Introduction:
We humans are naturally drawn to prizes and discounts, and it is quite hard to pass up a good reward or a great price. Everyone enjoys a discount or payback when making a purchase, no matter where they reside or what social class they belong to.
We may have come upon the concept of ‘Buy Now Pay Later’ (BNPL) when making retail product purchases. BNPL is a sort of short-term lending that allows users to make purchases and repay them at a later date, usually interest-free. In most cases, you join up with a firm that provides this service, and they make the payment on your behalf when you purchase a product or service. BNPL setups are becoming increasingly prevalent, particularly when purchasing online. This is due to the fact that you have the advantage of purchasing something without having to spend out of your own cash.
However, after the BNPL Company settles the payment on your behalf, you must repay the money within a certain time frame. In comparison to a personal loan, the BNPL plan charges no interest. You may either pay it in one single sum or in no-cost Monthly Payments (EMIs).
Disadvantages of BNPL:
As the BNPL business expands in size, so do the cries of discontent. There are concerns that customers may spend more than they can afford, adding to previous debts that they may already be endeavouring to deal with. Also, if you do not make the payment within the specified payback period, the lender may levy interest on the amount. Further delays may even have an implication on your credit ratings.
It might also be difficult to return a product purchased through BNPL. In fact, you should receive your money back—but there may be a delay while the retailer notifies the BNPL lender of the return. In the interim, you may have to continue making the repayments. If you don’t, the payment may be recorded late or absent, which may result in penalties, and missed payments may ultimately lower your credit score.
Enter the region of ‘Save Now Buy Later’:
This takes us to the current buzzing topic ‘Save Now, Buy Later’ concept.
A handful of start-ups have flipped the idea of ‘Buy Now, Pay Later’ on its head to develop ‘Save Now, Buy Later’ plans that promote saving for major buys while escaping the debt trap that accompanies ‘Buy Now Pay Later’.
Save Now Buy Later (SNBL) is a type of smart spending that entails planning, saving, and purchasing mindfully. There are start-ups in this market that are experimenting and targeting consumers who want to transform the way they plan, save, and purchase lifestyle products and services.
Savings Accounts as a financial product have not seen much development in years, and these start-ups are now utilising the power of Indian saving accounts to provide customers with a more gratifying savings experience. Customers may plan their buys and maximise their savings while purchasing their preferred items from their top favourite companies.
This SNBL approach empowers users to return to the time-tested philosophy of goal-based saving, and in doing so, both consumers and companies’ profit, resulting in a sustainable spending environment.
How does SNBL work:
Let us take a closer look of how this SNBL idea works. Assume you want to purchase an iPhone. The phone costs Rs. 1 lakh, but you cannot afford the whole Rs. 1 lakh to pay for it up front. However, you can afford to spend Rs. 10,000 every month for the following ten months to purchase the phone. With a basic signup process, customers may select a merchant (‘Apple’ in our example) from whom they can make a purchase. Following that, the user must specify the payment amount and duration of repayment. The repayment amount can then be sent to the merchant as advances each month, or it can be placed in an escrow account with a third party selected by the merchant (Escrow account is nothing but a bank account which is held by a third party on behalf of 2 other parties that are in the process of completing a transaction).
This savings plan is straightforward. You must deposit a set sum for a set number of months. When the time period is up, the collected funds will be paid to your account, and you will be able to purchase the selected product (in our example, it is iPhone). In exchange, the merchant offers you a discount, such as a 10% cashback on an iPhone purchase. When you include the merchant discount, your ‘return’ on savings is far larger than simply putting that money in the bank.
In a nutshell, with this SNBL model, the consumer must save a specified amount of money over a period of months in order to receive a payback or discount. The consumer benefits from the fact that there is no interest element or processing fee. Simply explained, it is not a debt or credit plan. We just save aside money for future purchases. As such, there are no hidden costs, interest elements, or service charges on these SNBL platforms.
What these SNBL start-ups are upto:
The startups in this space are revolutionizing this market by leveraging technology and data. The SNBL Model has combined saving and spending on a single platform. Consumers do not pay for these platforms. Instead, these platforms are paid a cut by the merchants on each purchase.
