Track 3: Is save now, buy later a better alternative to BNPL

With rising interest rates, a looming recession, and job losses, Save Now Buy Later (SNBL) can be a less-risky alternative to Buy Now, Pay Later. In this session, we discuss the science behind saving and spending behaviors, the opportunity presented by SNBL to merchants and bankers, and the road ahead for this emerging payments experience. 

Transcript:

Rohan Shah (00:09):

I am a partner at Simon-Kucher based out of the New York office. And with me I have Michael Hershfield, founder and CEO of Accrue Savings. Michael, thank you for doing this.

Michael Hershfield (00:17):

My pleasure. Great to be here.

Rohan Shah (00:20):

Right Michael. So we have had the two previous sessions by now, pay later. Talk to us a little bit about our accrue savings and what is the product that you are offering?

Michael Hershfield (00:30):

What the time before the bar? Listen, we have had a lot of conversations about credit today and about a year and a half ago I started a company called The Accrue Savings, which is an embedded savings experience. We embed on merchant websites, obviously lots, I am talking about it right now. Lots of conversation about B2B to C, like the deep idea here is that every retailer in the United States should be offering a savings option, not just a credit option. There are some retailers offer three or if not four options on their websites or in their stores. So Accrue is really an embedded saving experience, unique save now by later idea.

Rohan Shah (01:11):

And Michael, when we spoke last, you kind of spoke a little bit about a save now violator being almost used by merchants to expand the marketing funnel in some ways, right? Can you talk to us a little bit about how it also helps or benefits the consumer and how it addresses the consumers need today?

Michael Hershfield (01:31):

Yeah, I mean, obviously we talk a lot about buy later and when you see other firms and Klarna, even credit cards pitch their business model, they talk about it as a checkout optimizer. Can they increase basket size? Can they improve that performance in checkout? The reality is that 95% of consumers never make it to checkout their browsers. And frankly, it is sort of misnomer that Americans are not saving that 60 plus percent of Americans are actively saving right now. The idea here is that consumers have sort of been inundated with decades of credit options. You have the rise of consumer credit, credit cards, store credit cards, buy night, pay later, and that notion that there are American consumers that do not want or do not need support to buy things on their own terms, an alternative way other than credit is really what we are talking about here. It is like it is not just credit. There are other ways to engage consumers in how to bring a notion of affinity and loyalty between the consumer and a particular retailer, and we help merge that relationship.

Rohan Shah (02:40):

Yeah, it is a great point. And I think one of the things that we found out during the second half of 2020, or maybe even sort of Q2, Q3 2020, just when kind of covid hit was a lot of American consumers kind of no savings, living paycheck to paycheck. And I think what we have seen since then is that there is a significant percentage of folks now who are looking at guidance in terms of saving, in terms of improving their financial health literacy. Can you talk to us a little bit about how you think of Save Now by later as helping improve that? And maybe also go a little bit into what is the difference, what is the value proposition that you are offering That is different from let us say, just a savings account?

Michael Hershfield (03:29):

Yeah, I mean, there is a couple of ideas that we have to accept to be true. When you put things in front of people, they are likely to take them. And again, I go back to that idea. We have lots of credit options that consumers get offered in the store online. And when we look at CAC cost of acquisit customers, the merchants are spending on the day on daily to acquire customers. It could be up to 20 plus percent of the average order of our to acquire customers. And That is really unfortunate. Consumers have more power than ever. When we think about the notion of the third party cookie, cookie tracking on consumers, this is really a way for Facebook and Google big tech to make money to drive consumers down the funnel. And That is sort of a forgotten value ultimately of what consumers really need. They need support to save, to buy the thing they want or the thing they want in their lives, they love need in their lives.

(04:31)

That is that consumption that drives their choices. And so the notion that merchants do not have a responsibility in the value chain, that what they do does not matter is a false narrative. We know that merchants have a relationship, they want to be known as value driven in society. And so you can not call yourself sustainable, if you offer lots of credit options, just even though you manufacture your shoes in a certain way, That is not sustainable. And so the idea here is that how do you drive value to the consumer? You can repackage that marketing spend instead of giving money to Facebook, Google, imagine acquire customers much earlier on in their consideration phase at first or second click. I know this is not a marketing audience mean necessarily, but when we think about CAC, you have not touched someone 5, 6, 7, 8, 9 times that you are spending to Google and Facebook. You can just give that money to the consumer and drive that value to them as potential yield or cash rewards to the end consumer.

Rohan Shah (05:30):

Makes sense. Yeah. And you touched upon this a little bit, but how important is the experience to the consumer, the end customer, and what is, how are you optimizing for that on at point of sale example?

