We’ve written extensively about the buy now, pay later industry and how it’s coming under growing pressure.
It’s under pressure from investors tired of losses. And from consumer advocates and regulators alarmed at younger consumers’ overdependence on BNPL accounts to fund their lifestyles. And even from business pundits like Scott Galloway who are pointing out the hypocrisy of BNPL calling itself financially responsible while boasting about how it grows average basket size.
Perhaps the jump-the-shark moment for BNPL came when some leading players like Klarna and Zip promoted a “gas now, pay later” program. Almost no one thought it was a good idea to buy a tank of gas on layaway. Though in fairness, people gas up on revolving credit every day without batting an eye.
The BNPL reckoning probably doesn’t signal the end of the model. But the backlash has inflicted real pain on some of its leading players.
For example, Sweden’s Klarna stunned the world earlier this month when it raised $800 million at a much-reduced valuation. Klarna’s valuation hit its zenith at $45.6 billion last year. It now sits at roughly $6.7 billion.
Australia’s Zip Co recently canceled its proposed merger with the U.S. BNPL platform Sezzle “in light of current macroeconomic conditions.” Publicly traded ZipCo is down about 84% over the past year. And the U.S. BNPL platform Affirm has seen its share price decline by roughly 60% over the past year.
Another looming threat is inflation. Since BNPL platforms must fund consumer purchases (they front the full purchase price to merchants), a sharp rise in the cost of funds, coupled with rising default rates, could spell doom, at least for weaker players.
Amid all the noise around BNPL, a new related model has emerged that is presenting itself as BNPL’s boring, more responsible cousin.
Many have compared BNPL and layaway. For those under the age of 100, layaway is the old school financing model where you buy a couch or a washing machine through a series of payments that must be completed before taking possession.
Save Now, Buy Later is essentially what it sounds like. It is the true digital twin to layaway.
A growing number of companies are cropping up to offer save now, buy later platforms. Former WeWork sales executive David Hirschman launched one such company last year. Accrue Savings raised $4.7 million late last year to offer consumers a true digital version of layaway. With the addition of cashback rewards from participating brands.
With Accrue, consumers select a payment plan and make an initial deposition. Then they take possession of the goods once they complete the payments. There is none of the immediate gratification that BNPL offers by letting the consumer take possession of the goods before they are paid off. But there is also less buyer’s remorse as they continue to make payments on something they realize they probably didn’t need.
And Hirschman points out that this is a safer move for merchants than BNPL, which as noted is gaining a reputation for encouraging irresponsible spending.
“With 66 percent of consumers viewing ‘Buy Now, Pay Later’ programs as financially risky, Accrue Savings rewards people for saving for the things they want instead of taking on more debt,” said Hershfieldat the time of last year’s seed round. “As the first payment option that empowers consumers to avoid the costs of credit, Accrue Savings strengthens the relationship and loyalty between brands and consumers and rewards responsible debt-free spending.”
Will SNBL overtake BNPL? Probably not. After all, consumers love immediate gratification. But we expect it will get a closer look as BNPL goes through an inevitable consolidation. And we imagine six months from now, Accrue will have a lot more competition.