Although the market is still in its early stages, certain firms in the SNBL area in India, such as Tortoise, Hubble, and Multipl, have found great adoption among consumers. Some of the biggest investors are putting money into the SNBL area because of the concept’s ease and versatility, and, most importantly, consumers can buy things with their own money rather than borrowed money. Although the bulk of people in India save, regular savings products are not lucrative. Furthermore, there hasn’t yet been a single platform that has brought together both merchants and customers on a unified platform without the use of ‘debt’ as a trigger.
Saving to purchase is a natural process for Indian consumers, and it has been happening in the Indian jewellery market for years, where consumers used to save money in chit funds managed by jewellers and then buy gold jewellery with the collected money after a specific period of time.
The start-ups are also aggressively seeking to expand the range of segments available to consumers for purchase, such as travel, electronics and appliances, home products, vehicle, personal care, luxury etc.
Within the same SNBL market, there are start-ups with a somewhat different business model, allowing users to invest in tailored mutual fund schemes that can create returns while lowering the total cost of the purchase plan (although these start-ups must also be a SEBI licensed investment advisor to do so). They strive to make saving a routine by offering incentives through brand partnerships.
Comparison between SNBL and BNPL:
The emphasis in BNPL is focused on gaining credit and getting immediate fulfilment. Lines of credit are available for immediate purchases. In the case of lack of a savings strategy, this might lead to people going into debt, damaging their credit ratings, and having less money saved for contingencies. Indeed, because of its stiffness in terms of payback date, interest rate, and service charge, the BNPL model can be a costly option at times. If the repayment plan is disrupted, the interest cost might go as high as 15-20%. Not to mention that there are no genuine rewards in the form of cashbacks or savings, and the concept might lead to overspending because lenders are more than willing to provide loans for customers’ consumption expenditure.
SNBL also outperforms BNPL in regards to accessibility, since all individuals may utilise this route—even those with no or low credit scores—and there is no previous approval procedure required for this. SNBL provides a debt-free option for making large-ticket purchases. Furthermore, SNBL offers benefits in addition to the straight purchase price.
However, SNBL is not a substitute for BNPL, but rather a supplement to give the finest buying experience for every consumer segment and a new healthy shopping alternative.
If the economics sound right, start-ups are also considering launching SNBL in essential items usage areas such as kirana, grocery, education, insurance and utilities transactions. The average transaction size may be little in comparison, but this may be a matter of scale. However, not everybody feels that SNBL platforms can achieve the same level of success in the essentials market since nobody would save to purchase groceries, which has a very high repetition rate. The usefulness of these ‘save to purchase’ platforms will be influenced by the worth and convenience of the use-case.
Major drawback faced by Consumers while using SNBL:
There are some drawbacks to using the SNBL platform as a consumer. According to the platforms, customers may alter their minds and cancel their purchasing plan at any moment during the course of their instalments. However, the retailer may have a disagreement with the platform and refuse to honor the discount or refund the money to the customers. Furthermore, if customers change their minds and withdraw their money from the purchase plan, the platforms do not pay any interest. Consumers will only receive their initial investment refunded.
The other disadvantage of this model is that consumers once they begin paying advances to a certain merchant, they may miss out on competitive sales with some other merchant. However, for enthusiasts of specific brands, this purchase plan might be a smart way to get some savings.
Way Forward for SNBL:
The rise of SNBL start-ups correlates with the post-Covid period, which has witnessed a surge in savings consciousness among people. One could claim that such start-ups have had it easy thus far, but the road ahead could be turbulent if customer behaviour shifts and younger generation begin to emulate the Western habit of over-leveraging one’s own finances.
The SNBL area will only expand as more customers are served and new categories and merchants are added to the platforms. This is a very new market category. Savings as a category has grown in the last two to three years as customers explore for ways to save and invest. There aren’t many major participants in this market at this juncture. Those who jump in now will undoubtedly benefit from an early mover advantage.
Additionally, the concept of saving vs credit is ultimately about risk against safety, and India has long had a strong habit of savings. Startups are now concentrating on making full advantage of these savings as a tool to enhance consumers’ financial health. One of the most significant issues that companies in this field will encounter is merchant consolidation.
SNBL companies are well cognizant of the segment’s opportunities and challenges, and are constantly seeking to attract more retailers and good deals for users. Consumers, on the other hand, may make large purchases on their own terms and are also incentivized to save. On the surface, this appears to be a win-win situation for everyone. Only time will tell whether or not this is a viable concept to pursue.
