Daybreak - How SNBL startups are trying to make savings-led purchases cool again

Episode Date: December 20, 2022

The looming threat of a recession, rising interest rates, and the RBI’s new guidelines for digital lending are proving to be a roadblock for buy now, pay later (BNPL) platforms.But many new startups are using this as an opportunity to push consumers away from the more credit-centric models that encourage impulse buying towards a new, planning-based purchase model called save-now, buy-later (SNBL).How does it work?Tune in to find out.

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The holidays are almost here. It is the season for splurging. And many may not have the funds to afford what they want right now, but so what? We have credit cards. And for those who do not have credit cards, there are BNPL or buy now, pay later platforms to the rescue. It is the time for zest money, lazy pay, simple, and others like them to shine, right?

It is their time in the sun. Well, it is not quite working out like that for them. The ever-rising interest rates and mass-scale layoffs have increased the fear of defaults and losses among these platforms. And to add to their woes, the Reserve Bank of India's new guidelines on digital lending came into force just this month. And not just that. There seems to be an increasing awareness that BNPL or Buy Now Pay Later offers also have the potential to turn into debt traps.

And all these factors combined, plus the fact that India has always been a savings-focused country, are proving to be fertile ground for a new kid on the blog. It is called SNBL or Save Now ByLator. And a bunch of new startups in India are already selling SNBL as the new way to buy what you want. Their overall market share has already expanded to about 1,500 crore rupees. Welcome to Daybreak, a brand new podcast from the Ken. I'm your host, Nick Das Sharma, and in each episode, I will tell your business story that is current, significant and most importantly interesting.

Today is Tuesday, the 20th of December. SNBL or Save Now Buy Later platforms are exactly what the name suggests. Unlike BNPL or Buy Now pay later firms that are driven by the customer's impulse, SNBL firms work on the exact opposite principle, that of patience and planning. For example, you want to buy an iPhone 14. You start by depositing a fixed amount for a fixed number of months with an SNBL platform. Once that duration is over, the accumulated money will get credited to your account and you can use it to buy your phone. It works on principles of planned expenditure.

No hidden charges or processing fees. It also does not require or impact a customer's credit scores and liabilities. And not just that. Some platforms allow you a direct discount from the merchant. Other platforms even give you back a certain percentage of the total invoice amount. that you paid. You could say it's quite similar to how our parents would put money monthly in a jeweller scheme and at the end of a year or two, they would use that money to buy gold. But the question is, why would you choose this when there are BNPL startups telling you that

you don't have to wait for something that you want, even if you can't afford it yet? So let us understand how exactly S&BL startups are trying to bring savings-based buying back into fashion. The idea is to make savings-led purchases cool again. S&BL startups like Tortoise, Multiple and Hubble have taken on this daunting challenge in a market that is increasingly becoming used to credit-based instant gratification. But to a certain extent, the idea of S&BL or Save Now Buy later does seem to be working. Investors are clearly seeing some potential in it. Many have backed these platforms this year like Venture Capital Major, Sequoia Capital and Bloom Venture. Financial Services Company, India InfoLin Finance Limited and Creds founder Kunal Shah, have also invested in these platforms.

Now, one of these S&BL startups, multiple, whose main user base is below the age of 35, has seen its customer base grow by 10 times to 2,000000 in the last one year. So let's look closely at how this startup is creating value for its customers, merchants and investors. Let's begin with customers. A multiple user starts with a goal amount, purpose and duration. People have all kinds of goals. Some are one-time outlays like buying a car or a smartphone, while others are recurring annual expenditures like, say, school fee or insurance premiums. Now, imagine a customer wants to buy a bike that is worth,

1 lakh rupees. The customer has two options. Number one, they start investing 10,000 rupees every month in a curated mutual fund suggested by multiple. For this, multiple has a robo advisory mechanism that advises customers on mutual fund investments. Now, instead of offering direct discounts, a partner dealer will co-invest about 5 to 10% of the EMI amount every month. This will raise the total invested amount that will add up to a higher corpus. At the end of the cycle, not only will the user benefit from the total earnings, they will also be eligible for native discounts that are available at that time. The second option that a customer can take is to choose to deposit 10,000 rupees directly with the merchant every month. In this case,

the dealer will offer them a higher discount. And now coming to how an SNB, platform works with merchants. S&BL companies earn from these brands. Multiple has revenue sharing partnerships with 70 brands across segments like lifestyle, travel, jewelry, two-wheelers and gadgets. Ronuk Kumar Gunjin, who is a reporter with the Ken, spoke to Paddy Ragwan, the co-founder of Multiple. Raghavan said that merchants are happy with SNBL platforms for two direct reasons.

