Save Now Pay Later (SNPL) companies like Multipl, Tortoise, and Hubble offer consumers a goal-based investing and spending platform with some added caveats. But do the pros outweigh the cons? If so, then for whom? Let us see.
How Does SNPL Work?
What the SNPL (Save Now Pay Later) platforms essentially do is that they tie up with brands like MakeMyTrip, Croma, etc. People, who want to buy an article, say, a travel package or electronics, deposit some money every month with the merchant. Upon completion of that goal, the money is returned with added incentives like cashback.
If the money is invested in mutual funds (Multipl), the user will get the market returns in addition to brand-specific incentives.
The brand may give an extra 10 per cent cashback or discount, while the customer may continue to receive returns, depending on the fund type. Since Multipl is the only SNPL company in India with a Sebi RIA licence, it is the only one to offer a market saver SNPL option.
There is another SNPL model, too, wherein consumers save money directly with the merchant via a dedicated Escrow account and receive the cash plus brand cashback, discounts, etc., at the end of the goal.
It is similar to what some jewellery shops do; taking money from people monthly and giving some extra benefit at the end of the goal tenure, but only if the money is used at their shop.
Multipl is a Sebi RIA platform that offers Robo advisory to its users. Other SNPL platforms allow people to save directly with the participating brands using an Escrow account.
“When people are locking up for a particular goal, it is just an indication that they will purchase that brand’s product or services. After the completion of the goal, it is up to the users if they want to go with the brand or withdraw their invested money. There is also another option wherein users’ can directly save with the merchant for the cashback or discount benefit,” said Paddy Raghavan, CEO and founder of Multipl.
Raghavan also pointed out that if the consumer decides not to go for the brand, ultimately, when the goal matures, they can get their money back too, but the brand cashback/discount benefit will not be given.
“If they go for the brand, they will only get the extra benefit as the brand promised when they first created the goals. The brands cannot deny the benefit initially committed once the goal matures and users’ want to avail of the benefit,” Raghavan added.
What Works In SNPL’s Favour?
• Buying Aspirational Goods Without Debt/Loans
SNPL is suitable for someone who wants to use something other than a consumer loan, BNPL, or credit card to purchase a product.
Lovaii Navlakhi, managing director and CEO of International Money Matters, a Bengaluru-based financial planning company, said that the decision to opt for a loan, BNPL or SNPL depends on factors like the urgency of the product, the type of product and offer, or cashback rewarded at the time of purchase. SNPL does not charge any interest to clients for loans. However, others may incur not only the interest but processing fees, impact credit scores and force a customer into a debt trap.
Navlakhi added that in both loans, BNPL or SNPL, the consumer sets aside some money periodically to purchase the product.
• SNPL Gives Assured Brand Cashback/ Discounts
For buying a product using regular channels, one may or may not get a cashback or discount benefit since it depends upon many factors like ongoing sales, a specific bank’s debit or credit card, and other offers. However, in SNPL, the merchant agrees to honour a predetermined cashback or discount, regardless of the user’s bank or others.
Anup Bansal, the chief business officer of Scripbox, a Bengaluru-based financial planning company, said that these SNPL platforms offer their customers the option to link their savings to a particular brand they wish to purchase a product from.
“Here, they receive favourable cashback/discounts and other offers. It is more sustainable than loans (credit card, BNPL, others) since the customer does not risk racking up any debt and is also getting some assured cashback/discounts,” Bansal added.
• SNPL Helps In Giving A Saving Perspective
SNPL market-saving model works on the principle of reverse SIP (systematic investment plan). Reverse sip estimates how much money one needs to start saving today to meet future aspirations and goals.
For example, you need Rs 50,000 after two years, so you need to save at least Rs 2,000 monthly if the interest rate is 6 per cent per annum. On the other hand, if you want a lumpsum investment, you need Rs 44,500.
