A new business model in Fintech that grabs eyeballs

A new trend globally, the Save Now, Buy Later, or SNBL model, is the new talk of the fintech city. It is a business model that combines savings, consumption and investment. Many startups in India, including Multipl, OmniCard, Hubble Money and Tortoise, operate on this model.

Analysts say the adoption and adoption of “Save-to-Buy” products has sparked investor interest in the global market. Many startups in the space have raised funding from leading investors. In January 2022, New York-based fintech startup Accrue Savings raised $25 million in a fundraising round led by Tiger Global Management. The Egyptian startup, Sympl, announced its fundraising of $6 million in December 2021, led by Beco Capital together with A15, and Global Ventures, three of the top venture capital firms in the region.

SNBL basically builds on the existing tendency of Indians to save for their purchases instead of using credit. Typically, a buyer will save for a few months to make a significant purchase, and companies that operate under this business model incentivize the user in the form of rewards (discounts, refunds, etc.) when their savings goals are met. Users can invest or save for their predictable expenses like vacations, anniversary jewelry, new version of iPhone, wedding or even important expenses like insurance premiums or annual school fees and get double benefits of returns from the market and brand investments.

Paddy Raghavan, CEO and Co-Founder, Multipl, an SNBL platform, explains this with an example.

Let’s say a user wants to go to Bali in 10 months. The user starts investing 10,000 every month as SIP. This money is invested in curated market instruments (such as mutual funds) to get inflation-beating returns. In addition, the user can indicate that they prefer to book this holiday via MakeMyTrip. Now MMT co-invests 10 percent with the user every month. Or adds ₹1,000 every month to the user’s SIP of ₹10,000. At the end of 10 months the user will have his 1L and 10K from MMT and say 5K from market return. Now the user can redeem a GV on MMT for 1.15L (saving only 1L) or if the user does not want to travel, he can take back the 1L and the market return of 5K (1.05L).

Multipl claims to be the first company to create this concept in the world. Launched in May 2020, it currently has more than 200,000 users and over 500 crores of goals created on the platform.

Income generation and problem the start-ups solve

The companies in the space make money by getting commissions from their brand partners to activate this built-in savings option and increase sales. “We monetize the brands when a redemption with the brand occurs. As a SEBI RIA, we may also charge a fee to our users for the unbiased and expert investment advice we provide. However, we currently do not charge users,” Raghavan said.

What problem do SNBL players solve? SNBL aims to reduce abandoned shopping carts for sellers. In addition, 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 growth of 33 per cent in 2021-22) and renewed emphasis on savings and investments. According to the InterMiles survey, nearly 90 per cent of Indian consumers witnessed a change in consumption behavior since the pandemic. Nearly 70 per cent of Indians have emphasized future-proofing by increasing investments and savings, with 7.10 lakh crore saved during FY2020-21,” said Gauri Kuchhal, Principal, Artha Venture Fund.

Altogether, the startups operating in the space claim, this can result in customers paying 15-20 percent less for their expenses.

Edge SNBL has over BNPL

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

Both BNPL and SNBL contribute to improving the shopping experience of customers and increasing turnover for merchants. But while BNPL does this through credit, SNBL relies on savings. “Many potential BNPL users may not be eligible for loans due to being new to credit or other guarantee criteria for 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 loss and collection risks. SNBL companies do not face such risks as users who do not save will simply not be eligible to make the purchase. Finally, SNBL reduces instant gratification and promotes more sustainable discretionary spending behavior. All in all, given the unique features and the different routes that both SNBL and BNPL are solving for the customer experience, make them complimentary rather than antagonistic,” said Ankur Bansal, Co-Founder and Director, BlackSoil.

The company has not invested in this space yet. However, it is open to investing in this area as this is a good shift towards sustainable spending and it also gives a habit of saving and investing in customers instead of just spending by taking debt. “In addition to this philosophy, it also helps customers rationalize their spending compared to impulse buys. Venture debt can play a role in financing the operating expenses of these companies, such as discounts offered from their platform, etc.,” he added.

Furthermore, the rapid rise in popularity of BNPL has also opened up discussions about how it encourages unsustainable consumption patterns and debt. “Research shows that 59 per cent of customers buy unnecessary items through BNPL which they could not otherwise afford. High late payment and return charges are the biggest drawback for the industry. According to a report by OkCredit, purchases in segments such as clothing and jewelery Use of BNPL is showing more cases of non-payment due to higher ticket sizes,” Kuchhal said.

Kuchhal shares key value proposition of SNBL for customers and brand partners

For customers

• A debt-free life without compromising any of your ambitions
• Plan their ambitions and meet them when they want
• Attractive prices when redeeming targets
• Better than a savings bank rate 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 the shopping cart abandonment rate
• More confirmed sales with better insight into future cash flow
• Reduced CAC
• Never lose a customer due to reasonable reasons
• Increase conversion at the top of the funnel with integrated goal planning
• Improved customer loyalty and retention by offering a debt-free and stress-free shopping experience

Challenges and the way forward

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

Furthermore, the SNPL model is heavily dependent on investment via platform and trade connections for end use. “There are few challenges around the business model such as there would be the possibility of disputes between merchants and SNPL apps where merchant discounts are not available, no interest payments for premature withdrawals and loss of deals with other merchants,” Bansal said.

Will this business model see an upswing going forward? “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 as the target customer profile is similar to that of BNPL users . This is also a proven model with jewelery purchases: Gold savings schemes offered by legacy jewelery brands work on similar principles by including buyers on a savings plan to buy jewelery at the end of the plan period,” Kuchhal said.

“One of the biggest advantages that SNBL has over BNPL is the ability to reward users for good financial discipline by saving interest components usually paid on a BNPL product (usually BNPLs can charge up to 20 percent on some of these expenses) .driving the introduction of SNBL in the country, the incumbents need to build an infrastructure layer that provides superior onboarding and relationship management experience, says Nitya Agarwal, VP, Investments, 3one4 Capital.

While there is an untapped market for Save Now Buy Later – a concept that combines habits familiar to the Indian population, i.e. saving, spending and investing – its success will boil down to whether startups can crack the unit economy, such as . it is for any other business model.