Michael Hershfield (05:46):

Yeah, I mean, I think we have seen this, obviously Accrue is venture backed. we have raised 40 million in the first year and a half of business. And look, if you look at the neobank space particularly, you see a tremendous challenge around acquiring deposits, right? The chimes, the currents, they are inundated with a very, and obviously traditional banks is sort of a very expensive framework to acquire depositors. And so you have to go, where are consumers? Where do they live? Where are they in their browsing journey? And for us, you got to deliver value to them. And obviously we all know this, where do we spend, where are you right now? Potentially on your phone? You might be on a retailer website browsing something. And so is not that a great place to offer consumers the opportunity to save? And it has to be joyful and lovely and using dopamine for good. I mean, the notion of dopamine to be just how to drive more gambling or more clicks or another swipe, can it be used to get someone to save a little more? Obviously you have to look at parallel industries if you have to look at potential companies that are doing interesting things around using dopamine for to drive consumer experiences. That makes sense.

Rohan Shah (07:09):

And I think in the previous sessions we kind of spoke about it a little bit as well. I mean, it is rising interest rates may maybe looming recession, job losses all around. How does this help improve financial health?

Michael Hershfield (07:32):

I mean, the last question that we had in the last session was around the use of potential use of BNPL, the rise of BNPL with groceries. And when we see recessions, actually it is very interesting, consumers actually more have more interest to use savings tools they want to save because there is a reality that hit them. And again, the opportunity here for anybody building in this category, I mean it is not just us, anybody who is driving value the consumers, you have to ask yourself, how can we articulate goodness authenticity to the market that we are delivering to? It is not just about double bottom line, it is in the long term to create value to consumers, you have to think about how you can help them. That is how you build great relationships with them. And whether it is in a banking framework or in a FinTech framework, I look at the looming recession and say, where is the opportunity here to be kind? Where is the opportunity to be pushing one more credit card down a consumer's throat? One more BNPL, is that really being kind to the consumer? Is that something authentically real? And again, it is not bullshit. I mean, really there is money, there is real value to be had in driving ultimately joy to the consumer. We can rethink things. How we build businesses in the system makes sense. Not a lot of square words in these panels I am used to, so I am coming from New York, so no.

Rohan Shah (09:08):

That is totally okay. So Michael, we be switching gears a little bit, right? Again, like you said, the last comment we heard on the previous panel was around groceries. Do you see save now violator mostly around just buying a product? Do you see it evolving further towards maybe just a larger savings goal, funding your child's education, for example, or something along those lines? Is that kind of

Michael Hershfield (09:35):

Yeah, I mean, I have to go back to what is the core value proposition of this business. Really, we deliver value to merchants by helping them drive down their cost of acquisition of customers. And so when our partners we are B2B to C, our partners have to align to the merchant needs. So they might have massive 20 plus percent CAC of AOV. And so that partnership with the merchant or with the brand or with the airline or OTA, we pass that on to the consumer. And so ultimately, maybe through that articulation of consumers behaving a certain way, it might deliver itself to education healthcare. But for us, for our business, we need that second partner to drive that too, because there is just, there is fat in the system that has been going to big tech that we think should go on the balance sheet of the end consumer. Really the opportunity here is that consumers have more power than ever. They are the ones that are controlled. It is not banks, it is not retailers, it is not Vintech, it is not venture funds, it is consumers. We spend our times chasing consumers. And so we have to think about how we are delivering value to them. And so again, your question is an interesting one, but it is how can we drive down the cost for them to make their purchases, help them do it in the right way, provide them that kindness and authenticity through delivering great user experiences.

Rohan Shah (10:55):

And I believe also the flexibility to be able to, at some point make a decision that this may not be the right time to make that purchase. So there is it. You are still giving them the ability to save towards a purchase, but then at some point kind of back off without a penalty. Is that right?

Michael Hershfield (11:13):

Yeah, it is the notion of choice, consumer choice. Again, how many choices do a consumer does a consumer really have when they are going to make major purchases with a particular brand? They have multiple credit options. Most of do not really feel like they have a debit option to use here. I mean, again, That is why I started the company. The idea is that payment diversity is really important. Giving consumers different ways to on-ramp, build a relationship with a particular brand or merchant.

Rohan Shah (11:48):

Makes sense. And Michael, again, this is a fairly new topic, new product, a new way of thinking about this. Can you, and I am so apologize for putting you on the spot a little bit, but can you talk a little bit about what is the average ticket size or what types of products are consumers kind of saving for?

Michael Hershfield (12:09):

So the company has been in market for only a year and the types of, we are now a 30 plus retailers. In the next two months, we will be with number airlines, OTAs, and Fortune 50 companies. So the question really is, and really That is really what you thought when you think about what you thought about early BNPL categories, right? Yeah. It really drove who were the early adopters in the category. For us, smile Direct Club is one of our key partners that they came up on and.