Save Now, Buy Later: A New Business Model In Fintech That Is Grabbing Eyeballs SNBL builds on the existing tendency of Indians to save for their purchases instead of using credit

A nascent trend globally, Save Now, Buy Later, or SNBL business model, is the new talk of the fintech town. It is a model that clubs saving, spending and investing. Many startups in India including Multipl, OmniCard, Hubble Money and Tortoise operate on this model.

Analysts say that the adoption and use of Save-to-Buy products have garnered investor interest in the global market. Many startups in the space globally have raised funding from leading investors. In January 2022, New York-based fintech startup Accrue Savings raised $25m in a fundraising round led by Tiger Global Management. Egyptian startup, Sympl, announced its $6Mn fundraising in December 2021, led by Beco Capital along with A15, and Global Ventures, three of the top-tier Venture Capital firms in the region.

SNBL builds on the existing tendency of Indians to save for their purchases instead of using credit. Ordinarily, a buyer would save for a few months to make a significant buy and companies operating under this business model incentivize the user in the form of rewards (discounts, cashbacks, etc.) when their savings goals are met. Users can invest or save for their predictable spends like vacation travel, anniversary jewellery, new version of the iPhone, wedding or even essential spends like insurance premiums or annual school fees and get benefits such as returns from the market, rewards and brand co-investments.

Paddy Raghavan, CEO and co-founder, Multipl, an SNBL platform explains this with an example.

Let's say a user wants to travel to Bali in 10 months' time. The user starts investing INR 10,000 every month as a systematic investment plan (SIP). This money gets invested in curated market instruments like mutual funds) to get good returns. Additionally, the user may indicate that they prefer to book this holiday via a travel company. Now, that travel company co-invests 10 per cent with the user every month. Or, adds INR 1000 every month to the user's INR 10,000 SIP. At the end of 10 months, the user would have his or her INR 1 lakh and INR 10K from MMT and say INR 5K from market returns. Now, the user can redeem a GV of MMT for INR 1.15 lakh (by saving INR 1lakh only) or if the user doesn't want to travel, can take back INR 1 lakh and the market returns of INR 5000 (INR 1.05L).

Multipl, which is backed by Blume Ventures, GrowX Ventures, IIFL and Kotak Securities Limited, claims to be the first company to create this concept in the world. Launched in May 2020, it currently has more than 200K users and over 500 crores of goals created on the platform.

Monetization puzzle and problem the startups solve

The companies in the space monetize by getting a commission from their brand partners for enabling this embedded savings option and increasing sales. "We monetize from the brands when a redemption with the brand happens. As SEBI registered investment advisor (RIA), we also can charge a fee to our users for the unbiased and expert investment advisory we provide. However, we are currently not charging the users," said Raghavan.

Now, the more pertinent problem. What problem do SNBL players solve? SNBL aims to reduce shopping cart abandonment for merchants. In addition to that, it builds customer relationships by helping them save to buy something later. It promotes the age-old concept of saving before making a purchase. "The post-COVID-19 period saw rapid growth in digital payments (YoY increase of 33 per cent in 2021-22) and renewed emphasis on savings and investment. According to the survey by InterMiles, almost 90 per cent of Indian consumers witnessed a change in spending behavior since the pandemic. Nearly 70 per cent of Indians have emphasized securing the future by increasing investments and savings, with INR 7.10 lakh crore saved during the FY2020-21," said Gauri Kuchhal, principal, Artha Venture Fund.

The startups operating in the space claim that together using SNBL could result in customers paying 15-20 per cent less for their spends.

"The fact that a large part of the country comprises of the youth, there definitely is a massive consumption need. At the same time, the income levels do not really match up to fulfilling all the aspirations. 70- 85 per cent of the salary is allotted for planned expenses like monthly fees for kids, annual travel, and annual installments of insurance payments etc. Also, even banks today have no feature which allows one to time exactly for every goal; whereas, digital-first business like SNBL can definitely go a long way in managing consumption in a structured manner," said Ashish Fafadia, Partner, Blume Ventures

SNBL Vs BNPL

BNPL (Buy Now Pay Later) is a way consumers buy a product and make staggered payments in a time period of say 10-15 days and in some cases as no-cost equated monthly installments (EMIs) for three to six months. BNPL products are easily accessible at points-of-sale or e-commerce checkout and do not require any extensive paperwork. However, if a consumer fails to make the payment on time, interest charges are levied. Some of the players in the space include ZestMoney, Ezetap, KredX, Amazon Pay, LazyPay, Simpl and Slice, among others.