Number one is that they don't have to pay interest subvention to credit providers, which mostly gets passed on to customers in this case. Number two, multiple enables them to reach users much earlier in their purchase journey, and this broadens their customer acquisition funnel. And finally, coming to the value that investors draw from these S&BL startups. There were two things that drove VCs to invest in this model.

The first was that after the RBI's crackdown on digital lenders, investors were looking for alternatives. And the second was that there is a large gap in the market in terms of relatively predictable purchase-led saving products that generate higher returns than legacy instruments, like, say, for example, fixed deposits. Maybe you've noticed it, maybe you haven't. But a lot of how the HR department functions has been changing.

In more obvious ways, there's now time tracking apps and performance management apps and full-stack tech solutions that save HR from menial tasks, software that helps HR do more with less human interference. But even as HR tech helps make HR teams thinner, the work that HR teams do is fundamentally changing. HR, the people-centric department, is becoming something else. What is that something else? I'm Snihavakarya, host of cost to company,

the Ken's weekly podcast about work and workplaces. Tune in to hear how HR is changing, what is being taken away from it, and what's left. The episode drops on Tuesday, the 20th of December. Now back to Snigtha. Now, moving on to how the idea of S&BL may not entirely be new. Okay, so here is a not.

so secret secret. Banks have already tried their own version of Save Now Buy later. ICICI Bank tried it a decade ago. It partnered with travel agency Thomas Cook to launch a flexible recurring deposit scheme named I Wish. Through the scheme, it allowed customers to save for goals and earn interest. AgedFC Bank also tried something similar called My Passion Fund. Other banks have launched similar schemes as well. But none of them really took off because most people did not even know about these schemes. And banks did not directly link these schemes with purchases. At least this is what a mid-level executive with a private bank who did not want to be named, told Ronok.

Another yes bank employee that Ronok spoke to told him that SNBL in its current form does not really make sense for banks. For example, imagine there is a sale on Flipkart. Now, the bank can easily convince merchants on Flipkart to partner with them because the banks have a large customer base that is eligible for the offer. Merchants will save at least some money from their marketing budget. The customer gets their product immediately, the brand gets its sale and the bank earns interest subvention on the zero-cost EMI option. It is a win-win for all.

When compared with a bank's deposit, numbers, these SNBL platforms seem like a drop in the ocean. As of the 18th of November, bank deposits approximated over 170 lakh crore rupees. S&BL, on the other hand, just has a 1,500 crore-rupy market size so far. So clearly, SNBL startups still have a long way to go in terms of winning consumer confidence and delivering consistent volumes. And what seemed like exponential growth in the SNBL scene is actually also because of a low customer base. It almost feels like SNBL and BNPL or buy now pay later platforms

feed off on each other's weaknesses. But can the two coexist? Tortoise's founder, Vardan Koshel, thinks that S&BL and BNBNB could actually come together. Currently, nine out of ten Indians are not eligible for personal loans, credit cards and BNPL products. These are people who do not have a credit history or have irregular cash flows, which makes it hard for the banks to give them loans. Now, Kausiel thinks that there is a possibility of finding a middle path here.

So what does a person who is not eligible for a loan do? They start a recurring deposit or fixed deposit with a bank, but then they would have to wait for a long time for it to grow, right? But Kossil has an alternative idea. What if a customer starts with paying a certain number of EMIs, just like in the S&BL scheme? And once they build enough trust, then the remaining amount is converted to a loan like in the BNPL model.

What do you think? Would something like this ever work? Send me your thoughts at daybreak at the ken.com. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories,

newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague, Rajiv Sien.