Is Save Now, Buy Later the Anti-BNPL?
Will crashing valuations and growing criticism of the Buy Now, Pay Later business model redirect attention (and investment) toward what may be it's more responsible cousin -- Save Now, Buy Later?
Buy Now, pay later is a fast-growing segment of the payments ecosystem where consumers make a purchase — online or in-store — and then agree to pay the purchase off over time in equal installments, typically four but models vary. BNPL as it’s known is usually interest-free, but consumers can wrack up substantial late fees if they fall behind on payments.
BNPL is often described as a modern, digital version of layby. But that comparison isn’t entirely accurate. With traditional layby, gratification is delayed. You pick up the goods once payment is made, however many installments it requires.
With BNPL, gratification is immediate, while the pain of making payments is delayed.
Lay-by uses your savings to make a purchase. BNPL on the other hand is really a form of debt that has been cloaked in a veil of financial responsibility. But lately, that veil has been falling away.
There is a digital payments model that truly does bear a close resemblance to lay-by. It’s called Save Now, Buy Later.
This model involves committing to purchase a good at a locked-in price (a nice inflation hedge) and then taking possession after all the installments are made. Just like old-fashioned lay by. But handled digitally.
Taking Root in Africa
SNBL is not exactly new. Platforms exist around the world offering some form of digital lay-by. One example is U.S.-based Accrue Savings launched in 2021 by WeWork veteran Michael Hershfield. In Austria, Monkee was launched in 2018 to ride the SNBL wave. In India, Multipl is pursuing a similar model as well.
The SNBL model is emerging in Africa-Middle East as well.
Our attention was drawn to SNBL this week by this LinkedIn post from a South African entrepreneur Andrew Katzwinkel brashly predicting that BNPL’s days are numbered.
We reached out to Katzwinkel, who runs Cape Town-based Save Now, Buy Later platform called LayUp for a bit more on why he thinks BNPL is in so much trouble.
Here is how LayUp describes its approach on its website.
LayUp is currently being used by 350-plus retailers, and more than 10 000 consumers have already taken advantage of it this year with inflation skyrocketing. By choosing LayUp at checkout, you can lock in the current price by paying a deposit and choosing payment terms in line with your budget. The retailer will then put the item aside until the full amount is paid, at which point it can be collected.
LayUp was founded in 2017 and has raised $120,000 since its founding, according to Crunchbase.
Katzwinkel told us that the reason BNPL will fail is that it relies on a stable set of conditions to work. Once the equilibrium is upset, the model is at risk. Inflation is now threatening to upset that equilibrium. In June, South Africa’s inflation was running at 7.4%.
“The maths is simple. Buy now, pay later companies derive revenue by taking ~5% of their total transaction value (TTV) and then collecting late payment fees,” Katzwinkel told us. “They pay for their users' goods and services using debt (on which they pay interest) and take the full risk associated with non-payment. So, the viability of the entire BNPL business model rests on one, low defaults and two, low-interest rates on debt.”
“For every user that defaults, a BNPL business loses more than 20-times the revenue they've made from that user's sale, plus their cost of debt covering that sale, plus their SG&A [ expenses, which are enormous,” he explained.
“The cost of chasing bad debts is also enormous. How does this industry survive when interest rates increase?”
Naturally, Katzwinkel argues that his model is more sustainable and financially responsible.
“The current economic climate does make the LayUp solution more appealing because anyone who was on the edge with their credit score will now battle to get credit and if they do, they will be subjected to ridiculous interest rates,” Katzwinkel told us.
“The SNBL movement removes this risk for consumers and it gives them the flexibility they need to manage their cash flow over time.”
Katzwinkel is not alone in questioning the long-term viability of BNPL.
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