Buy now, pay later - a form of credit that allows a consumer to pay off a purchase over time in smaller installments - has taken off in the travel industry in recent years.
From 2019 to 2021, the number of BNPL loans originated in the United States by five lenders grew by 970%, to 180 million loans. But that rapid growth has also raised concerns about the downsides of BNPL, including a rising number of delinquencies, consumers getting hit with late fees and their unease around saddling people with debt.
Now several companies are emerging with a new business model that flips the BNPL concept on its head: Save now, buy later (SNBL).
SNBL is applicable to a variety of verticals. The general
concept is that a user creates an FDIC-insured account with an SNBL platform and uses it to
save toward a specific goal, for example a future
trip. The SNBL platform has partnerships with brands that provide incentives to
users, for example in the form of cashback or discounts, to encourage them to
save and then spend those savings with that brand.
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According to SNBL CEOs, brands partnering with their platforms
gain a direct pipeline to consumers that have expressed intent to use their
product or service – in this case travel – in the future. In practical terms
this could mean, for example, if someone is saving for a trip to Japan, an
online travel agency working with an SNBL platform could start sending that
user information about trip packages to Japan six months to a year in
“As a travel company, you can do Facebook ads, you can do Google
ads,” says Martin Granig, CEO and co-founder of Monkee, an SNBL company currently
operating in Germany and Austria.
“But we see that in our case there is a really high purchase intent because
people put into the app [for example] ‘Norway - August 2023.’ There is a
certain budget. So you know already quite a lot from what our users are
inputting into the app, which then can be used to approach them with a deal
that matches their purchasing behavior, their savings behavior.”
Founded in 2018, Monkee has more than 30 travel partners, including Booking.com, Expedia, Trip.com, Lufthansa, Qatar Airways, Avis, Budget and GetYourGuide.
“We started Monkee with the mission to help millions of people reach their goals without having to build up debt,” Granig says.
When consumers create a Monkee account, “in the background we are creating a bank account in your name at our partner bank,” he continues. “And then you give us the permission to transfer the savings that you [accrue] within the app from your reference account to this bank account at Monkee.”
According to Granig, 80% of Monkee's users have indicated they will use their savings for a vacation. With its Future Boost feature, whenever users purchase something from one of Monkee’s partners, they get financial contributions into their saving wallets and can spend rewards cross-sector - for example, grocery or gasoline rewards for vacations, according to Granig.
Monkee receives a commission from its partners and directs a portion of that commission back to its users in the form of financial rewards, for example contributing 5 or 10 euros every time the user buys groceries from a Monkee partner, Granig says.
With high inflation, layoffs and a looming recession, sometimes vacation plans are the first to go. But Granig says the SNBL app enables people to continue to travel by using “gamification and nudging [messaging to consumers that influences their behavior] to help people reach their goals, even though they don’t have the money available now.”
Targeting the consumer earlier on
New York-based Accrue Savings launched in 2021, and founder and CEO Michael Hershfield says the company will announce travel partners in the coming months.
“We are very excited about the travel category,” he says, noting that 20% of Americans are actively saving for travel.
“There’s no question that the idea of offering savings to consumers is resonating for many reasons,” including economic factors, he says. “And there’s an awareness that there needs to be more than just credit options that are offered to consumers.”
It’s about changing the mindset of the travel industry itself, where we spent decades and decades building credit alternatives in the category. And we are not a replacement - we are a complement to the existing players in the category.
Michael Hershfield - Accrue Savings
When a consumer opens up an account with an Accrue travel partner, they earn cash rewards for that specific partner. For example, a user that sets up an account with an OTA might receive $10 initially and another $25 when savings reach 25% of goal.
One major advantage of SNBL for consumers, according to Hershfield, is that the consumer can always withdraw their principal from their SNBL account if needed.
The value proposition for travel companies is that “they are acquiring customers for much cheaper. They are selling more rooms, they’re selling more seats on the plane,” he says.
“When we think about the buying journey of an American consumer, they could be spending months browsing the web before they [make their purchase],” Hershfield says. SNBL offers merchants the opportunity “to build affinity and acquire customers earlier on in their consideration journey.”
“In an era where third-party cookies have gone away, [merchants] need to build a trusting relationship much earlier on.”
SNBL also enables merchants to offer a diverse array of payment styles to customers. The competition for SNBL is traditional bank savings accounts, according to Hershfield.
“Can our travel partners in the U.S. offer tremendous incentives and cash rewards to consumers to empower them to start saving?” he says.
“It’s about changing the mindset of the travel industry itself, where we spent decades and decades building credit alternatives in the category. And we are not a replacement - we are a complement to the existing players in the category, whether it’s the credit card category, the loyalty plays or BNPL.”
Saving for a big trip
In 2020, Dylan Tan co-founded a company offering a BNPL model - Split.
But last year, he and his co-founder pivoted the company into an SNBL platform known as Sugar. Tan, who is CEO, says BNPL companies are borrowing money from institutional investors at high interest rates while lending to consumers at a 0% interest rate.
“As interest rates go up, the cost to deploy that capital goes up, which squeezes your margins,” he says. “So if your margins get squeezed and defaults are rising because of the economy, it becomes very hard to build a sustainable business in the long run.”
“We think [SNBL] is the most sustainable option for businesses, for consumers and for us as a company.”
Tan is working to line up partners, for example online travel agencies, that would prompt users to download the Sugar app to start saving toward a future vacation. The user links a credit or debit card and decides the frequency of contributions - for example weekly or monthly - and then Sugar automatically transfers that amount to the travel provider as the customer’s
pre-payment for their trip.
“There’s no effort needed, and we reward you with some cash back of course, paid by the merchants or OTA in this case,” Tan says.
“When [users] make their purchase, we would wire them the cash back that they’ve earned. It’s a way of incentivizing people to continue their savings plan. It’s a reward for saving up for a specific merchant.
“The idea is to convert intent from customers - or travelers in this case - into a future purchase by allowing the traveler to save up.”
Andrew Katzwinkel, CEO of South Africa-based LayUp Technologies, says his company has created “an easy and convenient way to activate an SNBL payment plan and then have users make interest-free installment payments towards their future travel experience, where both parties can easily manage the payments over time without hassle.” No credit checks are required with SNBL, he adds.
“When you consider the cost of a family of four, the upfront payment really becomes difficult for a lot of people to afford,” Katzwinkel says. “When you bring in consumers who can’t access credit options, such as the Gen Z market, the total addressable market really becomes significant.”
LayUp has created group travel features that enables customers to split their payments so each traveler pays their way through interest-free installments.
Founded in 2017, LayUp is still new to the market but has partnered with a handful of travel providers, such as Beachcomber, Mdluli Lodge, Tintswalo, Flook Travel, Innscape Hotels and Howler ticketing service, according to Katzwinkel.
“In one instance,” he says, “we had a customer who had never been to the coast and seen the ocean in Cape Town, South Africa. And through the LayUp solution, she was able to save towards a future travel experience and get to experience something she never thought was possible.”
Three-quarters of respondents to a survey conducted by Amadeus say they are more likely to choose a pay-by-installment option such as BNPL to fund travel over the coming year, compared to 44% who are more likely to use a credit card and 26% who are more likely to turn to payday loans.
Correction: This story was updated to reflect that Sugar transfers the amount determined by the user to the travel provider as the customer’s pre-payment for their trip.