Bansal said that the customer gets into the essential habit of saving up for short-term goals they wish to reach. One of the most basic forms of an SNPL option is to put away any desired amount of money into a bank account, FD, RD, or mutual fund to accrue into the amount necessary to pay for future purchases.
But doing SNPL means you will lose out on the specific brand benefit these platforms offer, so ultimately the choice is yours if you want that a particular brand’s product or want the goal amount and later decide which brand’s product to buy.
What Doesn’t Work For SNPL?
• Delayed Gratification
If one wants to enjoy the product in an instant moment, for these people, SNPL does not make much sense.
Navlakhi said that suppose a customers’ mobile phone suddenly breaks and there is a need for a new phone. However, there is a shortage of funds, and instead of liquidating savings earmarked for other goals, BNPL or EMI loans can serve the purpose.
Navlakhi further added that, on the other side, if a customer intends to buy any expensive electronic gadgets or apparel without worrying about the stock availability and wishes to plan the purchase within a specified period, they can opt for the SNPL route. By doing so, the customer can start saving periodically and receive fixed instant cashback or rewards with no interest or additional fees.
• Default Risk Remains Since Not All SNPL Platforms Use Mutual Funds
According to Rohan Agarwal, SEBI RIA and co-founder of Moneyjar, a Mumbai-based financial planning company, the biggest risk is the credit risk of the SNPL platform/escrow account provider/end-product merchant.
Agarwal further added that in any of the SNPL business models where money is not in mutual funds, there exists a big risk of default or rescinding of the offer from either the SNPL platform or the merchant providing the end product.
"Given that not all platforms are using mutual funds to invest interim savings, the safety and reliability of the platform and associated merchants becomes a big issue with SNPL. Therefore, it is important to ensure platforms handling customer funds communicate clearly and accurately how the user funds are handled until the intended purchase is completed," Agarwal added.
• SNPL Use Cases Are Limited To Aspirational Purchases And Not Wealth Management
Navlakhi said that goal-based investing is always advisable as it allows the individual to plan for outflows keeping in mind other vital requirements. However, these platforms or apps (SNPL) are meant to buy different items rather than for wealth creation.
Bansal further added that planning investments and finances ought to consider the customer's holistic needs. This includes asset allocation, tax planning, tax filing, estate planning, insurance advisory, and even will drafting. These services go beyond the services offered by SNPL.
• Higher Opportunity Cost If One Abandons The Decided Purchase
If one has fixed upon a particular goal and tied it with a brand and later decides not to go with the brand, instead taking out the money, it creates a situation of opportunity cost. Opportunity cost means if one chooses to do something, they have to forgo the second choice.
Bansal said that many fintech companies offer discounts only if the customer has linked their investments to the merchant. Any withdrawal from the escrow account where the customer's savings are parked may yield nothing on redemption. And if the customer invested in a mutual fund, an exit during the fund's underperformance would result in a loss.
"It does not earn any interest on savings, and a customer is only liable for rewards or cashback, which means losing the opportunity cost," Navlakhi further added.
• SNPL Better Suited For High-Value Aspirations Items Rather Low-Value High Volume Regular/Essential Items
According to Harish Menon, co-founder and head of Investments and product research at House of Alpha, "I do think such apps can genuinely add value to consumers because it instills the practice of saving up and buying something in the future, rather than taking a personal/credit card loan."
Menon further added that such apps should be ideally used for lifestyle expenses like vacations, mobile phones, gadgets, designer clothes, and others.
Navlakhi further added that the features are currently offered in aspirational segments like travel, electronics, or gold. However, SNPL options in essentials/regular use items like grocery, education, and utility payments are yet to be explored as savings in these are more appropriate and beneficial.
Hence Navlakhi advised people to invest in traditional investments or mutual fund schemes which are easy to invest in, earn interest, and have the flexibility of exploring different options. "Cashbacks are not an interest on investments, and with updated technology and prices, investment yielding returns still make sense."