SNBL: A new way to pay

Modernizing the layaway

Consumer-to-merchant (C2B) payment and financing methods are constantly evolving. We’ve seen the rise (and fall?) of 1-click checkout, the incredible growth among buy-now-pay-later (BNPL) providers (e.g. Affirm, Klarna, AfterPay), and more recently, account to account payments (A2A), as well as Save-Now-Buy-Later (SNBL).

By this point, we’re all familiar with Buy-Now-Pay-Later (BNPL), a purchase financing method in which the consumer pays for their purchase through a series of installments, often interest free. Affirm, AfterPay, and Klarna are all known for BNPL. This article covers various BNPL models in much greater detail.

In recent years, there’s been an increasing amount of negative press coverage focusing on BNPL, ranging from potential regulation to stories about consumers falling behind on their installments. This Reuters article, for example, claims that “a third of U.S. consumers who used ‘buy now, pay later’ services have fallen behind on one or more payments, and 72% of those said their credit score declined”. 

Perhaps this is leading to consumer sentiment towards BNPL changing, and maybe there's room for a more responsible way for consumers to finance purchases. 

Today, there are several players bringing SNBL to market, most notably Accrue Savings. 

SNBL is exactly what it sounds like. Instead of buying something today and paying in-full or paying over time (e.g. BNPL), SNBL allows consumers to start a savings plan together with a merchant, and thereby save for a specific purchase over time. The merchant will typically offer the consumer a financial incentive such as a discount, and once the consumer has saved up the full amount they’ll be able to complete their purchase. 

In the early to mid 1900’s, before significant credit cart adoption, layaway programs were sometimes used. A layaway is a “retail purchasing method by which consumers place a deposit on items of merchandise—to ‘lay them away’ for later pickup at a time when they have the funds to pay the balance in full.” 

Saving for a future purchase isn’t a new behavior. Consumers do it all the time, for example with personal budgeting and financial goal-setting apps. However, these products typically lack merchant integrations and therefore the ability for merchants to directly incentivize saving. And, the inability to link a savings plan to a specific purchase makes it more difficult for consumers to stay on course.

SNBL providers are modernizing and productizing the layaway. 

From a CX point of view, on the product page of a merchant that offers SNBL, there will usually be an option to start a savings plan.

The consumer then links their bank account to the SNBL provider and starts saving money towards the specific product “with the merchant”, i.e. with what appears to be a savings account linked to the merchant. 

The amount the consumer needs to save and the cadence at which money will be withdrawn from their bank account is determined by the purchase price as well as the date by which the consumer wishes to complete the purchase. 

I’m fascinated by this model and am trying to understand it better. Here are some thoughts and open questions - they really boil down to merchant and consumer adoption, i.e. who is using this, and how are they using it. 

• There is friction in starting a savings plan. The consumer must link their bank account, e.g. via Plaid, enter their SSN, etc. But, once this is done with one SNBL provider, presumably it’s much easier the next time the consumer interacts with the same SNBL provider, even if it’s via a different merchant. Therefore, the greater the amount of merchants using a specific SNBL provider, the easier it becomes for consumers. So, speed to market among merchants with overlapping customer bases is incredibly important. 

• I’m curious about the economics. Assumingely the SNBL takes a percentage of the transaction, as BNPL providers do. But, where exactly are the savings coming from? Are well-funded players in the space subsidizing a portion of consumers’ savings in the beginning? If that’s the case, what is the long-term source of savings? Reduced marketing spend towards that customer?

• Between now and the date at which the consumer intends to reach their savings goal, there are plenty of opportunities for the merchant to cross-sell and upsell the consumer of other products or services. Perhaps this could even become an interesting marketing channel for other in-network brands. 

• The element of time and knowledge about what the consumer intends to do or where they intend to be on a certain date is interesting. For example, if a consumer is saving for a $600 lift ticket at Vail that they intend to use in 3 months, how can this information be leveraged? 

• This seems like a payment method that would work best for certain consumer demographics, but also for non-impulse, high ticket-item purchases. For example, purchases associated with significant events such as having a baby; moving to a new home or renovating/redecorating one’s current home; travel, such as buying expensive gear in preparation of a hiking trip or a ski-trip; experiences, etc. In short, expensive products/services/experiences for which the intent arises long before the need, and for which the inventory is rather stable and will not sell-out during the savings period (would be a poor customer experience).

• Does the merchant make price and inventory guarantees to the consumer that is saving towards a future purchase? 

• As a merchant, I would be worried that a share of sales that otherwise would be made today, would be delayed. There needs to be clear evidence that SNBL drives incremental revenue, and not at the cost of cannibalizing sales in the present moment. 

• Not all consumers who initiate a savings plan will successfully reach their savings goal and complete the purchase - some will drop-off. At scale, how can this data be used, for example for forecasting inventory needs?

• SNBL is debt-free, and therefore has a completely different risk profile compared to BNPL. However, is there a way for merchants to access the money held in the savings account and use it towards their working capital? Maybe they can’t directly touch the saved money, but perhaps the SNBL provider can secure debt and lend money to merchants based on the risk profile of the merchant’s customers. This would introduce a new element of risk, but could be an interesting value proposition for brands. 

• Will we see vertically-focused SNBL players like we did in the BNPL space?

• Can data regarding a user’s saving habits and ability be used as inputs in underwriting their creditworthiness?

• How appealing is the social component and enabling one’s friends and family to help one save towards the ultimate goal? Is this awkward? “Here’s a link to help me save up for a pair of skis”. 

These thoughts and questions are by no means fully fleshed out. If you have spent time in this space and want to chat, please reach out (erik@interlacevc.com or DM me on Twitter)