggested by it or to use the money as payment advances. In the former option, consumers can ‘tag’ merchants and allow them to make you offers for discounts. These offers get crystallised when the consumer eventually buy from them. However, since the money sits in a mutual fund in the consumer’s name, they are free to buy from a third party altogether or not buy at all. Multipl also permits consumers to save money directly with the merchant concerned and benefit from discounts.

SNBL platform Tortoise has raised an undisclosed amount of funding in September 2022 from Swiggy’s co-founder and CEO Sriharsha Majety and Zest Money’s co-founder and CEO Lizzie Chapman. This is an extension of the seed funding round of about $2.3 million that Tortoise had raised in the first leg of fund raising in April 2022. Tortoise says that the world is pushing consumers towards BNPL whereas they believe that the affluent and loan-takers are only a small percentage of Indian consumers. Saving up for large purchases is a timeless practice, ingrained in Indian culture of thoughtful consumption. Let’s see how this works out for Tortoise in the next few years.

Split is another SNBL platform, but this one is based in Malaysia and one of the more experienced SNBL start-ups, founded in 2018. Split is exploiting the fact that many Malaysians already set aside money each month for a future purchase. Split has created a payment method that rewards consumers with cash when they save.

What’s the alternative to SNBL?

Unlike SNBL, savings clubs that are run by merchants are organisations that allow customers to save money on purchases made from a specific merchant or group of merchants. These clubs typically require customers to pay a membership fee, and in return they offer discounts or other benefits on purchases made from participating merchants. Some examples of saving clubs run by merchants include loyalty programs offered by retailers, or discount clubs offered by grocery stores or other retailers.

One potential problem with retailer-run savings clubs is that they often require customers to pay a membership fee to access the discounts and other benefits offered by the club. This can be a disadvantage for people who do not regularly make purchases from the participating merchants, as they may not be able to recoup the cost of their membership fee through savings on their purchases. Additionally, some people may find that the discounts and other benefits offered by these clubs are not sufficient to offset the cost of the membership fee, making the club a less than ideal way to save money. Finally, some retailer-run savings clubs maybe limited in scope, only offering discounts on a select number of products or services, which can limit the savings that customers are able to achieve. SNBL providers have looked at retailer-run savings clubs as an example of what not to do. SNBL providers are aiming to make the consumer experience more accessible, one that has greater flexibility and benefits for the saver.

SNBL or “save to buy” offers a debt-free alternative to make high-value purchases. This does not require or impact the customer’s credit score and liabilities. Plus, SNBL provides rewards over and above the direct purchasing price or even zero percent monthly instalments offered in the BNPL model.

Is there a shift in consumer opinion?

When the mainstream glossy fashion publication Cosmopolitan started its 2023 with an article about how consumers should protect themselves from using BNPL, you know the mood of the market is shifting. Consumer attitudes towards BNPL are about to pivot. Cosmopolitan’s article describes the real cost of BNPL schemes and how one 22-year-old woman managed to get into financial trouble. As a result of with too many BNPL purchases during the pandemic’s many lockdowns combined with her applications for credit has damaged her credit score in the long-term. This consumer spoke about how no one tells you that BNPL is a trap - “It builds up way quicker than you think”. Paying credit with credit was the start of a sad debt spiral for this young consumer.

In 2023, SNBL could be this New Year's resolution for consumers to change an undesired behaviour. The tradition of making New Years’ resolutions is common in the West, but it originated in the East. It will be interesting to see whether this will be echoed in the development of SNBL, as most of the SNBL providers that we have looked at, also originated in the East.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).