September 2023

Save Now, Pay Later (SNPL) – New Model in Fintech?

A new fintech model has found a way to promote more responsible spending by setting up users with an easy saving model targeted at a specific purchase.

What is SNPL?

Save now, pay later is an emerging business model and payment method that offers consumers the possibility of setting aside a predefined sum of money on a regular basis in order to make a big-ticket purchase at a later point. The user chooses their target amount and date, and can get various benefits and incentives once they build up the savings and reach their target. 

How does save now, pay later work? Different SNPL providers practice different models, from simply holding money with a payment gateway to depositing money in escrow accounts with partner banks or allowing investment through mutual funds. When a consumer reaches the savings goal, they get their money, often with additional incentives and discounts from the provider and/or the retailer. SNPL providers earn a commission from brand partners once the customer makes the purchase. Some of the fintech startups offering SNPL include Accrue, Hubble, Multipl, OmniCard, Sparapay, Split, Tortoise, and others.

Save now, pay later (SNPL) offers consumers the possibility of setting aside a predefined sum of money on a regular basis in order to make a big-ticket purchase at a later point.

SNPL vs Buy Now Pay Later (BNPL): What’s the Difference?

Both of these models offer many advantages for both the customers and the merchants, mainly when it comes to making bigger purchases. The main difference between save now, pay later and buy now, pay later is that SNPL is based on saving and BNPL is based on credit. By only focusing on saving, SNPL avoids the risk of credit losses that BNPL providers can face.

Even though BNPL has made access to credit much easier for consumers, some of them may still not be eligible for loans. SNPL, on the other hand, puts forward no such obstacles. With a much larger pool of eligible users, SNPL providers have a much larger potential market. And seeing as SNPL targets a very similar customer profile to that of BNPL users, SNPL providers are in the position to take advantage of the rising BNPL trend.

Research has shown that 59% of customers used BNPL for non-essential purchases that they couldn’t afford to pay upfront. There are growing concerns about BNPL’s promotion of unsustainable shopping practices. Compared to BNPL, SNPL not only encourages but also rewards more responsible and more sustainable spending behavior. By incentivizing customers to save in advance of making a significant purchase, SNPL basically protects consumers from falling into a debt trap.

From a merchant’s perspective, both BNPL and SNPL reduce the problem of shopping cart abandonment. Here, SNPL might offer a better long-term solution, as it helps maintain a good customer-merchant relationship without the bad taste that belated payments and fines can bring with BNPL. 

SNPL: Pros and Cons

The save now, pay later method offers many benefits for consumers, the main one being the possibility to purchase high-value items without having to take a loan and risk falling into debt. With SNPL, in case the customer doesn’t reach their end goal, there are no additional costs or penalties – the purchase is simply not completed. SNPL promotes a sustainable approach to consumption, encouraging consumers to responsibly manage their finances and achieve long-term goals.

While many argue that SNPL biggest disadvantage is the lack of instant gratification of purchasing something you want immediately when you want it, others point out the appeal of SNPL’s gamified approach to savings and the rewards from merchants. Another downside to SNPL could be that it is only suitable for aspirational purchases, while its use in regular-use items is yet to be estimated. 

For retailers, SNPL is a safe method with assured sales that solves the issue of product affordability in a way that doesn’t put the customer at risk. With SNPL, they can offer a stress-free shopping experience, building a strong foundation for customer retention. By reaching customers at an early stage of their shopping process, brands and retailers can build loyalty and secure customers in a highly competitive environment.

While SNPL may not offer the instant gratification of purchasing something immediately when you want it, its gamified approach to savings and the rewards from merchants are very appealing.

Some of the challenges that SNPL brings before retailers include long waiting times for purchase completion and additional work on cultivating customer engagement. As SNPL is still relatively new, different aspects of its business model fall under different regulations, so the regulatory environment might seem more complicated. It is down to the SNPL providers to achieve a balance between the regulatory requirements while maintaining the essential aspect of accessibility of this payment option.

Who Should Consider Using SNPL?

The save now, pay later model is mostly used for aspirational purchases, lifestyle expenses, and predictable spendings, such as electronics, jewelry, travel, furniture, and home refurbishing. Since this payment method avoids loans, it is accessible and appropriate for a wide range of users, regardless of their age or income group.

By combining saving, spending, and investing, the SNPL model has the potential to become a game-changer in the fintech industry. With the business model still in its early stages of development, we have yet to see whether it will find its application and wider use outside of the field of luxury goods.

Accessible to a wide range of users, SNPL is mostly used for aspirational purchases, lifestyle expenses, and predictable spendings.