Bye to “Buy Now, Pay Later”, Hi to “Save Now, Buy Later”?

Buy Now, Pay Later (BNPL) has sunk its talons deep into the way US consumers buy goods & services. An estimated 86.5m US consumers have used BNPL, and 50% of BNPL users utilize it to make purchases they can’t afford to pay in full. Meanwhile, leading BNPL provider Affirm’s stock is soaring on the back of a strong earnings report that highlighted $7.6b in gross merchandise volume in FY Q1 ’25, and Klarna, another top BNPL incumbent, is carefully orchestrating its US IPO.

Despite the unrelenting growth of BNPL over the past few years, there are signs that both consumers and merchants are fatigued.

BNPL products are more heavily used by consumers whom the Federal Reserve defines as “financially fragile” — individuals with credit scores of less than 620. This consumer segment is already laden with credit card debt, which surpassed $1 trillion for the first time on a national basis in 2023. In fact, the Bank of America Institute found that while credit card balances grew across the US consumer population from 2021 to 2024, credit card balances ballooned more rapidly for medium and heavy BNPL users.

Additionally, using debt-based products for discretionary spend is becoming progressively unsustainable. Consumer categories such as travel have become drastically more expensive in parallel with a broader increase in cost of living, to the extent that some customers who “previously lean[ed] on paying over a longer period of time using credit” simply forgo making a purchase. For example, flight ticket prices are up 25% in 2024 — outpacing inflation and “leaving travelers frustrated” and being forced with the choice of either not flying or taking on debt to travel.

On the merchant side, BNPL has benefits such as increasing average order value and expanding access to new consumer segments, but also requires merchants to pay egregious MDR (stands for “merchant discount rate” and it’s analogous to credit card swipe fees) of between 2% to 12.5% of the purchase amount.

BNPL is also disjointed from a merchant’s brand experience; they don’t integrate with merchant loyalty programs, and customers have to interact with the BNPL provider’s app in order to manage their loan instead of being able to interact with their financial product within the merchant’s digital ecosystem.

Overall, BNPL has its uses and is here to stay, but consumers and merchants are going to find that there is an alternative that is more sustainable from a financial health perspective, has lower merchant fees, increases customer loyalty, and is just overwhelmingly better.

The nascent disruptor that will devour BNPL over the next few years is Save Now, Buy Later (SNBL).

There’s currently only one pure play SNBL company in the US fintech market: Accrue Savings. Accrue was founded in 2021 and has raised almost $30m to-date ($4.7m Seed, $25m Series A).

Accrue’s primary SNBL product is a mix between a branded savings account and a closed loop debit card. Customers can go to Accrue’s website and make deposits using an external deposit account or debit card towards a “wallet” that is associated with one of Accrue’s merchant partners, and earn rewards when they make deposits. Customers can then use the funds in their wallet to make a purchase at the merchant partner via a virtual debit card.

For example, Accrue is partnered with the jewelry merchant Mignonne Gavigan. Let’s say a Mignonne Gavigan customer wants to make a $210 purchase. Here’s what happens:

Accrue’s SNBL product offers similar benefits to BNPL but without the debt:

• Consumers can still make large purchases (higher average order value for the merchant) by saving up for them over time, and are rewarded for it instead of having to pay interest on BNPL or credit cards debt
• Consumers who fund their SNBL wallet have a high likelihood of making a purchase at the merchant, allowing the merchant to “lock in” future customer engagement

There are also SNBL benefits that aren’t present with BNPL, such as:

• Merchants pay less in swipe fees since purchases are made with a debit card which have lower fees than credit cards and BNPL, and can use the cost savings to provision rewards to customers that increase loyalty
• Less risk of regulatory breaches since SNBL is not a lending product

There’s a ton of open space for the SNBL ecosystem to develop and grow in the coming years. While Accrue Savings’ core wallet product is intuitive, sleek, and clearly benefits their merchant partners & end consumers, there are significant opportunities for emerging competitors to offer solutions that are:

• Embedded directly into a merchant’s mobile app or website
• Treated as a limited-time marketing promo instead of a permanent feature
• Hyper personalized at a customer level

It is important to note that there may be initial resistance to SNBL on both the consumer and merchant sides in an economy that is heavily oriented towards a spend-based versus a savings-based mindset. These headwinds can be mitigated with simplicity as a first principle, rewards to incentivize savings behavior, and working closely with merchants to constantly make minor adjustments to SNBL product constructs based on real customer data.

While we won’t be saying Bye to BNPL anytime soon, it’s time to start saying Hi to SNBL as its sustainable superior.

Sources

1. 86.5m US consumers use BNPL: https://www.emarketer.com/content/us-bnpl-user-growth-continues-through-2028-slows
2. 50% of BNPL users use it to stretch purchases: https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/
3. Affirm stock price as of 11/26/24
4. Affirm FY Q1 ’25 earnings report: https://investors.affirm.com/static-files/c4fb5697-6517-4a9e-bfe2-947a09ed458b
5. Klarna IPO: https://www.investopedia.com/klarna-is-moving-toward-big-ipo-what-you-need-to-know-8748846
6. Federal Reserve research on BNPL Usage: https://libertystreeteconomics.newyorkfed.org/2023/09/who-uses-buy-now-pay-later/
7. US credit card debt hits $1 trillion: https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html
8. Bank of America Institute BNPL research: https://institute.bankofamerica.com/content/dam/economic-insights/buy-now-pay-later.pdf
9. Customers are starting to forgo making big purchases to avoid debt: https://www.cnbc.com/2024/05/18/some-consumers-are-punting-big-purchases-like-pools-and-mattresses.html
10. Flight ticket price increases: https://www.cnbc.com/select/airline-ticket-prices-are-up-25-percent-why-and-how-to-save/
11. Accrue Savings: https://www.accruesavings.com/