Both BNPL and SNBL help to improve the shopping experience of customers and increase turnover for merchants. However, while BNPL does this through credit, SNBL relies on saving. "Many potential BNPL users might not be eligible for loans due to being new to credit or other underwriting criteria of such companies. SNBL has no such conditions as there is no credit angle. All users are eligible, which makes their target market bigger. BNPL companies are exposed to credit losses and collection risks. SNBL companies do not face such risks as any user who fails to save will simply not be eligible to make the purchase. Lastly, SNBL reduces instant gratification and promotes a more sustainable discretionary spending behavior. All in all, given the unique characteristics and the different routes by which both SNBL and BNPL solve for the customer experience, make them complimentary rather than adversarial," said Ankur Bansal, co-founder and director, BlackSoil.

BlackSoil hasn't invested in this space yet. However, it is open to it. "Venture debt could play a role in funding the operating expenditure spends for these companies such as discounts being offered from their platform etc," he added.

Further, the rapid rise in popularity of BNPL has also opened up discussions on how it is encouraging unsustainable consumption patterns and debt. "Research shows that 59 per cent of customers purchase unnecessary items through BNPL that they otherwise couldn't afford. High late and returned payment fees are the main disadvantage for the industry. According to a report by OkCredit, purchases in segments like apparel and jewellery using BNPL show higher incidents of non-payments because of higher ticket sizes," said Kuchhal.

Key value propositions for SNBL for customers and brand partners

For customers

• A debt-free life without compromising on any of their aspirations
• Plan their aspirations and meet them when they want
• Attractive pricing on goal redemption
• Better than a savings-bank interest when the underlying financial instrument is a mutual fund
• Points and rewards from brand partners
• No hidden costs or penalties if there is a payment default.

For brand partners

• Lowers cart abandonment rates
• More confirmed sales with better visibility into future cashflow
• Reduced customer acquisition cost
• Never lose a customer because of an affordability reason
• Increase top-of-the-funnel conversion with integrated goal planning
• Enhanced customer loyalty and retention by offering a debt-free and stress-free shopping experience

Source: Gauri Kuchhal, principal, Artha Venture Fund

Challenges and way forward

The primary challenge is that of any new category creator - awareness about the model and its benefits to users and building trust. "Apart from that, from a biz model perspective, we operate with a win-win-win approach- for the users, for the brand partners and for us and hence are very excited about the potential," said Raghavan.

The SNPL model also relies heavily on investments via the platforms and merchant tie-ups for end-use. "There would be the possibility of disputes between merchants and SNPL apps where merchant discounts are not available, no interest pay out for premature withdrawals and losing out on deals with other merchants," said Bansal.

Another challenge is that every aspect of this business is regulated by a different entity, say analysts. "Payments is where RBI comes in with certain type of instruments and so does SEBI and then eventually IRDAI. So this has the potential of multiple layers of regulatory frameworks and how companies deal with some of these is going to really be the key to their success. The idea of balancing regulatory requirements married with the ease of access for customers and brands is going to be the winner here," said Fafadia.

Another challenge here is achieving scalability and the time required to scale.
"Consumer behavior will also be a critical part of this model. Ex. Gold scheme manufacturers' have to send multiple reminders & hope that customers will maintain the discipline of investments. The hook or engagement has to be stronger for customers to invest in a recurring manner. The model will also need to factor in the risk-averse nature of customers," said Anuj Mehta, director of fintech, Merisis Advisors

Given these challenges, will this business model see an uptick any time soon? "The estimated user base of BNPL in India is currently around 22-25 million and is expected to reach 90-100 million by 2026. These companies have a huge potential market size by tapping into this user base since the target customer profile is similar to that of BNPL users. This is also a proven model with jewelry purchases. Gold Saving Schemes offered by legacy jewelry brands work on similar principles by onboarding buyers on a savings plan to purchase jewelry at the end of the plan tenure," said Kuchhal.

"One of the major benefits that SNBL has over BNPL is the ability to reward users for good financial discipline by saving interest component that's usually paid on a BNPL product (typically, BNPLs can charge upto 20 per cent on some of these spends). To drive the adoption of SNBL in the country, the incumbents need to build an infrastructure layer that commands superior merchant onboarding and relationship management experience," said Nitya Agarwal, VP, Investments, 3one4 Capital.

While there is an untapped market for Save Now Buy Later — a concept that combines habits that the Indian population is familiar with, that is, saving, spending and investing — the success of this business model will boil down to whether the startups can crack the unit economics, like it is for any other business model.