(Can you) Save Now Buy Later in India
What is Save Now Buy Later
‘Save Now Buy Later’ is an emerging spending concept quickly gaining traction in India. With this payment method, the biggest advantage a customer can receive is the discounts on the price, or the cashback received post investment maturity.
The SNBL model is quite simple- For a short period (less than 12 months), you invest money in instalments, which the SNBL service provider invests in the market. The returns are then shared between both the parties. The investor (you) can withdraw the money at any point in the cycle at the cost of losing the corresponding interest from remaining months.
The SNBL model is similar to the Recurring Deposit model used by traditional banks. The main difference is in the interest rates- lower in case of Recurring Deposits, but quite high for SNBL.
The role of Banks
Although Save Now Buy Later can be potentially less riskier than buying on credit (especially now, with looming interest rates and imminent recession) the major players in this arena are still non-banks. Traditional banks in India have not yet adopted this model on a larger scale, the reason being simple- banks earn better through interest on credit loans.
Models like Credit Cards, ‘Buy Now Pay Later’, etc. demand interest at 16% to as high as 28% from customers. Moreover, buying on credit promises instant gratification, thus encouraging the customer to utilise these services.
At the same time, shorter investment periods and higher returns mean riskier investment buckets. Banks may not see value in promoting this service to customers already quite averse to investment opportunities.
What is Buy Now Pay Later
The exact opposite of the Save Now Buy Later model is the Buy Now Pay Later model (BNPL), which recently gained immense popularity in the Indian market. According to FIS- BNPL is the fastest growing online payment method in India; the current market share being 3%. It is expected to grow by 53% CAGR (expected total market share to be 9% by 2024).
Banks are extending BNPL through their Fintech Partners to customers- with the goal of offering an easier way to increase their overall eligibility for credit. Some examples are Axis bank + Freecharge, ICICI PayLater and HDFC FlexiPay.
The BNPL model is being extended to new customers, the younger generation- with the view of enabling lending to them and eventually aiding in increasing their credit score to be able to offer them credit cards and loans. The following image illustrates this model-
What is a customer more likely to choose- the case of an iPhone
It is clear that both SNBL and BNPL are targeted towards salaried employees from middle to upper-middle economic class, generally with families, living in tier 1 or tier 2 cities.
Save Now Buy Later is currently employed in industries like travel, jewellery and consumer electronics. Since the first two are more aspirational, there would hardly be any customer who would make these purchases on impulse. Decisions on such purchases are also highly driven by other non-monetary factors (leaves, family, weather, occasions, etc.).
The biggest common industry currently offering both BNPL as well as SNBL services is consumer electronics. So, let’s take an example from there.
Meet Karan, a software engineer recently promoted to Senior Manager, Engineering at Microsoft in Hyderabad, India. He moved to Hyderabad 10 years ago with his wife Sakshi, also an engineer who quit her job to raise their two children, now aged 11 and 7. Being a single-income household in a metropolitan city, Karan and Sakshi run on a fairly tight monthly budget.
As a new manager, Karan wants to impress his team by dressing sharp and wielding the latest gadgets at work. Thus, he wants to replace his Samsung smartphone with the latest Apple iPhone 14. As we know, Apple products are exponentially more expensive than their counterparts in India. Below is an empathy map drawn to analyse Karan’s process of buying an iPhone 14.
Considering Karan’s reason behind buying an iPhone 14 and his income structure, what do you think he would go for- SNBL or BNPL?
Like Karan, most decisions on consumer electronics (barring appliances like Fridge and Microwave) are more often than not the products of desire than necessity. Therefore, it may become difficult to convince a potential customer to save money to buy an electronic after 9 months, when they can easily own it now and pay for it from their salary over the next 9 months.
Why SNBL may fail against BNPL
Quite logically, the BNPL model works because of the following reasons-
- Instant Gratification- Owning the commodity ‘right now’ rather than later, while the perceived value is still very high.
- Repayment confidence- Credit payments are availed mostly by salaried employees, who would not deem a 3 to 9 month repayment period with 0 interest as a big risk.
- Credit score improvement- Timely payments improve credit score; a gain creator hard to ignore for the ‘homeowners of tomorrow’.
- Opportunity cost (FOMO)- In rapidly upgrading markets, older models quickly go off trend; what’s the point of buying the same model next year when one would lose on an entire year of use, yet would have to give the model up at the same time in the future?
Most customers are smart enough to recognise what products they can afford to pay for within the stipulated 0 interest payback time of BNPL. However, they generally don’t care to see the risk of very high interest, should they fail to pay back within the stipulated time period. At the same time, most don’t bother to look for hidden costs in the credit offers.
If SNBL value propositions fail to address the psychological barriers to saving, it may fail terribly against BNPL in most industries. However, aspirational purchases like travel, jewellery and party planning (for weddings, etc.) can still benefit from the SNBL model.
How may we improve user behaviour
In order to promote SNBL in a hostile market, it is important to influence decisions through user experience. One solution to this could be to show the advantages of long term savings upfront. Let’s consider the example of Multipl, a current leader offering SNBL services in the Indian Market.
Multipl has a spend calculator on their website, which calculates and shows the difference between buying on credit, buying from a traditional savings pot and buying from the Mutltipl SNBL pot for the same period of time.
Let’s see how much we gain if we save the money equivalent to the cost of an iPhone 14 for 9 months-
Step 1- Select commodity
Step 2- Set Amount
Step 3- Set period
Step 4- Results
The ‘value’ of the difference of INR 10,000/- at the expense of losing 9 months of use is not evident upfront.
Instead…
A simple one-line statement can prove to be compelling enough to encourage the customer to avail the SNBL service. This is just one example of improving user behaviour through UX design. There could be several such UX strategies employed to promote SNBL and improve the financial health of customers.
Conclusion
It is hard to tell which one out of BNPL or SNBL may survive in the longer run. However, one can’t deny that SNBL is definitely doubly beneficial- to power revenue growth for banks and fintechs, as well as ensure financial security for customers. With more customers using SNBL, even traditional banks may start seeing value in the model enough to offer the service themselves.
The biggest barrier to SNBL is the psychology of the human mind- Temptations of a consumer driven world which eclipse a user’s ability to see equal value in short-term savings as they do in long-term savings for larger purchases (car and house). Good User Experience design on these journeys can potentially help tackle that issue and influence customers to see the value that SNBL can potentially create.
