Wes Schmidt, Chief Revenue Officer at Alviere.
getty
In a market environment with rising inflation, increasing consumer debt and concerns over a looming recession, executives are faced with new opportunities to provide more buying power to their customers.
The average credit card user was carrying a balance of $5,474 last fall according to TransUnion, up 13% from 2021. More debt means more credit card payments for consumers—but also less buying power for their next big purchase.
Many organizations are opting to providing credit options such as co-branded credit cards and Buy Now, Pay Later (BNPL) programs.
But many are finding this may not be a sustainable way to continue driving repeat purchases. In this article, I will outline some strategies CEOs can leverage when considering a Save Now, Buy Later (SNBL) solution.
BNPL is only one piece of the solution.
BNPL is a payment option that allows consumers to spread their purchase payments over a period of time, often in four installments. The share of online purchases using BNPL grew 14% between 2021 and 2022, with revenue from BNPL growing 27%.
While many brands are adding BNPL, the future of these payment options is being questioned for a variety of reasons, including their long-term stability and younger consumers’ lack of understanding about debt.
In the first two months of 2023 online groceries saw their share of BNPL purchases increase by 40%, a troubling sign that especially cash-strapped consumers are now using debt to purchase everyday essentials, increasing the risk of non-payment and future inability to access such programs.
Organizations that rely on BNPL solutions to increase consumer buying power must also weigh the tradeoff of processing fees associated with these platforms. Offering BNPL can cost 8% in transaction fees, where typical processing fees are often in the 2% range.
New technology solutions can provide more buying power.
To allow more consumers to purchase easily, enterprises can now consider other financial solutions built for their unique user base.
Embedded finance is a technology that enables organizations to directly offer branded financial solutions to their customers, enabling new opportunities for organizations to provide more buying power without asking consumers to take on more debt. As a disclosure, my company is one provider of embedded finance solutions.
Embedded finance solutions have grown steadily over the past two years. In the United States, the revenue generated by embedded finance in 2020 was estimated at $22.5 billion, and was forecast to reach over $230 billion by 2025.
Embedded finance allows enterprises ownership over both the financial interactions and the transactional experience, directly providing more buying power to their customers. When considering such solutions, companies should seek out those which give them the ability to customize solutions and program benefits to best suit their unique customer base.
How can organizations best implement a Save Now, Buy Later solution?
Brands can also reach new audiences who prefer saving for their purchases rather than taking on debt. Offering Save Now, Buy Later (SNBL) accounts can enable consumers to save for their next purchase over time, while earning rewards for everyday spend.
A strong solution should enable customers to connect their accounts and set up automatic deposits, with the option for drawing a set dollar amount or percentage of their paycheck each week or month in order to save up for a purchase. Enterprises typically provide an incentive to consumers, such as offering an additional 10% off when the account is used to make a purchase with the brand.
The discounts are funded in part by the yield the enterprise generates on the accounts. This benefit to the enterprise is demonstrated well illustrated by Starbucks, recently generating yield on the more than $1.6 billion consumers have in their Starbucks accounts.
Major sports team are enabling fans to save for next season tickets.
While many loyal sports fans may watch every game from home, not all have the cash or credit-worthiness to afford a season ticket package.
To encourage fans to buy partial season ticket packages, teams can consider offering a savings account and card with the team's logo. Fans can deposit money into the account during the offseason and use the card for everyday purchases to earn “cash back” for their season ticket fund. Rewards come from interchange revenue, the portion of the transaction fee that goes back to the team as the issuer.
Teams can take it a step further by offering discounts to fans for using the branded card on all merchandise and food in the stadium. Discounts can be funded by the savings the team can gain from reducing traditional processing and transaction fees in working with cards and accounts entirely within its own payments network.
What industries are best suited for Save Now, Buy Later?
A few key industries currently opting to leverage an SNBL solution include:
• Integrated experiences, such as home improvement stores, empowering consumers to pick all of their materials and plan their space, then encourage them to start saving for their dream bathroom.
• Large ticket items like cars and appliances.
• Consistent purchases such as gas and groceries in which consumers know roughly what they’ll spend, and can easily prefund accounts to cover their purchases.
• Luxury goods—like handbags—which allow consumers to “earn” through everyday spending.
• The travel industry, allowing companies to better draw consumers who cannot pay up front, allowing them to easily calculate, plan ahead and save over time.
Is your organization considering implementing an SNBL option?
This article addresses CEOs in particular in part because of the opportunity on the horizon for leading brands to be first-movers in owning the financial solutions for their customers deepens loyalty programs, and because this solution must be executed thoughtfully and aligned to the broader strategic vision of the organization.
Remember: It's always best to ensure your financial solutions are built for scale in order to address evolving consumer demands.
I hope this article offers CEOs some valuable strategies when considering implementing an SNBL solution.
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