Save Now, Buy Later — Making spending sustainable
What is Buyer’s Remorse? Buyer’s Remorse is the sense of regret after having made a purchase. It is frequently linked with the purchase of luxurious items such as a new car, a flagship smartphone, or a new refrigerator for the house. These unplanned expenditures typically skyrocket during the festive seasons, when splurging money on expensive items feels good while shopping, but the feeling soon turns into remorse.
According to a study in India, over 64% of people regret buying products during sales or limited offers and end up rarely using them. There exists a strong correlation between the prevalence of offers & discounts and an increase in regret-causing impulse purchases.
New age apps that feature the famous Buy Now, Pay Later (hereafter, BNPL) payments have exploited this innate human desire for instant gratification and have pushed people into taking more and more credit from these platforms, and after a point, their debt on borrowings balloons and they’re stuck in vicious debt-traps.
BNPL: Buy Now Pay Later payments are like very short-term loans for small purchases. They allow customers to purchase something and pay for it later, and often interest-free for a certain amount of time.
Credit: It is a form of “trust” laid into people, that one party can provide money or resources to another party. The second party does not pay back immediately but promises to do so on a future date.
Debt-traps: People have to pay back their loans with an interest. Oftentimes when someone takes up a lot of loans, the interest payments become so high that their incomes cannot repay them. Hence, people are forced into taking out loans to repay their existing loans, which is termed a debt trap.
Amidst all this chaos of rising impulse spending, enters a new variety of FinTechs called “Save Now, Buy Later” platforms. These are platforms that promote planned expenditures using savings, most famous among users under the age of 35. It is encouraging users to go towards the principle of goal-based investing. During the pandemic, many investors started investing in stocks, mutual funds, or crypto without any goal in mind other than making money. Without a goal in mind, it is difficult to define the amount to invest, the duration, the type of assets to invest in, etc.
India has always had the tradition of prioritizing savings, with credit card penetration of less than 3%. Such methods of buying products on credit, such as using a credit card, are available to a niche urban segment only. However, their savings are typically lying idle in bank accounts where they are losing out to inflation, resulting in a sub-optimal user experience.
If inflation is 5% and the savings deposits in your bank accounts are earning you 4% interest, then your money is losing its value by 1% everywhere. Whereas, if you have invested it in a stock that earns you 8% returns, then your money’s value has risen by 3%.
SNBL platforms are essentially Robo-advisors that offer wealth management services to individuals based on their spending goals. Users pay for the product or experience they desire (such as a car or vacation) in advance through Equated Monthly Installments (EMIs) in return for discounts and cashback. The market for such tools has grown to Rs. 1,500 crores ($181 million). Some well-known SNBL platforms are Multipl, Hubble, and Tortoise, with Multipl registering ~10x growth to 300,000 users in the past 12 months.
These platforms assist users in saving money for their needs in two ways
- Hubble provides a gift card for the cumulative amount — the money deposited + the incentive amount. Whereas Tortoise transfers the money back to the user’s account and offers a 10% cashback when the invoice for the purchase is shared.
- Multipl, on the other hand, allows users to invest in AI-devised mutual funds schemes that can generate returns and lower the overall cost that the user has to incur on the purchase.
Their main premise is to make savings a habit and offer incentives via tie-ups with brands, and they earn their share of profits via revenue-sharing partnerships with these brands.
What’s in it for the merchants partnering with SNBL platforms?
- There is no need for merchants to pay a cut of their revenues to the credit providers of BNPL platforms
- They can capture customers easily when they’re planning to make a big purchase — broadening their customer acquisition funnel
- Further, buyer’s remorse immensely decreases as the customer has been saving for the said purchase for months without compromising their existing funds or streams of income.
- Finally, since the customers have been locked in early and for months, these SNBL platforms can then upsell to these customers — increasing the revenue per customer
Customer Acquisition Funnel: It represents the stages that customers go through before making a purchase. It typically comprises Awareness, Interest, Intent, Evaluation, and Purchase.
Upsell: Persuade a customer to buy something additional or more expensive once they have already decided to make a purchase.
SNBL vs BNPL
BNPL emphasizes obtaining credit and receiving the satisfaction of a purchase right away. Credit is offered for instant purchases. In the absence of a proper savings plan, this could result in people falling into a debt trap, hurt credit scores, and lower savings, which does not leave much for emergencies.
Indeed, the BNPL model’s rigidity in terms of the repayment schedule, interest cost, and processing fee makes it an expensive approach at times. Sometimes, the interest cost can be as high as 15–20 % if the repayment schedule is disturbed.
SNBL scores over BNPL in terms of accessibility as well, since anyone and everyone can use this route — even those without a credit score or low score — as there is no prior approval process. Additionally, SNBL offers a debt-free alternative to making 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-cost EMIs offered in the BNPL model.
Credit score: A numerical rating representing the ability of a person or an organization to fulfill their financial commitments, based on an analysis of their credit history and current financial circumstances.
But, BNPL has its share of advantages, especially for those who need to make an immediate purchase but are running low on cash. SNBL is more suited for major expenses, while BNPL bodes well with small expenses.
The growth of SNBL start-ups coincides with the post-Covid-19 era which has seen an inherent increase in awareness regarding savings. The challenge that needs to be overcome is the number of merchants that are onboarded so that more and more customers can be attracted towards saving more in lieu of discounts and cashback.
It’s interesting to see how the two different payment models will complement each other, and whether the two will form a harmonious ecosystem, or one will top the other.
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